Advertising Law Alerts

August 2nd, 2011

Deceptive “Negative Option” Marketing Leads to $4.8 Million Judgment

A California district court has entered a $4.8 million judgment against Swish Marketing, Inc., an online direct marketing company, for deceptive marketing practices involving use of a negative option feature, in which a consumer’s silence or failure to reject an offer is interpreted by the seller as acceptance.

Swish Marketing and its officers operate numerous "payday" loan matching Websites, aimed at matching loan applicants with short-term loan providers.  According to the complaint brought by the Federal Trade Commission ("FTC") in August 2009, upon completing a loan application, users of many of these sites were shown four product offers unrelated to the loan, each with small “yes” or “no” buttons. While the “no” buttons were pre-clicked for three of the products, “yes” was pre-clicked for a prepaid debit card with a fine print disclosure asserting the user’s consent to having his/her bank account debited for the activation fee. Those users who clicked a large “Finish matching me with a payday loan provider!” button were then charged up to $54.95 for the debit card. Other sites operated by Swish Marketing, advertised the card as a “bonus” and only disclosed the activation fee in fine print below the submit button.

The FTC alleged that Swish Marketing, its principal officers, and VirtualWorks LLC, the seller of the debit card, deceived thousands of consumers into purchasing the prepaid debit card through use of this negative option feature. The FTC filed an amended complaint in April 2010 additionally alleging that the Swish Marketing defendants were compensated for selling consumer bank information to VirtualWorks without consumer consent, and that Swish Marketing’s principal officers were aware of but disregarded consumer complaints regarding the unauthorized charges.

The U.S. District Court for the Northern District of California, in granting the FTC’s motion for summary judgment, ordered Swish Marketing pay more than $4.8 million for consumer injuries and enjoined the company from utilizing negative option programs to market products. Additionally, the court order bars the company from misrepresenting material facts about any products or services, or that a product or service is free without disclosing all material terms and condition. The court order also requires the company to obtain consumers’ informed consent before using their personal information for any other purpose other than the primary reason the information was collected. Defendants must also continually monitor their business affiliates and partners to ensure compliance with the order. Earlier settlement agreements with the individual defendants, including the company’s technology officer, required substantial payments by these defendants as well.

View full case timeline - Federal Trade Commission v. Swish Marketing, Inc.

If you have any questions about this case, please contact Terri J. Seligman at (212) 826 5580, tseligman@fkks.com; or Claudine Wilson at (212) 705 4842, cwilson@fkks.com, or any other member of the Frankfurt Kurnit Advertising Group.

Disclaimer. This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.