Did you think that the death of the FTC's updated Negative Option Rule meant the end of FTC enforcement on subscription programs? Think again! The FTC has just announced that it has sued a nationwide gym chain because it "uses opaque and complicated methods to make it extremely difficult for consumers to cancel their memberships." In its complaint asserting violations of the FTC Act and ROSCA, the FTC charged Fitness International, LLC and Fitness & Sports Clubs, LLC with illegally charging consumers with hundreds of millions of dollars in unwanted recurring fees.
According to the complaint, the defendants required gym members who wished to cancel their memberships (and any add-on services they enrolled for) to use overly restrictive methods to cancel, including downloading a difficult-to-access form on the website and taking it in person to the gym, during limited hours, and at which they needed to speak to a specific manager to effectuate the cancellation. Consumers also had the choice of mailing in their cancellation form, but only by certified or registered mail, requiring a trip to the post office. In other words, the methods required were far from simple, as required by ROSCA. Moreover, the cancellation methods were not well-disclosed, also as required by ROSCA. The result? Tens of thousands of complaints to the FTC. And this ensuing complaint, seeking a permanent injunction to prevent future violations of Section 5(a) of the FTC Act and ROSCA and monetary relief.
Lessons?
Notwithstanding the 8th Circuit's vacation of the updated Negative Option Rule, the FTC still has both the tools – and apparently the interest – in going after marketers whose subscription programs resemble, as the FTC used to describe them, a roach motel: easy to enter but tough (or impossible) to exit.
State AGs are very active in this space too. As the complaint discusses, numerous state AGs went after the defendants and had them clean up their cancellation practices, at least in their own states. The fact that the defendants didn't adopt the better practices nationwide was one factor the FTC cited in seeking relief.
Failing to clean up clearly violative practices, even after receiving a Civil Investigative Demand from the FTC, only provides more fodder for an FTC complaint. Here, the FTC cited the defendants' failure to change its practices for months after receiving the CID as grounds for the charge that defendants were violating, or about to violate, the law and its seeking a permanent injunction.
Most important lesson? If you require consumers to sign up for a program that requires ongoing payments, automatically charged, whether online or brick-and-mortar, make sure consumers understand exactly what they're agreeing to and make it easy and straightforward for them to cancel.
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