Free-Trial and Negative Option Pitches are High on FTC Radar

In a series of recent actions by the FTC to target allegedly deceptive online “free-trial” offers that trick consumers into enrolling in negative option plans, the FTC announced another case against Gopalkrishna Pai and eight companies owned and operated by Pai. The complaint against Gopalkrishna Pai allege that the defendants acted as a common enterprise, advertised free trial products for a nominal shipping and handling fee but the defendants failed to disclose that consumers would be automatically charged full price for the products as well as monthly auto shipments, unless the order was cancelled within 14-15 days. The consumers had to click on the small “Terms and Conditions” hyperlink in the ads and then scrolling through a pop-up window could the consumers find the disclosure. The complaint further alleges that the defendants charged consumers more than $90 for the free trial and enrolled the consumers into an auto ship program that would cost over $90 a month. The defendants charged consumers without their consent for additional products, enrolled the consumers into additional auto ship programs relating to the initial free trial and used a confusing checkout process that led consumers to unintentionally signing up for products they did not want. The consumers who tried to cancel their enrollment in the auto ship programs found it very difficult to do so. Consumers had difficulty reaching customer service representatives and often were unsuccessful in their efforts to cancel the enrollment. Some consumers who sent the free trial products back, even unopened, were unable to cancel and receive a refund. Finally, the complaint alleges that to hide the illegal scheme, the defendants used more than 100 shell companies with straw owners to obtain merchant processing accounts needed to accept and process the consumer credit and debit cards. The defendants avoided detection by credit card companies and law enforcement through their credit card laundering and the use of fake and real websites, which allowed the defendants to bring in tens of millions of dollars through deceptive trial offers.