FTC Charges Online Marketers and Merchant Account Entities

negative option marketingThe FTC fired warning shots that could affect affiliate marketers, publishers, and merchant account signers. The FTC filed suit against RevGuard, LLC and 60 other defendants. What’s the charge? Negative option marketing (FTC Act, 15 U.S.C. § 45(a), and ROSCA, 15 U.S.C. § 1843).

Negative Option Marketing At Center of RevGuard FTC Lawsuit

The lawsuit asserts that RevGuard, et al. deceptively billed people who bought a tooth-whitening product.[1] A negative option plan generally refers to transactions in which a seller interprets the customer’s failure to take an affirmative action — typically cancelling an offer — as consent to be charged for goods or services on a recurring basis.

In the FTC v. RevGuard case, the FTC alleges that the defendants’ checkout pages were structured so that once a customer made a purchase, they were instantly redirected to another page that displayed a large yellow “complete checkout” button. The commission further alleges that when customers clicked to “complete checkout” they were enrolled in a second negative option plan for additional products. According to the FTC, the offending checkout page looked like an order confirmation.

Who Does This Decision Affect?

Though the FTC commonly cracks down on negative option schemes, this case has significant implications for merchant transaction companies. Specifically, the FTC’s co-defendants list included: (1) service providers that perform the fraud’s “back office” functions; (2) intermediate holding companies that obscure financial transactions; and (3) merchant entities that obtain merchant accounts, web domains, and credit-card settlement bank accounts.[2] In essence, this case raises concerns for entities that did nothing more than open merchant accounts.

Furthermore, and far more troubling, is that the asset freeze applied to the aforementioned three groups of co-defendants, not just the affiliate marketers who actually profited from the scheme.[3] In particular, the Ex Parte Temporary Restraining Order issued by the Court declared that the asset freeze applied to “. . . [d]efendants and their officers, agents, employees, and attorneys, and all other persons in active concert or participation with any of them, who receive actual notice of this Order, whether acting directly or indirectly . . . .”[4]

This case should serve as a lesson for entities involved in similar arrangements. While the FTC v. RevGuard, LLC case is just getting started (it has not even been posted to the FTC website as of the date of this post), it promises to shake up the industry and force affiliate marketers to get creative with structuring future payment processing arrangements.

Sources

[1] FTC v. RevGuard, LLC et. al. Complaint at 21.

[2] FTC v. RevGuard, LLC et al. Emergency Motion for a Temporary Restraining Order at 12.

[3] FTC v. RevGuard, LLC et al. Ex Parte Temporary Restraining Order Granting Asset Freeze, Appointment of a Temporary Receiver, and other Equitable Relied, and Order to Show Cause Why a Preliminary Injunction Should Not Issue § 5.

[4] Id. at § V(A).

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