Complaint Also Alleges Violations of the Unordered Merchandise Statute, TSR, and FTC Act
On behalf of the Federal Trade Commission, the Department of Justice today filed a complaint and consent decree against Alabama-based Oxmoor House and its parent Southern Progress Corporation, a magazine corporation also based in Alabama. As part of the proposed consent decree, the companies have agreed to pay $500,000 in civil penalties to resolve charges that they did not adequately inform consumers about the terms of their "free trial" book offers. Under the terms of the consent decree, the defendants must disclose all material terms and conditions of the sales plans to all current and future members and to stop all collection efforts for books that the defendants shipped to consumers during the period when they failed to make proper disclosures.
The Commission's Complaint
The Commission's complaint alleges that Oxmoor House and Southern Progress violated the FTC's Rule on the Use of Prenotification Negative Option Plans (Negative Option Rule), as well as the Unordered Merchandise Statute, Telemarketing Sales Rule (TSR), and FTC Act. Southern Progress is a wholly-owned subsidiary of Time, Inc. and AOL-Time Warner.
According to the complaint, since 1997, Oxmoor House's advertising and telemarketing calls failed to disclose adequately that the defendants would enroll consumers who decided to keep and pay for a book beyond the 30-day free trial period in a book club that periodically would send them notices about other books. The defendants charged consumers who did not return the notices for those books. The clubs mainly were for two types of products - cookbooks and craft manuals, such as "The Ultimate Southern Living Cookbook" and "Crafts and Keepsakes for the Holidays."
The complaint alleges that the defendants' marketing violated:
- Section 5 of the FTC Act by misrepresenting their trial offers and by failing to disclose all terms and conditions of those offers, such as automatic enrollment in a club;
- the Negative Option Rule by failing adequately to inform consumers how its clubs operated, by sending consumers rejection forms that did not tell consumers how to use the form to reject additional merchandise, and by failing to inform consumers that they would receive merchandise unless they returned the forms;
- the TSR, by failing to disclose promptly, clearly and conspicuously the nature of the defendants' goods or services; and
- the Unordered Merchandise Statute by sending and billing consumers for books they did not agree expressly to receive.
Terms of the Proposed Order
The proposed consent order, which requires court approval, requires Oxmoor House and Southern Progress to pay $500,000 in civil penalties and prohibits the defendants from violating the Negative Option Rule, the TSR, and the Unordered Merchandise Statute, and from misrepresenting trial offers. The defendants also must disclose all material terms and conditions of membership in negative option plans, other sales plans that send merchandise on an ongoing basis, and trial offers, if acceptance of the offer requires consumers to contact the company so they are not sent and billed for additional products or services. Further, the proposed order requires Oxmoor House and Southern Progress to stop all collection efforts for books shipped to consumers between January 1, 1996 and December 31, 2000, the time when they did not comply with the Negative Option Rule. The defendants must notify all current negative option and continuity plan members by March 31, 2003 of the plans' terms and conditions, including their right to cancel.
Consumer Education Resources
The Commission has brochures about the Negative Option Rule, continuity programs and trial offers to help consumers spot and understand the material terms and conditions involved in these plans and offers. The brochure "Negative Option Plans for Books, Records, Videos" is available at www.ftc.gov/bcp/edu/pubs/consumer/products/pro09.shtmand also from the FTC's Consumer Response Center.
The Commission vote to refer the complaint and proposed consent decree to the DOJ for filing was 5-0. The complaint and consent were filed on behalf of the FTC in the U.S. District Court for the Northern District of Alabama on November 7, 2002. The FTC obtained the proposed consent order in cooperation with the Wisconsin Attorney General's Office, which announced a contemporaneous settlement with Oxmoor House involving the same practices the consent order addresses.
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