UNITED STATES OF AMERICA
In the Matter of
COMPUSERVE, INC., a corporation.
DOCKET NO. C-3789
The Federal Trade Commission, having reason to believe that CompuServe, Inc. (CompuServe or respondent) has violated the provisions of the Federal Trade Commission Act (FTC Act), 15 U.S.C. §§ 41-58, as amended, as well as the Electronic Fund Transfer Act (EFTA), 15 U.S.C. §§ 1693-1693r, as amended, and its implementing Regulation E, 12 C.F.R. § 205, and it appearing to the Commission that this proceeding is in the public interest, alleges:
1. CompuServe is an Ohio corporation with its principal office or place of business at 5000 Arlington Centre Boulevard, Columbus, Ohio 43220-0212.
2. CompuServe has developed, advertised, offered for sale, sold, and distributed to the public its online service for personal computer users. Through its online service, CompuServe provides consumers with a range of options including electronic mail, interactive magazines and newspapers, transactional services, and access to the Internet.
3. CompuServe has been and is now engaged in the regular practice of making electronic fund transfer[s] from consumer account[s] as those terms are defined in the EFTA and its implementing Regulation E.
4. The acts and practices of CompuServe alleged in this complaint have been in or affecting commerce as commerce is defined in Section 4 of the FTC Act.
COMPUSERVES COURSE OF BUSINESS
5. CompuServe has disseminated or has caused to be disseminated advertisements for its online service through various media including, but not limited to, print, television, the Internet, direct mail, promotional materials, and instructional materials. These advertisements include, but are not limited to, the attached Exhibits A and B, which contain the following statements:
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You really have nothing to lose. Youve got everything you need right now. Your first months membership is free. And during your first month, you and your family will have 10 free hours to explore CompuServe and the world of the Internet. If you decide that CompuServe isnt for you, you can cancel at any time with no obligation whatsoever.
The advertisement contains an insert card attached to which are two computer disks that permit access to CompuServes online service. On the reverse side of this card, a bold-face statement provides:
A fine-print statement at the bottom of the card provides:
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For a monthly membership fee of $9.95 US*,you and your family have access to a phenomenal world of education, entertainment and communication. And its easy to begin. All you need is your home computer, your regular phone line and a modem. Plus, to help you get started, well give you one FREE month of membership (a $9.95 US* value) plus 10 FREE* hours your first month to explore virtually everything we offer.
The advertisement contains a statement at the bottom of the final panel, in fine print, that provides:
6. Consumers choosing to participate in the free trial offer typically do so by connecting to the CompuServe service through a telecommunication modem attached to their personal computers. Upon their initial connection to the service, consumers view a series of registration screens including, but not limited to, the attached Exhibit C. The registration screens obtain identification and billing information from consumers, verify the consumers user identification numbers and passwords, and provide basic information about the online service, including the following details about the terms of the free trial offer:
COMPUSERVES VIOLATIONS OF SECTION 5(a) OF THE FTC ACT
7. Through the means described in Paragraphs 5 and 6, CompuServe has represented, expressly or by implication, that consumers who participate in its free trial offer will not be charged, provided only that they use the trial time within one month from their initial sign-on and do not exceed ten hours of online use.
8. In truth and in fact, consumers who participate in CompuServes free trial offer and use less than ten hours of online time during the month following their initial sign-on, but who fail to cancel their memberships during the trial period, incur charges. Therefore, the representation set forth in Paragraph 7 was, and is, false or misleading.
9. In the advertising and sale of its online service, CompuServe has represented, expressly or by implication, that consumers who participate in its free trial offer will not be charged, provided only that they use the trial time within one month from their initial sign-on and do not exceed ten hours of online use. CompuServe has failed to disclose adequately to consumers that, upon completion of ten hours of online use or one month from the date of initial sign-on, whichever is earlier, consumers who fail to contact CompuServe and cancel their memberships are treated as members of CompuServe and are charged a monthly membership fee plus applicable hourly fees. These fees continue to accrue until the consumers affirmatively cancel their memberships. Such facts would be material to consumers in their purchase or use of the CompuServe service. The failure to disclose these facts in light of the representation made was, and is, a deceptive practice.
COMPUSERVES VIOLATIONS OF SECTION 907 OF THE EFTA
10. In the course of the online registration process, consumers must select one of several payment options listed on a registration screen titled Signup - Billing/Country." These options include credit and charge cards and a payment method referred to as "Direct Debit." CompuServe automatically debits the checking accounts of consumers choosing the Direct Debit option, but requires such consumers to sign and submit a written authorization form before debiting their accounts. Additionally, although CompuServe does not identify debit cards as a payment option, its payment system will process debit cards presented by consumers in place of credit cards. CompuServe does not, however, obtain written authorization under such a circumstance.
11. In the course and conduct of its business, CompuServe has debited consumers accounts via their debit cards without their written authorization. In addition, in the course and conduct of its business, CompuServe in many instances has failed to provide consumers with advance written notice of transfers from their accounts varying in amount from previous transfers.
12. CompuServes aforesaid practices violate Sections 907(a) and (b) of the Electronic Fund Transfer Act, 15 U.S.C. §§ 1693e(a) and (b), and Sections 205.10(b) and (d) of Regulation E, 12 C.F.R. §§ 205.10(b) and (d), as more fully set out in Section 205.10 of the Federal Reserve Boards Official Staff Commentary to Regulation E, 12 C.F.R. § 205, Supp. I.
13. The acts and practices of CompuServe as alleged in this complaint constitute deceptive acts or practices in or affecting commerce, in violation of Section 5(a) of the Federal Trade Commission Act. Such acts and practices additionally violate Sections 907(a) and (b) of the Electronic Fund Transfer Act, 15 U.S.C. 1693e(a) and (b), and Sections 205.10(b) and (d) of Regulation E, 12 C.F.R. §§ 205.10(b) and (d).
Therefore, the Federal Trade Commission this sixteenth day of March, 1998, has issued this complaint against respondent.
By the Commission, Commissioner Azcuenaga not participating.
Donald S. Clark