Swish Marketing decision nets consumers $4.8 million

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Thinking about using a pre-checked box to obligate buyers in an online transaction?  Maybe you’re considering a negative option arrangement without clearly and conspicuously disclosing the details of the deal.  Or perhaps you’re an affiliate marketer who’s concluded that legal compliance is somebody else’s responsibility.  A $4.8 million judgment entered by a federal court in California suggests you might want to reconsider those strategies.

Swish Marketing operated websites claiming to match people looking for short-term loans with lenders.  But unless prospective customers happened to have a magnifying glass handy, there was more to the service than met the eye.

On many sites, when people clicked the button for submitting loan applications, what appeared were four product offers unrelated to the loan — each with miniscule “Yes” and “No” buttons.  “No” was pre-checked for three of them, but “Yes” was pre-checked for a debit card peddled by a company called VirtualWorks through an affiliate marketing arrangement. In print even finer than the already fine print, there was a “disclosure” asserting the applicant’s “consent” to having their bank account debited.  Applicants who clicked a large “Finish matching me with a payday loan provider!” button found their accounts lighter to the tune of up to $54.95. Other sites touted the card as a “bonus” and disclosed the fee only in tiny type below the button.

The FTC went to court to challenge the business methods of Swish Marketing and three of its corporate officers.  Last year, the FTC filed an amended complaint charging that the Swish defendants got paid for illegally sharing applicants’ bank account information with VirtualWorks without consumers’ consent, and that the corporate officers were aware of complaints about the unauthorized debits.  The three officers and VirtualWorks settled the charges against them.

Last week, the court — granting the FTC’s motion for summary judgment — ordered Swish Marketing to pay more than $4.8 million and banned it from marketing any product with a negative option in which a person’s silence or failure to reject an offer is treated as an agreement to buy something.  Among other provisions, the order requires the company to get people’s informed consent before it can take personal information collected for one purpose and then use it for another purpose or by a different company. It also requires the defendants to monitor their marketing affiliates to ensure they’re complying with the order.

The resolution of this case proved expensive for the defendants.  The affiliates were on the hook for the full amount of consumer injury, even though they took in a lot less than that. One defendant turned over his current net worth — plus over time he’ll be ponying up hundreds of thousands more. Another had to sell his house to pay for consumer redress. The third — the technology officer — had to cough up $850,000.

What’s the 25-words-or-less message for online entrepreneurs? Fine print, undisclosed negative options, and iffy affiliate arrangements are a trifecta of deception bound to attract law enforcement attention.

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