When you make a pact, you must keep your promises . . . or else there are consequences. That’s the premise of Pact, Inc.’s app, which lets you pledge to perform certain healthy activities each week. That’s also the lesson from Pact’s settlement with the FTC over its own broken promises.
Here’s how Pact promised its app would work: You make a pact to complete health and fitness goals each week, and the app tracks them. You can promise to eat fifteen veggies per week, for example, or work out at the gym three times, and the app checks to make sure you really do. If you don’t fulfill your commitment, then the company charges you per missed activity. If you complete your pact, then Pact pays you a portion of the money they collected from people who failed to keep their agreement.
So, what went wrong? According to the FTC’s complaint, Pact did not live up to its promise – paying consumers who met pacts and only charging those who didn’t. Instead, Pact often charged people who completed their pacts. To make matters worse, the company even charged consumers who suspended or cancelled their pacts. Plus, Pact charged people on a recurring basis without clearly disclosing how to stop the charges.
For example, Pact continued to charge one consumer even though she deleted her account after a car accident. A different consumer was charged for missed pacts when she couldn’t get the app to recognize the gym at her Air Force base. Yet another tried to contact Pact three times to report that his workouts were not being recorded, but got no response and continued to be charged. At least tens of thousands of consumers complained to Pact that they were charged rather than paid for completing pacts, yet Pact continued to make promises without keeping them.
The FTC’s three-count complaint alleges that Pact and two of its principals violated both the FTC Act and the Restore Online Shoppers Confidence Act (ROSCA). Specifically, their deceptive marketing and unfair billing violated Section 5 of the FTC Act. In addition, they violated Section 4 of ROSCA by failing to disclose how to stop recurring charges before getting billing information.
The settlement includes a $1.5 million judgment that is partially suspended based on the defendants’ financial condition. The defendants are ordered to pay $948,788 back to injured consumers who were charged improperly or who earned but have not yet received money for their pacts. The full $1.5 million will become due immediately if the defendants are found to have misrepresented their financial state.
The defendants will make redress payments by sending money through consumers’ PayPal accounts. The order specifies how they must notify affected consumers and confirm the consumers’ current PayPal information. The defendants must provide refunds within thirty days of entry of the order.
In addition to the monetary judgment, the settlement also:
- prohibits the defendants from making any misrepresentations about how they charge and pay consumers – or about any other material fact about an app or software;
- forbids the defendants from charging consumers without express informed consent;
- prohibits the defendants from selling anything using a negative option, without clearly and conspicuously disclosing the terms before getting consumers’ billing information; and
- permanently enjoins the defendants from violating ROSCA.
Does your business want to avoid a ROSCA violation? Then don’t use a negative option online, unless you:
- clearly and conspicuously disclose all material terms of the transaction before getting a consumer’s billing information;
- get a consumer’s express informed consent before charging their accounts; and
- offer simple ways for people to stop the recurring charges.
While you’re at it, for some basic truth-in-advertising and privacy principles, check out Marketing Your Mobile App: Get it Right from the Start.
Want to avoid an FTC Act violation too? When you make promises, keep them. Or else the FTC may come knocking.