Publisher offered books on a "free trial" basis, then automatically enrolled unknowing consumers in book clubs
On behalf of the Federal Trade Commission, the Department of Justice ("DOJ") today filed a civil penalty complaint and proposed consent decree against Creative Publishing International ("CPI"), a Minnesota publisher of "how-to" books. As part of the proposed consent decree, CPI has agreed to pay $200,000 in civil penalties for allegedly enticing consumers to accept "free trial" book offers and then enrolling them in book clubs that made periodic shipments of books, without obtaining their consent to enrollment and without telling consumers how the clubs operated. The complaint alleges that this behavior violated the FTC's Trade Regulation Rule on the Use of Prenotification Negative Option Plans ("Prenotification Negative Option Rule"), as well as the Unordered Merchandise Statute, the Telemarketing Sales Rule ("TSR"), and the Federal Trade Commission Act ("FTC Act").
CPI has agreed to disclose all material terms and conditions of its sales plans to all current and future members and to stop all collection efforts for books that were shipped to consumers during the period when it failed to make the disclosures.
"The Commission takes violations of the Prenotification Negative Option Rule very seriously," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "Companies that entice consumers to accept trial offers and then require them to reject merchandise periodically as part of a club, need to make sure to tell them what's involved and get their agreement to become members before they ship any merchandise. If they don't, the FTC will consider any merchandise they ship to be unordered merchandise."
The FTC Complaint
According to the Commission's complaint, between July 1, 1997 and June 20, 1999, CPI's advertising and telemarketing calls failed to disclose the terms and conditions of its prenotification negative option plans and misrepresented the free trial offers that were designed to entice consumers to join these plans. CPI offered consumers a book for a 14-day "free trial" period and the opportunity to receive future offers for additional books. CPI did not tell consumers that if they decided to purchase this book they would be automatically enrolled in a club. As members of the club, consumers received offers for additional books and automatically received the books if they failed to return rejection forms that CPI included in the offers. CPI also failed to tell consumers in the initial advertising that they had to return these forms. Many consumers therefore failed to return the forms and received subsequent books they did not order.
The complaint alleges that CPI violated the FTC Act by misrepresenting trial offers and by failing to disclose all terms and conditions of those offers, such as automatic enrollment in a club. The complaint also alleges that CPI's advertising violated the Prenotification Negative Option Rule by failing to inform consumers how its clubs operated, by sending consumers rejection forms that did not tell them how to use the forms to reject merchandise, and by failing to inform consumers that they would receive merchandise unless they returned the forms. The complaint further states that, by failing to make the required disclosures, CPI's telemarketing calls violated the TSR, which requires telemarketers to disclose all material restrictions, limitations, or conditions to purchase, receive, or use products or services that are the subject of telemarketing calls that are covered by the TSR. The complaint alleges that the books CPI sent when consumers failed to return rejection forms are "unordered merchandise" under the Unordered Merchandise Statute because consumers did not give their express consent to receive books if they failed to return the rejection forms. In fact, consumers could not have given their informed consent to participate in the prenotification negative option plans, because CPI's promotional materials did not disclose the material terms and conditions of membership in the plans.
Terms of the Proposed Consent Decree
In addition to the $200,000 civil penalty, the proposed consent decree announced today prohibits CPI from violating the FTC's Prenotification Negative Option Rule, the Unordered Merchandise Statute, the TSR, and the FTC Act. CPI must disclose all material terms and conditions of membership in prenotification negative option plans, and the terms and conditions of any sales plans, such as continuity programs, that periodically ship merchandise or provide services to consumers without sending a prior announcement or a rejection form before the shipment or service period. CPI also must disclose the terms of any free-to-pay conversion program offering consumers products or services for free or for a "free trial" period, if acceptance results in the consumer being enrolled in a prenotification negative option plan or a continuity program or otherwise requires consumers to contact the company to avoid receiving additional products or services and incurring financial obligation for them. CPI also will not seek payment for books that were shipped to consumers during the period when it failed to make the required disclosures.
Prenotification Negative Option Rule Consumer Education
The Commission's Office of Consumer and Business Education has a brochure about the Prenotification Negative Option Rule. This brochure will help consumers spot and understand the material terms and conditions involved in these plans and offers. The brochure, "Prenotification Negative Option Plans," is available at www.ftc.gov/bcp/conline/pubs/products/negative.htm and 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 District of Minnesota.
NOTE: The proposed consent decree referenced in this release is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a proposed consent decree on a final basis, it carries the force of law with respect to future actions. Each violation of such a decree may result in a civil penalty of $11,000.
Copies of the documents mentioned in this release are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov.
The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.
(FTC File No. 002-3151)
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