Consumer Redress, Civil Penalties for a Series of Violations of Federal Laws
The marketer of a device being advertised as a less expensive alternative to the PC for Internet access and e-mail has agreed to settle Federal Trade Commission charges that its sales and billing practices violated federal laws. The agency charged Netpliance, Inc., a Delaware corporation based in Austin, Texas, with deceptive advertising, unfair billing, misrepresenting federal laws and violating a series of other federal laws that the FTC enforces, including the Mail or Telephone Order Merchandise Rule, the Truth-In-Lending Act and Regulation Z. Netpliance offers an Internet access device, called the "i-opener," and Internet services to consumers. The settlement calls for the company to clearly and conspicuously disclose important terms and qualifications associated with using the i-opener or any other internet or online access product or service, reimburse consumers for improperly billed charges, requires the company to pay a $100,000 civil penalty, and bars the company from engaging in these illegal acts in the future.
According to the FTC, Netpliance pitched its product saying, "Give Them the Internet! Imagine family or friends unwrapping the i-opener ... Complete access to the World Wide Web ... as low as $199!" and "With no computer hassles, software to load or boot-up delays, the Internet can now become a very convenient part of your life for as little as $199." The FTC complaint challenges these advertisements as deceptive because Netpliance failed to disclose adequately all of the extra costs associated with using the i-opener, such as monthly Internet service fees and long distance telephone charges. In addition, the company failed to disclose to consumers that they must use Netpliance's Internet service to access the Internet. Consumers could not access the Internet with the i-opener through another Internet service provider, even if Netpliance ceases providing Internet service in the future.
According to the FTC's complaint, advertisements for the i-opener also claimed that it provided access to all of the Internet's entertainment and information and that it was equivalent to a personal computer with respect to its ability to access Internet content. For example, i-opener ads included statements such as "Complete access to the World Wide Web" and "Even the most expensive home computer system can't bring you i-opener's simplicity, compact size, and convenient features." The FTC complaint alleges that these advertising claims are deceptive. In fact, i-opener users are unable to access all of the content on the Internet. Some of the content that is unavailable to i-opener users includes files created using popular data formats or programming languages, such as popular Internet technologies for Web site audio, video, interactivity, and multimedia used for online entertainment and information communication. Furthermore, i-opener users cannot download, store, or run software available on the Internet. In certain cases, they also may not be able to display Web pages, open e-mail attachments, or play music files online.
The FTC also challenged some of the company's billing practices as deceptive and unfair. First, the company billed some consumers for Internet service based upon the date they received their i-openers. These consumers, however, did not owe the company money because, when they ordered their i-openers, the company had promised them that they would not be billed until they actually used the service. Second, the company back billed these same consumers for months of Internet service by charging their credit or debit cards without their consent. As part of the settlement, the company agreed to refund those consumers for the amounts illegally charged to their accounts.
The FTC also charged the company with violating the Mail or Telephone Order Merchandise Rule. The Rule requires that retailers ship goods within the date promised, or if no date is promised, within 30 days of the order's receipt. If the company cannot ship as promised, it is required to provide notice to the buyer with a revised shipping date, giving the opportunity for the buyer to agree to the delay or to cancel the order. The company agreed to change its procedures to ensure that such violations will not recur in the future, and to pay a civil penalty of $100,000.
The FTC complaint also alleges that Netpliance misrepresented to consumers that they had only 30 days to dispute a charge to their credit card accounts for services rendered by the company, when federal law states that consumers have 60 days to dispute such charges. In addition, the company failed to issue promised credits to consumers' credit card accounts within seven business days as required under the Truth-in-Lending Act.
The Commission vote to refer the complaint and proposed consent settlement to the Department of Justice for filing was 5-0. The complaint and consent settlement were filed in U.S. District Court for the Western District of Texas, in Austin, by the Department of Justice, on June 27, 2001. It is subject to court approval.
NOTE: This consent decree is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees have the force of law when signed by the judge.
For More Information
For more information on online advertising and Internet access products and services, the staff of the Commission's Division of Business and Consumer Education has published a consumer brochure on what shoppers should know about Internet access products and services titled "Getting Online: Using Internet Access Products" and a guide for businesses titled "Dot Com Disclosures: Information About Online Advertising" with advice on how to adequately disclose restrictions and qualifications in Internet advertisements, including the appropriate use of hyperlinks. For more information on the Mail Order Rule, see the guide for businesses titled "A Business Guide to the Federal Trade Commission's Mail or Telephone Order Merchandise Rule." These publications can be found online at http://www.ftc.gov or by calling the Consumer Response Center toll-free at 1-877-382-4357.
Copies of the complaint and consent decree will be available shortly 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, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
(FTC File No. 002-3238)
(Civil Action No. A-01-CA 420SS)
Additional Contact Information
Office of Public Affairs
202-326-2181 or 202-326-2182
Western Region - San Francisco
415-848-5100 or 415-848-5151