Company Allegedly Made a "No-Risk" Trial Offer and Did Not Tell Consumers about Continuous Shipments and a Non-Refundable Membership Fee
The Federal Trade Commission announced today that it has reached a settlement with Micro Star Software, Inc., a Carlsbad, California, software marketing company, and its president, Stephen Benedict, resolving allegations that they misled consumers by misrepresenting a 30-day trial offer for software as "no risk." In fact, consumers had to cancel during the 30-day trial period to avoid a membership in the Crystal Vision Software Services club, and to avoid a $49.95 non-refundable membership fee, and continuous, additional monthly shipments. Under the terms of the consent decree filed yesterday on the FTC's behalf by the Department of Justice (DOJ), the defendants must pay a $90,000 civil penalty, disclose all material terms and conditions of trial offers and continuity program memberships, and monitor the behavior of their telemarketing representatives. The FTC alleged that the company violated the FTC Act, the Telemarketing Sales Rule (TSR), and the Unordered Merchandise Statute.
According to the Commission's complaint, the defendants used telemarketers to pitch a supposedly "no-risk" 30-day review period for its computer software packages for $19.95. The telemarketers obtained consumers' credit card account numbers to charge this initial $19.95, and told consumers that they could get a refund of the $19.95 by calling the company within the 30-day trial period. But the defendants allegedly failed to tell consumers clearly and conspicuously that if they did not call to cancel within the 30-day trial period, they would automatically be charged a non-refundable $49.95 membership fee and become members of a software continuity club that ships additional packages of software each month for $19.95. The telemarketers also did not disclose that these charges would appear automatically on the credit cards consumers had given to pay the initial $19.95, according to the FTC.
Terms of the Consent Decree
Under the terms of the consent decree, Micro Star will pay a $90,000 civil penalty for its alleged violations of the TSR and will be prohibited from violating the FTC Act, TSR, and the Unordered Merchandise Statute in the future. Specifically, the decree requires Micro Star to disclose clearly and conspicuously during initial telemarketing calls all material terms and conditions of any trial offer that leads consumers to incur financial obligations for additional products or services and the terms and conditions of any continuity program membership. Micro Star must make these disclosures and obtain consumers' consent before any additional shipments are made. Micro Star also will be prohibited from violating the Commission's Rule on the Use of Pre-notification Negative Option Plans. This Rule requires companies to make certain disclosures in advertising if they operate a pre-notification negative option club - i.e., a club that notifies members in writing before it ships any merchandise, giving consumers the opportunity to reject the merchandise before it is shipped.
Finally, to ensure that consumers receive the disclosures required by the order, the consent decree requires that all product packaging repeat the material terms of the program. It also contains standard record-keeping provisions and requires Micro Star to monitor the compliance of its sales personnel, keep track of consumer complaints, and take corrective action in response to behavior that does not comply with the order.
The Commission vote to accept the complaint and proposed consent decree and forward it to the DOJ for filing was 5-0. They were filed in the U.S. District Court for the Southern District of California on May 22, 2002
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.
Copies of the Commission's complaint and consent decree 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, 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.
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