FTC Files Complaint Against DirecTV for Inadequately Disclosing Terms of Customer Contracts

On March 11th, the Federal Trade Commission (FTC) filed a complaint against DirecTV for violations of Section 4 of the Restore Online Shoppers’ Confidence Act (ROSCA)(15 U.S.C. § 8401 et seq.) and Section 5(a) of the FTC Act (15 U.S.C. § 45(a)) alleging that DirecTV failed to adequately disclose the terms of various elements of its subscription program. That the FTC is bringing a complaint targeting the adequacy of an advertiser’s disclosures should come as no surprise. The complaint against DirecTV is in line with the FTC’s recent effort dubbed “Operation Full Disclosure” targeting numerous advertisers for their failure to include truthful and complete disclosures in their ads, as well as the FTC’s recent (and first) actions under ROSCA, passed in 2010 (both of which we blogged about late last year: see here and here). The DirecTV practices at issue in the complaint are advertisements that touted: (1) the monthly fees for one year of DirecTV programming (e.g., “All New! Limited Time Offer! . . . Now only $19.99*/mo.” and “Limited Time! $24.99/mo for 12 months”), where there were not adequate disclosures to explain that the subscription program required a two year contract (which could result in cancellation fees of up to $480 if terminated early) and that prices increased significantly in the second year of the contract; and (2) free months of various premium channels (e.g., “over 30 premium channels free for 3 months”), where there were not adequate disclosures to explain that the consumer was being enrolled in a negative option plan that he/she needed to affirmatively cancel at the end of the free period or he/she would incur substantial monthly fees (charged to the credit card on file) unless and until the premium channel subscription was cancelled.

Echoing the sentiments of Operation Full Disclosure, the complaint asserts that DirecTV violated the FTC Act because the disclosures contained in the advertisements described above (if any) were inadequate in their content, presentation, proximity, prominence and placement “such that consumers are unlikely to see or understand such disclosures.”

The failure to adequately disclose the terms of the premium channel negative option plan were not only violations of the FTC Act according to the complaint, but also amounted to a ROSCA violation. Section 4 of ROSCA generally prohibits charging consumers for goods or services sold in online transactions through a negative option feature (as defined in the Telemarketing Sales Rule (“TSR”), 16 C.F.R. § 310.2(u))[1], unless the seller (1) clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information, (2) obtains the consumer’s express informed consent before making the charge, and (3) provides a simple mechanism to stop recurring charges. The complaint asserts that DirecTV failed to comply with each of the preceding requirements in connection with the advertising for the “premium channel” negative option plan.

In our earlier blog posts on Operation Full Disclosure and the FTC’s recent ROSCA actions, we anticipated that each would be an area of focus for the FTC in its enforcement efforts and this is confirmed by the enforcement action against DirecTV. As we have previously emphasized, advertisers generally must take care in crafting truthful and adequate disclosures and, specifically, in connection with negative option plans offered through online channels to avoid drawing the ire of the FTC.

[1] The TSR defines a negative option feature as: “an offer or agreement to sell or provide any goods or services, a provision under which the consumer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.”