FTC Says These ‘Free’ Offers Were Anything But Free

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Last month, the Federal Trade Commission filed a lawsuit against a Canadian entrepreneur and a group of web-based businesses that promised “free” offers that were far from free. In its lawsuit, the FTC charges the online marketers with scamming consumers in the United States, the United Kingdom, Canada, Australia, and New Zealand out of more than $450 million by charging them for products and services that the customers did not purchase. The lawsuit is the latest federal action targeting companies involved in what is known as the upsell industry and comes as a warning to online marketers to be careful in wording their advertisements.

Among those targeted in the FTC action is 24-year-old Jesse Willms, the owner of ten web-based businesses that touted free trials or risk-free offers on several products, including acai berry weight-loss pills, teeth whiteners, health supplements, work-at-home opportunities, access to government grants, free credit reports, and penny auctions. The lawsuit alleges that Willms obtained customers’ credit or debit card information through the promise of free or risk-free trial offers. Willms and other defendants allegedly contracted with affiliate marketers that used banner ads, pop-ups, sponsored search terms, and unsolicited email to lead consumers to the defendant’s websites. Once there, customers would be unknowingly charged for trial products or extra bonus products, plus a monthly recurring fee of typically $79.95.

The FTC alleges that the defendants provided banks with false or misleading information, in order to acquire and maintain credit and debit card processing services from the banks in the face of mounting charge-back rates and consumer claims. Thus, in addition to the FTC violations, Willms and his companies also face charges of violating the Electronic Funds Transfer Act and other U.S. regulations by debiting consumers’ bank accounts without their signed, written consent and without providing consumers with a copy of the written authorization.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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