Did you think that the death of the FTC’s updated Negative
Option Rule meant the end of FTC enforcement on subscription
programs? Think again! The FTC has just announced that it has sued a nationwide gym
chain because it “uses opaque and complicated methods to make
it extremely difficult for consumers to cancel their
memberships.” In its complaint asserting violations of the FTC Act
and ROSCA, the FTC charged Fitness International, LLC and Fitness
& Sports Clubs, LLC with illegally charging consumers with
hundreds of millions of dollars in unwanted recurring fees.
According to the complaint, the defendants required gym members
who wished to cancel their memberships (and any add-on services
they enrolled for) to use overly restrictive methods to cancel,
including downloading a difficult-to-access form on the website and
taking it in person to the gym, during limited hours, and at which
they needed to speak to a specific manager to effectuate the
cancellation. Consumers also had the choice of mailing in their
cancellation form, but only by certified or registered mail,
requiring a trip to the post office. In other words, the methods
required were far from simple, as required by ROSCA. Moreover, the
cancellation methods were not well-disclosed, also as required by
ROSCA. The result? Tens of thousands of complaints to the FTC. And
this ensuing complaint, seeking a permanent injunction to prevent
future violations of Section 5(a) of the FTC Act and ROSCA and
monetary relief.
Lessons?
Notwithstanding the 8th Circuit’s vacation of the
updated Negative Option Rule, the FTC still has both the tools
– and apparently the interest – in going after
marketers whose subscription programs resemble, as the FTC used to
describe them, a roach motel: easy to enter but tough (or
impossible) to exit.
State AGs are very active in this space too. As the complaint
discusses, numerous state AGs went after the defendants and had
them clean up their cancellation practices, at least in their own
states. The fact that the defendants didn’t adopt the better
practices nationwide was one factor the FTC cited in seeking
relief.
Failing to clean up clearly violative practices, even after
receiving a Civil Investigative Demand from the FTC, only provides
more fodder for an FTC complaint. Here, the FTC cited the
defendants’ failure to change its practices for months after
receiving the CID as grounds for the charge that defendants were
violating, or about to violate, the law and its seeking a permanent
injunction.
Most important lesson? If you require consumers to sign up for a
program that requires ongoing payments, automatically charged,
whether online or brick-and-mortar, make sure consumers understand
exactly what they’re agreeing to and make it easy and
straightforward for them to cancel.
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