Jan 8

Federal Trade Commission and Free Trial Offers

Tags: , , , , , , , , ,

The U.S. Federal Trade Commission (FTC) is working with Visa and the Better Business Bureau to make consumers aware of deceptive billing practices involving free trial offers. Many Internet marketers selling continuity programs (such as monthly newsletters or memberships) cross the line into unethical or illegal marketing practices that involve free or low cost trial offers. Typically the trial period lasts 14 to 30 days and the consumer is automatically billed after that time unless cancellation occurs.

Some marketers hide the free trial in the sales content with vague language or have the box for the free trial already pre-checked. They hope the Federal Trade Commission doesn’t find out what they’re doing.

In one particularly bad instance in 2009, I saw a marketer use multiple trial offers and hid the last one on the order page below where the credit card info was entered. Unless the customer scrolled down and unchecked a box, the continuity trial period kicked in when the order for the main product was made. Another well-known marketer hid his continuity programs terms in the legalese on another page and didn’t even mention it in the sales letter. And of course, there are some unethical Internet marketers who make it impossible to cancel during the trial period because the contact information is wrong (nonexistent phone numbers, e-mails that bounce, etc.).

As the FTC cracks down on deceptive marketing practices based on its guidelines that went into effect on December 1, 2009, Internet marketers should understand that the World Wide Web is being tamed. There are plenty of legal ways to make money online without resorting to deceptive free trial offers such as hidden continuity programs. A good continuity program should be able to stand on its own merits. If you can’t sell a continuity program as an independent product because it lacks value, don’t try to trick customers into paying for it through the use of a free or low cost trial period that results in unwanted continuity billings. This can get you into big trouble with the Federal Trade Commission.

Related Reading: FTC, Visa, and BBB Partner to Educate Consumers About Free Trial Offers and Online Scams

Internet Lawyer

Internet lawyer Mike Young helps business owners protect themselves. Whether you're wanting website legal help, ecommerce agreements, technology contracts, corporate formation, LLC formation, or want to buy or sell an Internet-related business, Mike may be able to help you or refer you to someone who can.

  1. Blaine Moore 8 Jan 2010 |

    You only mention deceptive free trial offers…What is your opinion when it is extremely clear and spelled out that the person is getting a free or low risk trial, or is getting a continuity program as a bonus along with another purchase?

    • Mike Young 8 Jan 2010 |

      Where the terms are clearly spelled out (i.e. not deceptive), it is a business judgment call rather than a legal issue. However, by “spelled out,” I’d contend that best marketing practices should recap it once near the close of the sales letter, once on the order form, and once in the follow-up e-mail.

      If providing value with the trial offer, that should help the sales stick. Unfortunately, many can’t/won’t do this because the underlying trial offer is simply a means to pad the profits without adding value.
      Craig Garber has it right when he says you should deliver at least twice the value of what you’re charging. That makes for happy customers and a happy FTC too. Treat customers how you want to be treated as a customer. They’ll respect you for it.
      Best wishes,

  2. Craig Garber 10 Jan 2010 |

    Mike, thanks for the mention.

    This is a particularly sensitive area for us, since the bulk of our business is continuity-based for my offline newsletter and other programs I run. However, as you know, we go out of our way to give full disclosure – once on the sales letter, in the same sized font as the rest of the information… and twice in the shopping cart. And if you order by fax instead of online, the monthly continuity is mentioned twice on the fax, as well.

    Much of the disclosure aspect, I believe, is based on the kind of business you want. When we started publishing our newsletter four years ago, I sat down and thought about the kind of publishing business I wanted and the kind of customer I wanted.

    My reason for getting into the continuity business was to create a recurring stream of ongoing revenue so I didn’t constantly go out and have to keep hunting, eating only what I killed that day. The ONLY way you’re going to do this is with full disclosure and really high ongoing and consistent value.

    I have seen and consulted with literally hundreds of people over the last ten years and the ones who bury disclosure, with 100% certainty… have high returns, huge numbers of complaints, ongoing merchant account issues and uphill battles with retention.

    These were NOT issues I wanted. The whole point of continuity is to create ongoing “hassle free” revenue. You can’t create ongoing revenue using deception, unless you’re OK dealing with all the problems I just mentioned. I have zero patience or time to handle these things, and I certainly don’t want my staff wasting their time on them, either.

    The other aspect of this is cancels. When someone cancels, you cancel them that day. I never knew this was such a big problem but I got a rude awakening, pretty quickly. We’d have some people call us up to cancel, and they’d be incredibly abrasive about this. We just figured they were having a bad day or something.

    But then when I tried canceling a couple of my own subscriptions, not only was it almost impossible to find the contact information, but we kept being billed for months. I realized that’s why some people are so abrupt about their cancels. It’s not us that’s the problem – it’s all their prior experience with people who never stopped billing them. We were suffering the same way people who pay auto insurance suffer – you pay high insurance premiums because of all the losers who drive around uninsured.

    Anyway, this is a great business as long as you’re willing to play by, and in some instances, create your own (ethical) rules. It’s like everything else in life – the bait you’re fishing with determines what you catch.

    Thanks again, Mike. Craig

    • Mike Young 12 Jan 2010 |

      Thanks, Craig, for weighing in with your thoughts. I appreciate your providing additional details about the ethical way to handle these types of offers.
      Best wishes,