COLUMBUS - Attorney General Mike DeWine and 21 other state attorneys general today announced that Classmates Inc. ("Classmates"), along with Florists' Transworld Delivery Inc., and FTD.com Inc. (collectively "FTD"), have agreed to pay $11 million to settle allegations that the companies engaged in misleading advertising and billing practices. Some consumers in Ohio, and elsewhere in the country, may be eligible to have a portion of the money they paid to the companies for services returned to them.
The attorneys general allege Classmates and FTD engaged in misleading, unfair, and deceptive practices in violation of state consumer protection laws. Specifically, the investigation focused on the companies' relationships with third-parties that used negative option marketing practices to sell membership programs to consumers doing business online with Classmates and FTD. Negative option marketing is a sales practice in which a seller treats a consumer's failure to take an affirmative action, either to reject an offer or cancel an agreement, as consent to be charged for goods or services.
These third-party marketers, which offered programs such as discount buying clubs and travel rewards programs, were given the consumer's information immediately after the consumer's online transaction with Classmates or FTD. The sharing, which was done without a consumer's knowledge, included credit card account numbers (a practice known as "data pass") so that the consumer could be billed for these offers if they did not affirmatively cancel the service.
Congress banned data pass in internet transactions in 2010 with the passage of the Restore Online Shoppers' Confidence Act, 15 U.S.C §8401, et seq. A number of attorneys general settled similar allegations against two of Classmates' and FTD's other marketing partners - Webloyalty Inc. and Affinion Corp. - in late 2013.
"What these companies were doing misled consumers in Ohio and across the country," DeWine said. "This settlement puts a stop to this deceptive behavior and will help protect consumers in the future."
Today's agreement includes a number of terms to ensure that consumers knowingly consent to the purchase of any membership program offered by a marketing partner of Classmates or FTD, including the following injunctive terms:
- A prohibition against misrepresenting the reason for requesting a consumer's account information.
- Classmates/FTD marketing partners cannot use Classmates and FTD names or logos in the title of a membership program, and any offer must be made after the consumers have concluded their transactions with Classmates or FTD, in order to ensure that consumers understand they are receiving a separate and distinct offer from a company other than Classmates and FTD.
- Before consumers are transferred to a marketing partner to receive a trial offer, the consumers must receive clear and conspicuous disclosures informing them that they will be transferred to another site to receive a membership offer and the consumers must consent to the transfer.
- Classmates/FTD and marketing partners cannot state an offer is "free" or "risk free" if the offered program will convert to a paid subscription.
- Classmates/FTD are generally prohibited from making misrepresentations and material omissions, including making any misrepresentations concerning the reason or purpose for which a consumer is receiving an offer for enrollment in a membership program.
Classmates and FTD denied any wrongdoing, but in order to settle the matter they agreed to make an $8 million payment to the attorneys general. Ohio will receive $454,779.87.
Additionally, Classmates is establishing a $3 million restitution fund to provide refunds to consumers who were enrolled into Classmates' subscription service without authorization or who experienced difficulty when trying to cancel their Classmates subscriptions. Consumers seeking a refund from Classmates, and who have not previously filed a complaint with the Ohio Attorney General, may file a complaint at www.OhioAttorneyGeneral.gov or by calling 800-282-0515 before August 24, 2015.
Consumers who previously filed complaints regarding Classmates' renewal and cancellation practices may also be eligible to receive restitution under the settlement.
Participating in the settlement are the attorneys general from the states of Alabama, Alaska, Delaware, Florida, Idaho, Illinois, Kansas, Maine, Maryland, Michigan, Nebraska, New Jersey, New Mexico, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Texas, Vermont, Washington, and Wisconsin.