Excerpt
Health Formulas was held liable for fraudulent "free trials" luring consumers into enrolling for a membership program.
Our analysis
Health Formulas LLC, along with its owners and associated entities such as Simple Pure Nutrition, engaged in deceptive practices by advertising their products through fraudulent "free trials."
-They lured consumers into revealing their credit and debit card details and subsequently enrolled them, without their consent, in a costly negative-option membership program, resulting in monthly charges for unsolicited product shipments.
-Furthermore, the defendants were found to have made misleading claims about the efficacy of their weight loss products. The defendants violated several laws, including Sections 5(a) and 12 of the FTC Act (15 U.S.C. §§ 45(a) & 52), Section 907(a) of the Electronic Fund Transfer Act (15 U.S.C. § 1693e(a)), Section 4 of the Restore Online Shoppers' Confidence Act (15 U.S.C. § 8403), Section 205.10(b) of Regulation E (12 C.F.R. § 205.10(b)), and the FTC's Trade Regulation Rule known as the Telemarketing Sales Rule (TSR) (16 C.F.R. Part 310).
-The deceptive design employed by Health Formulas and its associates included the hidden subscription model, where consumers were initially enticed with purported "free trials" but were ultimately enrolled in ongoing, costly membership programs without their explicit consent.
Outcome
In response to the FTC's charges, a court order was issued, resulting in a permanent ban on Health Formulas, its owners Jason and Danelle Miller, and the 41 affiliated corporations they controlled from advertising or selling weight-loss supplements and negative option sales plans. The order also prohibited them from making unsubstantiated health claims for other products, unauthorized debits from consumers' bank accounts, and contacting consumers who had requested not to be called. Furthermore, the defendants were compelled to forfeit approximately $10 million in assets.
Parties
Federal Trade Commission, Health Formulas LLC, Chapnick, Smukler & Chapnick, Inc., Brandon Chapnick, and Keith Smukler
Case number
2:14-cv-01649-RFB-GWF
Decision
Related deceptive patterns
The hidden subscription deceptive pattern typically works by employing some form of sneaking or misdirection. Users think they are buying one thing, when in fact there's a hidden legal stipulation that they are in fact signing up to a recurring subscription. Once they have signed up, the service is usually covert and the user is sent no emails or notifications reminding them that they are paying on a recurring basis, so that payments continue for as long as possible. It is also typically paired up with the hard to cancel deceptive pattern.
Related laws
Prohibits deceptive acts or practices that misrepresent or omit material facts.
Requires disclosures for consumer financial products or services to be clear, easily understandable, and provided in a format that can be retained by the consumer.
Requires companies to obtain consumer's consent before charging their credit or debit cards for goods or services offered through a "negative option feature."