FTC Cracks Down on Deceptive Negative-Option Billing Practices and What This Means for Businesses

In a significant step towards protecting consumers, the Federal Trade Commission (“FTC”) has put an end to a fraudulent operation that targeted payday loan seekers, enrolling them in costly programs without their consent. A settlement reached by the FTC requires the defendants to pay nearly $10 million and bars them from engaging in negative-option billing practices, where consumers are charged recurring fees until they actively cancel the service. This case serves as a stark reminder for businesses of the importance of ethical marketing practices, transparency, and consumer consent. The FTC's action, stemming from a complaint filed in March 2011, targeted Michael Bruce Moneymaker, Daniel de la Cruz, and their companies. These individuals used deceptive tactics to obtain consumers' personal information from websites that claimed to connect them with payday lenders. Instead of facilitating payday loans, the companies enrolled consumers in "negative-option programs" that charged an initial fee of up to $49.99, plus ongoing monthly or weekly fees, often totaling $19.98. Not only were consumers enrolled without their knowledge, but they also found themselves stuck in these programs, unable to get refunds despite promises to the contrary. The settlement that followed requires the defendants to pay over $9.9 million, freezing their assets and proceeds from certain property sales. More importantly, the settlement bars them from continuing to engage in the deceptive practices that led to the charges. This includes marketing secured loan products, charging consumers without clear disclosure of the material terms, and obtaining consumers’ account information from third parties. In particular, they are prohibited from charging consumers without their explicit consent and from making false claims about the terms of their products and services.