Utah Business Guide to Online Trial Offers, Product Memberships, and Negative Options

Utah Business Guide to Online Trial Offers, Product Memberships, and Negative Options

 

INTRODUCTION

In FY 2016, the Division's most common complaints include allegations of misrepresentations or deceptive practices in internet offers and sales.  Many consumers complained to the Division about signing up to receive a trial of a product for a small shipping fee.  After receiving the item, the consumers were surprised when they were subsequently charged for the trial product, and then received monthly payments for an automatically renewing order.  In the course of investigations, the Division observed terms listed on these websites that described a negative option agreement.  The terms were either not seen by the consumer, or directly contradict representations in the advertising.  Other consumers could not obtain a refund for properly returned merchandise even though these sites claimed to be risk free, or offered satisfaction or money-back guarantees.

The purpose of this business guide is to help businesses avoid deceptive practices in the areas of trial offers and/or negative options.  The Division hopes to encourage business to evaluate ways to properly inform consumers that they are entering into a recurring monthly agreement, and avoid improper conduct in advertising.  This guide uses the word "deceptive" as used by Utah Code §13-11-4.  When an action is described as "deceptive," the term is meant in its legal sense as a violation of the Utah Consumer Sales Practices Act.

 

APPLICABLE UTAH LAW

Utah Code §13-11-4 – Deceptive act or practice by supplier

Utah Admin. Code R152-11-2 – Exclusions and Limitations in Advertisement.

Utah Admin. Code R152-11-4 – Use of the Word "Free" etc.

Utah Admin. Code R152-11-10 – Deposits and Refunds.

Utah Admin. Code R152-11-12 – Negative Options.

 

WHO IS COVERED

Sales or advertising, online or otherwise, to Utah residents or by Utah businesses is covered by Utah's consumer protection laws. More specifically, conduct is covered if it occurs at least partly within Utah, occurs outside of Utah but is directed toward Utah, or utilizes "transactional resources" located within the state. For more information, see Utah Code § 13-2-6(4) and Utah Code § 13-11-6.

The following is a partial list of businesses that have been observed using a free trial/negative option model in online sales:

  • Supplements/"Nutraceuticals"

  • E-cigarettes and E-cigarette liquids/"e-juice"

  • Books and Magazines

  • Online magazines

  • Skin creams and other beauty products

  • Clothing and shoes

  • Fan memorabilia

  • Food delivery

These regulations may not apply if the product sold is not for "primarily personal, family, or household purposes", and is not a business opportunity. Utah Code § 13-11-3(2). The Division is happy to assist you with questions you may have about the law, but cannot give you legal advice. You may wish to ask an attorney if you are unsure whether the laws discussed in this guide apply to you. You may be required to follow additional federal law relating to negative options not addressed in this guide.

 

GUIDE FOR BUSINESS

I. Use of the terms "free", "trial", and "$0.00"

When a business advertises using the word "free" or other words of similar meaning, it triggers the application of Utah Admin Code R152-11-4.  "Other words of similar meaning" could include the words "trial offer" or a representation showing an item is $0.00 in an online checkout.  Below is an overview of rules that may apply when representations such as these are made to consumers.

The most fundamental guidance from R152-11-4 is that when you represent something as being free, it must actually be free.  In short, an item must not be advertised as free if the business intends to charge for it.

The Division has observed instances where businesses will promote a "free" item, "trial offer", or display an item as "$0.00" in the online checkout with a small shipping charge.  The consumer will indeed checkout by paying a small shipping fee without paying for the item.  However, after the 14 day trial, not only will the business charge for a new item shipped as part of the negative option, the business will also charge for the first item that was advertised to be free.  This could be found to be a deceptive practice, and could represent an instance where an item was represented as free but was not, in fact, free.  The Sample Website in section VIII shows what is explained above.

Even if a business discloses somewhere on the page that the consumer will have to pay for the item, it still may be deceptive to call it free or show a price of $0.00 elsewhere on the page.  Items which require no upfront payment but may, if not returned, require payment should be advertised accordingly.  An appropriate thing to do in that instance would be to list the actual price of the product and then note that upfront payment is not required.

When there are terms, conditions, and/or obligations that must be fulfilled to receive or keep the item, those terms must be "set forth clearly and conspicuously at the outset of the offer so as to leave no reasonable probability that the terms of the offer might be misunderstood." Utah Admin. Code R152-11-4B.  Some websites observed by the Division used advertising that led the consumer to believe they would receive a free item simply for entering their personal information, with language such as "rush my order" on a link directly below the personal information.  However, once the information is entered, the consumer is led to a checkout page with terms and conditions not previously disclosed.  This is a deceptive practice because these terms were not laid out "at the outset."

Other websites, complying with the law, placed the information in a way that left no reasonable probability the terms might be misunderstood.  See section II below for a discussion of rules governing clarity and proximity of advertising, and the sample website for an example of this.

The rules also contain requirements on the frequency of offers using the word free or words of similar meaning as well as what may be represented as the regular price of such an item.  These rules are not the focus of this guide, but can be reviewed here.

 

II. Consent to charge a monthly fee

The Utah Consumer Sales Practices Act identifies unauthorized charges by a supplier as potentially deceptive acts or practices.  Unauthorized charges are specifically prohibited in Utah Code § 13-11-4(2)(r).  A charge may be considered unauthorized whether it is for the entirety of the consumer transaction or a portion of a consumer transaction.

Businesses marketing products through trial offers and subscription enrollments should pay particular attention to ensuring the consumer actively agrees to all charges.  The consumer's authorization to the initial transaction cannot be considered authorization for subsequent subscription-related charges if the subsequent charges are not adequately disclosed or separately agreed-to.  An undisclosed charge may be considered unauthorized under the Utah Consumer Sales Practices Act because the consumer did not, and could not, agree to the charge.  Suppliers should exercise caution when placing terms related to fees and charges in a "terms and conditions" link that the consumer may or may not see.  Oftentimes suppliers make the mistake of attempting to charge restocking fees, additional shipping fees, and other fees with a lack of disclosure or inadequate disclosure.  These activities can expose the supplier to liability under the Utah Consumer Sales Practices Act.

 

III. Timing, clarity, and conspicuousness of material terms

When a product being advertised is subject to material exclusions, reservations, limitations, modifications, or conditions, these must be displayed "clearly and conspicuously in close proximity to the words stating the offer." Utah Admin. Code R152-11-2.  Failure to do so is a deceptive act.

The key is to not hide, but rather to make clear, what a consumer is actually purchasing or agreeing to.  The Division has observed businesses engaging in practices that technically disclose important terms, but fail to do so at the appropriate time, with sufficient conspicuousness, or in sufficient proximity. The effect is consumers taking on a significant monthly financial obligation without being aware of it.  The Sample Website in section VIII shows what a site that fails to meet this standard might look like.

The Division has observed websites selling products through negative options failing to provide their material terms with sufficient conspicuousness or proximity.  A common way that businesses fail to do this is by using links to terms and conditions rather than providing the key or material terms and conditions on the same page as the order form.  A link to another page with terms and conditions is not "in close proximity to the words stating the offer."  Other sites will contain a statement with appropriate material terms, but the statement is not visible in the area of the advertisement.  It may be deceptive to require the user to look at the bottom of the page or scroll below the advertisement to find important terms.  This may violate the rules as failing to provide the material terms "in close proximity" to the offer.

The terms of a negative option must, at a minimum, clearly and conspicuously note the existence of the negative option, state the total cost of the offer after the trial expires, and note any recurring monthly charges.  To ensure clarity and delivery of these key terms, at least these material terms should appear on the same page of the offer and not beneath other text in a lengthy terms page.  For example, the page could include a box that must be checked next to a statement "I understand that by clicking submit I will be billed $59.91 a month until I cancel.  I also agree to the additional terms and conditions below."  The Sample Website includes an example of this.

 

IV. Consistency between advertising and terms and conditions

Disclaimers are useful tools in limiting advertising to intended audiences or describing terms that may apply to a deal.  For instance, a car dealership may advertise an offer to purchase a car at a given rate and payment but that indicates "on approved credit."  This disclosure appropriately limits the offer to purchasers who qualify for credit, and consumers with poor credit are on notice that they may not qualify for the deal.

A disclosure does not, however, cancel out misrepresentations in advertising.  It is a deceptive act to "indicate that the subject of a consumer transaction has approval, performance characteristics, accessories, uses, or benefits, if it has not[.]" Utah Code § 13-11-4(2)(a).  A disclosure subsequent to an online statement that the advertisement was not true does not eliminate the deceptive Act.

As noted in Section I, it is deceptive to advertise a product as free even if the terms and conditions state that it is not free.  The Division has also seen returns advertised as "hassle free" or "no questions asked" when such was not the case.  Some companies promised a process for cancellation that was more difficult than represented.  Other times, a "14 day trial" was promised, but is actually only around seven days because the trial starts from the date of shipping rather than the date the consumer first receives the product.  There are many other possible deceptive acts that need not be listed here.  The key is that a limiting term, even if later disclosed, should not directly contradict with advertising.

 

V. False urgency and affiliation claims in online advertising

Timers, counters, and other automated or static representations of scarcity that are not based in fact are deceptive. Utah Code § 13-11-4(1), (2)(a), (2)(d).  Further, the use of such scarcity terms increases the probability that terms might be misunderstood since the business is attempting to limit the amount of time the consumer has to carefully read any material limitations of terms. Utah Admin. Code R152-11-4.

The following are examples of representations of scarcity:

  • A counter showing remaining supply

  • A clock counting down

  • "High chance of selling out"

  • "We cannot guarantee supply in the future"

  • "Act now to secure your trial is not taken by someone else"

If these statements are not actually true, the advertising is deceptive and violates the law.

A business should only represent a sponsorship, approval, or affiliation that actually exists. Utah Code § 13-11-(4)(2)(i).  Such a representation could be either overt or implicit.  For example, the Division has observed websites that the use the logos of other well-known businesses.  These logos imply a sponsorship, approval, or affiliation.  In investigation, the Division often observes that the website has no relationship with the well-known business.  The Division has also observed logos for federal agencies placed on the website such as the FDA, FTC, USDA, USPTO, and others.  The use of these logos is not only most likely directly prohibited by the agencies, it could be a deceptive indication of sponsorship, approval, or affiliation.

 

VI. Use of the terms "risk-free", "money-back guarantee", "100% satisfaction guarantee", and similar

The Division has observed many websites selling negative options using statements or seals to represent a trial is "risk free", a "money-back guarantee", or a "satisfaction guarantee".  These are an offer of a guarantee and are subject to Utah Admin. Code R152-11-2 and Utah Code § 13-11-4(2)(j).  The Utah Consumer Sales Practices Act prohibits indicating that an item has a warranty or particular warranty term, if such is not the fact.

Blanket statements to consumers such as "risk free" or "100% satisfaction guarantee" send a message to consumers that they may enter into the transaction with the business without risk of losing any of their money paid.  In the absence of such a broad promise without clear limiting terms in close proximity, businesses using these statements should be prepared to make a full refund at any time to consumers who make a refund request for any reason, without conditions such as inspecting the product or refusing to refund because the product is non-defective.  Further, unless conditions are clearly and conspicuously disclosed, businesses making such broad promises should not require consumers returning product to pay return shipping, pay for certified returns, charge a restocking fee, issue partial refunds based on product used, or refuse to accept returns after a trial period.  Doing so could constitute a deceptive practice.  Businesses that are not intending to make such broad commitments should not make blanket guarantee statements in online advertising.

 

VII. Returns and Refunds

Businesses selling products, negative options or otherwise, are subject to Utah Admin. Code R152-11-10. A few general rules come into play:

  • A business can set its own refund policy.  To do so, the refund policy must be disclosed to the consumer as required by Utah Admin. Code R152-11-10.

  • If a business has not set a refund policy and appropriately disclosed it, new items purchased over the phone must be refunded if a refund is requested by a consumer.

  • After a valid request from a consumer, the business must make a full refund within 30 days.

  • A restocking or other fee cannot be charged unless such a fee is clearly disclosed.

Failing to comply with these provisions will constitute a deceptive practice.  The Division commonly observes deceptive practices with regard to refunds in trial offers and/or negative options. A few of these include:

  • Charging a previously undisclosed restocking fee

  • Providing only partial refunds on returns of trial items

  • Imposing unreasonable procedures to return the product

  • Call center employees refuse to provide return codes or place callers on hold for unreasonable amounts of time

Businesses must take care to ensure that they either clearly disclose the fact that the product is non-refundable or that other terms or conditions apply, or provide full refunds for any return of new product.  Where statements "hassle-free returns", "no-questions asked", and others are made by the business, they must actually be true or the statement is deceptive. Utah Code § 13-11-4(2)(a).

 

VII. Analysis of Sample Website

Please see the website for more information.  https://dcp.utah.gov/businesses/business_guide.html

 

Stay Ahead of the Curve! Explore our comprehensive CLIClaw Biz Opp Marketing Compliance Library for in-depth resources and insights.

 

For more information, see here:  https://dcp.utah.gov/businesses/business_guide.html

 

These materials were obtained directly from the State Legislative websites and are posted here for your review and reference only.  No Claim to Original State Government Works.  This may not be the most recent version.  The State may have more current information.  We make no guarantees or warranties about the accuracy or completeness of this information, or the information linked to.  Please check the linked sources directly.