Under terms of the multi-state settlement agreement, New Jersey will be paid a total of $387,560 by FTD and Classmates, both of which were subsidiaries of parent company United Online, Inc. at the time of the alleged misleading conduct. In addition, New Jersey consumers who purchased subscription services offered directly by Classmates may be eligible for restitution.
According to Acting Attorney General Hoffman, the multi-state investigation found that consumers who visited Web sites controlled by FTD and Classmates often were sold “trial term” subscriptions for goods and services by the two companies, but were not adequately informed that the subscriptions would renew automatically once the trial period ended, and that their credit cards would be billed for the renewal until the consumer actively cancelled the subscription.
FTD and Classmates also allegedly permitted sales and membership offers by their third-party marketing partners – for such things as discount clubs, travel rewards programs, insurance-type programs, etc. — to “pop up” during on-line consumer transactions with FTD and Classmates.
In some cases, these third-party “pop up” offers displayed an FTD or Classmates logo, creating the misimpression that the consumer was still doing business with one of the two companies, when they were not.
The third-party promotions typically offered an initial free trial period, but also contained a “free-to-pay” aspect that was not adequately disclosed, and resulted in consumers being billed for paid memberships or subscriptions after the trial period ended — until the consumer actively cancelled the membership or subscription.
“Businesses have a duty to be clear, direct and honest when advertising, and to respect consumer privacy laws by not sharing sensitive credit card and debit card account information without proper disclosure and/or consumer consent,” said Acting Attorney General Hoffman. “This settlement should serve as a reminder that we take seriously the issue of protecting New Jersey consumers. Any businesses that engage in practices that are misleading, or which breach consumer privacy, will held accountable.”
In order to facilitate the payment of the third-party marketing offers, FTD and Classmates also allegedly engaged in the practice of “data passing” — relaying consumers’ data, including their personal billing information, to third-party marketing partners without proper disclosure. In addition, the practice of “data passing” occasionally led to unwitting on-line customers of FTD and Classmates being charged for services or subscriptions they did not want by the third-party marketing partners.
Due to inadequate disclosures by FTD and Classmates, consumers were sometimes unaware that by simply clicking a button on checking a box in the third-party marketing partners’ “pop-up” advertisements on the FTD or Classmates Web sites, they had entered into a separate agreement with the third-party marketing partners for additional services or subscriptions — a practice known as negative option marketing.
FTD and Classmates earned revenue from their third-party marketing agreements based on the number of third-party offers viewed by consumers on their Web sites – commonly referred to as “impressions” – and the number of times consumers accepted these third-party offers, commonly referred to as “conversions.”
Under terms of the settlement, FTD and Classmates are paying a total of $8 million to 22 participating states, including New Jersey. Classmates is paying another $3 million total in restitution to consumers in the participating states who purchased subscription services offered directly by Classmates.
To be eligible for restitution, consumers must have purchased subscription services from Classmates between January 1, 2008 and the effective date of the settlement today, May 26. Eligible complaints involve charges purportedly collected:
New Jersey consumers who believe they have an eligible claim for restitution from Classmates should contact the state Division of Consumer Affairs at 973-504-6200 or toll-free at 1-800-242-5846.
Illinois-based FTD is, among other things, an international retailer and wholesaler of flowers and floral arrangements. Classmates, Inc. is based in Seattle, Washington, and operates the social networking site Classmates.com .
Under the settlement, FTD and Classmates, Inc. deny any wrongdoing or liability.
In addition to New Jersey, states participating in the settlement announced today include: Alabama, Alaska, Delaware, Florida, Idaho, Illinois, Kansas, Maryland, Maine, Michigan, Nebraska, New Mexico, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Texas, Vermont, Washington and Wisconsin.
Deputy Attorney General Erin M. Greene, assigned to the Division of Law’s Consumer Fraud Prosecution Section, handled the FTD and Classmates, Inc. matter on behalf of the State.