Markets Wired

A direct marketing company selling “as-seen-on-TV” type products such as Snuggies and the Magic Mesh door cover has agreed to pay $7.5 million to the Federal Trade Commission for consumer restitution to settle FTC charges in connection with its deceptive “buy-one-get-one-free” promotions.

The FTC’s settlement with Allstar Marketing Group, LLC, was reached alongside actions by the New York State Office of the Attorney General, which is announcing a separate state case today. In addition to the $7.5 million paid to the FTC, Allstar will pay $500,000 to the Attorney General’s Office for penalties, costs, and fees to settle that action.

“Marketers must clearly disclose all costs. That includes processing fees, handling fees, and any other fees they think up,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Working with the New York Attorney General, we’ll return millions of dollars to consumers that Allstar collected in undisclosed fees.”

“This agreement returns money to thousands of consumers in New York and across the nation who believed they were buying items at the price advertised on television, but ended up with extra merchandise and hidden fees they didn’t bargain for,” Attorney General Eric T. Schneiderman said. “The settlement also brings much needed reforms to a major firm in the direct marketing industry. Those who use small print and hidden fees to inflate charges to unwitting consumers must be held accountable.”

According to the FTC’s complaint, since at least 1999, Allstar, based in Hawthorne, New York, has been in the direct marketing business, using television commercials to sell its products, many of which are familiar to consumers such as Magic Mesh, Cat’s Meow, Roto Punch, Perfect Tortilla, Forever Comfy, and Snuggies. While the products have varied, Allstar’s pitch is often the same — a “buy-one-get-one-free” offer without additional costs disclosed.

In a recent commercial for Magic Mesh, for example, the company promised that it would “double the offer” for consumers, if they just paid “processing and handling fees.” While consumers were led to believe that they would then be getting two $19.95 products for “less than $10 each,” in fact, the total cost with the undisclosed $7.95“processing and handling” fees jumped from the advertised price of $19.95 to $35.85, according to the complaint.

As alleged in the FTC’s complaint, consumers who called Allstar were often immediately instructed to enter their personal and billing information, and were charged for at least one “set” of products, based on the “buy-one-get-one-free” offer, before they had a chance to indicate how many products they wanted to buy. Because the sales pitch was often confusing, some consumers purchased more “sets” than they actually wanted.

Allstar then attempted to upsell consumers additional products via automated voice prompts that requested the consumer accept the offer. Many times, the only way a consumer could decline the offer was to say nothing. At the end of the calls, Allstar sometimes routed consumers to other third-party sellers who made additional sales pitches. Once all of the offers ended, consumers were not told the total number of items they’d “agreed” to buy, or the total amount they would be billed, according to the complaint. The Commission has alleged that Allstar even charged those consumers who hung up mid-call, not intending to complete a sale.

According to the FTC’s complaint, consumers who opted to buy Allstars’ products online faced similar problems, including separate “processing and handling” fees which were only disclosed in very fine print at the bottom of the page, and a barrage of upsell offers. Consumers were not provided with the total price of their purchases, and despite a “30 day money-back guarantee” (less processing and handling fees) full refunds were difficult for consumers to obtain.

Based on this alleged conduct, the FTC’s complaint charges Allstar with two violations of the FTC Act and three violations of the agency’s Telemarketing Sales Rule (TSR), including the following:

• Billing consumers without their express informed consent;
• Failing to make adequate disclosures about the total number and cost of products before billing consumers;
• In connection with the up-selling of goods and services, violating the TSR by failing to disclose material information about the total cost of the products and that the purpose of the call is to sell goods or services ; and
• During telemarketing, illegally billing consumers without first getting their consent.

The settlement order prohibits Allstar from failing to obtain consumers’ written consent before billing them for any product or service. It also requires the company to clearly and conspicuously disclose – before billing consumers – the total number of products they have ordered, all related fees and costs, and material conditions related to the products purchased.

It also prohibits Allstar from violating the TSR by: 1) failing to disclose the true costs of any goods or products it sells; 2) failing to promptly disclose the identity of the seller to consumers and that the purpose of the call is to sell a product or service; and 3) causing billing information to be submitted for payment without consumers’ express authorization.

Finally, the order imposes a monetary judgment of $7.5 million, which, in consultation with the New York Attorney General’s Office, may be used to provide refunds to defrauded consumers.

The Commission’s vote approving the complaint and the stipulated final order was 5-0. The complaint was filed in the U.S. District Court for the Northern District of Illinois and the stipulated final order submitted to the court for approval.

The FTC appreciates the assistance of the New York State Attorney General’s Office in bringing this action.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. Stipulated orders have the force of law when approved and signed by the district court judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

Consumers with questions about this case can also call the Attorney General’s consumer helpline at 1-800-771-7755.