NY Attorney General Settles with Two Direct Marketers Over Their Deceptive Advertising Practices | Practical Law

NY Attorney General Settles with Two Direct Marketers Over Their Deceptive Advertising Practices | Practical Law

The New York Attorney General has recently reached settlements with two direct marketing companies to resolve claims that they engaged in deceptive direct marketing and sales practices. The settlement requires the two companies to pay fines and make significant changes to how they advertise their goods, process orders, and service customers.

NY Attorney General Settles with Two Direct Marketers Over Their Deceptive Advertising Practices

by Practical Law Commercial Transactions
Law stated as of 28 Jul 2016 • USA (National/Federal)
The New York Attorney General has recently reached settlements with two direct marketing companies to resolve claims that they engaged in deceptive direct marketing and sales practices. The settlement requires the two companies to pay fines and make significant changes to how they advertise their goods, process orders, and service customers.
The New York Attorney General (NYAG) recently announced that it has reached a settlement with Tristar Products, Inc. (Tristar) and Product Trend, LLC (Product Trend) to resolve claims that the two companies used deceptive advertising and sales practices while marketing goods on TV and online.
Tristar and Product Trend ran infomercials on TV featuring "Buy One, Get One" offers for their products. These offers required consumers to purchase a double order of the advertised product. However, the NYAG alleged that the ads and subsequent sales practices were deceptive because:
  • The actual cost of the offer was significantly higher than advertised since the ads did not adequately disclose:
    • that consumers would be charged two separate processing and handling fees; or
    • the amount of the processing and handling fees.
  • When placing orders online or by phone, consumers were subjected to a confusing, automated ordering process that generally included multiple upsell offers for additional products.
  • Consumers were not given the opportunity to review and edit their orders before they were processed, which resulted in some consumers being charged significantly more than they expected and receiving products that they did not intend to order.
The NYAG also found that consumers who tried to use the written product warranty that Tristar provided often faced long telephone hold times or had other issues getting relief or assistance. For more information on complying with written warranty laws for consumer goods, see Practice Note, The Magnuson-Moss Warranty Act for Consumer Goods.

Settlement Terms

Under this settlement, both companies must:
  • Clearly and conspicuously disclose all material terms of their advertised offers.
  • Clearly and conspicuously disclose the amount of any processing and handling fee for the second item in a "Buy One, Get One" offer.
  • Give consumers an opportunity to confirm the details and the total price of an order before it is processed, including presenting the consumers with a checkout or shopping cart page that the consumer can edit when shopping online.
  • Disclose the amount of any processing and handling fees during the ordering process before the consumer confirms the order details.
  • Label all hyperlinks to clearly convey the consequence of clicking the link.
  • Email an order summary with any processing, handling, or other charges to consumers who place orders by phone.
  • Ensure that the marketers' customer service lines are adequately staffed so that consumers are not subjected to long hold times.
Additionally, Tristar agreed to pay $700,000 in restitution, penalties, costs, and fees and Product Trend agreed to pay $175,000.

Practical Implications

This settlement is part of the NYAG's broader investigation into deceptive advertising and sales practices among the direct marketing industry. The NYAG and the Federal Trade Commission settled a similar case with Allstar Marketing Group, LLC in 2015 and forced the company to pay $8 million in restitution, penalties, costs, and fees (see NYAG: A.G. Schneiderman Announces $8 Million Agreement With Direct Marketer For Deceptive Practices That Resulted In Hidden Charges To Consumers Ordering Products Marketed On TV).
When promoting a product, marketers must remember to carefully review and comply with both federal and state advertising laws. As this settlement illustrates, New York is closely scrutinizing the advertising practices of companies that operate in the state. Deceptive advertising practices can lead not only to federal actions, but also to joint actions in states with affected consumers (see, for example, Legal Update, LifeLock to Pay $100 Million in FTC Settlement).
For more details on complying with direct marketing rules and regulations, see Practice Note, Direct Marketing.
For more information on dealing with consumers online, see Practice Note, Online Advertising and Marketing and Launching a Retail E-Commerce Website for the Sale of Goods Checklist.