Consumer Justice: FTC Issues $6 Million Fine Over Free Trials
DALLAS (CBSDFW.COM) - The Federal Trade Commission is cracking down on a company accused of using "deceptive" free trial offers to rake in millions of dollars.
Authorities say Tarr, Inc., based in San Diego, used fake news sites and celebrity endorsements to lure in customers for free trials of anti-aging cream, weight loss pills and other products. Customers thought they were only paying shipping charges for a trial sample, when in reality they were signing up for a costly monthly subscription program.
The FTC complaint says Tarr, Inc. was built upon a "scheme" that "tricked customers" into giving their credit card information, while hiding the terms and conditions to which they were agreeing. Many of the websites failed to make it clear that customers were agreeing to a negative option sale, meaning the company could continue billing until the customer cancelled the contract.
The complaint says several companies were involved in the scheme, including Ad Kings LLC, Apex Advertising LLC, Brand Development Corp., Coastal Ads LLC, Delux Advertising LLC, Diamond Ads LLC, Digital Nutra LLC, Exclusive Advertising LLC, Iron Ads, LLC, LeadKing Advertising LLC, Lead Seeker LLC, Mints Marketing LLC, Onyx Ads LLC, Product Center LLC, Rebem LLC, Supertiser LLC, Verticality Advertising LLC, and White Dog Marketing LLC.
FTC officials say all of those companies were run by brothers Richard and Ryan Fowler, along with Nathan Martinez. The trio used "secretaries, unpaid interns, and family friends to serve as nominal owners."
According to the complaint, the men hired affiliate networks to attract customers through social media platforms, banner advertisements and sponsored search terms. The men would pay affiliate marketers a set fee each time a customer ordered a trial after visiting an affiliate's advertisement. While the "free trial" only cost $4.95, each purchase earned the affiliate marketers $45. Authorities believe the men "anticipated" that most customers would be charged for the full price of the product.
Many of the advertisements used photos and fake testimonials from celebrities. Dr. Mehmet Oz confronted the Fowler brothers and Martinez on The Dr. Oz Show back in 2014 after learning that his likeness was repeatedly used to promote health products without his permission.
The FTC says the men made $179 million dollars from free trials over the last five years. They will have to pay $6 million as part of their settlement with the government. Under the agreement, the men are not allowed to use the negative option feature to sell dietary supplements, cosmetics, foods or drugs, or products that are sold on a trial or sample basis.
Consumer Justice has been reporting on companies offering free trials since March, including an investigate piece earlier this week.