746 years. That is the total amount of time criminal defendants have been sentenced to prison from consumer fraud cases the Federal Trade Commission (FTC) has referred to prosecutors the past five years. Indeed, the FTC’s Bureau of Consumer Protection Criminal Liaison Unit (Bureau) highlighted these figures in its recently published Criminal Liaison Unit Report. Notably, this report emphasized the FTC’s growing enforcement concern over the use of deceptive negative option marketing (or dark patterns) and its intended aim to push egregious cases to prosecutors in the future. The Criminal Liaison Unit Report (the Report) is consistent with FTC’s November 4, 2021 Enforcement Policy Statement Regarding Negative Option Marketing, and the Report outlines four key takeaways for companies going forward.
First, companies need to be vigilant about their compliance programs. The Report points to an overall increase in cooperation and coordination among federal law enforcement and regulatory agencies, which has been a focus of DOJ and others for the past ten years. This cooperation has led to a more efficient use of government resources, but for companies, it has also led to more risk and potential liability. Questionable conduct (whether intentionally or negligently) that may have flown under the radar of prosecuting authorities is now at greater risk of civil and criminal prosecution.
And this vigilance needs to be directed at a company’s use of negative option offers. A negative option is an offer or agreement to sell or provide goods or services under which the customer’s 1) silence; or 2) failure to take an affirmative action to reject goods or services or to cancel the agreement “is interpreted by the seller as acceptance of the offer.” 16 C.F.R. § 310.2(w). Negative option offers can include automatic renewals, continuity plans, free-to-pay or fee-to-pay conversions, and prenotification plans. To be compliant the negative option offer must comply with all four of the following requirements:
- A negative option offer must clearly and conspicuously disclose the material terms of the offer (including, at a minimum, key terms such as the existence of the negative option offer, the offer’s total cost, and how to cancel the offer);
- Companies must disclose these material terms before consumers agree to the purchase;
- Companies must obtain consumers’ express informed consent to such offers; and
- Companies must not erect unreasonable barriers to cancellation or impede the effective operation of promised cancellation procedures, and companies must honor cancellation requests that comply with such procedures.
Second, because the Bureau is investigating and prioritizing more egregious matters and pushing them to prosecutors, it increases the risk that companies will be subject to both increased Civil Investigative Demands (CIDs) by the FTC and criminal prosecution. This will mean an increase in scrutiny on companies in the Bureau’s crosshairs. Some of these CIDs and criminal investigations are unfounded and quickly resolved, some are settled after the FTC or the DOJ takes a closer look, and some can result in high-dollar penalties. In any case, both CID and criminal investigations are costly and stress-inducing, while conscientious, preemptive compliance can take a company out of the crosshairs.
Third, since the Bureau started referring cases, there are more cases being brought against entities rather than individuals and more work with our international law enforcement partners. The further the reach, the more potential exposure for companies.
Fourth, the Bureau’s public reporting of its results and its priorities help to hold itself and everyone accountable. It also provides guidance to companies and individuals as to what conduct may be permissive compared to what is proscribed, which means the guidance should be included in a proactive compliance program.
In all, the Report should serve as a wake-up call that the FTC is not purely focused on civil injunctions, but also is directing significant resources towards holding companies criminally liable for fraudulent conduct, especially as it relates to negative option offers.