By Lesley Fair

“Take the rest of the day off.”
“Have you been working out?”
“Ladies and gentlemen, prepare for an on-time arrival.”

Like those statements, “It’s free!” is generally music to the ears.  When sellers are indeed offering buyers a bonus, “free” is a powerful draw.  But when companies use “free” as a deceptive come-on, they can find themselves in legal hot water.

Law enforcement actions by the Federal Trade Commission (FTC) highlight the importance of caution when using the word “free” in advertising.  In a case brought with the Kentucky Attorney General, the FTC alleged that the defendants – claiming to be calling from major retailers or the consumer’s credit card company – offered what they said were “free” gift cards or resort vacations. The defendants then used a variety of shady tactics to trick people into saying the word “yes,” which the defendants then used as their purported billing authorization.  

In some cases, the defendants told consumers they had to confirm their acceptance of the free products.  In other instances, they asked people to listen to a “pretend” telemarketing pitch, answer “yes” when prompted, and then rate the caller’s sales skills.  According to the FTC, fast-talking telemarketers raced through the pitch so rapidly that many consumers didn’t realize they’d agreed to buy products.  To add legal insult to financial injury, the defendants charged consumers’ credit cards or debited their bank accounts without permission and never sent the “free” goods as promised.  The upshot?  Settlements with all but one defendant, tough injunctive terms, and a $5 million performance bond.

In two other FTC actions, dietary supplement marketers lured consumers to their websites by offering “free” samples of products for weight loss or to treat sexual dysfunction.  According to the FTC, to get the samples, consumers had to give a credit card number to cover shipping and handling.  Once the defendants had the account numbers, they enrolled unsuspecting consumers in continuity programs, charging them for additional unauthorized shipments.  In addition to injunctive provisions, the settlements impose judgments totaling $10.3 million and require the companies to disgorge more than $600,000 in cash.

What tips can marketers take from these cases?

• “Free” means free.  Don’t make an unqualified “free” claim when you really mean “free for now, but we’ll bill you later” or “free, plus additional fees.”
• Dial back on deception.  The Telemarketing Sales Rule outlines specific requirements for “free” offers made by phone.  Read Complying with the Telemarketing Sales Rule, available at business.ftc.gov, to keep your claims compliant.
• Negative (option) feedback.  Whether you call it a continuity program, a free-to-pay conversion, or advanced consent marketing, take particular care to explain the terms of negative option plans before you seal the deal.  Promoting a product as “free” and then burying the details in a fine-print footnote or through an obscure hyperlink is likely to draw customer ire and law enforcement attention.  Check out Negative Options, an FTC staff report, to find out how to do the deal right.

Lesley Fair is an attorney in the FTC’s Bureau of Consumer Protection.