The Consumer Financial Protection Bureau announced yesterday that it has filed a lawsuit against a company that used “digital duplicity” to generate $300 million in fees from consumers by tricking them into enrolling in a membership club and for failing to provide proper notification when the annual fee increased from one year to the next.
A copy of the complaint, filed against Active Network in the District Court for the Eastern District of Texas, can be accessed by clicking here.
Active operates a payment system that is used by the organizers of events and activities, like charity races and camps. It collects payments from individuals signing up for events, keeps a portion of the fee as its payment, and forwards the balance on to the organizer. Active also operates a paid membership club that offers discounts for products and services, but not necessarily related to the event that the individuals signed up to participate in. How it got people to sign up for the club is what landed Active in legal hot water.
The company would insert a webpage into an event registration that offered individuals free trial enrollment in the club. The call-to-action button on the webpage — usually labeled “Accept” made it appear as though the individual was accepting charges to his or her credit or debit card to participate in the event. The trial enrollment converted to a paid membership — $89.95 per year — if the individual did not opt out before the end of the trial period. During a 10-year period starting in 2011, the company collected $300 million in membership fees from 3 million individuals via the trial enrollment offer.
In the complaint, the CFPB alleges that “in an internal email, a senior manager of ACTIVE described the Active Advantage discount club as providing ‘pure profit.’ An ACTIVE vice president testified that ‘pure profit’ means ‘the cost of goods sold was next to zero.’ “
The company also allegedly tested different words and phrases and found that “Accept” had the highest rate of enrollment over other options like “Start Free Trial,” “Enroll,” and “Accept Membership.”
The company also allegedly violated the Electronic Funds Transfer Act by failing to notify individuals in advance that the membership fee was going to increase when it automatically renewed.