HEADLINE NEWS
It was recently announced that Voice Media Incorporated (VMI) and the FTC (http://www.ftc.gov) reached a settlement over allegations that VMI deceived consumers.HEADLINE NEWS
It was recently announced that Voice Media Incorporated (VMI) and the FTC (http://www.ftc.gov) reached a settlement over allegations that VMI deceived consumers. The questions that immediately sprang to mind included: Are the allegations true? How many people were allegedly overcharged by VMI? Does this mean that the FTC and other governmental agencies have taken a more aggressive stance against online adult entertainment sites? YNOTNews contacted some of the individuals involved in the investigation to find answers to these questions.
In its complaint (http://www.ftc.gov/os/2001/04/voicemediacmp.htm), the FTC maintained that VMI sold memberships to adult-oriented Internet sites. VMI allegedly attempted to boost membership to its sites by offering “free” seven-day trial periods. VMI asked the customers who signed up for the free trial to provide credit card information for age verification; the credit cards, however, were not to be billed if the consumer cancelled within the trial period. The complaint provides that VMI sometimes charged consumers despite cancellation during the trial period. Also, the FTC alleged that VMI immediately billed credit cards after the credit card information was provided rather than allowing the consumers a free trial period.
Based upon our investigation, the case doesn’t seem to be as egregious as alleged in the FTC complaint. However, it is our opinion that this matter is an indication that the FTC and other law enforcement agencies are beginning to recognize and take action against innovative, yet allegedly fraudulent business practices in regards to e-commerce.
In speaking on the matter, C. Steven Baker, the FTC’s Midwest Regional Director, said, “This is different; this is an administrative court settlement, not a federal court settlement…. The unusual thing about this case is that people understood they had to take certain action or they were going to be billed after seven days.” He added, “It’s not like people were … charged for months and months.”
Baker would not comment on how long the FTC investigated VMI, nor would he speculate as to how the investigation came about nor the number of consumer complaints. James Steele, attorney for Voice Media, however, disclosed to YNOTNews that the original inquiry began in early 2000.
Steele also said that the amount of complaints “were extremely limited in number and severity … I believe there were less than five instances in which customers were supposedly charged when they shouldn’t have been.” When asked about remedies to the customers or any dollar amount in the settlement, Steele said, “As soon as those limited number of instances became known, refunds were sent out.”
Significantly, because there was no court filing, the matter was resolved in an informal proceeding. No compensation on a federal level was involved, nor were there any fines, penalties or restitution. However, according to Baker, the FTC will now monitor VMI’s e-commerce activities.
VMI is currently under a court order requiring it to provide the FTC with information to demonstrate it is not engaging in deceptive business practices. If VMI violates the order, it will be subject to penalties of $11,000 per day per violation. Baker also said the order typically lasts for 20-25 years.
If there were only a handful of complaints as Steele suggested, why then did the FTC take any action at all? Steele replied, “I think the FTC may have been acting on the notion that there were more complaints out there, but they never actually identified any of the actual complaints.” In explaining how these five instances of alleged overcharging may have occurred, Steele indicated that prior to May of 1999, VMI was using a third party processor (Steele declined to identify the entity). The processor drafted the terms and conditions in question, and had been responsible for a portion of the customer service function that would have normally been performed by VMI.
In response to the FTC’s investigation, VMI produced thousands, “if not hundreds of thousands of pages of documentary evidence,” said Steele. He further indicated, “I believe less than five instances were identified where customers were inadvertently charged.” Steele said that’s the major reason why the case was not prolonged. “VMI was responsive to the inquiry and it provided its records so the FTC could conduct an investigation.” In Steele’s opinion, VMI is a “straight shooter … they take great pains to resolve customer disputes.”
Although this matter has resolved favorably for VMI, webmasters and anyone involved in the online adult entertainment industry should take heed of what the FTC’s Baker had to say to YNOT News after the conclusion of the investigation:
“The concern with the FTC is not with the content of these things [online porn sites],” said Baker, “but with the deception of the consumer … we’re really active with the adult industry because there have been a lot of problems.” Baker said the investigations conducted by the FTC that involve porn sites are more a function of what the industry is doing rather than simply the industry existing.
“What we see in the adult entertainment industry is some cutting-edge tactics that nobody has done yet.” Baker mentioned dialer programs as an example. The companies that engage in those activities are more likely to get attention, he said.
Asked what advice he would give to adult webmasters, Baker said, “Rules against deceptive business practices apply everywhere on the Internet. What the FTC is most interested in is having consumers making informed decisions … the key is do the consumers have accurate information before they make a decision?” One example that Baker cited was placing the qualifying information in a visible place and not having microscopic text submerged in “a bunch of legalese … that’s deceptive also,” he said.
Furthermore, Baker added that adult webmasters need to learn that keeping consumers happy is vital and that consumer protection laws are not meant to be a “straight-jacket set of stupid regulations … they really are a response to consumer problems.”
Adult webmasters should also note that other law enforcement agencies are getting up to speed with how the adult online entertainment industry operates. In the past, according to Baker, agencies other than the FTC were sometimes unable to press criminal charges, simply due to the fact that the agencies were unable to comprehend all the issues, most notably with fraudulent online activities. “Law enforcement agencies are just starting to figure out what the web is, how it works, and now, how to prove illicit activity,” said Baker.
As for the FTC (which employs 1,000 with half of that number focusing on antitrust matters), Baker claims the FTC has always been up to speed on how to deal with Internet fraud. “We realized that we had a new advertising medium … we just started working with it before other groups did.”
The FTC is now conducting special training sessions with postal inspectors, state attorney generals, police officers, FBI agents and prosecutors. Baker added that the FTC is now dealing with their foreign counterparts and although it’s a relationship the FTC is not used to having, it’s one that must exist in stopping Internet fraud.
Despite the fact that VMI apparently committed no known wrongdoing, this case does prove that even a handful of customer complaints can lead to a giant headache for any webmaster. Imagine the laborious effort and time wasted in providing the FTC with all of your own records during an investigation of your business practices. To avoid such an investigation, be careful, and more importantly, treat your surfers like gold – because they are.
The FTC provides information on Internet commerce (http://www.ftc.gov/bcp/menu-internet.htm). Under the heading “E-Commerce and the Internet” find the category, “Business Education,” where webmasters can find topics ranging from Advertising and Marketing on the Internet; The Rules of the Road to What’s Dot and What’s Not; and Domain Name Registration Scams.
