[Federal Register Volume 62, Number 93 (Wednesday, May 14, 1997)]
[Notices]
[Pages 26514-26515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12580]
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FEDERAL TRADE COMMISSION
[File No. 952-3332]
Prodigy Services Corporation; Analysis To Aid Public Comment
agency: Federal Trade Commission.
action: Proposed consent agreement.
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summary: In settlement of alleged violations of federal law prohibiting
unfair or deceptive acts or practices and unfair method of competition,
this consent agreement, accepted subject to final Commission approval,
would, among other things, require the respondent, an Internet service
provider, when offering a ``free trial'' with automatic membership
enrollment or renewal, to disclose clearly and prominently any
obligation to cancel to avoid charges, to provide at least one
reasonable means of canceling, and to obtain consumers' authorization
before debiting their accounts. The complaint accompaning the consent
agreement alleges that Prodigy's ``free trial'' offers resulted in
unexpected charges for many consumers, because the offers did not make
clear that consumers had an affirmative obligation to cancel before the
trial period ended. As a result, consumers who failed to cancel were
automatically enrolled as members and began incurring monthly charges.
The complaint also alleges that Prodigy failed to obtain appropriate
authorization before making electronic withdrawals from the accounts of
consumers.
dates: Comments must be received on or before July 14, 1997.
addresses: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., Washington, DC 20580.
for further information contact: David Medine, Federal Trade
Commission, S-4429, 6th St. and Pa. Ave., NW., Washington, DC 20580.
(202) 326-3025. Lucy Morris, Federal Trade Commission, S-4429, 6th St.
and Pa. Ave., Washington, DC 20580. (202) 326-3295.
Steven Silverman, Federal Trade Commission, S-4429, 6th St. and Pa.
Ave., NW., Washington, DC 20580. (202) 326-2460.
supplementary information: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby
given that the above-captioned consent agreement containing a consent
order to cease and desist, having been filed with and accepted, subject
to final approval, by the Commission, has been placed on the public
record for a period of sixty (60) days. The following Analysis to Aid
Public Comment describes the terms of the consent agreement, and the
allegations in the accompanying complaint. An electronic copy of the
full text of the consent agreement package can be obtained from the
Commission Actions section of the FTC Home Page (for May 1, 1997), on
the World Wide Webb, at ``http://www.ftc.gov/os/actions/htm.'' A paper
copy can be obtained from the FTC Public Reference Room, Room H-130,
Sixth Street and Pennsylvania Avenue, NW., Washington, DC 20580, either
in person or by calling (202) 326-3627. Public comment is invited. Such
comments or views will be considered by the Commission and will be
available for inspection and copying at its principal office in
accordance with Section 4.9(b)(6)(ii) of the Commission's Rules of
Practice (16 CFR 4.9(b)(6)(ii)).
Analysis of Proposed Consent Order To Aid Public Comment
The Federal Trade Commission has accepted, subject to final
approval, an agreement to a proposed consent order from Prodigy
Services Corporation (``Prodigy'').
The proposed consent order has been placed on the public record for
sixty (60) days for reception of comments by interested persons.
Comments received during this period will become part of the public
record. After sixty (60) days, the Commission will again review the
agreement and the comments received and will decide whether it should
withdraw from the agreement or make final the agreement's proposed
order.
The complaint alleges that Prodigy's advertisements and statements
online to consumers violated the Federal Trade Commission Act (``FTC''
Act). Section 5 of the FTC Act prohibits false, misleading, or
deceptive representations or omissions of material information. See 15
U.S.C. Secs. 45-58, as amended. The complaint also alleges that
[[Page 26515]]
Prodigy's billing practices violated the Electronic Fund Transfer Act
(``EFTA'') and its implementing Regulation E. Sections 907(a) of the
EFTA and 205.10(b) of Regulation E permit preauthorized electronic
transfers from consumer accounts only if such transfers are authorized
by consumers in writing that are signed or similarly authenticated. See
15 U.S.C. Sec. 1693e(b); 12 C.F.R Sec. 205.10(d).
The complaint alleges that Prodigy represented that consumers who
participate in its free trial offer will not be charged, provided only
that they use the ten hours of allotted trial time within one month of
their initial sign-on and do not exceed ten hours of online use. This
representation is false, according to the complaint, because consumers
who participate in Prodigy's free trial offer and use less than ten
hours of online time during the month following their initial sign-on,
but who fail to cancel their memberships during the trial period, incur
charges. The complaint also alleges that Prodigy failed to disclose
adequately to consumers that, upon completion of ten hours of online
use or one month from the date of initial sign-on, whichever is
earlier, consumers who fail to cancel are treated as members of Prodigy
and are charged a monthly membership fee plus applicable usage fees.
These fees continue until the consumers affirmatively cancel their
memberships. These practices, according to the complaint constitute
deceptive practices in violation of Section 5 of the FTC Act.
The complaint also alleges that, because Prodigy has debited
consumers' accounts via their debit cards without their authorization,
it violated Sections 907(a) of the EFTA and 205.10(b) of Regulation E.
In addition, the complaint alleges that Prodigy failed to provide
consumers with advance written notice of transfers from their accounts
varying in amount from previous transfers, thereby violating Sections
907(b) of the EFTA and 205.10(d) of Regulation E.
The proposed consent order contains provisions designed to remedy
the violations charged and to prevent Prodigy from engaging in similar
acts and practices in the future. Specifically, Paragraph I of the
proposed order prohibits Prodigy, in connection with advertising,
promoting, selling, or distributing any online service, from
misrepresenting the terms or conditions of any trial offer of such
online service.
Paragraph II of the proposed consent order prohibits Prodigy, in
connection with advertising, promoting, selling, or distributing any
online service, from representing that the online service is ``free,''
``without risk,'' ``without charge,'' ``without further obligation,''
or words of similar effect unless Prodigy discloses, ``clearly and
prominently,'' any obligation to cancel or take other affirmative
action to avoid charges for use of the Online Service.
Paragraph II also contains two provisos that set out the
requirements of a ``clear and prominent'' disclosure. First, with
respect to a covered representation made by Prodigy in detailed
instructional materials distributed to consumers (e.g., starter kits
and guidebooks), the disclosure must be in a type size and in a
location that are sufficiently noticeable so that an ordinary consumer
could notice, read, and comprehend it. Second, as to representations
made though other media, Prodigy must provide a statement directing
consumers to a location where the required disclosure will be available
(e.g., ``For conditions and membership details,'' followed by: ``load
up trial software'' or ``see registration process'' or words of similar
effect). Audio statements shall be delivered in a volume and cadence
sufficient for an ordinary consumer to notice, hear, and comprehend
them. Video statements shall be of a size and shade and shall appear
for a duration sufficient for an ordinary consumer to notice, read, and
comprehend them. In the case of print media, the statement shall be in
a type size and in a location sufficient for an ordinary consumer to
notice, read, and comprehend it.
Paragraph III supplements Paragraph II. It provides that Prodigy,
in connection with advertising, promoting, selling, or distributing any
online service, shall disclose, ``clearly and prominently,'' during the
final registration process, and prior to consumers incurring any
financial obligation or liability, the terms of all mandatory financial
obligations that will be incurred by consumers as a result of using
such online service. Specifically, subparagraph III.A. requires Prodigy
to disclose the financial terms and conditions of any plan (e.g., trial
offer) by which consumers enroll in or renew enrollment in the online
service. Moreover, if such plan exists, Prodigy must disclose,
``clearly and prominently,'' any obligation to cancel or take other
affirmative action to avoid charges and provide at least one reasonable
means by which consumers may effectively cancel their enrollment.
Subparagraph III.B. requires Prodigy to disclose any mandatory
membership, enrollment, or usage fees (e.g., monthly or hourly usage
charges).
For purposes of Paragraph III, a disclosure is ``clearly and
prominently'' made if it is of a size and shade, and appears for a
duration sufficient for an ordinary consumer to notice, read, and
comprehend it. The disclosure shall not be avoidable by consumers.
Paragraph IV requires Prodigy, in connection with an electronic
fund transfer from a consumer account, to obtain authorization for the
transfer, as required by Section 907(a) of the EFTA and Section
205.10(b) of Regulation E. In addition, Prodigy must provide advance
notice of electronic fund transfers from consumer accounts that vary in
amount from previous transfers, as required by Section 907(b) of the
EFTA and Section 205.10(d) of Regulation E.
Paragraphs V through IX contain provisions generally found in
Commission consent orders, including record-keeping requirements,
distribution requirements, notice requirements, and a requirement that
Prodigy submit a report setting forth the manner in which it has
complied with the consent order.
Finally, Paragraph X contains a provision terminating the order,
under ordinary circumstances, twenty years from the date of its
issuance.
The purpose of this analysis is to facilitate public comment on the
proposed order, and it is not intended to constitute an official
interpretation of the agreement and proposed order or to modify in any
way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 97-12580 Filed 5-13-97; 8:45 am]
BILLING CODE 6750-01-M
