97-12582. CompuServe, Inc.; Analysis to Aid Public Comment

[Federal Register Volume 62, Number 93 (Wednesday, May 14, 1997)]
[Notices]
[Pages 26512-26514]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12582]


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FEDERAL TRADE COMMISSION

[File No. 962-3096]


CompuServe, Inc.; 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 methods 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

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accompanying the consent agreement alleges that CompuServe'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 
CompuServe 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., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:
David Medine, Federal Trade Commission, S-4429, 6th St. and Pa. Ave., 
N.W., Washington, D.C. 20580, [phone]
Lucy Morris, Federal Trade Commission, S-4429, 6th St. and Pa. Ave., 
N.W., Washington, D.C. 20580, [phone]
Steven Silverman, Federal Trade Commission, S-4429, 6th St. and Pa. 
Ave., N.W., Washington, D.C. 20580, [phone].

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 Web, 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, N.W., Washington, D.C. 20580, 
either in person or by calling [phone]. 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 CompuServe, 
Inc. (``CompuServe'').
    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 CompuServe'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 CompuServe'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. 1693(a); 12 CFR 
Sec. 205.10(b). Sections 907(b) of the EFTA and 205.10(d) of Regulation 
E require advance written notice to consumers of preauthorized 
transfers varying in amount from previous preauthorized transfers. See 
15 U.S.C. Sec. 1693e(b); 12 CFR Sec. 205.10(d).
    The complaint alleges that CompuServe 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 CompuServe'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 CompuServe 
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 CompuServe and are charged a monthly membership fee plus 
applicable hourly 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 CompuServe 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 CompuServe 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 CompuServe from engaging in 
similar acts and practices in the future. Specifically, Paragraph I of 
the proposed order prohibits CompuServe, 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 CompuServe, 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 CompuServe 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 CompuServe 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 through other media, CompuServe 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

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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 
CompuServe, 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 CompuServe 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, CompuServe 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 
CompuServe 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 CompuServe, 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, CompuServe 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 
CompuServe 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. 97-12582 Filed 5-13-97; 8:45 am]
BILLING CODE 6750-01-M