In 2013, the Federal Trade Commission (“FTC”) updated its guidelines for disclosures in digital media and commercial consumption. The newly-updated guidance – entitled, “.Com Disclosures: How to Make Effective Disclosures in Digital Advertising” – came 13 years after the government agency first issued guidelines focused on online operations, and addressed the expanding use of smart phones, tablets, and other portable devices by companies and consumers, as well as the increased use of social media marketing by businesses.
Aside from specifically speaking to the largescale shift in consumer behavior – and thus, advertising – from traditional properties, such as magazines and even television, to digitally-native alternatives, whether that be e-commerce websites and social media or streaming platforms, the revised “.Com Disclosures” guides did something else. They served to signal potential areas in which the FTC was focusing its attention and thus, where it may have been looking to bring enforcement actions.
Looking beyond the FTC’s emphasis on digital advertising in the guides, particularly native advertising, the agency made mention of how companies should present integral information – such as their Terms & Conditions, and information that is usually contained therein, such as whether they require consumers to pay a restocking fees, for instance – to consumers in the digital era. While the FTC’s mention of restocking fees, in particular, may have seemed like little more a passing point, it would ultimately prove relevant a couple of years later when the agency began cracking down on what constitutes adequate disclosures, including in the context of restocking fees.
Used by brands across an array of consumer goods products, but maybe most commonly in connection with electronics, restocking fees see brands charge consumers a specific amount of money – or a percentage of the cost of a certain product (usually somewhere between 10 and 25 percent) – should the consumer return the item. This particular type of commercial practice caught the attention of the FTC in 2015 when it filed a complaint against skincare company AuraVie, accusing it and other related defendants of marketing a “risk free trial” of their anti-aging skincare products to consumers. In exchange for paying a shipping fee of $4.95 or less, a consumer could receive trial skincare products.
As it turns out, the offer was a bit too good to be true. The FTC alleged that the defendants failed to adequately disclose material terms of their offer to consumers, including that the 10-day trial period began on the day that the product was ordered; to avoid charges, the consumer needed to return the product to the defendants before the end of the trial period; and a restocking fee, usually $15, could be charged when the products were returned.
By failing to adequately alert consumers of these facts, AuraVie and co. had run afoul of the law, according to the FTC, and the U.S. District Court for the Central District of California agreed from the outset, ordering (by way of a temporary restraining order) that AuraVie immediately refrain from failing to disclosure such information to consumers. The case came to a close (kind of) a year later in October 2016 when the defendants agreed to settle the suit. Fast forward to November 2019, and the FTC mailed nearly 80,000 refund checks totaling over $1.8 million to consumers who signed up for “risk-free” trial offers.
The case shed light on one of the things that the FTC considered to be a priority in connection with its enforcement efforts. It served to provide a peek into some of the requirements surrounding restocking fees, which are often under-discussed, and for which the rules, such as whether or not customers must be notified about these fees prior to purchase, can vary significantly by state. In New York, for example, retailers are required to prominently display their restocking fee policies prior to the point of purchase. New Hampshire, on the other hand, does not require such a notification.
While state laws primarily govern the issue of returned merchandise, and restocking fees by extension, Findlaw aptly notes that “federal law does provide some, limited protections to consumers through the FTC, which enforces federal consumer protection laws meant to prevent fraudulent, deceptive, or unfair business practices such as false advertising,” which is precisely what a hidden restocking fee might be considered.
Putting the legality of such situations aside, though, there is inevitably a PR element at play should a company maintain and enforce a restocking policy. This means that it is likely in companies’ best interest to clearly state such policies and make them easily accessible to consumers before they make purchases in order to avoid blindsiding consumers after the fact and thereby, give rise to the potential for reputation-tarnishing backlash.
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