FTC Says DIRECTV Not So Straightforward About Fees, Negative Options

Have you ever seen a commercial where a popular celebrity promotes DIRECTV on their own behalf and is seen as a painfully embarrassing, overly paranoid, or crazy hairy version? Applying that to the lawsuit that the FTC just filed, there’s DIRECTV, and there’s DIRECTV for deceptive advertising.

DIRECTV is one of the best-known companies in the industry, with over 20 million customers. The company advertises satellite TV packages through television, print, direct mail, telephone and online promotions, with prices as low as $19.99 per month for 12 months. In addition, DIRECTV said premium channels such as HBO and Showtime are “free for three months.” But according to the FTC, DIRECTV failed to adequately disclose the true nature of the transactions, which meant consumers were stuck with higher prices and unauthorized charges.

The complaint further explores how the FTC determined that DIRECTV’s practices were misleading. For example, DIRECTV advertises a monthly fee of $19.99 for 12 months of service, which is compelling but does not clearly explain: 1) consumers cannot actually sign up for 12 months of service because DIRECTV requires them to commit to 24 months; 2) no. In the second year, DIRECTV usually increases the monthly fee by 50-70%. Consumers who experience bill shock early in the second year and want to cancel will face hefty termination fees.

The FTC also said that DIRECTV’s “3 months free” premium channel offer was a deceptive negative option promotion. How’s the effect? DIRECTV often automatically enrolls consumers in promotions without explicitly stating that, and unless consumers take affirmative steps to cancel before the end of the three-month period, DIRECTV will charge them an additional monthly fee. The complaint alleges that after the “free” period ended, DIRECTV used consumers’ credit or debit card information to charge them for the service without their consent. We’re not talking about loose change here. The FTC said the monthly fee for these channels is about $48.

The lawsuit is pending in federal court in California. At the same time, companies need to pay attention to the following points in their complaints. In addition to charging DIRECTV with failing to disclose (or failing to adequately disclose) subscription prices and the nature of premium channel offers, the FTC said the company’s online practices violated the Restoring Online Shopper Confidence Act. ROSCA was passed in 2010 and makes it illegal to charge consumers for goods and services sold through online negative options unless the seller:

1. Clearly and conspicuously disclose all material terms of the transaction before obtaining the consumer’s billing information;
2. Obtain explicit informed consent from consumers before charging; and
3. Provides an easy way to stop recurring charges.

This is a case you want to watch.