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Picture of Christopher A. Hopkins, CFA

Christopher A. Hopkins, CFA

Feds step up scrutiny of deceptive marketing

“Free trial”. “Easy cancellation”. “No obligation”. Welcome to the Roach Motel. That’s one of the terms used by insiders to describe deceptive online advertising practices that entice customers to accept a trial offer that proves difficult or impossible to cancel, and it has grown so pervasive that the Federal Trade Commission is stepping up its efforts to enforce consumer protection laws in reigning in the worst offenders.

Offering a limited trial that converts automatically to a paid subscription unless the customer affirmatively cancels is known as negative option marketing and is generally legal unless used deceptively. As most of us have experienced, the practice has become more commonplace and marketers have increasingly crossed the line by making cancellation difficult, hiding or obscuring terms or service, tacking on junk fees or aggressively rebutting requests to end the subscription. 

Federal and state consumer agencies including the FTC and the Consumer Financial Protection Bureau have reported a surge in complaints of deceptive or fraudulent tactics, especially from older consumers. According to a 10-year study conducted by the Better Business Bureau, attorneys general from 22 states estimated that misleading free trial offers cost consumers over $1.3 billion during the period.

The Roach Motel gambit is just one example of a broader category of online marketing strategies utilizing knowledge of behavioral psychology to manipulate or deceive consumers into taking actions they would not prefer to take, make unwitting purchases, or surrender personal information. Marketing specialist Harry Brignull, who studies deceptive marketing tactics in online interfaces, coined the term “dark patterns” to describe the various tricks, traps, and clickbait that website and app designers apply to influence behavior. Brignull maintains a website describing various dark patterns as well as a “Hall of Shame” featuring some of the more egregious cases.

One increasingly common tactic is the use of pre-checked boxes obligating the user to make a purchase unless the box is specifically unchecked. For example, some retailers selling electronics may include in fine print a checked box next to an offer of extended warranty which is automatically added to the cart at checkout unless the consumer unchecks the box. Also known as “Sneak into basket”, this deceptive tactic has also been used by credit agencies and identity theft trackers to surreptitiously enroll users into automatically renewing membership services.

Some fundraising companies have been busted for aggressive use of this tactic. The biggest offender during the 2020 campaign was the firm WinRed, a for-profit fundraiser for the Trump campaign and the Republican National Committee. WinRed was forced to refund hundreds of thousands of small donations in response to complaints about deceptive dark pattern tactics including pre-checked boxes to make one-time donations recurring or to double the contribution. 

Ploys to convince consumers to give up information are common, and have been dubbed “Zuckering” after Jeff Zuckerberg, founder of Facebook, the most prolific information collecting operation in existence. Researchers have learned that interacting with social media releases dopamine in the brain that can encourage users to surrender personal information in order to perpetuate the pleasurable interaction. Designers of social media platforms deliberately exploit this well-documented relationship.

“Confirmshaming” attempts to make the user feel guilty or shame them into an action. Gmail attempted the ploy to shame users into updating to the latest version with a brightly colored option to click “Yes I Want It” or a simple plain text button labeled “No, I don’t want smarter email”. 

Fear of missing out (FOMO) is also a strong motivator often deployed in creating urgency to purchase. “Only 2 seats left at this price”, “Supplies are limited”, “Hurry before this offer expires” are common and usually bogus tricks employed. Phony countdown clocks can also seek to trigger an immediate purchase rather than allow for comparison shopping or further research.

Then there is good old bait and switch, fooling a consumer into purchasing something other than what they expected. A famous example that created a major backlash was Microsoft’s 2016 Windows 10 upgrade. A popup appeared soliciting the software upgrade but changed the action of the “X” in the corner from close the window to install the upgrade. Obviously, this fiasco was short lived.

While marketing has always employed understanding of human psychology to motivate purchases, the immediacy of online interactions and the interconnection of financial systems including bank and credit card accounts has raised the stakes and emboldened bad actors. In an October 2022 policy statement, the FTC reiterated the legal standards for utilizing negative option marketing and is stepping up enforcement actions. Specifically, marketers are required to clearly and conspicuously disclose the terms of any offers, and to obtain the consumer’s informed consent to any purchase or subscription. The agency also notes it is illegal to mislead or impede customers wishing to cancel a subscription.

Consumers who encounter obstacles to canceling a subscription or who feel they have been misled or coerced can file a complaint with the Federal Trade Commission at reportfraud.ftc.gov. They should also scrutinize bank and credit card statements for unexpected charges, and if unable to successfully resolve the issue with the seller, file a dispute with the credit or debit card company. 

And as always, caveat emptor. We are subjected to deceptive tactics every day and learning how to spot and resist them is up to the each one of us. And once you learn to spot them, it can be fun.

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