Pact, Inc. settled charges with the FTC on September 21, 2017 that the mobile software application company engaged in deceptive acts and practices, unfair billing practices, and failure to disclose material terms relating to its Pact app.

The Pact app is premised on paying members that complete health-related weekly “pacts” with funds generated by users that fail to do so. Members set targets and penalty amounts between five and fifty dollars in case they break the pact. For example, GymPacts involves committing to exercise a specified number of times per week and VeggiePacts involves committing to eat a specified number of fruit and vegetables per week. Pacts automatically renew on Monday nights, and the app assured consumers it would never charge them unless they fail to complete a pact. According to the complaint, Pact, Inc. did not pay consumers for successfully-completed pacts—and in some cases charged them—and continuously charged consumers after cancellation.

In addition to deceptive acts and practices and unfair billing practices, the FTC charged Pact, Inc. with a specific violation of section 4 of the Restore Online Shoppers’ Confidence Act (ROSCA) due to the Pact app’s negative option feature, defined by FTC Telemarketing Sales Rules as a provision in which consumer silence or failure to take affirmative action operates as acceptance. 16 C.F.R. § 310.2(w). Information regarding recurring charges was buried in 4,400 words, or forty-three screens on an iPhone 5S. Consumers either could not locate instructions or took proper steps to freeze or stop charges but were charged nevertheless. In some cases, Pact, Inc. charged consumers hundreds of dollars even after they had deleted their accounts.

The proposed order includes a $1,500,000 money judgment in favor of the FTC and permanently restrains and enjoins Pact, Inc. from three key things: (1) misrepresenting material facts concerning the app such as total costs, restrictions, limitations, conditions, or aspects and characteristics of the app; (2) charging consumers without first obtaining express, informed consent; and (3) violating ROSCA by obtaining billing information for transactions involving a negative option feature without clear and conspicuous disclosure.

Takeaway: Companies should carefully consider compliance issues relating to recurring charges before incorporating negative option features into terms of products and services.