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May 26, 2015

AG MADIGAN ANNOUNCES $11 MILLION SETTLEMENT WITH CLASSMATES INC., FTD FOR DECEPTIVE MARKETING

Chicago — Attorney General Lisa Madigan, along with the Attorneys General of 21 states today announced an $11 million settlement with Classmates, Inc., along with Florists’ Transworld Delivery, Inc. and its online counterpart FTD.com Inc. (FTD), in response to allegations that the companies engaged in unfair and deceptive marketing.

Madigan and her counterparts allege Classmates and FTD allowed third-parties to utilize negative option marketing practices to sell membership programs to consumers. Negative option marketing is a sales practice in which a seller interprets a consumer’s failure to reject an offer or cancel an agreement as approval to charge the consumer for goods or services.

These third-party marketers offered programs, such as discount buying clubs and travel reward programs, often immediately following consumers’ online transactions with Classmates or FTD. Classmates and FTD would share consumers’ personal information, including credit card account numbers without consumers’ knowledge, which enabled third parties to bill consumers for the advertised offers unless the consumer proactively canceled the service or product delivery. Federal law bans such data sharing practices.

“These companies’ practices were deceptive,” Madigan said. “After customers made a purchase, they were also charged for goods and services they never requested or wanted.”

Today’s agreement includes a number of terms to ensure that consumers knowingly consent to the purchase of any membership program offered by a marketing partner of Classmates or FTD. The agreement also:

  • Prohibits the companies from misrepresenting the reason for requesting a consumer’s account information;
  • Prohibits third-party marketers from using FTD and Classmates’ names or logos in the title of a membership program, and any offer must be made after the consumers have concluded their transactions with Classmates or FTD to ensure that buyers understand they are receiving a separate and distinct offer from a different company;
  • Requires companies to clearly and concisely inform consumers that they will be transferred to another site to receive a membership offer, and consumers must consent to the transfer before they are sent to the new site;
  • Prohibits Classmates/FTD and its marketing partners from stating an offer is “free” or “risk free” if the offer will convert to a paid subscription; and
  • Prohibits Classmates/FTD from making misrepresentations or omissions concerning the reason or purpose for which a consumer is receiving an offer for enrollment in a membership program.

The Attorneys General also investigated Classmates’ renewal and cancellation practices in connection with social network subscription services offered to consumers through its website, Classmates.com. They allege Classmates failed to adequately inform consumers that their subscriptions would automatically renew and made cancellation difficult. Under today’s settlement, Classmates has agreed to make significant changes to its business practices, including more clearly stating that Classmates subscriptions will automatically renew and making it easier for consumers to cancel their subscriptions.

Classmates and FTD denied any wrongdoing but agreed to pay $8 million, and Classmates is establishing a $3 million restitution fund to provide refunds to consumers who were enrolled into the company’s subscription service without authorization or who experienced difficulty when trying to cancel subscriptions. Illinois’ share of the $8 million is $487,775.35. Those seeking refunds from Classmates who have not previously filed a complaint have 90 days following the settlement’s execution date of May 25 to call Attorney General Madigan’s Consumer Fraud Hotline:

Chicago: 1-800-386-5438
Springfield: 1-800-243-0618
Carbondale: 1-800-243-0607

Individuals who previously filed complaints regarding Classmates’ renewal and cancellation practices may qualify to receive restitution under the settlement.

The states included in the settlement are Alabama, Alaska, Delaware, Florida, Idaho, Illinois, Kansas, Maine, Maryland, Michigan, Nebraska, New Jersey, New Mexico, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Texas, Vermont, Washington, and Wisconsin.

Assistant Attorneys General Cassandra Halm and Matthew Van Hise handled this case for Madigan’s Consumer Fraud Bureau, which protects Illinois consumers and businesses that have been victimized by fraud, deception and unfair business practices.

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