Prodigy Services Corporation; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 952-3332]

Prodigy Services Corporation; Analysis To Aid Public Comment

agency: Federal Trade Commission.

action: Proposed consent agreement.

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summary: In settlement of alleged violations of federal law prohibiting

unfair or deceptive acts or practices and unfair method of competition,

this consent agreement, accepted subject to final Commission approval,

would, among other things, require the respondent, an Internet service

provider, when offering a ``free trial'' with automatic membership

enrollment or renewal, to disclose clearly and prominently any

obligation to cancel to avoid charges, to provide at least one

reasonable means of canceling, and to obtain consumers' authorization

before debiting their accounts. The complaint accompaning the consent

agreement alleges that Prodigy's ``free trial'' offers resulted in

unexpected charges for many consumers, because the offers did not make

clear that consumers had an affirmative obligation to cancel before the

trial period ended. As a result, consumers who failed to cancel were

automatically enrolled as members and began incurring monthly charges.

The complaint also alleges that Prodigy failed to obtain appropriate

authorization before making electronic withdrawals from the accounts of

consumers.

dates: Comments must be received on or before July 14, 1997.

addresses: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., Washington, DC 20580.

for further information contact: David Medine, Federal Trade

Commission, S-4429, 6th St. and Pa. Ave., NW., Washington, DC 20580.

(202) 326-3025. Lucy Morris, Federal Trade Commission, S-4429, 6th St.

and Pa. Ave., Washington, DC 20580. (202) 326-3295.

Steven Silverman, Federal Trade Commission, S-4429, 6th St. and Pa.

Ave., NW., Washington, DC 20580. (202) 326-2460.

supplementary information: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of

the Commission's Rules of Practice (16 CFR 2.34), notice is hereby

given that the above-captioned consent agreement containing a consent

order to cease and desist, having been filed with and accepted, subject

to final approval, by the Commission, has been placed on the public

record for a period of sixty (60) days. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the accompanying complaint. An electronic copy of the

full text of the consent agreement package can be obtained from the

Commission Actions section of the FTC Home Page (for May 1, 1997), on

the World Wide Webb, at ``http://www.ftc.gov/os/actions/htm.'' A paper

copy can be obtained from the FTC Public Reference Room, Room H-130,

Sixth Street and Pennsylvania Avenue, NW., Washington, DC 20580, either

in person or by calling (202) 326-3627. Public comment is invited. Such

comments or views will be considered by the Commission and will be

available for inspection and copying at its principal office in

accordance with Section 4.9(b)(6)(ii) of the Commission's Rules of

Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission has accepted, subject to final

approval, an agreement to a proposed consent order from Prodigy

Services Corporation (``Prodigy'').

The proposed consent order has been placed on the public record for

sixty (60) days for reception of comments by interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will again review the

agreement and the comments received and will decide whether it should

withdraw from the agreement or make final the agreement's proposed

order.

The complaint alleges that Prodigy's advertisements and statements

online to consumers violated the Federal Trade Commission Act (``FTC''

Act). Section 5 of the FTC Act prohibits false, misleading, or

deceptive representations or omissions of material information. See 15

U.S.C. Secs. 45-58, as amended. The complaint also alleges that

[[Page 26515]]

Prodigy's billing practices violated the Electronic Fund Transfer Act

(``EFTA'') and its implementing Regulation E. Sections 907(a) of the

EFTA and 205.10(b) of Regulation E permit preauthorized electronic

transfers from consumer accounts only if such transfers are authorized

by consumers in writing that are signed or similarly authenticated. See

15 U.S.C. Sec. 1693e(b); 12 C.F.R Sec. 205.10(d).

The complaint alleges that Prodigy represented that consumers who

participate in its free trial offer will not be charged, provided only

that they use the ten hours of allotted trial time within one month of

their initial sign-on and do not exceed ten hours of online use. This

representation is false, according to the complaint, because consumers

who participate in Prodigy's free trial offer and use less than ten

hours of online time during the month following their initial sign-on,

but who fail to cancel their memberships during the trial period, incur

charges. The complaint also alleges that Prodigy failed to disclose

adequately to consumers that, upon completion of ten hours of online

use or one month from the date of initial sign-on, whichever is

earlier, consumers who fail to cancel are treated as members of Prodigy

and are charged a monthly membership fee plus applicable usage fees.

These fees continue until the consumers affirmatively cancel their

memberships. These practices, according to the complaint constitute

deceptive practices in violation of Section 5 of the FTC Act.

The complaint also alleges that, because Prodigy has debited

consumers' accounts via their debit cards without their authorization,

it violated Sections 907(a) of the EFTA and 205.10(b) of Regulation E.

In addition, the complaint alleges that Prodigy failed to provide

consumers with advance written notice of transfers from their accounts

varying in amount from previous transfers, thereby violating Sections

907(b) of the EFTA and 205.10(d) of Regulation E.

The proposed consent order contains provisions designed to remedy

the violations charged and to prevent Prodigy from engaging in similar

acts and practices in the future. Specifically, Paragraph I of the

proposed order prohibits Prodigy, in connection with advertising,

promoting, selling, or distributing any online service, from

misrepresenting the terms or conditions of any trial offer of such

online service.

Paragraph II of the proposed consent order prohibits Prodigy, in

connection with advertising, promoting, selling, or distributing any

online service, from representing that the online service is ``free,''

``without risk,'' ``without charge,'' ``without further obligation,''

or words of similar effect unless Prodigy discloses, ``clearly and

prominently,'' any obligation to cancel or take other affirmative

action to avoid charges for use of the Online Service.

Paragraph II also contains two provisos that set out the

requirements of a ``clear and prominent'' disclosure. First, with

respect to a covered representation made by Prodigy in detailed

instructional materials distributed to consumers (e.g., starter kits

and guidebooks), the disclosure must be in a type size and in a

location that are sufficiently noticeable so that an ordinary consumer

could notice, read, and comprehend it. Second, as to representations

made though other media, Prodigy must provide a statement directing

consumers to a location where the required disclosure will be available

(e.g., ``For conditions and membership details,'' followed by: ``load

up trial software'' or ``see registration process'' or words of similar

effect). Audio statements shall be delivered in a volume and cadence

sufficient for an ordinary consumer to notice, hear, and comprehend

them. Video statements shall be of a size and shade and shall appear

for a duration sufficient for an ordinary consumer to notice, read, and

comprehend them. In the case of print media, the statement shall be in

a type size and in a location sufficient for an ordinary consumer to

notice, read, and comprehend it.

Paragraph III supplements Paragraph II. It provides that Prodigy,

in connection with advertising, promoting, selling, or distributing any

online service, shall disclose, ``clearly and prominently,'' during the

final registration process, and prior to consumers incurring any

financial obligation or liability, the terms of all mandatory financial

obligations that will be incurred by consumers as a result of using

such online service. Specifically, subparagraph III.A. requires Prodigy

to disclose the financial terms and conditions of any plan (e.g., trial

offer) by which consumers enroll in or renew enrollment in the online

service. Moreover, if such plan exists, Prodigy must disclose,

``clearly and prominently,'' any obligation to cancel or take other

affirmative action to avoid charges and provide at least one reasonable

means by which consumers may effectively cancel their enrollment.

Subparagraph III.B. requires Prodigy to disclose any mandatory

membership, enrollment, or usage fees (e.g., monthly or hourly usage

charges).

For purposes of Paragraph III, a disclosure is ``clearly and

prominently'' made if it is of a size and shade, and appears for a

duration sufficient for an ordinary consumer to notice, read, and

comprehend it. The disclosure shall not be avoidable by consumers.

Paragraph IV requires Prodigy, in connection with an electronic

fund transfer from a consumer account, to obtain authorization for the

transfer, as required by Section 907(a) of the EFTA and Section

205.10(b) of Regulation E. In addition, Prodigy must provide advance

notice of electronic fund transfers from consumer accounts that vary in

amount from previous transfers, as required by Section 907(b) of the

EFTA and Section 205.10(d) of Regulation E.

Paragraphs V through IX contain provisions generally found in

Commission consent orders, including record-keeping requirements,

distribution requirements, notice requirements, and a requirement that

Prodigy submit a report setting forth the manner in which it has

complied with the consent order.

Finally, Paragraph X contains a provision terminating the order,

under ordinary circumstances, twenty years from the date of its

issuance.

The purpose of this analysis is to facilitate public comment on the

proposed order, and it is not intended to constitute an official

interpretation of the agreement and proposed order or to modify in any

way their terms.

Donald S. Clark,

Secretary.

[FR Doc. 97-12580 Filed 5-13-97; 8:45 am]

BILLING CODE 6750-01-M