Love in Court: Takeaways for FMCG brands on avoiding subscription traps and misleading claims
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A trend in the retail – and many other – industries is the rise of the subscription model. Direct-to-consumer and e-commerce businesses have been fuelled by post-pandemic lifestyle changes with time poor consumers favouring personalisation and convenience. Whether it is olive oil makers, wine, farm-fresh boxes of fruits and vegetables or pet food, the subscription model presents a fountain of opportunity. It does, however, also come with legal challenges.
In this article, we consider recent enforcement action taken by the Australian Competition and Consumer Commission (ACCC) against a digital membership provider, which provides some useful takeaways for businesses that have adopted or are considering adopting, a subscription or membership-type product or service offering.
On 7 September 2023, the ACCC commenced court proceedings against online dating website eHarmony over alleged misleading representations made by eHarmony on its website in breach of the Australian Consumer Law (ACL). Before commencing court proceedings, the ACCC had investigated eHarmony’s practices after receiving hundreds of complaints from consumers about eHarmony’s paid membership products. The ACCC claims that eHarmony’s conduct is particularly egregious as eHarmony participated in consultations with the ACCC in 2016 to develop the “Best practice guidelines for dating websites”.
The ACCC claims that eHarmony contravened the ACL by giving the false impression to consumers that their memberships were for a set period of 6, 12 or 24 months when in fact, the memberships were subject to automatic renewal, often at much higher prices than their original payment. Further, it claims that eHarmony obscured that paid memberships would automatically renew by displaying this practice in small font late in the payment process and in the terms and conditions.
Under the ACL it is a requirement for businesses to display the minimum amount payable for goods and services inclusive of fees and mandatory charges. The ACCC alleges that eHarmony contravened the law in this respect by failing to display the true minimum price for the memberships. It is alleged that eHarmony had a practice of charging mandatory additional fees if a customer elected to make monthly payments. These fees were not incorporated in the minimum price that was advertised to customers to purchase an eHarmony membership.
The ACCC also claims that several statements made on eHarmony’s website and in advertisements were misleading and deceptive. Including that eHarmony promoted that its services provided “free dating” to customers which the ACCC claims misrepresented to the public that they could use eHarmony’s platform to meet others for free when customers could not see other user’s profiles or initiate two-way communication without payment. Customers were required to pay a membership fee to unlock these communication features.
Further, the ACCC claims that statements made on eHarmony’s website at various times misled customers about the membership type and the cancellation policy. It is alleged that for a period, some pages of eHarmony’s website contained statements to the effect that customers could subscribe for a one-month membership when this product did not exist. Additionally, it is alleged that eHarmony conveyed to customers, in relation to the paid membership, that they could “try before you buy” with “no pressure to sign up”. The representation that customers could cancel their paid membership is said to be false and such statements served to entice customers to purchase eHarmony’s membership on the belief that they would be able to cancel their membership after signing up.
The ACCC’s investigation and its commencement of legal action against eHarmony highlights the importance for all businesses that sell goods and services in Australia, particularly via a membership model, to review their marketing collateral, agreements, and practices. Businesses should ensure that:
- any automatic renewal of memberships or subscriptions are clearly and prominently communicated to customers and that customers have the opportunity to cancel the automatic renewal of their membership or subscription before the renewal date.
- if the price of goods or services is displayed on a website, social media campaign or other advertisement, the total minimum price being displayed incorporates all mandatory fees and charges.
- all claims that include the word “free” are legally vetted to ensure that the claim does not represent that the goods or services are free when they are not.
- promotional claims about goods or services accurately reflect the business’ practices and are not embellished or exaggerated to entice customers to purchase the goods or services, such that the claims could be construed in a way that is misleading or false.
