For
Release: July 24, 2000
Adult Web Sites Settle FTC Charges
"Free" Site Operators To Provide Refunds To
Consumers They Billed
Operators of "free" adult Web sites, who claimed they required a credit card
number just to verify consumers' age, but then placed unauthorized charges on consumers'
credit cards, have agreed to settle Federal Trade Commission allegations that their scheme
violated federal laws. The settlement will require the Web operators to provide refunds to
consumers who were improperly billed, to post "clear and conspicuous"disclosures
of their billing practices on their Web site, and will bar violations of the Truth in
Lending Act and the FTC Act in the future.
The FTC alleged that Xpics Publishing, Inc., and its principals, Mario G. Carmona and
Brian M. Shuster, hosted a variety of adult web sites offering "free" viewing,
or "free 30-day" or 90-day trials. Consumers were required to provide credit
card information to verify their age. But consumers who visited the sites soon discovered
that their credit cards were billed, sometimes in a matter of hours, after they registered
for the "free" trial, the agency alleged. Xpics advertised that consumers who
canceled in a timely manner would not be charged any fees, but Xpics used a variety of
tactics to make it impossible for consumers to cancel their registration. In some
instances, consumers who attempted to cancel were "upgraded" to a more expensive
and also unwanted service. In certain cases, unauthorized charges were placed on the
credit card accounts of consumers who had never visited any of Xpics' adult sites. The FTC
alleged that the defendants failed to inform consumers that if they submitted their credit
card and signed up for the "free" trial, the consumers would be automatically
billed; that by submitting their credit card information, consumers were consenting to
allow the defendants to bill their accounts; and that consumers would have to observe a
waiting period or view additional material before they could cancel. In addition, the FTC
alleged that some consumers who canceled and asked for refunds never received them; others
received them only months later.
The settlement bars the defendants from making misrepresentations about
"free" services and misrepresentations that a credit card will be used for age
verification only. In any future advertising or sale of adult entertainment goods or
services on or through the Internet, the defendants will be required to disclose monthly
or recurring charges; the length of any free trial; how to cancel membership in order to
avoid charges; how to contact Xpics; and the terms and conditions of their membership. In
addition, the defendants must explain to consumers what information they are collecting
about them and obtain consumers' authorization before selling it to third parties. Each of
the disclosures must be made, and must be verifiable, before the defendants request any
payment information from consumers.
The settlement also requires that the defendants take certain steps to assure that they
are not placing unauthorized charges on consumers' credit cards by using reasonably
available commercial means to verify that credit card information provided by users of
their sites is valid. The settlement also requires the defendants to notify consumers when
their free trial is about to expire by posting an automatic notice on the Web site that
consumers will clearly see. In addition, the settlement prohibits the defendants from
blocking access to their cancellation page, requires that they cancel accounts in a timely
manner, and requires prompt refunds where charges were unauthorized or where they were
"authorized" by a minor. The settlement also prohibits the defendants from
changing the terms and conditions of their membership - "upgrading" consumers'
service, for example - without consumers' approval.
In addition, the settlement requires the defendants to issue refunds to consumers and
to place banner ads on Yahoo that link to a site where consumers can file online claims.
Refunds will go to consumers who said that they had never subscribed, but were billed;
consumers who said the membership was purchased by a minor; consumers who canceled or
attempted to cancel their membership and were subsequently billed; and consumers who
enrolled for a free trial, canceled their membership, and then were billed. Consumers who
believe they were improperly billed by xpics.com, sexmuseum.com, sexroulette.com,
assawards.com, livestreamsex.com, or xxxsexphotos.com can complete a claim form by
clicking on the banner ad that will be posted on Yahoo at
http://dir.yahoo.com/Society_and_Culture/Sexuality/
Activities_and_Practices, shortly. Consumers also can file for a refund by using the
Online complaint form on the FTC's home page at http://www.ftc.gov
Finally, the settlement requires that the defendants post a statement that discloses
what information about the consumers they are collecting, the uses that will be made of
the data, and to whom it may be disclosed. The settlement also contains record keeping
provisions to allow the FTC to monitor compliance with its order.
The Commission vote to approve the settlements was 5-0, with Commissioner Orson Swindle
dissenting in part, and issuing a separate statement. Commissioner Swindle objected to the
order provisions requiring defendants to post a privacy policy. He explained, "I
support the allegations in the complaint that Xpics Publishing, Inc. and the other
defendants engaged in deceptive acts or practices in violation of Section 5 of the FTC Act
by representing to visitors to their pornographic web sites that they were requesting the
visitors' credit card information only to verify that the visitors were of legal
age to view the pornographic materials. . . . At its core, the complaint alleges that
defendants made an implied representation that they would use the credit card information
only to verify age and that this representation was false because defendants also used
their customers' billing information to place unauthorized charges on their credit cards.
There is [however] no allegation that defendants transferred consumers' billing
information, or other personal information, to third parties. I object to the privacy
provisions in the order because they are not reasonably related to the complaint
allegations, which do not implicate privacy concerns but merely involve misrepresentations
and unauthorized billing violations. In the absence of a transfer of information to a
third party, I do not believe that a false claim as to how billing information will be
used internally is sufficient to justify imposing privacy requirements."
The stipulated final judgment and order was filed in U.S. District Court for the
Central District of California in Los Angeles and signed by Judge Margaret M.. Morrow,
July 18, 2000.
NOTE: A stipulated final judgment and order is for settlement
purposes only and does not constitute an admission by defendants of a law violation.
Consent judgments have the force of law when signed by the judge.
Copies of the
complaint and stipulated final judgment and order are available from the FTC's web site at
http://www.ftc.gov and also from the FTC's
Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580;
toll free at 1-877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To
find out the latest news as it is announced, call the FTC NewsPhone recording at
202-326-2710.
- MEDIA CONTACT:
- Claudia Bourne Farrell,
Office of Public Affairs
202-326-2181
-
- STAFF CONTACT:
- Stephen L. Cohen,
Bureau of Consumer Protection
202-326-3222
(FTC File No. 982-3541)
(Civil Action No. 00-07613 MMM)
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Related
Documents FTC v.
Xpics Publishing, Inc. and Mario G. Carmona and Brian M. Shuster
- Complaint for
Injunctive and Other Relief Redress
- Stipulated Final Judgment
and Order for Permanent Injunction and Consumer Redress [PDF 2.6MB]
- Statement of
Commissioner Swindle, Concurring in Part and Dissenting in Part
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