[Federal Register Volume 62, Number 93 (Wednesday, May 14, 1997)]
[Notices]
[Pages 26514-26515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12580]


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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