The Federal Trade Commission has scored another win for consumers. Last week, it convinced a federal court to rule that payday lending company Swish Marketing must pay $4.8 million as a penalty for tricking consumers into buying expensive debit cards they didn’t want.
The case highlights abuses that consumer advocates continue to fight against, including deceptive online advertising and negative-option marketing. Here’s a look at the case and what the FTC’s action might mean.
- Online payday lending: The company’s web site reportedly claimed that it matched online consumers with payday lenders to meet their needs.
- Hidden products attached: When consumers completed the online loan application, they were apparently directed to a screen that included four additional offers. Of these, three offers had a “no” box checked and one had the “yes” box checked. In some cases the additional offers were presented as a “bonus.”
- Automatic charges: Customers who didn’t notice the “yes” box or who didn’t read the fine print ended up with a debit card that automatically connected to their bank account and charged them $54.95.
Expensive Products, Debt-Ridden Buyers
In addition to being illegal, deceptive marketing practices like the ones Swish Marketing engaged in tend to prey on those who can least afford them. In many Chapter 7 cases, for example, some of the unsecured debt that filers discharge comes from payday loans.
Payday loans are short-term, high-interest loans that often lead to serious debt for those unable to make ends meet. They provide an immediate source of cash but come with a high price tag in the long run.
Penalties for the Payday Lender
Thanks to the FTC’s action, Swish Marketing and its owners are now prohibited from:
- Misrepresenting relevant facts about a product or service. Its improper sale of debit cards failed to explain how customers would be charged and how much the product would cost.
- Improperly identifying a product as a “bonus.” The previous offer didn’t provide sufficient information about the “bonus” debit card, which left consumers unable to make an informed decision about whether or not they wanted such a “bonus.”
- Charging consumers without disclosing privacy plans. Related charges against the company addressed the fact that it reportedly sold or shared customer information without warning that it would do so.
- Failing to make sure affiliates follow the rules. From now on, Swish will be held responsible for the actions of any company it works in tandem with.
The FTC did not report how the $4.8 million will be distributed. In many similar cases, funds are used to refund money consumers lost as part of the scam.