Government Accuses DirecTV Of Deceptive Advertising
The Federal Trade Commission says that DirecTV is deceiving consumers by failing to adequately disclose how much these promotional prices will increase after 12 months, that subscribers face hefty early cancellation fees, and that they may be automatically subscribed to expensive premium channels after three months.
According to the complaint [PDF] filed today in a federal court in California, the FTC alleges that DirecTV violated multiple federal laws by not adequately disclosing the terms of its pricing promotions.
Like many pay-TV providers, DirecTV uses low introductory rates for new customers that subsequently increase, by upwards of 70%, after the promotion ends. The satellite service is also fond of throwing in free premium networks like HBO and Showtime for a few months to sweeten the deal.
While DirecTV includes fine-print disclosures about the fact that the promo price is only good for 12 months but requires a 24-month contract — or that the free premium channels will cost you money after three months — the FTC alleges that these disclosures are “inadequate in terms of their content, presentation, proximity, prominence or placement such that consumers are unlikely to see or understand” them.
The complaint claims that DirecTV automatically enrolls new subscribers into a so-called “negative option continuity plan,” meaning that the customer must tell DirecTV they don’t want to continue with HBO and other promotional add-ons or else they will start being billed for them when the free period ends.
New visitors to the DirecTV website are shown in huge bright numbers the promotional pricing for the different available programming packages and there is the much smaller note that the price is good “For 12 months with 24-mo. agreement.”
But the FTC claims that this fails to disclose the significance of the price hike during the second 24 months of the contract or that subscribers could face hundreds of dollars in early cancellation fees if they leave before the end of the two years.
“This additional information would be material to consumers in deciding to purchase Defendants’ subscription services,” contends the FTC.
The complaint also alleges that the particular negative option marketing used by DirecTV for the premium stations is in violation of the 2010 Restore Online Shoppers’ Confidence Act. That law prohibits negative options unless the seller clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information, obtains the consumer’s express informed consent before making the charge, and provides a simple mechanism to stop recurring charges.
The FTC is asking the court to issue a permanent injunction prohibiting DirecTV from further violations of the FTC Act and ROSCA. The government is also seeking consumer redress from the satellite provider, which could mean everything from refunds to allowing subscribers out of their contracts.
“DirecTV misled consumers about the cost of its satellite television services and cancellation fees,” said FTC Chairwoman Edith Ramirez in a statement. “DirecTV sought to lock customers into longer and more expensive contracts and premium packages that were not adequately disclosed. It’s a bedrock principle that the key terms of an offer to a consumer must be clear and conspicuous, not hidden in fine print.”
Our colleague Delara Derakhshani, policy counsel for Consumers Union, says of the FTC allegations, “You can just imagine the TV ad: ‘I’m Rob Lowe, and here’s the price you’ll pay for DirecTV. And I’m Hidden-in-the-Fine-Print Rob Lowe, and we’re actually going to jack up your bill.’”
She adds, “You deserve to know exactly what you’re going to pay down the line before you get your first bill. Too often, consumers are told one price only to find unexpected fees and rate hikes over the course of their relationship with a provider.”
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