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Rebate Programs and Sweepstakes Are Subjects of Two FTC Settlements

In late April, the FTC hosted a “Rebate Debate” workshop to discuss the costs and benefits of rebates and explore the “best practices” that companies should follow when offering and fulfilling rebates. At the workshop, the FTC announced two recent settlements over rebate-fulfillment violations, signaling the FTC’s continued interest in this area. Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection, said, “Rebate terms must be disclosed up-front and clearly, and rebates must be delivered on time.”

The FTC alleged that Soyo, Inc., a company that sells consumer electronics products, promised that it would deliver rebate checks within 10–12 weeks, but some consumers waited over one year before receiving them and the average time for delivery was 24 weeks.

The FTC charged InPhonic, Inc., a company that markets wireless telephone packages, with making deceptive claims and engaging in unfair practices by failing to adequately disclose prior to purchase that consumers would have to wait at least three to six months to submit their rebate requests and would have to wait at least six to nine months after their purchase to get their rebate. In addition, InPhonic allegedly failed to provide some consumers with the materials needed to submit a complete rebate application, and in some cases, consumers received their rebates weeks or months after the promised delivery time.

The separate settlement agreements prohibit each company from misrepresenting the material terms of any rebate program and misrepresenting the time in which the company will mail any rebate, as well as from failing to provide any rebate within the time specified, or if no time is specified, within 30 days. In addition, each company is required to institute a redress program to fulfill rebates that are past due or that were unfairly denied.

 FTC Settles with Sweepstakes Promoters for $1.3 Million
Also in April, the FTC announced a proposed settlement with sweepstakes promoters who enticed consumers to send money in order to win cash prizes. A typical mailing contained statements such as “WINNERS AMOUNT CONFIRMED AS DOCUMENTED IN REPORT $677,519.00 ” and “This is not an eligibility letter or preliminary qualification announcement. YOU HAVE WON A CASH PRIZE.” According to the FTC’s complaint, the defendants’ letters led many consumers to believe that they had to pay a processing fee to receive the cash prize, but none of those who sent the fee received the promised prize. Instead, most consumers received a check for a nominal amount, such as $1, and a list of sweepstakes promotions offered by independent sponsors. Under the proposed settlement, the defendants are banned from any future involvement in prize promotions. They also are prohibited from making material misrepresentations about any other goods or services they market or help others market, and from disclosing personally identifiable information obtained from consumers during the sweepstakes operation. Although the proposed settlement imposes a judgment of $10,219,664, it will be suspended if the defendants pay $1 million within five days of the final order, plus $375,000 within 12 months.

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