Lingerie Startup Settles FTC Suit Over Deceptive Subscriptions

(Bloomberg) -- Lingerie retailer AdoreMe Inc. agreed to pay $1.38 million to settle a U.S. Federal Trade Commission lawsuit over claims that it deceived shoppers with its billing tactics. At issue was a subscription business model, popular among online retail startups, that featured a hard-to-cancel membership with a monthly fee.

The FTC sued the New York-based underwear retailer on Monday, alleging the company violated the Restore Online Shoppers Confidence Act by making it difficult for shoppers to cancel memberships and halt credit card charges. The FTC also claimed Adore Me misrepresented its store credit policy. Although Adore Me promised that customers could use store credits at any time, the complaint found that the company revoked unused credits after customers cancelled their memberships. The settlement will be used to pay customer refunds.

“Consumers have suffered and will continue to suffer substantial injury,” the FTC wrote in its complaint, if Adore Me was allowed to continue these practices. Adore Me didn’t admit to or deny any wrongdoing in its settlement. A representative for Adore Me did not immediately respond to a request for comment.

Adore Me is part of a crop of online retailers accused of relying on deceptive subscription models to trap people into reoccurring charges. It used a method known as negative-option billing to keep customers paying a $39.95 per month charge. First time shoppers would get funneled into an ongoing VIP Membership, offering discounted underwear or store credit. The monthly fee continued unless customers opted out during the first five days of the month.

Subscription companies have come under fire from regulators in recent years for allegedly using shady methods to acquire and retain new members. In 2015, Stamps.com paid $2.5 million in penalties and up to $1.5 million in restitution for shoppers to settle a suit over deceptive subscription marketing. JustFab, which owns ShoeDazzle and Fabletics along with its namesake online clothing store, paid $1.8 million to settle a similar lawsuit.

An investigation into Adore Me by Bloomberg last year uncovered customer grievances alleging that the company made it difficult to unsubscribe from the service. In the complaint, the FTC alleged the company went out of its way to stifle shoppers’ ability to cancel their memberships. For several years, the FTC said, the company would force members to meander through a complicated process to submit cancellation requests and understaffed its customer service unit, making it hard to get help. 

The FTC settlement will not bar Adore Me from using negative-option billing. Instead, Adore Me will now be required to use clear disclosures when shoppers subscribe to its service and must provide an easy method for members to stop charges.

To contact the authors of this story: Kim Bhasin in New York at kbhasin4@bloomberg.net, Rebecca Greenfield in New York at rgreenfield@bloomberg.net.

To contact the editor responsible for this story: Aaron Rutkoff at arutkoff@bloomberg.net.

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