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The guys discuss the recent settlement concerning deceptive tactics of a company involved with as seen on tv ads.

Full Podcast Transcript

NASIR: All right. Welcome to our business law podcast where we cover business in the news and add our legal twist for your listening pleasure. My name is Nasir Pasha.

MATT: I’m Matt Staub. That was very serious today.

NASIR: I wanted to make sure that everyone knew I was on my game today. This is serious business. I don’t think we’ve ever talked about a more serious topic in the last 162 or 161 episodes, if you’re counting this one or not. We have to address it in a respectful way, obviously, so we’re going to try to do that today.

MATT: Sorry. I’m watching the video that corresponds to what we’re talking about today.

NASIR: I think that’s a good intro. Maybe just see if people recognize this really quick here. One second.
AD: You want to keep warm when you’re feeling chilled, but you don’t want to raise your heating bill. Blankets are okay, but they can slip and slide, and when you need to reach for something, your hands are trapped inside. Now, there’s the Snuggie! The blanket that has sleeves! The new Snuggie blankets are here! “Watching a show on TV in my Snuggie, happy that my hands are free in my Snuggie, I’m just as warm as can be in my Snuggie, I love my Snuggie! That’s right!”

NASIR: I don’t know if you could hear that, Matt.

MATT: I could, yeah. So, in a shocking turn of events, it seems like these deals, the As Seen On TV deals are kind of too good to be true pricewise which I never would have expected. It’s like, “Oh, you want one for $19.95? How about we’ll give you 25 of them if you order in the next two minutes?” or something. So, basically, there’s the Snuggie Magic Mesh Door Cover, Perfect Brownie Pans, and a bunch of other ones that all fall under this Allstar Marketing Group LLC. Well, it turns out they got fined by the FTC. Let’s see. What? Roughly $8 million total – $7.5 million to restitution to customers and another half million to the New York Attorney General’s office for deceiving customers about the cost of its products. So, if anyone’s seen an infomercial before, they always give you the product and then, order within an hour and get another one for free or whatever the deal is which, I think, I don’t know if I’ve ever seen one that wasn’t like that, but what they were doing – at least what Allstar Marketing Group was doing – is, you know, when they give you that second product, well, the already kind of high shipping and handling fee is actually going to double. So, basically, they’re just making up for this extra double the amount you get by doubling the shipping and this is the whole deception that was going on with customers and, it turns out, they definitely were deceiving this with this $8 million which $8 million isn’t that much for these companies.

NASIR: The actual price of the product jumps from $35.85 – nearly double the advertised price. So, on one hand, it’s like you get buy one, get one free. But then, not only is that not true, it ends up being even more expensive – double what you’re supposed to pay. Very unfair.

MATT: Yeah. I mean, it is deceiving but, to me, the customer still has the option of saying no before they pay, right?

NASIR: Well, here’s a good point is that they have a 30-day money-back guarantee.

MATT: Yeah, I just saw that.

NASIR: Of course, that’s less packaging and handling. And, according to the complaint, the FTC says that the consumers that reported the company refused to issue refunds and directed consumers to return their unwanted products at their own expense. So, even that didn’t work. I’m just wondering, like, one of the problems with the FTC is that they will only start enforcing it if it starts to become a big issue – if they get a number of complaints – and that’s because they’re just an organization that has to prioritize between different issues that come across. Now, state attorney generals are a little bit more adaptable in that respect, it just kind of depends upon the budget and so forth, but still, there, they’re only going to get involved on a very large level. And then, on a local level, if it’s a small issue, then you’re going to have to file civilly. But the reality is that there are still companies out there that are taking advantage of people’s weaknesses and fine print and kind of trying to skirt the law every time they can. You know, Snuggies has been an established product for a while now and I think many of us are still surprised. Like, “Look, you guys are doing fine as a company, why do you need to go to these tactics?” But then, it makes you wonder, maybe that’s what made them a good company – doing these kinds of things.

MATT: Well, I don’t think Snuggies are around anymore. I think they kind of fell off because enough people bought them and that was that. But you can’t profit on shipping and handling as a thing.

NASIR: Yeah.

MATT: I mean, if you buy one thing and then you get just a second one of it, unless you’re shipping it in two separate boxes, it doesn’t really make sense. Everybody knows how shipping things works. Like, there’s a price break if you put two things in the same, like, there’s a set fee and it goes down from that. So, it just doesn’t really make sense. I guess maybe they weren’t informing or I guess billing customers without their express informed consent, not making adequate disclosures, upselling the goods and services, illegally billing customers without first getting their consent. It still seems weird to me but I’m not surprised by this in the least because this is just the nature of the whole thing is just preying on people, trying to sell them these shoddy products to begin with. To me, this is their clientele and they’re already, “We’re taking advantage of them and now it’s just financially screwing them over as well.”

NASIR: Yeah, and it looks like this $8 million is actually a settlement.

MATT: Yeah.

NASIR: So, that means that they’re cooperating. You know, Allstars general council, in typical fashion, their response to a particular article that we’re reading from Consumerist is, “Allstar is pleased to have resolved the matter and we’re proud that it resulted in positive change for our company. One of our goals has always been to provide a positive purchasing experience for our customers. While we have always believed our processes complied with the law, we are proud to have successfully worked with the FTC and the New York AG to improve them and set new standards for transparency.” The New York Attorney General. So, I don’t know. I mean, it’s frustrating, right? From a consumer’s perspective, you never want to see these kinds of companies participate in these kinds of acts. From an employer’s perspective, from a company’s perspective – gosh – I mean, have some higher standards, right? Even if you’re on the edge of the law, I mean, you’d want to be a little bit above it, you know?

MATT: Yeah, and that’s just a typical statement drafted up by an attorney so I’m not too surprised at all.

NASIR: Yeah. Basically, it says nothing. And, working the Attorney General’s office, getting a complaint against your company to the Attorney General’s office of your state definitely should be taken very seriously. When they call and do the investigation and so forth, being very responsive on the onset, course hiring an attorney, ignoring the problem. A lot of times, I’ve seen clients or business, what they do is they’ll push it aside a little bit like, “Oh, that was just one incident,” or whatever. What will end up happening is it will start growing because the AG will investigate other consumers, too – other customers, I should say – and, if they see a pattern at all, they’re going to keep investigating. It’s just going to snowball from there. And so, a lot of times, these businesses – especially, I think, for Snuggie – I doubt if the corporate council or general council knew how the conversations were going on as telemarketing. You know, it’s probably such a big organization that these processes are turning into violations because of inefficiencies and disorganization – not necessarily intentional – that’s very well possible as well.

MATT: Yeah, I guess I’m interested in how this Allstar Marketing Group, they can’t be the ones that develop all these products. Maybe they just buy? Do you know how it works? Do they buy the products off these people?

NASIR: They may be some reseller or some maybe separate affiliate and entity. I mean, it looks like these guys are the ones responsible for the operating and management. By the way, who buys a Snuggie from a telemarketer? That’s so weird.

MATT: Yeah, I guess that’s true. I know a few people that bought them, but it was a joke thing.

NASIR: Well, yeah, because, if you watch the commercials, there’s one series of commercials, there’s one that you can dress up like a bodybuilder. It has images on the front. Or a tuxedo.

MATT: Yeah.

NASIR: It’s kind of goofy.

MATT: Yeah. You know, I’m reading through the complaint now. I mean, where do you draw the line on – this isn’t the exact same but – what’s a proper sales tactic? Because they’re talking about upselling and things like that, too. It’s like, “What’s appropriate and what’s not what it comes to how these sales people are going about trying to close these deals?”

NASIR: Well, looking at this, during telemarketing, illegally billing consumers without first getting their consent, this is definitely a major consideration of legality for the FTC when it comes to telemarketing. It is one of the primary tenets and for them to violate that particular rule is a matter of failing to create a proper policy in your telemarketing sales. It is possible – as annoying as it is – to do telemarketing sales. But the compliance aspect is pretty strict. But it’s not so strict that you can’t do it. It’s actually very easy to comply with it, but you have to put in that effort and, for a company like this to violate those laws, it makes you wonder – you know, what were you doing? Why were you so haphazard in that respect? And, again, assuming these violations are true, I mean, there’s a settlement. I’m not sure if they actually admitted fault or anything like that, they probably didn’t, they probably did make some corrections and so forth and, in fact, even in this day, they still believe that they complied with the law. So, I don’t know.

MATT: Yeah, I’m looking at the prayer for relief here in the complaint and, you know, they asked for an injunction, yeah. And then, award such relief as the court finds necessary to redress injury to consumers, blah blah blah. I wonder what they would have got if it had actually gone and moved forward outside of a settlement.

NASIR: Well, actually, most of these things settle because, if they don’t settle, these FTC complaints end up being a lot more – I’ll tell you that – because, usually, it’s just by every count that they get violations and the damages are statutory. And so, it will be – I don’t know, I’m just making something up – like, $5,000 or $10,000 for every single count. That means, for every sale that they may have and so forth. And so, it can add up pretty quickly. So, that $8 million mark may have been a lot more if they didn’t settle, and they knew that, and they knew how to spend, it would have been bad publicity even further, but it’s already in public record.

MATT: And, just to let everybody know, the definition of “upselling” – since I mentioned it – is “a solicitation of the purchase of goods or services following an initial transaction during a single telephone call.”

NASIR: But I think the upsell was okay. The problem is that they were charging basically – I’ll read it right here – “in numerous instances, in connection with defendant’s efforts to upsell various products or services, defendant has caused billing information to be submitted for payment without the express informed consent of the consumer.” That’s the problem.

MATT: Well, the upsell is a separate transaction and not a continuation of the first transaction.

NASIR: Yeah, exactly.

MATT: I think that’s where it went into. So, it’s separate consent, separate disclosures, yeah. So, that’s where they got into trouble and that’s actually kind of tricky.

NASIR: Well, someday, Snuggies will come back stronger than ever – hopefully.

MATT: We should come up with a product and try to get it on this.

NASIR: I agree, Snuggies Part II.

MATT: Something Snuggie.

NASIR: Let’s just try to rip-off their idea and name.

MATT: It’s a Snuggie Slim-Fit because slim-fit is pretty big.

NASIR: That’s actually not a bad idea.

MATT: It’d be too restrictive though.

NASIR: It’d be too snug.

MATT: Yeah, too snug, yeah – Extra Snuggie.

NASIR: Too Snuggie. Uh, okay. All right, guys. Well, that’s enough about that. So, sorry we had to tackle this serious issue once again but, you know, someone has to do it.

MATT: Yeah. Well, FTC is nothing to joke about.

NASIR: That’s true. All right. Have a good one, everyone.

MATT: Yeah, keep it sound and keep it smart.

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Legally Sound | Smart Business covers the top business stories with a legal twist. Hosted by attorneys Nasir N. Pasha and Matt Staub of Pasha Law, Legally Sound | Smart Business is a podcast geared towards small business owners.

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