U.S. Settles Adult Web Fraud Case

Under the terms of a settlement announced Monday by the U.S. Federal Trade Commission (FTC), adult entertainment company Xpics Publishing, Inc. will make refunds to online consumers who were improperly billed after providing their credit information.

The FTC said that the company and its owners, Mario G. Carmona and Brian M. Shuster, obtained consumers’ credit card numbers under false pretenses and made unauthorized charges against the cards.

Carmona and Schuster will also be required to purchase banner ads that direct consumers to a Web site where they can claim their refunds.

Free Was Not Really Free

The Los Angeles, California-based company advertised free trials at its network of adult Web sites through banner ads and unsolicited e-mails. The company’s advertisements claimed that their adult images were available for viewing “100% Free.”

Visitors to the sites were asked to provide credit card numbers to verify that they were of legal age to view adult images. What the unsuspecting visitors were not told is that their credit cards would be charged a monthly fee to access the sites.

Some consumers were charged by Xpics even though they claimed to have never visited the defendants’ sites.

Unable to Cancel

In addition to misleading consumers into believing the sites were free, Xpics also made it next to impossible for visitors to cancel their service. The FTC complaint against the company alleged that the company misrepresented its policies when it told consumers that if they requested a cancellation within a certain period, their cards would not be charged.

In reality, Xpics used a variety of tactics to prevent consumers from canceling their accounts, according to the FTC. These tactics included blocking access to the cancellation page by overriding the controls on the consumers’ browser or by redirecting consumers to irrelevant pages. Some consumers attempting to cancel via the Web sites received error messages or were told that access to the requested page was denied.

Consumers who tried to cancel via telephone or e-mail did not fare any better, the FTC said. Calls to the company’s posted phone number were met with the announcement that the voice mailbox was full. In addition, according to the agency, e-mail messages to the company often went unanswered.

Even when consumers did receive notification that their accounts had been canceled, Xpics continued to bill them for monthly access. In some instances, consumers requesting account cancellation found that instead of canceling the accounts, the defendants “upgraded” their accounts and charged them more.

The FTC also said that a number of consumers who complained about the charges to their credit card companies were told that “because the Xpics’ charge is ‘revolving’ and will appear each month, the card issuers cannot stop the charges from appearing each succeeding month.”

Consumers who did succeed in having Xpics cancel their accounts and refund their money often had to wait months for their refunds. Some complainants only received refunds after enlisting the aid of a law enforcement or consumer protection agency.

Ending the Cycle

Although the defendants’ actions were apparently illegal under the FTC Act and the Truth in Lending Act, the terms of the stipulated judgment do not require Carmona and Shuster to admit to any violations of federal law.

The agreement, filed July 18th in the U.S. District Court in Los Angeles, does require that the defendants reimburse customers who were improperly billed. The pair have also agreed to post “clear and conspicuous” disclosures of their billing practices on their Web site and to notify users what personal information will be collected, how the information will be used, and with whom the data will be shared.