DirecTV sued by FTC for Gotcha pricing; consumers faced either big price hikes or huge early termination fees

The Federal Trade Commission sued DirecTV on Wednesday, alleging the firm engaged in “misrepresentations or deceptive omissions of material fact” when advertising low-cost subscription to new customers.

The firm put new consumers in a bind, the FTC said, after luring them with low-cost monthly subscriptions that required 24-month commitments. Consumers were then faced with two bad choices after the first year — either pay significantly higher monthly fees for their second year, or pay large early cancellation fees. The FTC alleges the fees were unclear to many consumers.

“DirecTV misled consumers about the cost of its satellite television services and cancellation fees,” said FTC Chairwoman Edith Ramirez. “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.” 

The second-year price increase is substantial, the FTC says, often resulting in a 50 to 70 percent increase in monthly cost. along with  an additional programming fee. The FTC also found fault with DirecTV’s offer of a free trial to premium channels which expired after three months.  Consumers were automatically enrolled in higher-priced plans to pay for those premium channels after three months, a tactic the FTC called a “negative option,” which it alleges was illegal.

While the price change and cancellation fee were disclosed to consumers, the FTC says the disclosures were inadequate. The crux of the FTCs case involves the agency’s requirement that material terms and conditions be “clear and conspicuous.”  In the lawsuit, the FTC alleges that DirecTV  intentionally obscured the terms in fine print that consumers were unlikely to see or understand, claiming the terms were “inadequate in terms of their content, presentation, proximity, prominence, or placement such that consumers are unlikely to see or understand such disclosures.” In one example, the FTC said terms were buried under 8 clicks on a website.

DirecTV denies the FTC’s claims.

“The FTC’s decision is flat-out wrong and we will vigorously defend ourselves, for as long as it takes.  We go above and beyond to ensure that every new customer receives all the information they need, multiple times, to make informed and intelligent decisions. For us to do anything less just doesn’t make sense,” the firm told me in a statement.

Plenty of consumers disagree, however. DirecTV has been the subject of of tens of thousands of consumer complaints and of actions by the attorneys general of all 50 states and the District of Columbia, the FTC notes.

Readers of this column will recognize the tactic as straight out of the “death of the price tag” playbook.  Confusing consumers about what they’ll pay — or hitting them with hefty fines when they object — may or may not be illegal according to a court of law, but it’s clearly a Gotcha. It’s bad for consumers, and it’s bad for free market competition.  To learn more about Gotcha Capitalism, consider buying my book. 

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