Holiday Central

Buyer beware: Online lingerie retailer Adore Me under fire by FTC over 'deceptive' subscription service

Source: CNBC
Key Points
  • Subscription e-commerce services, which allow shoppers to sign up to receive merchandise on a recurring basis, are booming.
  • The industry's top 16 companies earned more than $5.6 billion last year alone, according to a McKinsey report.
  • Some online subscription companies employ confusing business tactics, such as opting customers in to recurring charges without their knowledge.
Locked in: CNBC investigates online subscription models
Locked in: CNBC investigates online subscription models

When Cassie LaForest ordered a bra and underwear set online from Adore Me in 2015, she had no idea she was signing up for a monthly subscription until her debit card was declined at a Starbucks months later.

"I saw all these negative charges over and over and over for Adore Me," LaForest said, adding that she felt "completely blindsided."

LaForest didn't realize she was automatically enrolled in a monthly subscription service, an increasingly common practice with online retailers that may catch shoppers off guard in the rush of holiday shopping this year. Online shoppers are projected to spend a record $7.7 billion this Cyber Monday, according to Adobe Insights, up 17.6 percent from last year.

Subscription e-commerce services, which allow shoppers to sign up to receive merchandise on a recurring basis, are booming. The industry's top 16 companies generated $5.6 billion in revenue last year alone, with sales soaring more than 800 percent from 2013 to 2017, according to a recent McKinsey report.

The option to pay for a monthly "VIP membership" is pre-selected on Adore Me's website
Source: CNBC

But the explosive growth has not come without a price. A CNBC investigation found that some online subscription companies employ confusing business tactics, such as opting customers in to recurring charges without their knowledge and making it very difficult for shoppers to opt out of the monthly fees.

Apple, eHarmony and other companies have paid millions in settlements to resolve class-action lawsuits alleging that they were automatically renewing subscriptions without consumer consent. A class-action lawsuit against Apple, which settled for $16.5 million earlier this month, accused the company of charging customer accounts through in-app subscriptions without their knowledge.

Popular online dating website eHarmony settled a similar class action in January 2018 for more than $1.3 million with an additional $1 million in restitution for similar claims. Both companies deny any wrongdoing.

Both suits claimed the companies violated California's automatic renewal law, which requires retailers to "clearly and conspicuously disclose" any recurring charges, and to receive "affirmative consent" from the consumer.

A top Federal Trade Commission official told CNBC that the agency is closely monitoring online subscription services for fraud.

James Kohm, Assistant Director at the FTC Division of Enforcement Bureau of Consumer Protection
Source: CNBC

"We are looking into a number of businesses right now in this area," said James Kohm, assistant director of enforcement at the FTC's Bureau of Consumer Protection. "It's an area that's rife with problems right now."

The agency says it has settled cases against 12 companies for more than $400 million, with two additional cases pending litigation. The FTC says it cannot comment on companies it is currently investigating.

Lingerie company Adore Me has come under fire by both some of its customers and the FTC for its misleading membership model. CEO Morgan Hermand-Waiche pitched the company on CNBC's "Power Pitch" almost four years ago as a low-cost, high-quality alternative to more expensive brands in the space such as Victoria's Secret.

"Adore Me is a new brand of lingerie that holds to one premise: deliver beautiful lingerie for a price and level of service you never expect to be possible," Hermand-Waiche told CNBC's panel of business experts.

One "Power Pitch" panelist criticized Adore Me's subscription model.

"I am not a fan of customers going to the website and being defaulted into a subscription model instead of proactively choosing it," Alicia Syrett, founder and CEO of Pantegrion Capital, said at the time.

Angry customers told CNBC they unwittingly opted into monthly membership charges after what they thought were one-time purchases, with Adore Me making it extraordinarily difficult for them to opt out.

Adore Me customer Cassie LaForest
Source: CNBC

At checkout on the Adore Me website, shoppers are automatically opted into a monthly "VIP membership" for $39.95. This recurring membership charge allows shoppers to use the money for a store credit each month.

In order to opt out of this recurring fee, shoppers must uncheck a box that many say they didn't even notice.

LaForest, who was a college freshman when she ordered from Adore Me, said she did not realize she had opted into a monthly VIP membership fee until her debit card was declined. LaForest checked her bank account on her phone app and found that her checking account was overdrawn from several months of Adore Me charges and that she had accumulated at least $180 in store credit.

LaForest and her mother went back and forth with Adore Me on phone calls and emails until the company finally refunded her the money she paid in monthly membership fees.

"I just think it's really, really unethical," LaForest said of the company's automatic opt-in subscription model.

Former customer service employees told CNBC that they were expected to bargain with upset customers and try to retain them as members at all costs.

"We had to calm down a lot of people," said Shanty Hernandez, a customer service manager at Adore Me from 2009 to 2012.

Former Adore Me employee Shanty Hernandez
Source: CNBC

"You had customers that called in and they were angry," said Gabrielle Augustin, a customer care stylist who worked at Adore Me for two months in 2014.

Hernandez and Augustin both said they tried to negotiate deals with shoppers such as putting their memberships on pause for a month instead of canceling them altogether. Another tactic they said they used was to keep customers on hold for long amounts of time to dissuade them from speaking to a customer service representative.

"The last thing you want them to do is get their money back," Augustin said. "The last thing that we want to do is refund them."

Former Adore Me employee Gabrielle Augustin
Source: CNBC

The FTC has since cracked down on Adore Me, ordering the company last year to pay $1.3 million back to consumers the agency says it misled.

Despite advertising to consumers that they would be able to use their store credits "anytime," Adore Me took the credits away from people who canceled their membership, the FTC said. They say the company also made it difficult for consumers to get out of their memberships.

"What they failed to tell consumers is if you canceled the service, you lost all of that money that was essentially in your bank," Kohm said. "There was no disclosure of that at all."

Kohm said Adore Me has complied with the order.

"They did give the money back; they gave it to us in the form of a judgement in court," Kohm said.

Hermand-Waiche and the company's attorney did not respond to CNBC's numerous requests for comment. CNBC also sent emails to Adore Me media contacts that were not answered.

Despite the FTC order, dozens of customers are still complaining that they were unknowingly locked in to recurring monthly charges.

CNBC found that scathing reviews of Adore Me continue to pour in online. There are dozens of recent complaints on websites such as the Better Business Bureau and Facebook.

Sage Salazar, who ordered bikinis from Adore Me in May for a vacation to Mexico, aired her grievances on Facebook in July.

Adore Me customer Sage Salazar
Source: CNBC

Salazar told CNBC her order took over a month to arrive, but that was far from her biggest complaint.

"I wasn't looking for a little checkbox saying that I am subscribed to something that I have to unsubscribe from," said Salazar, who incurred months of charges from Adore Me.

After she called to cancel the VIP membership she unknowingly signed up for, the company put her account on hold for three months then proceeded to continue charging her the monthly membership fee for several months, she said in an interview. Salazar said she has not gotten her money back from Adore Me.

"It's like they were just running me around in circles – and ultimately not doing what I was wanting them to do which was remove my personal card information, which is my personal property," Salazar said. "And they were not willing to do that and it really upset me."

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