OAR 137-020-0015: Misleading Use of "Free" Offers and Rebates

(1) Definitions: As used in this rule: (a) The definitions of terms set forth in ORS 646.605 and OAR 137-020-0020 are applicable; (b) “Free” means without charge or cost, monetary or otherwise, to the recipient and includes terms of essentially identical import, such as “at no additional cost,” “1¢ sale,” “2 for the price of 1” and “give away” and, in the case of real estate, goods or services described in subsection (2)(a), an offer of any combination of real estate, goods or services at a single price. A free offer in conjunction with the sale or lease of real estate, goods or services is one that conveys to consumers the message that real estate, goods, services, gift certificates, gift cards, cash cards, or any other things of value, are offered at no cost in conjunction with the purchase of other real estate, goods or services for no more than their regular price; OFFICIAL COMMENTARY: Offers may be subject to this rule even if they do not specifically use the word “free.” Any time an advertisement or solicitation is made that gives anything of value away in conjunction with the sale or lease of real estate, goods or services, the person making the offer should carefully analyze the offer to ensure compliance with this rule. Use of the term “included in the price” may be considered a “free” offer depending upon the terms and conditions of the offer, including, but not limited to, if the real estate, goods or services that are “included in the price” are usually and customarily included with the sale of similar real estate, goods or services. A merchant may not force a consumer to unknowingly purchase other goods and services simply by listing them as “included in the price.” Conversely, it is not unlawful to sell a product with an accessory included in the price, particularly if the price of the accessory is individually disclosed and a consumer knows (s)he is paying an additional amount for the accessory.There is no bright line on this issue and each offer will be evaluated in its entirety to determine if the combination of real estate, goods or services is a legitimate “free” offer. All factors will be taken into consideration, including, but not limited to, whether the consumer could purchase a similar product without the additional purchase of other goods and services or if the free item is of de minimis value, such as batteries in a toy or flashlight. (c) “Real estate, goods or services” has the meaning given that term in ORS 646.605(6). For the purpose of this rule, it does not include loans made by a financial institution or the opening of an account that is subject to the federal Truth in Savings Act of 1991, 12 U.S.C. 4301 et seq., and implementing regulations issued by the Federal Reserve Board or the National Credit Union Administration, including, but not limited to, a savings or checking account, money market account, share certificate or certificate of deposit; (d) “Rebate” means the return of any part of a payment made by a consumer in conjunction with the sale or lease of real estate, goods or services and includes, but is not limited to, an offer of a future cash refund, a direct or indirect payment of money to a consumer or a voucher for a future payment; (e) “Regular Price” means the price, in the same quantity, quality and with the same service, at which the seller or advertiser of the product or service has openly and actively sold or leased the product or service in Oregon in the most recent and regular course of business, for a reasonably substantial period of time, i.e. a 30-day period, prior to the offer. For consumer products or services which fluctuate in price, if the price change was due to changes in the cost of the goods or services by the supplier or the price change is due to price reductions inherent in the pricing of seasonal or perishable goods, the “regular price” shall be the lowest price at which substantial sales were made during a reasonably substantial period of time. Except in the case of introductory offers, if no substantial sales were made, in fact, at the “regular price,” the price will be presumed to be arrived at through bargaining with potential purchasers; and (f) “Verifiable retail value” means: (A) A price at which an offeror can demonstrate that a substantial number of free items have been sold at retail in Oregon by a person other than the offeror; or (B) If substantiation described in this section is not available to an offeror, no more than one and one-half times the amount an offeror paid for a free item. OFFICIAL COMMENTARY: If substantiation of verifiable retail value, as required by paragraph (2)(b)(C), is not available, and the offeror pays $10 for a free item, the verifiable retail value of that free item would be $15. (2) Unfair or Deceptive Use of “Free” Offers: A person engages in conduct which is unfair or deceptive in trade or commerce: (a) When the person makes a free offer in conjunction with the purchase or lease of real estate, goods or services: (A) The price, size, quantity, or quality of which is normally arrived at through bargaining with potential purchasers, unless the “free” item is offered by a manufacturer or another party that is not the seller and there is no direct cost to the seller; (B) When the item to be purchased or leased can be purchased or leased for a lesser price without the “free” item; (C) At a price that is higher than the “regular price;” (D) That is deceptive or misleading; or (E) During a home solicitation as defined by ORS 83.710(1), unless: (i) Exempted by ORS 83.710(2); (ii) The goods or services are sold or leased by a person or entity that has a franchise to operate and sell or lease its goods or services by a unit of local government and pays franchise fees; (iii) The rates or prices of the goods or services are regulated by local, state or federal government; or (iv) The merchant making the home solicitation maintains a regular place of business where goods or services are sold or leased at a regular price and the goods or services for sale or lease during the home solicitation are being sold at their regular price or less. OFFICIAL COMMENTARY: No advertisement or promotion for real estate, goods or services shall offer any free item in conjunction with the purchase or lease of real estate, goods or services, the price, size, quantity, or quality of which is normally determined by that seller or offeror by bargaining with potential consumers. It is the express intent of this section to prohibit the practice of advertising or offering something as “free,” when in fact, the cost of the “free” item can be passed on to the consumer, in whole or in part, by raising the price of the real estate, goods or services that must be purchased in conjunction with the “free” offer or by decreasing the quality or quantity of merchandise that must be purchased in conjunction with the “free” offer. Such “free” offers are illusory. Examples of violations of this section include, but are not limited to: (I) A vinyl siding company offering “free” installation with the purchase of any home siding project; (II) A construction company offering one “free” window with every other two windows purchased; (III) A manufactured home dealer offering a “free” vacation with the purchase of a manufactured home; (IV) A motor vehicle dealer offering a “free” car with the purchase of another car; (V) An offer of a “free” television with the purchase of a vacuum cleaner sold during a home solicitation; (VI) A men’s clothing store offering a “free” tie with the purchase of a shirt priced at $50.00 that has a regular price of $35.00; or (VII) A bridal dress store, selling its dresses at a convention center wedding show, marks up all of its dresses at the show by 10% over the regular price at which they are sold at the store and offers “free” flowers for the wedding of anyone who purchases a dress at the show. (b) When the person makes a free offer and in order to qualify for the offer, the recipient will be given a presentation intended to result in the promotion of a business or sale or lease of real estate, goods or services unless the offer contains a clear and conspicuous disclosure: (A) Identifying the business promoted and the goods or services offered for sale or lease; (B) That the recipient must listen to a sales or promotional presentation in order to receive the free offer or that the recipient is entitled to receive the free offer after refusing to listen to the presentation, whichever is the case. If the free item described is not immediately available for delivery to the recipient after the recipient has listened to a sales or promotional presentation, the recipient shall be given the verifiable retail value of the free item in cash or by a valid check; (C) Describing each potentially free item and its verifiable retail value; (D) That includes, if the free item is one or more of a larger group and is received on a random basis, (in addition to compliance with subsection (2)(d)) a description of the actual odds of receiving each item based on the initial odds and revised to reflect actual current odds at the beginning of each month of use of the free promotion; if not on a random basis, a description of the method of selection used. The description of the initial odds and the current odds shall include a statement of the total number of each free item to be given away by the offeror and the total number of chances to obtain the free item being distributed by the offeror. If the promotion utilizing the free item involves distribution by more than one offeror or sponsor, the description of the initial odds and the actual current odds must also include a statement of the total number of each free item to be given away by all offerors or sponsors and the total number of chances to obtain the free item being distributed by all offerors or sponsors. The odds and verifiable retail value shall be printed in the same size type as the principal description of each free item and shall appear immediately adjacent to said description; and (E) In a telephone or door-to-door solicitation, that includes the information required by ORS 646.608(1)(n) within 30 seconds after beginning the conversation. (c) When the person makes a free offer in conjunction with the purchase or lease of real estate, goods or services and, in order to receive the “free” offer, the recipient is required to pay money, in addition to the cost of the real estate, goods or services purchased or leased, to the offeror, promoter or any other person in order to accept or use the “free” offer, including, but not limited to, postage, shipping, storage, handling, processing, registration or verification; OFFICIAL COMMENTARY: An offer is not “free” if the recipient must pay a fee, over and above the actual cost of the real estate, goods or services, in order to receive the “free” offer. Examples of violations of this section include, but are not limited to: (A) Offering “free” computer software on the internet that requires the recipient to pay a postage and handling fee in order to receive the “free” software; or (B) Offering a “free” vacation with the sale of a living room furniture set that requires the recipient to pay a registration fee with the vacation company in order to reserve the future use of the “free” vacation. (d) In the case of all free goods or services offered on a random basis as described in paragraph (2)(b)(D), unless it retains for at least one year a list of the names and addresses of all persons receiving free goods or services with a verifiable retail value of $10 or more; and (e) When a person makes a free offer in conjunction with the purchase or lease of real estate, goods or services, which is subject to any terms, conditions or limitations in order to accept or use the “free” offer, and the person fails: (A) To clearly and conspicuously display in an advertisement of the “free” offer all material terms, conditions, and limitations of accepting the “free” offer; (B) To clearly and conspicuously disclose to the consumer all terms, conditions, and limitations of accepting the “free” offer prior to consummating any transaction; and (C) To afford the consumer a meaningful opportunity to reject the offer. OFFICIAL COMMENTARY: All material terms, conditions and limitations of a “free” offer must be set forth clearly and conspicuously in any advertisement in close proximity to the “free” offer. Disclosure of the terms of the offer, referenced by an asterisk and placed in a footnote at the bottom of the offer is not clear and conspicuous. Likewise, if the offer is on the internet, reference to the material terms, conditions and limitations of the offer by use of a hyperlink or only disclosing them during the checkout process is not clear and conspicuous. The definition of “clear and conspicuous” set forth in OAR 137-020-0020 has been incorporated by this rule and should be reviewed before advertising any “free” offer to ensure compliance. The complete offer, including all terms, conditions and limitations, must be fully explained to the consumer before the transaction is consummated and the consumer must be given a meaningful opportunity to reject the offer before committing to the transaction. Examples of violations of this section include, but are not limited to: (i) A consumer shopping for an engagement ring is told he would receive a fully paid “free” vacation for two to Mexico with the purchase of a diamond ring that costs over $10,000.00. No other information is given the consumer. The consumer and his new bride are, in fact, flown to the destination for free. However, the new bride and groom are booked into a dirty, unsafe and uncomfortable hotel with poor food. Once there, the new couple is told that if they check out they will not be able to use their return tickets. The consumer is given the choice of staying in the miserable accommodations or paying an exorbitant “upgrade” fee to get into a reasonable hotel; (ii) An electronics store advertises a “free” 3-day Caribbean Cruise for two with the purchase of a complete home entertainment center package. The advertisement fails to clearly and conspicuously disclose that the consumer must purchase his/her own airfare through the cruise company, that there are many blackout dates when the cruise is not available and that the price of a cruise with additional days is at a cost that is 50% more than the price of a comparable cruise. (iii) A computer software company, through television advertisements, offers two “free” compact discs of educational software. The advertisements do not disclose that the consumer must actually accept delivery of three CDs in order to get the “free” offer. If, within 15 days, the consumer does not mail back the third CD that is not “free,” the consumer is billed $79.95, the total regular cost of three CDs. All three examples may be violations of paragraph (2)(a)(D) because they are deceptive and misleading. (3) Unfair or Deceptive Use of “Rebate” Offers: A person engages in conduct which is unfair or deceptive in trade or commerce when the person makes a rebate offer in conjunction with the purchase or lease of real estate, goods or services: (a) By offering rebates that are deceptive or misleading; (b) The price, size, quantity, or quality of which is normally arrived at through bargaining with potential purchasers, unless the rebate is offered by a manufacturer or another party that is not also the seller, independent of the seller and without the seller’s participation; or (c) When the advertisement or solicitation of the rebate fails to clearly and conspicuously display in close proximity to the rebate offer all material terms, conditions, limitations and costs of receiving the rebate. OFFICIAL COMMENTARY: Examples of misleading or deceptive rebate offers include, but are not limited to: (A) A motor vehicle dealer or construction company purchases cash vouchers from a third party and advertises that the voucher reduces the cost of real estate, goods or services. Strict criteria of the marketer for filing and later claiming the rebate are so onerous that it is almost impossible for the average consumer to receive anything. In addition, the amount of money retained in trust by the marketer for claims is only a small fraction of the total amount of the vouchers issued. (B) Advertising these vouchers as rebates is misleading and deceptive because: (i) Consumers are led to believe they are actually going to get a rebate on the cost of their purchase; and (ii) The promotion is intentionally designed to make the consumers fail in either the initial submission of the voucher application or the claim process, which in some cases may not occur for four to five years from the initial transaction. Further, it is very possible that there will be insufficient funds to pay the entire amount of the “rebate” claims years later when the vouchers mature.In this particular example, offering such a voucher would also be an unlawful “free” offer pursuant to paragraph (2)(a)(A) because both motor vehicle sales and construction contracts are negotiable price transactions. (C) A retail store advertises rebates for home computer systems and fails to clearly and conspicuously disclose the material terms, conditions and limitations of the rebate in close proximity to the rebate offer. Examples of such material terms, conditions and limitations include, but are not limited to: (i) Rebates must be submitted within 7 days of purchase; (ii) To qualify for a rebate, the consumer must subscribe for a two year internet subscription with XYZ Corp; (iii)The rebate will not be for cash, but only merchandise from the manufacturer; (iv) In order to qualify for the rebate, the consumer must purchase a printer at the same time (s)he buys the computer; (v) The consumer must finance the computer system with ABC Finance Company to be eligible for the rebate; (vi) To receive the entire rebate, the consumer must submit four different rebate forms to four different companies (in this example, the advertisement must clearly and conspicuously contain the terms for all four rebates to not be misleading or deceptive); (vii) The rebate is limited to only one per address or household; or (viii) The disclosure of material terms of the rebate are not in close proximity to the advertised rebate offer in the newspaper, but placed at the bottom of the page and referenced by an asterisk.