WASHINGTON, July 24, 2000 -- Operators of "free" adult Web sites, who claimed they required a credit card number just to verify consumers' age, but then placed unauthorized charges on consumers' credit cards, have agreed to settle Federal Trade Commission allegations that their scheme violated federal laws.

The settlement will require the Web operators to provide refunds to consumers who were improperly billed, to post "clear and conspicuous" disclosures of their billing practices on their Web site, and will bar violations of the Truth in Lending Act and the FTC Act in the future.

The FTC alleged that Xpics Publishing, Inc., and its principals, Mario G. Carmona and Brian M. Shuster, hosted a variety of adult web sites offering "free" viewing, or "free 30-day" or 90-day trials. Consumers were required to provide credit card information to verify their age. But consumers who visited the sites soon discovered that their credit cards were billed, sometimes in a matter of hours, after they registered for the "free" trial, the agency alleged.

Xpics advertised that consumers who canceled in a timely manner would not be charged any fees, but Xpics used a variety of tactics to make it impossible for consumers to cancel their registration. In some instances, consumers who attempted to cancel were "upgraded" to a more expensive and also unwanted service. In certain cases, unauthorized charges were placed on the credit card accounts of consumers who had never visited any of Xpics' adult sites.

The FTC alleged that the defendants failed to inform consumers that if they submitted their credit card and signed up for the "free" trial, the consumers would be automatically billed; that by submitting their credit card information, consumers were consenting to allow the defendants to bill their accounts; and that consumers would have to observe a waiting period or view additional material before they could cancel. In addition, the FTC alleged that some consumers who canceled and asked for refunds never received them; others received them only months later.

The settlement requires the defendants to issue refunds to consumers and to place banner ads on Yahoo that link to a site where consumers can file online claims. Refunds will go to consumers who said that they had never subscribed, but were billed; consumers who said the membership was purchased by a minor; consumers who canceled or attempted to cancel their membership and were subsequently billed; and consumers who enrolled for a free trial, canceled their membership, and then were billed. Consumers who believe they were improperly billed by xpics.com, sexmuseum.com, sexroulette.com, assawards.com, livestreamsex.com, or xxxsexphotos.com can complete a claim form by clicking on the banner ad that will be posted on Yahoo at http://dir.yahoo.com/Society_and_Culture/Sexuality/Activities_and_Practices, shortly. Consumers also can file for a refund by using the Online complaint form on the FTC's home page at http://www.ftc.gov

Finally, the settlement requires that the defendants post a statement that discloses what information about the consumers they are collecting, the uses that will be made of the data, and to whom it may be disclosed. The settlement also contains record keeping provisions to allow the FTC to monitor compliance with its order.

The settlement bars the defendants from making misrepresentations about "free" services and misrepresentations that a credit card will be used for age verification only. In any future advertising or sale of adult entertainment goods or services on or through the Internet, the defendants will be required to disclose monthly or recurring charges; the length of any free trial; how to cancel membership in order to avoid charges; how to contact Xpics; and the terms and conditions of their membership. In addition, the defendants must explain to consumers what information they are collecting about them and obtain consumers' authorization before selling it to third parties. Each of the disclosures must be made, and must be verifiable, before the defendants request any payment information from consumers.

The settlement also requires that the defendants take certain steps to assure that they are not placing unauthorized charges on consumers' credit cards by using reasonably available commercial means to verify that credit card information provided by users of their sites is valid. The settlement also requires the defendants to notify consumers when their free trial is about to expire by posting an automatic notice on the Web site that consumers will clearly see. In addition, the settlement prohibits the defendants from blocking access to their cancellation page, requires that they cancel accounts in a timely manner, and requires prompt refunds where charges were unauthorized or where they were "authorized" by a minor. The settlement also prohibits the defendants from changing the terms and conditions of their membership - "upgrading" consumers' service, for example - without consumers' approval.