The FTC alleged that mobile health app developer Pact Inc. falsely promised that consumers who met weekly goals would be paid financial rewards, and unfairly billed many consumers without their consent.

The Federal Trade Commission has reached a nearly $1 million settlement of its lawsuit against operators of a mobile app that promised cash incentives to get consumers to commit to fitness and nutrition goals.

The FTC alleged that mobile health app developer Pact Inc. falsely promised that consumers who met weekly goals would be paid financial rewards, and unfairly billed many consumers without their consent.

Consumers who used the Pact app made “pacts” to exercise a certain number of times per week or meet dietary goals, and agreed to be automatically charged an amount, ranging from $5 to $50 per missed activity, if they did not complete their pacts, the FTC says.  Consumers who met their weekly goals were supposed to receive a share of the money collected from those consumers who did not. Consumers’ weekly goals and monetary incentives carried over to the next week unless consumers changed or canceled them.

Consumers will receive more than $940,000 in earned cash rewards and refunds for improper charges as part of a $1.5 million judgment, the rest of which is suspended.

But in its lawsuit, the FTC alleges that Pact, a Cambridge, Mass., business incorporated in Delaware, charged tens of thousands of consumers the monetary penalty even when the consumers met their goals or after they cancelled the service. For example, one consumer who was a member of the U.S. Air Force complained that Pact charged her for missed pacts when she could not get the app to recognize the gym at the base where she was stationed. Another consumer she was billed more than $500 in recurring charges after she deleted her account, according to the FTC.

The FTC complaint further alleges that Pact and its principal owners, Yifan Zhang and Geoffrey Oberhofer, failed to adequately disclose to consumers how to cancel the service and stop recurring charges.

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“Consumers who used this app expected the defendants to pay them rewards when they achieved their health-related goals and to charge them only when they did not,” says FTC acting director of the Bureau of Consumer Protection Tom Pahl. “Unfortunately, even when consumers held up their end of the deal, Pact failed to make good on its promises.”

The FTC says Pact violated the agency’s prohibition against unfair and deceptive practices and the Restore Online Shoppers’ Confidence Act, which prohibits charging consumers for goods or services unless the material terms of the transaction, including the method to stop recurring charges, are clearly and conspicuously disclosed before obtaining consumers’ billing information.

As part of the settlement, Pact is prohibited from misrepresenting the circumstances under which it will charge or make payments to consumers and from charging consumers without their express and informed consent, the FTC says. Consumers will receive more than $940,000 in earned cash rewards and refunds for improper charges as part of a $1.5 million judgment, the rest of which is suspended, according to the FTC.

Pact has already begun the process of returning money to consumers, and, under the terms of the settlement, must notify consumers and complete payments of more than $940,000 within 30 days of entry of the order, the FTC says.

Pact has yet to respond to a request for comment from Internet Health Management.

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