Exercise app settles FTC allegations that it defrauded users
- Pact, an exercise application started in 2011 by Yifan Zhang and Geoffrey Oberhofer, agreed to pay $940,000 as part of a settlement with the Federal Trade Commission after allegations that it defrauded users, Fortune reported.
- The app asked users to set up “pacts,” or promises to exercise or eat healthier. People who didn’t fulfill the pacts had to pay a monetary penalty, while those who succeeded would be rewarded from the pool of payments. The FTC alleged that Pact charged tens of thousands of users even when they fulfilled their pacts and continued to charge them even after they canceled the service.
- Pact closed down in July, but is still required to complete its repayments within 30 days. The company had raised $2.5 million from investors including venture fund Khosla Ventures, Fortune reported.
The FTC settlement with Pact highlights the importance of testing an application before rolling it out to the wider public. The app appears to have had many technical problems based on the complaints posted on its Google Play page, which is still active, according to Fortune. People complained that Pact crashed, didn’t connect to exercise trackers like Fitbit and had poor GPS reception.
Those technical issues weren’t addressed, according to the FTC, which claimed that the app kept charging customers after they reported the app wasn’t tracking workouts correctly. Even after receiving “tens of thousands” of complaints, Pact didn’t fix the issues and instead rolled out new features that also had technical problems, the FTC said.
Mobile app creators need to be mindful of customer commitments and allowing technical glitches to affect user experiences. Failure to do so not only negatively impacts brand perceptions, but it can also land companies in hot water and serious legal debacles. The FTC took note of the level to which Pact was allegedly impacting consumers and launched an investigation, which resulted ultimately in a sizable settlement.
The FTC has received a lot of attention in recent months for its efforts to crack down on influencer marketing, but it bears remembering that the agency has other areas of consumer protection oversight that marketers and app developers need to be aware of.