DirecTV's (NASDAQ:DTV) ads are enticing.

They offer prices that seem stunning when compared to what most people already shell out for cable. The current promotion touts the number $19.99 -- a price that's well less than the around $80 a month most Americans pay for cable television. It's a deal that seems too good to be true -- and the Federal Trade Commission agrees.

The FTC voted 5-0 in favor of the complaint the agency filed in the U.S. District Court for the Northern District of California, charging that DirecTV uses deceptive ad practices. The complaint asked the court to stop DirecTV from continuing to engage in the alleged illegal conduct and to deliver a monetary judgment that would give refunds to affected consumers.

DirecTV has denied any wrongdoing. "The FTC's decision is flat-out wrong and we will vigorously defend ourselves, for as long as it takes," reported The Washington Post.

What the FTC is charging
The FTC is taking issue with DirecTV's practice of advertising a discounted 12-month programming package "because it fails to clearly disclose that the package requires a two-year contract," according to an FTC press release. The agency has also made a number of other charges:

  • DirecTV does not clearly disclose that the cost of the package will increase by up to $45 per month in the second year.
  • The company does not make it clear that early cancellation fees of up to $480 apply if consumers cancel the package before the end of the two-year period.
  • The satellite provider also fails to disclose that its offer of free premium channels for three months is in fact a negative option continuity plan that requires consumers to proactively cancel to avoid automatic charges on their credit or debit cards.

"DirecTV misled consumers about the cost of its satellite television services and cancellation fees," said FTC Chairwoman Edith Ramirez via press release. "DIRECTV sought to lock customers into longer and more expensive contracts and premium packages that were not adequately disclosed. It's a bedrock principle that the key terms of an offer to a consumer must be clear and conspicuous, not hidden in fine print."

Is the FTC right?
While the matter will ultimately be decided by a judge, a quick look at DirecTV's website shows that the company is not exactly hiding the fact that it's offering the deal price for 12 months as part of a 24-month commitment. The screenshot below shows the company's current pushed online deal. You'll see that the term 12 months is used and "with 24-mo agreement" is not particularly hard to find.

G

Source: Screenshot

What's not as clear is what exactly happens after 12 months. After adding the promo deal to your cart, things get a little more dicey as the next page has the free offer for Showtime, HBO, Cinemax, and Starz

G

Source: Screenshot

This screen allows you to elect the free trial of the premium networks and shows you what the value of that is, but no mention is made of the fact that after three months they will autobill if you do not cancel. 

The next page, which is not part of the FTC's complaint, is also a little tricky as it allows consumers to pick their equipment. The equipment is marked "free," but text under the word "free" details its actual cost.

All equipment is leased. Advanced Receiver Service ($15/mo). A monthly fee of $6.50 applies for each receiver and/or Genie Mini/DIRECTV-ready TV/Device on your account. Minimum 2-room set up required for free Genie upgrade offer
Even reading that I'm not entirely sure what my monthly fee would be. The "check your cart page" at the end of the process does show me that I would be paying an extra $34.50 each month in equipment fees, bringing my total cost to $54.49 monthly.
 
No mention is made that the premium channels will auto-bill after three months and none is made of the increase that will kick in for the cable package after the 12-month promo price ends. 
 
G
 

DirecTV offers the same promo in its current series of TV commercials starring Rob Lowe. The disclaimer clearly shows that a two-year agreement is required, but makes no mention of the price increase in the second year. Source: YouTube

The FTC has a point
While sophisticated buyers will know that a 12-month promo price on a two-year contract means a higher price in year two, DirecTV, to put it kindly, does not make that fact easy to discover. The same is true when it comes to billing on the premium channels.
 
The courts will decide whether DirecTV has technically broken the law, but it's hard to not see these ads as an attempt to deceive, because the company makes it very difficult to find the real price. 
 
  

Daniel Kline has no position in any stocks mentioned. He likes the Rob Lowe commercials. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.