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Direct Response Marketing

Legal Review: FTC Sets New Standards for Negative Option Disclosures

1 Jun, 2012 By: Linda A. Goldstein Response


Companies who market negative-option offers online or by telephone should pay very close attention to the recent consent order issued by the Federal Trade Commission (FTC) in the Green Millionaire case. This order contains new standards for negative-option disclosures that go well beyond what is currently required online under the recently enacted Restore Online Shopper’s Confidence Act (ROSCA) or on the telephone under the FTC’s Telemarketing Sales Rule (TSR).

In fact, at a recent industry event, an FTC speaker expressly highlighted the disclosure provisions of this order and urged marketers to take a very close look at its requirements. Thus, the Commission clearly intends the provisions of this order to serve as guidance for industry members making similar types of offers.

ROSCA, which was designed primarily to eliminate data pass among third-party marketers, imposed certain general requirements on all negative-option offers presented online, including: that all material terms and conditions of the offer be clearly and conspicuously disclosed before obtaining the consumer’s billing information; that the marketer obtain the consumer’s express informed consent before charging the consumer’s account; and that the marketer provide a simple mechanism for the consumer to cancel.

The TSR similarly requires that all material terms and conditions of the negative-option feature be disclosed, including, but not limited to, the fact that the consumer’s account will be charged unless the consumer cancels and how the he or she can cancel. The TSR further requires that, for free-trial offers that also involve the use of pre-acquired account information, the consumer must provide the last four digits of their credit or debit card and the call must be recorded.

The Green Millionaire consent order goes well beyond these requirements, identifying the following information as the “material” terms of a negative-option offer and requires that they be clearly and conspicuously disclosed:

  1. A description of the product or service.
  2. The specific billing information that will be used.
  3. All fees and costs that the consumer will be charged, including shipping and handling.
  4. The name of the entity charging the consumer if it is not identified in the offer (particularly relevant in upsells).
  5. A description of how the charge will appear on the consumer’s billing statement if the billing descriptor will not contain the name of the billing entity or product.
  6. The amount of any subsequent charges, and their dates or frequency.
  7. Any other material limitations or conditions to receiving or using the product or service.
  8. The consumer’s steps for cancellation.

The consent order goes further to prescribe very specific requirements for obtaining affirmative consent both for online and telemarketing sales, raising the disclosure bar for these types of offers.

Most notably, for all written offers, including online, there must be a check box, a signature or other similar device that the consumer must select or sign specifically to accept the negative-option feature. Immediately adjacent to that check box or signature line, there must be a disclosure statement containing only the following information: all costs associated with the negative-option feature; a statement that the consumer is agreeing to pay those costs; the length of any trial period; and that consumers must cancel to avoid being charged.

For telemarketing sales, the order requires that the entire transaction must be recorded, and it must demonstrate that all of the material terms have been disclosed and that the consumer has agreed to pay all costs. It also requires disclosure of at least of the last four digits of the credit or debit card for any negative-option offer, not just an offer involving a free trial.

The order also requires that certain post-transaction disclosures be made. For example, for services, a written confirmation disclosing all of the material terms must be sent no later than either 10 days after the order date or half the time of any trial period, whichever is sooner, and that for tangible products, this confirmation be sent with the first shipment. The order also requires written notice of renewals to be sent at least 30 days prior to the renewal date.

 


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