Affinion Settles With 46 States for More Than $30 Million5 Nov, 2013 By: Linda A. Goldstein
This past month, Affinion Group Inc. and its subsidiaries, Triligeiant and Web Loyalty, reached an agreement with a multistate group of 46 attorneys general relating to the company’s marketing of discount club and membership services. These memberships were typically offered as an “upsell” after the consumer entered into a transaction with the primary marketer and involved the passage by the primary marketer of the consumer’s account billing information to Affinion. The memberships were also typically offered on a free trial basis followed by automatic renewal and recurring billing unless the consumer canceled. The settlement includes the payment of approximately $30 million in penalties and restitution and injunctive provisions proscribing the companies’ future marketing practice.
Post-transaction marketing of membership clubs and data pass have been the subject of intense regulatory scrutiny and state and federal enforcement actions for years. Readers may recall that several years ago, Sen. Jay Rockefeller (D-WV) passed the Restore Online Shoppers Confidence Act (ROSCA), which prohibited data pass in online post-transaction marketing and required that the material terms and conditions of negative option offers online be clearly and conspicuously disclosed before the consumer provides any billing information.
While the passage of the Rockefeller bill and stringent enforcement of Visa/MasterCard rules essentially put an end to any form of data pass, direct response marketers have nonetheless continued to utilize upselling arrangements as an additional source of revenue, and negative option offers in the form of free trials and automatic renewals continue to be a dominant force in DR marketing. Marketers, therefore, should take note of the provisions of the Affinion settlement.
Not surprisingly, the settlement provides very specific guidance relating to disclosure of the terms of the negative option offer and the manner for obtaining consent. Notably, the settlement actually mandates specific language that must be used verbatim in order disclose the negative option features of the offer. The mandated language requires disclosure of the fact that the consumer will be charged unless he or she cancels, the actual amount that the consumer will be charged on a recurring basis, and the fact that the charge will occur automatically.
The specific mandated disclosure is as follows: “Unless I contact Affinion to cancel before my Trial Period ends, I authorize Affinion to electronically charge my (type of account) $ Price automatically every (Membership Term) or a greater amount if I am notified for my purchase of a membership in Membership program until I cancel.”
In terms of the manner for obtaining consent, the settlement requires that the consumer either check a box that indicates consent to be charged or click on a confirmation button for online offers. For direct mail offers, however, a written signature is required.
Because of the continuous nature of these offers, the FTC and the states have always been concerned with ensuring that the consumer has an easy, cost-free method of cancellation and that the cancellation provisions are clearly and conspicuously disclosed. The Affinion settlement actually goes a step further and requires not only that the cancellation policy be clearly and conspicuously disclosed but also that the consumer be given the right to cancel at any time.
One of the concerns that the regulators have consistently had with post-transaction marketing offers is ensuring that consumers understand that the upsell offer is being made by an entity separate from the primary marketer. In order to address this concern, the Affinion settlement contains numerous provisions designed to make clear to the consumer that the membership service is being offered by an entity separate and distinct from the primary marketer.
Finally, the order mandates that confirmation and reminder notices be sent to the consumer and that such notices clearly indicate that they relate to a membership service. This requirement is consistent with legislation in several states that requires that such notices be sent and with an overarching desire on the part of regulators to ensure that consumers understand that they are enrolled in such programs and are aware of their cancellation rights.
Linda Goldstein is chair of the Advertising, Marketing and Media division of Manatt, Phelps & Phillips LLP, based in the firm’s New York office. She can be reached at [email protected].