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FTC Brings Second ROSCA Case

2 Dec, 2014 By: Linda A. Goldstein

Last week, the Federal Trade Commission (FTC) brought a second case in less than two months under the Restore Online Shoppers’ Confidence Act (ROSCA) – further evidencing its intent to begin using ROSCA as a means of targeting negative option programs offered online. The case involved the marketing of credit monitoring services by One Technologies LP. The States of Illinois and Ohio also joined in the settlement.

As readers may recall, although ROSCA is best known for its absolute prohibition on data pass in connection with post transaction marketing sales, it also broadly prohibits marketers from billing or charging consumers for negative option programs unless all material terms of the offer are clearly and conspicuously disclosed before the consumer submits his or her billing information, the consumer provides express informed consent to the recurring billing charges, and the marketer provides a cancellation mechanism that is as simple to use as the enrollment mechanism. Unlike the prohibition on data pass, which is limited to post-transaction sales, these requirements apply to all negative option offers presented online.

ROSCA is a powerful weapon in the FTC’s arsenal because unlike violations of the FTC Act, which are not subject to civil penalties – although the FTC may still seek restitution or disgorgement – violations of ROSCA are subject to civil penalties of up to $16,000 per violation. Notably, no civil penalties were assessed against One Technologies in this case, although the settlement does call for $22 million in restitution.

While at first blush this case may, with the exception of the ROSCA element, seem like just another in the long history of cases brought against negative option programs, a close reading of the complaint and the consent order reveal some interesting points.

First, the case underscores the FTC’s increasingly stringent view of what constitutes “clear and conspicuous disclosure. While the FTC alleged that the defendants failed to adequately disclose the material terms of the offer, the complaint itself reveals that disclosure of the fact that consumers would be charged a recurring monthly fee after the free trial was actually made several times during the enrollment process.

As the FTC complaint details, the landing page included a disclosure at the top that stated “Free 7 Day Trial when you order your 3 Free Credit Scores. Membership is then just $24.95 per month until you call to cancel.”

A link to the “Offer Details” was included on a second page with an acknowledgement of those terms, and they were disclosed in full on the payment form in an “Offer Details” box positioned to the right of the credit card field. The FTC nonetheless deemed these disclosures to be inadequate based on the type size, font, color and location of the disclosures.

As One Technologies’ disclosures were fairly typical of the manner in which many marketers disclose their offer terms, marketers would be well advised to evaluate their own disclosures in light of the FTC’s objections. Indeed, this case, coming on the heels of the FTC’s recent “Operation Disclosure” should send a strong message to the industry that simply making the disclosures is no longer sufficient.

Second, the case highlights the higher standard the FTC is setting for obtaining express informed consent to recurring charges from a consumer. In particular, the FTC is focused on ensuring that consumers are clearly consenting to the negative option component of the offer. Similar to other orders of this type, the consent order in this case requires that there be a check box, signature space or line, or another substantially similar method by which the consumer must affirmatively select to accept the Negative Option Feature – and that there be a disclosure of the material offer terms immediately adjacent to that consent mechanism.

Finally, the case demonstrates a new focus by the FTC on ROSCA’s ease of cancellation requirement. In its complaint, the FTC noted that the defendants did not provide an online or E-mail method of consent. While the consent order does not require the defendants to offer an online cancellation method, it requires that the toll-free number be disclosed on all websites, in all customer communications, and in billing descriptors – as well as the somewhat novel requirement that the defendants must immediately accept a consumer’s cancellation request although they may then attempt to retain the sale.

Clearly, the FTC’s focus on negative option marketing is not waning. In light of this and other recent FTC initiatives, marketers would be well advised to examine their online disclosures, consent mechanisms and cancellation methods.

Linda A. Goldstein is chair and 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].

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