California 'Opts in' on Negative Option5 Apr, 2011 By: William I. Rothbard
Not to be outdone by federal policymakers on the “hot button” regulatory issues of the day, California once again has characteristically entered the fray by recently enacting one of the toughest laws in the nation on negative option, or “continuity,” marketing – the common, yet increasingly scrutinized, practice in which a consumer consents in advance to purchase products on a recurring basis until he chooses to cancel.
Nationally, the new Online Restore Shoppers’ Confidence Act (also known as “Rockefeller,” after its sponsor, Sen. Jay Rockefeller, D-W. Va, now requires disclosure of Internet continuity offer terms before the seller obtains consumer billing information. The Federal Trade Commission (FTC) also is continuing to crack down on negative options, most recently in its big Internet marketing case against iWorks (disclosure: the author represents a defendant in the action.)
Now, California has joined the act, and raised the ante, by enacting Business and Professions Code §§17600-17606, which – in some respects – is more exacting than the federal standards.
The new California law requires marketers to:
• Clearly and conspicuously disclose the terms of negative options, either in “larger type than the surrounding text,” or, if the same size as surrounding text, then in “contrasting type, font, or color” or “set off” by markings, “in a manner that clearly calls attention to the language.” This minimum mandate of “equal or greater size” is more precise and inflexible than the FTC’s “clear and conspicuous” standard.
• Obtain the consumer’s advance affirmative consent for future recurring charges.
• Provide a written acknowledgement of the negative option that includes the offer terms, cancellation policy and cancellation method.
• In the case of a free-trial offer, disclose and honor the cancellation policy.
• Provide a toll-free telephone number, E-mail address, postal address (when the seller directly bills the consumer), or another easy and timely cancellation method.
• Notify consumers of any material changes to the negative option terms prior to their implementation.
Violations can lead to civil penalties of up to $2,500 per violation (each unlawful continuity offer or transaction). The California Attorney General and District Attorneys are among the most aggressive state consumer protection agencies in the country. Undoubtedly, they are already looking for “test cases” to enforce the statute, so if you use negative option in California (which can include any Internet-based offer made to a California resident), beware of the new requirements – in particular the need for disclosures to be of “equal or greater size” than the surrounding text.