Watch Your Back End8 Jul, 2014 By: Leonard L. Gordon, Jeffrey D. Knowles, Venable LLP’s Advertising
Many marketers would like to believe that their only concerns are the number of orders coming in, the reasonable accuracy of their advertising claims and disclosures, and ensuring the package arrives at the consumer’s doorstep. Life would be fairly simple if that were the case. Unfortunately, it is not.
The truth is that federal and state law enforcers today pay just as much, if not more, attention to marketers’ back-end practices as they do to marketers’ facial advertising claims. The ways marketers handle free-to-pay conversions, negative-option programs, upsells, cancellations, refunds and complaints are all very much under the regulators’ microscope.
In addition to consumer complaints, the Federal Trade Commission (FTC), other federal agencies and state attorneys general are looking at chargeback rates and, with increasingly frequency, return rates as key indicia of whether a merchant is deceiving or illegally charging consumers. This scrutiny from regulators extends throughout the payment chain and has the full attention of payment processors and acquiring banks. Regulators have begun attempting to combat merchant fraud by seeking to hold payment processors financially responsible for the actions of their merchants. Predictably, payment processors have responded by tightening underwriting requirements and closing potentially problematic merchant accounts.
Marketers, especially those running free-trial or continuity offers, need to pay special attention to their back-end marketing practices. Ignoring high complaint, chargeback or return rates, or engaging in “load balancing” to keep chargeback or return rates for individual merchant accounts artificially low are all excellent strategies to attract the attention of regulators or to find your business’s merchant account terminated, leaving you unable to process incoming or recurring payments.
Marketers should consult with qualified legal counsel to audit their back-end marketing practices and identify potential problem areas. Making a small investment in compliance may be the difference between the continued ability to conduct business and being put out of business.
Jeffrey D. Knowles and Leonard L. Gordon are partners in Venable LLP’s Advertising, Marketing and New Media Group. They may be contacted at (202) 344-4000.