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Why So Negative on Negative Option?

12 Mar, 2013 By: Jeffrey D. Knowles, Venable LLP’s Advertising, Gary D. Hailey


Continuity marketing is a pervasive component of the American economy. Today, consumers can have regularly scheduled shipments of just about anything from DVD rentals or bacon to black socks or razorblades delivered to their doors. However, despite the utility of continuity, or “negative option,” programs, many consumers and regulators decry them. During the past several years, regulation of such programs has tightened at both the state and federal levels.

Marketers need look no further than the Federal Trade Commission’s (FTC) 2012 consent order in the so-called “Green Millionaire” case, the Commission’s 2009 staff report on negative option marketing and 2010’s Restore Online Shoppers’ Confidence Act to understand what is needed to limit the regulatory risk of negative option marketing programs. Accordingly, marketers should keep the following points in mind when structuring their programs:

  • Be clear and conspicuous: Ensure that consumers receive clear notice of the terms of the offer. These disclosures should be written in plain language and presented clearly and conspicuously on the program’s website, in printed materials and in telemarketing scripts. Marketers should also disclose details about the cost of the offer and how consumers may cancel the program. These key terms must be provided before the customers provide their credit card numbers. It also never hurts to include these disclosures – especially cancellation instructions – in order confirmation E-mails or the first shipment of product.
  • Affirmative consent is critical: As tempting as it can be to use pre-checked boxes, they probably do not suffice as evidence of agreement. Marketers must secure affirmative, informed consent from consumers before enrolling them into a continuity or negative option program.
  • If they want to go, let them go: Continuity programs with opaque or difficult cancellation processes are asking for trouble. Marketers should disclose to consumers how to cancel the program before billing information is collected. When the consumer tries to cancel, the process needs to be easy and straightforward. Clearly, marketers must also honor the consumers’ cancellation requests – and do so promptly.

When it comes to continuity marketing, an ounce of prevention beats a pound of cure. Thoughtful application of best practices can avoid many consumer complaints, chargebacks and regulatory inquiries. That said, the three points above are not all marketers need to know about regulatory compliance for continuity marketing programs.

For example, there is a federal regulation that applies specifically to recurring charges to debit cards. And because the laws regulating continuity programs and are evolving and vary from state to state – for example California’s continuity law applies to all negative option programs and has very specific requirements – marketers should work with knowledgeable counsel to ensure their program conforms to current best practices and the requirements of the jurisdictions in which they market the program.

Jeffrey D. Knowles and Gary D. Hailey are partners in Venable’s Advertising, Marketing and New Media Practice Group. They may be reached at (202) 344-4000.
 


About the Author: Jeffrey D. Knowles

Jeffrey D. Knowles

About the Author: Gary D. Hailey

Jeffrey D. Knowles

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