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Direct Response Marketing

Legal Review: Rockefeller Bill Caps off Tough 2010 for Marketers

1 Jan, 2011 By: Ellen T. Berge, Jeffrey D. Knowles, Venable LLP’s Advertising Response

2010 represented the toughest legislative climate the DR industry has faced in years — and 2011 will likely only be tougher. The economic downturn squeezed the bottom line and regulators took aim at a broad swath of marketing practices. At the same time, many states were busy enacting some even more stringent consumer protection laws.

Nothing during 2010 haunted the direct response community quite like a bill introduced by Sen. Jay Rockefeller, D-W.Va., the chairman of the Senate Committee on Commerce, Science & Transportation. Following a yearlong investigation of membership clubs and online direct response marketers, Rockefeller introduced the Restore Online Shoppers’ Confidence Act in May 2010. The “Rockefeller Bill” sought to effectively end third-party post-transaction marketing that involved “data pass,” the practice of one merchant sharing consumers’ payment information with another marketer in order to complete a transaction.

The original version of the Rockefeller Bill also included language that would have severely curtailed negative option marketing. Through the efforts of many in the direct response industry, the most onerous negative-option language was stripped from the version of the bill that was reported out of the committee this summer.

After the bill left committee, the fight was not over. A July 30 Senate staff working draft of a proposed amendment to the bill entertained the idea of giving the Federal Trade Commission (FTC) broad expedited rulemaking authority to promulgate rules governing all online negative option marketing. Again, the industry succeeded in keeping this language from being added to the bill.

During August, the industry was able to prevent several attempts to “hotline” the bill. Hotlined bills can pass the Senate virtually instantly by unanimous consent, typically without any amendment, debate or other consideration. However, the Rockefeller Bill finally passed the Senate, via the hotline procedure, on Nov. 30.

Congressman Zack Space, D-Ohio, introduced a near-identical version of the Rockefeller Bill, (H.R. 5707), in the House of Representatives in July. After much speculation that the bill would die in the House, the Senate version of the bill passed the House by a voice vote on Dec. 15.

The bill as passed prohibits, in most cases, any third-party seller from charging or attempting to charge a consumer, after an initial transaction, for any good or service sold over the Internet. It also prohibits the use of “data pass” and requires post-transaction sellers to clearly disclose their product and terms of any agreement to the consumer. It also requires that consumers re-enter all personal and financial information for any post-transaction third-party transactions.

The bill also prohibits third-party sellers from using most “negative option” or “opt-out” tactics. Marketers using a negative option model for a post-transaction third-party must provide a form disclosing all terms of the agreement, obtaining express consent from consumers, and providing a simple way for consumers to cancel.

Marketers should learn a number of lessons from this battle that will inform the regulatory debate in 2011 and beyond. The first is that the FTC’s regulatory appetite has been whetted and it will seek to have its regulatory powers expanded. Second, consumer protection sells. In the current economic climate, regulators and lawmakers feel a need to protect “vulnerable” consumers. This pervasive mood leads to more aggressive enforcement and makes it more difficult for the direct response industry to tell its side of the story.

Finally, legislation is not always necessary to drive change in the marketplace. Congressional attention persuaded Visa and MasterCard to enforce policies that essentially enacted the anti-data pass provisions of the bill long before it passed.

Looking forward, if the industry waits until the battle lines have been drawn on an issue, the battle may already have been lost. Although Republican control of the House may create a somewhat more business-friendly environment, the direct response community is often an easy political target. Only by proactively engaging lawmakers and regulators, telling the industry’s story, and explaining the consumer benefits our industry provides can we hope to level the playing field. ■

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