Legal Review: Negative Option Marketing Faces New Legal Challenges

Legal Review

Just as marketers have begun to adjust to the Federal Trade Commission’s (FTC) rigorous and expansive enforcement of the Restore Online Shoppers’ Confidence Act (ROSCA), new efforts to regulate negative option marketing techniques have emerged that would impose even more burdensome requirements on these techniques.

Last month, a new bill was introduced in Congress — the “Unsubscribe Act of 2017” — which is designed to provide “increased consumer protection with respect to negative option agreements.” The bill contains several provisions that would be challenging for marketers to comply with. While ROSCA already requires that there be a “simple” method of cancellation, this bill goes further, requiring — for all online negative option transactions — that the consumer be allowed to cancel “by the same means and in the same manner” as the consumer entered into the transaction.

For example, in its consent order with One Technologies Inc., which marketed a free credit score service, the FTC expressly required that the method of cancellation be “as simple” as the method of enrollment. And while the FTC allowed the company to require consumers to call a toll-free number to cancel, the FTC imposed restrictions on the company’s save-the-sale efforts. The consent order requires that the company immediately honor a consumer’s request for cancellation, and prohibits the company from continuing with any save-the-sale attempts if the consumer indicates that he or she is not interested in such offers. We have seen similar attempts by state attorneys general to preclude or limit a company’s ability to engage in save-the-sale efforts.

The bill also sets forth specific notice and consent requirements for free trials, automatic renewals, and continuity programs. Again, this bill expands on ROSCA’s requirements for sellers to disclose the material terms and conditions of negative option offers and obtain the consumer’s express informed consent.

For free-to-pay conversions, the seller must disclose that for the trial period the consumer will receive the goods or services for free or for a nominal charge and that after the trial period the consumer will be charged or charged an increased amount. In order to obtain affirmative consent, the seller would have to require the consumer to perform an affirmative act such as clicking a button or checking a box indicating consent to be charged for the goods or services after the trial period. The bill also imposes some dramatic quarterly notice requirements following the transaction, whether in a free-to-pay, automatic renewal, or continuity program.

Also, California has introduced a new bill that expands upon its existing law governing automatic renewal and continuous service offers. While existing law requires clear and conspicuous disclosure of the terms of the offer in visual or temporal proximity to the consent mechanism (and express informed consent) the new bill imposes enhanced notice and consent requirements. Specifically, it would require that where a free trial or free gift is offered with an automatic renewal program, the marketer must obtain affirmative consent to the automatic renewal separate from the consent to the free trial. Second, for a free trial, the bill would require notice to the consumer three days before the first charge is imposed.

Marketers also should be aware that a group of district attorneys in California have formed a “negative option marketing” task force to take a broad look at the industry and have commenced many investigations. The group also has targeted the dietary supplement industry.

These new federal, state, and local legislative proposals reflect some common themes seen in recent actions. For example, the FTC — in virtually all of its ROSCA settlements — has imposed far more burdensome disclosure and consent requirements than ROSCA requires. Specifically, while ROSCA only requires disclosure of material terms and conditions before the consumer provides billing information, the FTC has generally required detailed disclosures in close or immediate proximity to where billing information is provided.

Similarly while ROSCA does not specify a method for obtaining consent, the FTC and states have generally required a check box, a signature, or similar mechanism. And, while ROSCA only requires a “simple” consent mechanism, there’s been an increased attempt by the FTC and the states to require “as simple” a method of cancellation and to discourage save-the-sale tactics. Marketers would be well advised to review disclosures, consent mechanisms, and save-the-sale techniques to determine if they comply with these standards.

These new bills do contain some provisions that — if enacted — would require dramatic changes to the current business models and create some challenging precedent. ■