01.26.2011
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Updates
Overview
In late 2010, the Restore Online Shoppers' Confidence Act ("ROSCA" or the "Act") passed in both chambers of Congress and, on December 29, 2010, was signed by the President.1 ROSCA will become law once final administrative actions are complete.
The declaration of policy and legislative history indicate that the law was enacted primarily to protect consumers from "data passing"; that is, consumers unknowingly authorizing a merchant to transfer the consumer's payment information to another merchant for a separate online sale without otherwise requiring the consumer to reenter payment information. The legislative history focuses particularly on the post-transaction marketing of membership clubs, although the legislative history does not define the term "membership clubs."
The Act contains two primary prohibitions: (1) it prohibits and prevents Internet-based post-transaction third party sales and (2) it imposes specific requirements on negative option features. The relevant terms and provisions are summarized in more detail below.
Definitions
For purposes of the Act, an "initial merchant" means "a person that has obtained a consumer's billing information directly from the consumer through an Internet transaction initiated by the consumer."
A "post-transaction third party seller" means a person that (1) sells, or offers for sale, any good or service on the Internet; (2) solicits the purchase of such goods or services through an initial merchant after the consumer has initiated a transaction with the initial merchant; and (3) is not the initial merchant or a subsidiary, affiliate or successor thereof.
Summary
Post-Transaction Third Party Sales
ROSCA makes it unlawful for any post-transaction third party seller to charge or attempt to charge a consumer's credit card, debit card, bank account or other financial account for any good or service sold over the Internet, unless the post-transaction third party seller has clearly and conspicuously disclosed to the consumer all material terms of the transaction, including (1) a description of the goods or services being offered; (2) the fact that the post-transaction third party is not affiliated with the initial merchant; and (3) the cost of the goods or services. The post-transaction third party seller must also have received the express informed consent for the charge from the consumer by (1) obtaining from the consumer the full account number to be charged and the consumer's name, address and contact information and (2) requiring the consumer to perform an additional affirmative action, like clicking on a confirmation button or checking a box indicating consent to the transaction.
Disclosure of Financial Account and Billing Information to Post-Transaction Third Parties
Under the Act, it is unlawful for an initial merchant to disclose a credit card, debit card, bank account or other financial account number, or to disclose other billing information used to charge a customer of the initial merchant, to any post-transaction third party seller for use in an Internet-based sale of any goods or services from that post-transaction third party seller.
Negative Option Features
Finally, ROSCA prohibits any person from charging or attempting to charge any consumer for goods or services over the Internet through a negative option feature, unless the person (1) clearly and conspicuously discloses the material terms of the transaction before obtaining billing information; (2) obtains the consumer's express informed consent before charging the consumer; and (3) provides "simple mechanisms" for a consumer to stop recurring charges.
The term "negative option feature" is defined by the FTC's Telemarketing Sales Rule as follows: "in an offer or agreement to sell or provide any goods or services, a provision under which the customer's silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as an acceptance of the offer." 68 Fed. Reg. 4670 (January 29, 2003).
Although ROSCA does not provide any specific examples of "negative option features," in 2007 the FTC hosted a workshop that brought together industry representatives, consumer groups and members of the academic community to discuss negative option marketing. The report summarizing the workshop provided four examples of the types of marketing plans that fall into the negative option marketing category: (1) prenotification negative option plans, (2) continuity plans, (3) automatic renewals, and (4) free-to-pay or nominal-fee-to-pay conversion offers.2 In prenotification negative option plans (e.g., book or music clubs), sellers send periodic notices offering goods to consumers. If a consumer takes no action, the seller sends the goods and charges the consumer. In continuity plans, consumers agree in advance to receive periodic shipments of goods or provisions of services, which they continue to receive until they cancel the agreement. In automatic renewal plans, the seller (e.g., a magazine seller) automatically renews a consumer's subscription when it expires and charges for it, unless the consumer cancels the subscription. Finally, in a free-to-pay or nominal-fee-to-pay offer, consumers receive goods or services for free (or for a nominal fee) for a trial period. After the trial period, sellers automatically begin charging a fee (or higher fee) unless consumers affirmatively cancel or return the goods or services.
During the same FTC workshop, panelists discussed the "clear and conspicuous" disclosure requirements under the FTC's Telemarketing Sales Rule with respect to negative option marketing. Although this discussion did not relate specifically to ROSCA's disclosure requirements, given the FTC's enforcement authority under ROSCA, it may provide some guidance to sellers on how to comply with ROSCA's requirement that the material terms of any negative option transaction be "clearly and conspicuously" disclosed to consumers. The panelists recommended that marketers (1) place negative option disclosures in locations on their websites where they are likely to be seen, (2) label any disclosures (and any links to them) to indicate the importance and relevance of the information, and (3) use text for the disclosure that is easy to read on the screen (e.g., use fonts, colors and backgrounds that are easy to see and read, avoid long disclosures that require scrolling or clicking and avoid the use of legal jargon).
ROSCA's restrictions on negative option features bear some similarities to restrictions on automatic renewal and continuous service offers in a California law that took effect on December 1, 2010. Although different from ROSCA, the California legislation imposes similarly rigorous information, notice and consent requirements on businesses that make automatic renewal or continuous service offers to California residents. Under the California law, offers of continuous services or automatic renewals (1) must present the offer terms in a "clear and conspicuous" manner, (2) must not charge the consumer's credit card without the affirmative consent of the consumer, and (3) may not change a material term of the offer without "clear and conspicuous" notice of the change. Finally, if the offeror sends goods, wares, merchandise or products to a consumer under an automatic renewal of a purchase or continuous service agreement without first obtaining the consumer's affirmative consent, the goods, wares, merchandise or products are deemed unconditional gifts to the consumer, and the offeror must bear their entire cost. ROSCA's restrictions on negative option features may portend a trend toward more federal regulation of the type of offering addressed by the California law.
Enforcement and Penalties
Violations of the Act are treated as violations of the FTC rules regarding unfair or deceptive acts or practices, and the FTC has the same powers of enforcement as those set forth in the Federal Trade Commission Act. Additionally, the attorney general of any state may bring an action on behalf of the residents of such state against any person violating the Act. Violators may be subject to the same penalties and are entitled to the privileges and immunities provided in the Federal Trade Commission Act.
1 Pub. L. No. 111-345, 124 Stat. 3618 (2010).
2 Negative Options, A Report by the Staff of the FTC's Division of Enforcement, Federal Trade Commission (2009).
© 2011 Perkins Coie LLP
