A coalition of twenty-three state attorneys general, led by New York AG Letitia James and Pennsylvania AG Josh Shapiro, recently submitted a letter to the Federal Trade Commission to use its rulemaking authority to further expand existing negative option regulations.
“We’re urging the FTC to take action and use its power to protect consumers from the harm of predatory marketers,” said Attorney General James. “Deceptive marketing hurts us all, which is why I will continue to use every tool in my office’s arsenal to protect consumers and stop marketers from targeting consumers.”
With negative option marketing, a marketer presents consumers with an offer and the consumers’ silence or failure to take action in response to that offer is deemed acceptance or approval of the offer.
According to the coalition, one especially problematic type of negative option offer involves “free” trial offers, where consumers are offered free trial periods of products or services. To receive the free trial, consumers are required to submit their credit or debit card number.
The coalition points out that the free trial has additional terms and conditions — which are often not clearly or conspicuously disclosed to the consumer — stating that unless consumers cancel the goods or services they are agreeing to continue to receive and pay for them. The letter states that when companies do not remind consumers before their free trials come to an end, consumers are often charged without their knowledge or consent.
In their letter, the coalition of attorneys general recommends that FTC attorneys expand regulations in order to achieve the following:
- Informed Consent: In addition to consenting to any trial offer, sellers should have to obtain a separate consent to charge for goods or services after the trial period has ended.
- Periodic Notices: Sellers should be required to send regular notifications to consumers enrolled in negative option plans that disclose the timing, amount, and method by which the seller bills the consumer for the renewal, and that provides the consumer with a convenient method to cancel the goods or services.
- Define Simple Cancellation Processes: Consumers should be allowed to cancel their memberships using the same method they used to enroll in a program.
- Refunds: Consumers who are unwittingly enrolled in negative option plans should be entitled to a refund from the date the free trial ended and their enrollment began to be charged.
Last year, California’s revised its Automatic Renewal Law. It is now widely recognized as the most stringent ARL in the nation.
The updated law requires, amongst other things, that advertisers doing business in California, to allow online cancellation of auto-renewing memberships or recurring purchases that were initiated online. It provides, in part, that a consumer who accepts an automatic renewal or continuous service offer online shall be allowed to terminate the automatic renewal or continuous service exclusively online.
It also requires a seller that provides an automatic offer that includes a free gift, trial, or promotional pricing to notify consumers about how to cancel the auto renewal before they are charged.
Sellers must also set forth the price to be charged when the promotion or free trial ends. If the initial offer is at a promotional price that is only for a limited time and will increase later, the seller must obtain consumer consent to the non-discounted price prior to billing.
The Restore Online Shoppers’ Confidence Act requires a seller to clearly and conspicuously disclose material terms of a transaction and to obtain the consumer’s consent prior to the charge. State automatic renewal laws are largely inconsistent in terms of scope, however, most require the clear and conspicuous disclosure of material terms and policies.
Consult with experienced FTC defense attorneys about different state requirements, and which states require notice prior to the renewal in order to give consumers an opportunity to cancel.
Attorney General James and Pennsylvania Attorney General Shapiro drafted the letter, which has the support of the attorneys general of Colorado, Delaware, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Dakota, Oregon, Rhode Island, Vermont, Virginia, Washington, Wisconsin, and the District of Columbia.
Takeaway: Always use “clear and conspicuous” language to disclose all material terms. Inform consumers of all material terms, including cancellation policies. Provide cancellation instructions prior to permitting a consumer the ability to purchase any goods or services online. Ensure that the cancellation process is simple to use and ensure that an online mechanism is provided. Always obtain affirmative consent prior to charging consumers’ credit cards or other payment methods. Never fail to disclose material changes before they are effective. Confirm all terms by providing an acknowledgement with all material terms and cancellation procedures. Know which laws, rules and regulations may be applicable to your marketing activities.
Richard B. Newman is an FTC lawyer at Hinch Newman LLP. You can find him on Facebook @ FTC Defense Attorney.
Informational purposes only. Not legal advice. May be considered advertising material.
