Get comfortable with new FTC regs
On February 9, the Federal Trade Commission issued a staff report defining "negative option marketing" broadly as a "category of commercial transactions in which sellers interpret a customer's failure to take an affirmative action, either to reject an offer or cancel an agreement, as assent to be charged for goods or services." FTC staff identified five principles to guide online marketers in complying with Section 5 of the FTC Act. Full details are at www.ftc.gov.
First, marketers should disclose the offer's material terms clearly. The terms include: the existence of the offer, the total cost, the transfer of a consumer's billing information to a third party (if applicable), and how to cancel.
In addition, marketers should make the appearance of disclosures conspicuous. Place them in locations on the Web site where they are likely to be seen, label the disclosures to indicate the importance of the information and use text that is easy to read on the screen.
Disclosure of the offer's material terms must come before consumers incur a financial obligation. and marketers should also obtain consumers' affirmative consent to the offer. Clicking a button such as "I agree" is a sufficient affirmative step to demonstrate consent.
Lastly, marketers should not impede the effective operation of promised cancellation procedures. Cancellation procedures should not be burdensome for consumers, such as those requiring consumers to wait on hold for unreasonably long periods of time.
These principles do not have the force of law and are intended merely to guide industry in complying with Section 5. However, online marketers of negative option offers should take careful note of these new FTC principles, as noncompliance may be the basis for an investigation.
Negative option plans are also drawing state legislative scrutiny. Earlier this year, the California Senate introduced SB 340, which would add new disclosure obligations and constraints on negative option offers. California would also go beyond the FTC and mandate that the seller must notify the consumer that she will be charged, before the start of every new automatic renewal period.
Careful attention now to the drafting of online negative option offers with the requisite disclosures may avoid unwanted regulatory scrutiny down the road.