The FTC continues to aggressively target negative option offers that deceptively induce consumers through a “free trial” or low-cost initial fee to make a purchase without being informed there will be recurring charges unless they cancel.
All material terms must be “clearly, conspicuously and prominently” disclosed to consumers prior to the submission of billing information. Placement, shade, font and type size matter. Consumers must expressly agree to recurring charges for a product/service until cancellation. The cancellation process must be reasonably simple.
A number of states have also enacted automatic renewal laws, including California. In fact, California recently updated its already existing automatic renewal legislation by enacting Senate Bill No. 313. SB 313 goes into effect July 1, 2018 and clarifies disclosure requirements for free gift or trial offers and promotional price subscriptions. It also requires online cancellation mechanisms for online subscription services.
Recent lawsuits filed in California pursuant to its automatic renewal law have included allegations such as the failure to provide material terms in a clear and conspicuous manner, in close proximity to the request for consent; the failure to provide a written acknowledgement of the material terms; and the failure to provide an easy cancellation mechanism.
Settlements for violation of the California statutes (and ROSCA) can be in the tens of millions of dollars. Those with subscription-based billing models should deliberately assess whether their disclosures and procedures meet applicable requirements.
For example and without limitation: (i) make certain that all material terms are clearly, conspicuously and prominently disclosed prior to the agreement being consummated – immediately adjacent to the request for consent (e.g., in larger type than the surrounding text, or in contrasting type, font or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language, inform consumers what they are being charged for, how much and how often they will be charged, how charges will appear, the duration of the automatic renewal term (or, that the term will continue until cancellation), the minimum purchase obligation (if any), and how/when they can cancel; (ii) modifications to material terms should be properly disclosed prior to implementation; (iii) obtain express, affirmative consent to all terms prior to billing consumers; (iv) provide an simple, easy to use method of cancellation that is at least as simple as the method by which consumers used to subscribe; and (v) provide consumers with a written confirmation that acknowledges the material terms of the transaction, including, without limitation, the automatic renewal terms and cancellation policy/instructions (e.g., toll-free telephone number, email address, postal address and other cost-effective/simple cancellation mechanism) all in manner that consumers can retain for their records.
The foregoing should also be adhered to free trial, gift, promotional or discounted price offers (e.g., the amount consumers will be charged after the promotional rate ends).
In many ways, California’s automatic renewal law is broader than the federal counterpart, ROSCA. Please note that this is only a brief overview of some of the legal issues surrounding automatic renewal laws.
If you are interested in learning more about this topic and its implications, email the author at [email protected].
Richard B. Newman is an Internet marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.
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