RESTORE ONLINE SHOPPER’S CONFIDENCE ACT (ROSCA)
The Restore Online Shopper’s Confidence Act prohibits any post-transaction third-party seller from charging any financial account in an Internet transaction unless it has disclosed clearly all material terms of the transaction and obtained the consumer's express informed consent to the charge. The seller must obtain the number of the account to be charged directly from the consumer. ROSCA was enacted, primarily, to protect consumers from such “data passing.”
ROSCA also covers continuity or “negative option” marketing. Negative option 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.”
Negative option continuity-based marketing is extremely popular in the dietary supplement industry.
To comply with ROSCA, marketers must, without limitation:
- Clearly and conspicuously disclose the material terms of the transaction before obtaining billing information;
- Obtain express informed consent before charging the consumer; and
- Provide a “simple mechanism” for the consumer to stop recurring charges.
ROSCA compliance is a favorite of the FTC. Investigations and regulatory enforcement actions pertaining to disclosures, cancellation and free trials are on the rise.
Required Disclosure Compliance
For transactions with a negative option feature, whether in the form of trial offers, automatic subscription renewals, or continuity plans, ROSCA requires a seller to disclose to the consumer the material terms of the offer before the consumer enters payment information or completes the order.
Disclosures should be on same webpage or other electronic page, in close proximity to the triggering representation, and viewable without requiring the consumer to scroll up, down or sideways, or otherwise adjust their browser or devise window in any way. Hyperlinked disclosures and pop-ups should be avoided, is possible.
Disclosures should always comply with the FTC’s Dot Com Disclosure Guidance. They should be presented prior to a consumer incurring any financial obligation.
Marketers should take care to accurately disclose and never misrepresent, without limitation:
- The purpose for which purpose for which payment information will be used;
- The amount that a consumer will be charged or billed;
- The timing and manner of any charge or bill;
- The length of any trial period before a consumer is charged or billed;
- Whether a consumer purchased or agreed to purchase a good, product, program or service.
- Whether a transaction has been authorized by a consumer;
- Whether a consumer will not be charged or billed without authorization; and
- All material terms and conditions of any cancellation and/or refund policies and practices.
Prior to a consumer consenting to pay and using billing information to obtain payment from a consumer, marketers should obtain the express informed consent, including by requesting that the consumer indicate assent to pay using a specified account, and disclosing clearly and conspicuously in relation to the request for the consumer’s assent: (i) a description of the product/service being offered (including, w/o limitation, duration, cost/price, length of any trial period and mechanism to stop any recurring charges); (ii) the specific billing information to be used; (iii) fees and costs, including shipping and handling or processing fees; (iv) the entity on whose behalf the payment will be assessed; (v) how the charge will appear on consumers’ billing statements (e.g., name of seller/provider); (vi) the amount of any subsequent charges, and, if applicable, the dates or frequency of any subsequent charges, including renewals; (vii) all material restrictions, limitations or conditions applicable to the purchase, receipt, or use of the product/service that is the subject of the offer; and (viii) the steps that the consumer must take to cancel, or, if applicable, obtain a refund for the product/service that is the subject of the offer.
Consumers must affirmatively consent to initial charges before the end of any introductory period. This is in addition to any affirmative consent required before obtaining the consumer’s billing information.
Marketers should always obtain affirmative assent from consumers to pay for the product/service using a specified account. Consumers should indicate such assent by clicking a button that is specifically labeled to convey such assent, or other substantially similar method.
Written Offers (e.g., online): Informed consent shall also consist of a check box, signature or other substantially similar method, that consumers must affirmatively select or sign to accept the negative option feature. Immediately adjacent to such check box, signature or substantially similar method, marketers should disclose all costs associated with the negative option feature, that the consumer is agreeing to pay such costs, the length of any trial period, and that consumers must cancel to avoid being charged.
This disclosure should contain no additional information and should be clear and conspicuous in relation to any other information provided on the page related to costs, risks or obligations associated with any negative option feature, including terms such as “free,” “discounted,” “no risk,” etc.
Verbal Offers: Marketers should retain lawful recordings of transactions evidencing a consumer’s agreement to the negative option feature, including authorization of payment, name and date of authorization, understanding of what account will be charged and receipt of required disclosures.
The recordings should, without limitation, demonstrate that the consumer has provided billing information, that all costs associated with the negative option feature have been disclosed, that the consumer is agreeing to pay such costs, the length of any trial period, and that consumers must cancel to avoid being charged.
Recent settlement orders and the statute itself provide additional details regarding best business practices, including, but not limited to, disclosure requirements, notice requirements, refunds and cancellation policies, and written confirmation obligations.
Refunds and Cancellations
Marketers should be careful when making representations about refund and cancellation policies. Material terms of such policies, including whether no such policies exist, should be clearly and conspicuously disclosed prior to a consumer paying for products or service with a negative option feature.
Fail to promptly honor a request that complies with any policy to make refunds or allow cancellations.
Allow consumers to cancel by telephone only if they signed up online.
Under-staff the customer service function.
Make the cancellation process “drawn-out.”
Fail to cancel accounts after a request has been submitted.
Timely terminate a consumer’s enrollment in any plan or program with a negative option feature prior to the next billing cycle.
Provide a no-cost mechanism for cancellation that is as simple to use and effective as the mechanism by which consumers purchase/enroll..
Immediately accept a consumer’s cancellation request.
Reasonable attempts to retain a consumer may be acceptable. However, if at any time during the retention effort a consumer expresses a desire that such efforts cease, that request must be honored.
Telemarketing and ROSCA
The Telemarketing Sales Rule gives the Federal Trade Commission and state AGs enforcement tools to combat telemarketing fraud, and provides consumers with added privacy protections. It regulates telemarketing which is defined as “a plan, program, or campaign . . . to induce the purchase of goods or services or a charitable contribution” involving more than one interstate telephone call.
As a general rule, any businesses or individuals that take part in “telemarketing” must comply with the TSR, whether they initiate or receive telephone calls to or from consumers, or as “sellers,” they provide, offer to provide, or arrange to provide goods or services to consumers in exchange for payment.
The TSR also contains provisions that apply to those that provide substantial assistance or support to sellers or telemarketers.
Free trial offers, continuity plans and other arrangements where consumers automatically receive and incur charges for products or services in an ongoing series unless they take affirmative action are also covered by the Telemarketing Sales Rule.
Under the TSR and in addition to other material information that must be provided to consumers to avoid misleading them, any seller or telemarketer whose offer of a product or service involves a negative option feature must truthfully, clearly, and conspicuously disclose three pieces of information:
- The fact that the consumers’ account will be charged unless he/she takes an affirmative action (e.g., cancelling) avoid the charge;
- The date(s) on which the charge(s) will be submitted for payment; and
- The specific steps the consumer must take to avoid the charges.
Best practices dictate that an actual date on which payment will be submitted should be provided. However, the TSR states that it may be acceptable, under certain circumstances, to provide an approximate date if the actual date is neither known, nor should be known, and provided that the approximate date gives consumers reasonable notice of when to expect the debit or charge.
Clear and Conspicuous Requirement
To comply with ROSCA, all material terms of any negative option transaction must be “clearly and conspicuously” disclosed to consumers.
Marketers should, without limitation:
- Place negative option disclosures in locations on their websites above forms that collect personal information, where consumers are likely to see them;
- Please disclosures above checkboxes and submit buttons;
- Label disclosures to indicate the importance and relevance of the information;
- 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); and
- Avoid using lengthy disclosures that require scrolling or clicking.
The failure to provide required information truthfully and in a “clear and conspicuous” manner, before the consumer pays for the goods or services offered, is considered a deceptive act or practice.
Clear and Conspicuous means that information is presented in a way that is difficult to miss and that ordinary consumers will easily notice and understand, so that required disclosures are communicated as effectively as the sales message.
Written Disclosures: Clear and conspicuous information must be printed in the same language(s) as the sales offer(s) in a type size that a consumer can readily see and understand. The disclosures must have at least the same emphasis and degree of contrast with the background as the sales offer, and not be buried on the back or bottom, or in unrelated information that an ordinary consumer would not think important enough to read. When a seller or telemarketer makes required disclosures in a written document that is sent to a consumer and follows up with an outbound sales call to the consumer, the disclosures are considered clear and conspicuous only if they are sent close enough in time to the call so that the consumer associates the call with the written disclosures.
Verbal Disclosures: Clear and conspicuous means at an understandable speed and cadence, and in the same language(s) and in the same tone and volume as the sales offer(s) so that ordinary consumers can easily hear and understand it. When making outbound calls, a telemarketer must promptly disclose certain types of information to consumers verbally in the sales presentation. For purposes of the Telemarketing Sales Rule, “promptly” means before any sales pitch is given.
Sellers and telemarketers are required to provide consumers required information prior to:
- Obtaining a consumer’s consent to purchase, or persuading a consumer to send full or partial payment by check;
- Asking for any credit card, bank account or other payment information; and
- Requesting, arranging for, or asking a consumer to request or arrange for a courier to pick up payment for the goods or services offered.
When sellers and telemarketers have pre-acquired account information, they are required to make the required disclosures prior to a consumer providing express informed consent.
ROSCA Enforcement Trends
Recurring payment issues are aggressively enforced by the Federal Trade Commission and state Attorneys General (AGs), including disclosures and cancellation mechanisms.
While ROSCA also prohibits third-party sellers from charging consumers for post-transaction up-sales unless they have obtained additional information from the consumer and the consumer agrees to the additional charges, regulatory focus has been on recurring payments and subscription or “negative option” sales.
The FTC announced six ROSCA enforcement actions in 2017 involving companies with products ranging from lingerie and teeth whitening subscriptions to credit monitoring and fitness apps. The cases include the gamut of issues, including allegations of consumers being duped into monthly payments through offers of free trials and the failure to provide a simple way to cancel subscriptions.
Marketers that fail to monitor ROSCA enforcement actions, clearly and conspicuously disclose all material offer terms before obtaining a consumer’s billing information, obtain consumers’ express informed consent before charging their credit cards, and offer a simple way for consumers to cancel and stop recurring charges are exposing themselves to unwanted regulatory scrutiny.
California’s Auto-Renewal Law
Numerous states have an automatic-renewal law in one form or another, including California. ROSCA bears numerous similarities to California’s restrictions on automatic renewal and continuous service offers.
While California’s Business and Professions Code § 17600 et seq. imposes similar requirements on automatic renewal offers to California residents, including information, notice and consent, it is in many ways broader than ROSCA.
The law provides, without limitation and in pertinent part:
- The offers terms and renewal policies must be presented in a “clear and conspicuous" manner,
- A consumer’s credit card may not be charged without the affirmative consent;
- The cancellation policy must be presented clearly and conspicuously;
- Material terms may not be modified without “clear and conspicuous” notice thereof; and
- Contact information must be provided.
The failure to first obtain a consumer’s affirmative consent will result in the products/services being deemed unconditional gifts.
As of July 1, 2018, updates to the California became effective. Marketers doing business in California are now required to permit online cancellation of auto-renewing memberships or recurring purchases that were commenced online.
The updated California law also imposes new requirements for marketers that provide an automatic renewal offer that includes a free gift, trial, or promotional pricing, including:
- Notification of how to cancel prior to being charged;
- Explanation of the price to be charged when the promotion or free trial ends; and
- If the initial offer is at a promotional price that later will increase, consumer consent must be obtained to the non-discounted price prior to billing.
Marketers should also confirm the material terms by providing a written acknowledgment, along with the applicable cancellation policy.