Alert February 01, 2011

Restore Online Shoppers’ Confidence Act Becomes Law, Imposing New Requirements on Post-Transaction Marketers

On December 29, 2010, President Obama signed into law the Restore Online Shoppers’ Confidence Act (the “Act”), which requires online post-transaction marketers to follow certain rules before they can bill a consumer’s credit card.  Such marketers have typically offered online shoppers the chance to enroll in membership programs immediately after making an online purchase at a retail site. For example, upon making such a purchase, a consumer might view an offer to subscribe to a service with a third-party company (the post-transaction marketer), such as a program that offers free or reduced shipping on such purchases. Often, the post-transaction marketer receives credit card information directly from the initial merchant and consumers do not have to enter billing information to sign up for the service offered by the third party. 

Background

The Act received bipartisan support after a U.S. Senate Commerce Committee investigation found that many of the more than 30 million consumers affected did not realize that by clicking “yes” to these membership programs they were granting post-transaction marketers permission to bill their credit cards.  According to the Senate Report, post-transaction marketers earned more than $1.4 billion over 10 years and paid millions to the online merchants that partnered with them.

Many consumers also objected to the practice, registering thousands of complaints with consumer advocates, the Better Business Bureau and state attorneys general.  In 2010, former New York Attorney General Andrew Cuomo announced two multimillion-dollar settlements with post-transaction marketers, which also required some retailers, including Pizza Hut and Shutterfly, to change their practices and pay refunds and fees.  As a result, some of the companies engaging in the activities now regulated by the law, and the retailers that partnered with them, had previously voluntarily changed their marketing and sales practices.

New Requirements

Post-Transaction Marketing. The Act requires a post-transaction third-party marketer to clearly disclose to the customer the material terms of a transaction and obtain express informed consent before initiating any charges.  Moreover, the law prohibits the “data-pass process,” whereby credit card information is transferred from the initial merchant to a third-party seller without the knowledge or consent of the consumer.  This means that consumers will now have to re-enter billing information before any additional transactions may be approved.

Negative Options. The Act also regulates negative option sales, under which a seller interprets a consumer’s silence or failure to reject goods or services or cancel the agreement as acceptance.  Sellers are now prohibited from charging an online consumer for a good or service with a negative option feature unless the seller: (i) clearly discloses the material terms of the transaction, (ii) obtains express and informed customer consent before initiating charges, and (iii) provides a simple way for the consumer to cancel the transaction and stop the charges.

Enforcement and Penalties. The Act authorizes the Federal Trade Commission (“FTC”) to enforce the law and create additional regulations.  Any violation will be considered an unfair or deceptive act or practice, punishable by up to $10,000 per violation and subject to further civil action taken by the FTC.  State attorneys general may also prosecute any violation that occurs within their state.