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ROSCA – Federal Law Changes for Subscription Programs

The President signed the “Restore Online Shoppers’ Confidence Act” at the beginning of this year.

The act was primarily a response to the Rockefeller hearings into poor online marketing practices around passing data from a primary merchant to a secondary merchant. Rumor has it that the wife of the counsel to the Senate Commerce committee had her card number shared and opted into a program of one of the major continuity marketers and that prompted these hearings.

Two major consequences of bill S 3386 include eliminating the charging of a post transaction sign up without disclosure or without getting the card data directly from the end user, and banning the passing of card data to a third party after the transaction by a merchant. These so-called “Data-Pass” methods of co-marketing and co-selling were conducted only by a limited set of merchants.

However, this bill will impact almost all subscription merchants. The bill requires that any online subscription merchant – not just those working with continuity marketing partners – observe the following:

  • Clearly disclose all material terms of the subscription;
  • Obtain consent before charging an account of any type; and
  • Provide a simple way to stop ongoing charges.

The FTC has provided some initial comments. Our interpretation is that few merchants who are following best practices will need to make any changes. However, a basic review of your sign up flows is warranted to make sure that both your team and your counsel are comfortable that you are being clear and that you are getting consent.

There are two red flags to watch. The law requires that a merchant “obtains a consumer’s express informed consent before charging the consumer’s credit card, debit card, bank account, or other financial account for products or services through such transaction.” The key is understanding what “express informed consent” means in practice. The reason for that is the second red flag. Not only did the law authorize the FTC to enforce the law, but it also specifically allows the attorney generals of all 50 states to enforce it as well.

We’re of the opinion that if it’s clear to a lay person that she is signing up for an ongoing subscription at an explicitly stated price, and that the timing of her next payment is well known to her before you perform the initial transaction, your buy process should be fine. In its settlement with AOL in 2003, the FTC used the term “express informed consent” and said, “[for] the subscriber’s consent to be deemed ‘informed,’ the respondents must clearly and conspicuously disclose, before the subscriber consents, certain specified information, including a description of the pricing plan to which the subscriber is agreeing.” The agreement with AOL which includes the specified information is available from the FTC’s AOL action microsite.

One important component of informed consent is the best practice that a confirmation of the initial sign up is sent promptly after subscribing. Though it isn’t specifically called out, it would serve merchants well to include the terms that the end user consented to in the welcome email with a pointer to the customer self service portal for opting out.

On behalf of our clients and readers, we will continue to keep an eye on the definition of “express informed consent” to see if anything more is asked for by the various regulators.

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