New Law Regulates “Sneaky Sales”

“Sneaky Sales” are those online sales transactions in which consumers are unaware of the true nature of the goods or services that they agreed to purchase, and are often unaware that they agreed to purchase anything at all.  Sneaky Sales are most often conducted by post-transaction third-party sellers, which sell their products through an initial merchant after a consumer has initiated a transaction with that merchant.

In December, President Obama the Restore Online Shoppers’ Confidence Act into law.  The Act prohibits post-transaction third-party sellers from charging a consumer for any products or services unless the seller (a) clearly and conspicuously discloses the material offer terms, including a description of what is being purchased, the cost, and that the third-party seller is not affiliated with the initial merchant; and (b) receives express consent for the charge from the consumer, for example by requiring the consumer to perform an additional affirmative action, such as clicking on a confirmation button or checking a box that indicates the consumer’s consent to be charged.

The law also prohibits an initial merchant to transfer a consumer’s credit card or other billing information to a third-party seller.  In order to comply with the law, post-transaction third-party sellers must obtain the consumer’s complete billing information directly from the consumer.  Corporate subsidiaries and affiliates of the initial merchant are considered “third-party sellers” and are not subject to these obligations.

The Act also regulates negative option plans under which a seller interprets the consumer’s silence or failure to reject goods or services, or to cancel the sales agreement, as acceptance of the offer.  Companies who use negative option plans must do the following: (a) clearly and conspicuously disclose the material terms of the transaction before obtaining the consumer’s billing information; (b) obtain a consumer’s express informed consent before charging the consumer; and (c) provide a simple mechanisms for a consumer to stop the recurring charges.

This law is the product of an investigation commenced in May of 2009 by the Senate Commerce Committee. The focus of the investigation was on membership club enrollment offers that are presented to consumers in the form of a free trial, and which then convert to a subscription program after the initial free period.  The investigation was initiated in response to the deceptive methods  employed by some membership club promoters in securing the sale, and from the roadblocks often put up to make it difficult for consumers to cancel recurring charges.

The Federal Trade Commission and state Attorneys General are authorized to enforce against violations of the Act. There is no private cause of action or rulemaking authority granted to the Federal Trade Commission.

Author: Seth Heyman
Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.

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