Frankfurt Kurnit Klein & Selz

January 14th, 2011

Restore Online Shoppers’ Confidence Act Becomes Law

President Barack Obama recently signed into law the Restore Online Shoppers’ Confidence Act (the “Act”). The Act, which was introduced by Senator Rockefeller last year, was enacted in the wake of a Senate Committee investigation into aggressive online marketing tactics, such as the use of “data pass” in post-transaction sales and negative option marketing. The Act’s prohibitions and restrictions are likely to have a significant impact on certain common forms of online marketing.

Data pass

“Data pass” is the process by which an initial merchant passes the billing information of a consumer to a third party seller who markets its own goods and services to the consumer during or immediately after the transaction with the initial merchant. The Act now prohibits this data pass. In addition, the Act requires that the third party seller disclose to the consumer prior to obtaining her billing information:

• a description of the goods and services,
• that it is not affiliated with the initial merchant,
• the costs of the goods or services.

Before charging the consumer, the third party seller must receive the consumer’s “express informed consent” for the charge by obtaining from the consumer:

• the full account number to be charged,
• the consumer’s name, address and contact information, and
• an “additional affirmative action” indicating a consumer’s consent to be charged (such as clicking on a confirmation button or checking a box).

Negative option

The Act also restricts marketers’ use of a “negative option.” A “negative option” is a sales method by which a seller interprets the consumer’s silence, or failure to take an affirmative action to reject goods or services or cancel an agreement, as acceptance of the offer. For example, an arrangement where the consumer automatically incurs monthly charges to her credit card until she cancels is a form of “negative option.”

The Act now requires that, in order to use a negative option feature, the marketer must:

• clearly and conspicuously disclose all material terms and conditions of the transaction prior to obtaining the consumer’s billing information,
• obtain “express informed consent” from the consumer before charging the financial account provided by the consumer, and
• provide “simple mechanisms” for a consumer to cancel the recurring charges.

Violations of the law are considered unfair and deceptive practices under the FTC Act and enforcement actions may be brought by the FTC and state Attorneys General.

If you have any questions about this law, please contact Terri J. Seligman at (212) 826-5580 or tseligman@fkks.com, or any other member of the Frankfurt Kurnit Advertising Group.

Disclaimer. This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.