FTC Ratchets Up “Conspicuous” Bar For Negative Option Disclosures

It was a busy Fall for the Federal Trade Commission in its non-stop enforcement campaign against “continuity” programs it feels do not “clearly and conspicuously” disclose the terms of a “negative option” offer (under which the consumer agrees to recurring charges for a product or service until he cancels). In the span of a month, the FTC announced three new negative option cases, each of which involved counts not only under Section 5 of the FTC Act – the agency’s basic statutory authority – but under the “Restore Online Shoppers’ Confidence Act” (“ROSCA”), enacted in 2010 but not deployed by the FTC until now.

ROSCA codifies the principle – heretofore articulated in FTC orders, guidance documents, and the occasional court decision – that in order for a negative option offer to be lawful, all material terms of the offer, including recurring charges, must be clearly and conspicuously disclosed before the consumer submits his billing information, the consumer must give his express informed consent to the offer, and it must be easy to cancel. Marketers who violate ROSCA can be charged a civil penalty of up to $16,000 per violation (each deceptive sale, which can quickly add up to a gazillion dollars), in addition to facing restitution or disgorgement under Section 5. The FTC has yet to seek civil penalties under ROSCA, but undoubtedly that day is coming.

While embedding in statute the ban on “unclear” and “inconspicuous” negative option sales, ROSCA does not define the meaning of “clear and conspicuous” but leaves that task to the FTC. According to the agency, for a disclosure to be conspicuous, it must be “unavoidable.” What, exactly, does “unavoidable” mean? Clearly it does not mean burying the negative option terms on a hyperlinked “Terms & Conditions” page, separate from the website, or placing them at the bottom of the checkout page, “below the fold” (requiring scrolling down to see them) and far from the order button and credit card fields. But what about negative option terms that are placed in the vicinity of the order button and credit card fields and are even disclosed multiple times? Are those disclosures “conspicuous enough” for the FTC? Do they pass the “unavoidability” test?

In one of the recent cases that presented this scenario, the FTC’s answer was an emphatic no. In a complaint filed against One Technologies, LP, a provider of credit monitoring services, the FTC alleged that the terms of a negative option offer, including a recurring monthly charge, were not adequately disclosed even though they were presented on several pages of the website: at the top of the home page (“Free 7 Day Trial when you order your 3 Free Credit Scores. Membership is then just $24.95 per month until you call to cancel.”); on an inside page, via a link to “Offer Details” which the consumer agreed to by clicking a button to continue the enrollment process; and on the signup page in an “Offer Details” box adjacent to the credit card fields and above the order button.

Despite being provided multiple times, all well above the fold and viewable, One Technologies’s negative option disclosures weren’t up to snuff, according to the FTC, because they weren’t big enough or bright enough or prominently positioned enough. Because they weren’t “enough” of what the FTC wanted, the company is paying $22 million to settle the charges. The moral of the case: not disclosing negative option terms in the exact color, font, type size, and place desired by the FTC can be expensive indeed.

The definition of “clear and conspicuous” and the requirements for negative option disclosure and securing “express informed consent” set out in the One Technologies consent order (and the 2012 Green Millionaire consent order) provide the best current guidance on what constitutes a compliant negative option offer in the eyes of the FTC. Alas, the FTC will not tell you what shade, font, type size and other minutiae of disclosure it will deem “conspicuous.” In fact, don’t expect the FTC ever to tell you. It will be up to you to guess, and unless you want to be the next negative option marketer writing the FTC a multi-million check, you best guess wisely.

Talking about Direct Response, FTC, Online Marketing

2 Responses to FTC Ratchets Up “Conspicuous” Bar For Negative Option Disclosures

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