President Obama Signs the Restore Online Shoppers' Confidence Act

06 January 2011 Publication
Authors: Chanley T. Howell

Legal News Alert: Privacy, Security & Information Management

On December 29, 2010, President Obama signed the Restore Online Shoppers’ Confidence Act into law, after it passed in both the House and Senate. The Act was initially introduced by the Senate following hearings and an investigation by the Senate Committee on Commerce, Science, & Transportation concerning the online marketing practices of three membership clubs — Affinion, Vertrue, and Webloyalty — which engaged in post-transaction marketing of their membership club services on various online retailers. The Commerce Committee claimed that these companies engaged in allegedly deceptive sales tactics that exploited consumer expectations about the online checkout process, resulting in consumers being charged for membership clubs and services they were unaware they had purchased.

The law prevents online marketers from engaging in certain types of credit or debit card “data pass” and sets forth strict restrictions for online post-transaction third-party sales. It also places broad prohibitions on online negative option sales.

Post-Transaction Third-Party Sales

  • The Act requires the post-transaction third-party seller (a company that sells goods or services online through an initial retailer after a consumer has initiated a transaction) to clearly and conspicuously disclose all material terms of a transaction before charging a consumer’s credit card, debit card, bank account, or other financial account. These disclosures include a description of the goods or services being offered, the cost for such goods or services, and that fact that the post-transaction third-party seller is not affiliated with the initial retailer.
  • The Act also requires the post-transaction third-party seller to obtain the consumer’s express consent to the transaction. This consent must be obtained by collecting the consumer’s name, address, and full account number directly from the consumer and requiring the consumer to perform an additional affirmative action, such as clicking on a confirmation button or checking a box that indicates the consumer consents to be charged the amount disclosed.
  • The Act prohibits the passage of data from one retailer to a third-party seller in a post-transaction marketing sale. More specifically, the Act prohibits an online retailer from passing financial account or credit card information obtained during the initial transaction to an unaffiliated third-party post-transaction seller.

Negative Option Sales

  • The Act regulates negative option sales 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 for the goods or services. The Act adopts the definition of a “negative option feature” from the FTC’s Telemarketing Sales Rule as “an offer or agreement to sell or provide any goods or services, a provision under which the customer's silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.” 16 C.F.R. § 310.2(t).
  • Companies that use negative option plans must: (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 mechanism for a consumer to stop the recurring charges.

The Restore Online Shoppers’ Confidence Act will likely have a significant impact on online retailers and marketers that pass or receive consumer data for post-transaction sales. The post-transaction sellers are now required to collect a consumer’s complete billing information and affirmative consent rather than receiving it from the initial retailer. Furthermore, all online companies that sell goods or services cannot simply assume that a consumer’s silence or failure to reject a good or service means that the consumer is accepting the offer for such goods or services.

It also should be noted that the Act expressly authorizes the FTC to enforce the law and to promulgate additional regulations. Violations of this law could result in a fine of $10,000 per violation in addition to civil action taken by the FTC. State attorneys general also are empowered to enforce this law upon prior notice to the FTC.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Julie Kim
Los Angeles, California

Andy Serwin
San Diego, California

Chanley T. Howell
Jacksonville, Florida