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Subscriptions and Recurring Charges and the Restore Online Shoppers' Confidence Act

Posted by Clyde Hutchins | Aug 19, 2016 | 0 Comments

As noted earlier, the Electronic Fund Transfer Act, and the corresponding Regulation E apply to subscriptions and recurring charges. But those are not the only federal laws that regulate recurring charges. The Restore Online Shoppers' Confidence Act also applies to situations where consumers purchase products or services online that have recurring charges.

The Restore Online Shoppers' Confidence Act generally prohibits charging consumers for products or services sold online through a "negative option feature" unless certain conditions are met. A "negative option feature" is defined 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." In other words, the consumer is invited to make a purchase with recurring shipments and charges, and the merchant assumes that the consumer wants to keep accepting the shipments until the consumer cancels.

The relevant portion of the Restore Online Shoppers' Confidence Act provides:

15 U.S.C. ยง 8403. Negative option marketing on the Internet

It shall be unlawful for any person to charge or attempt to charge any consumer for any goods or services sold in a transaction effected on the Internet through a negative option feature (as defined in the Federal Trade Commission's Telemarketing Sales Rule in part 310 of title 16, Code of Federal Regulations), unless the person-
(1) provides text that clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer's billing information;
(2) 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; and
(3) provides simple mechanisms for a consumer to stop recurring charges from being placed on the consumer's credit card, debit card, bank account, or other financial account.

If your company markets and sells its products or services to consumers through a negative option feature or similar recurring charge model, you should ensure that the company is following the Restore Online Shoppers' Confidence Act. You should ask the following questions: (1) Is the company clearly and conspicuously disclosing the material terms of the transaction? (2) Is the company obtaining the consumer's express informed consent before charging? (3) Does your company provide a simple mechanism to stop or cancel the recurring charges? If the answer to any of these questions is negative, then you should modify your disclosures, website or procedures to ensure compliance.

Note that the Restore Online Shoppers' Confidence Act is enforceable, (and has been enforced) by both the Federal Trade Commission and the state attorneys general.

When working for the attorney general's office, I would sometimes see companies falling short of the requirements of the Restore Online Shoppers' Confidence Act. If you would like a legal audit of your website and transaction and cancellation procedures or need other assistance related to compliance with the Restore Online Shoppers' Confidence Act, please feel free to contact Harmony Law.

About the Author

Clyde Hutchins

Clyde Hutchins is the founder of Harmony Law. Prior to opening Harmony Law, Mr. Hutchins worked in the Wyoming Attorney General's Office for several years where he developed a strong consumer protection enforcement unit. In that position he led over 120 investigations and enforcement actions under the Consumer Protection Act. He worked on numerous joint cases with the Federal Trade Commission and other states, including Colorado, on consumer protection matters. Mr. Hutchins is also a contributing author to Consumer Protection Law Developments, Second Edition. Previous to his work in the Attorney General's Office, Mr. Hutchins was in private practice in Anchorage, Alaska where he was the chief litigator for a firm. Mr. Hutchins represented municipalities on various matters. Mr. Hutchins provided counsel to businesses and investment advisors regarding compliance with securities laws. He was also a bond lawyer and worked on municipal financing matters. Prior to that, Mr. Hutchins practiced civil litigation with a law firm in Cheyenne, Wyoming. Mr. Hutchins devotes his spare time to his family, traveling and enjoying the great outdoors.

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Harmony Law is one of the few law firms in Colorado and Wyoming that focuses on consumer law. Mr. Hutchins is a member of the National Association of Consumer Advocates and state chair for Wyoming. If you have a consumer law issue, please feel free to call 970-488-1857 and speak with Mr. Hutchins.

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