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Earlier this week I told you about my thoughts on the “Restore Online Shoppers’ Confidence Act”. Or rather my fears. The following is a guest post by Bill Rothbard, a risk mitigation attorney with a great deal of FTC experience. You can find out more about Mr. Rothbard at FTCAdLaw (www.ftcadlaw.com)

On December 15, 2010, S. 3386, the “Restore Online Shoppers’ Confidence Act,” sponsored by Senator Jay Rockefeller (D-WV), sailed through Congress and is headed to President Obama.  Since it contains no effective date, I believe it will  take effect immediately on his signature.  It will be enforced by the FTC and the state Attorneys General.  Violators will be subject to substantial monetary penalties.

The “Rockefeller Law,” as it’s known, will apply to Internet sales only.  It caps Senator Rockefeller’s aggressive investigation of online marketing practices involving the transfer of consumer account data (“data pass”)  from merchants to “post-transaction” 3d party club upsellers for use in negative option offers.  The law, while it arose from a specific investigation of the club industry, nevertheless will apply to the data pass and marketing practices of all “post-transaction third party sellers,” as defined in the statute, and to negative option offers of allmerchants, not just upsellers.

In chief, the Rockefeller Law will:

• Prohibit an “initial merchant,” as defined in the statute, to pass a “credit card, debit card, bank account, or other financial account number,”  which it has used to charge a customer, to a “post-transaction third party seller,” as also defined, for “use in an Internet-based sale.”
• Require the post-transaction 3d party seller to disclose all material terms of purchase “before obtaining the consumer’s billing information”;
• Disclose it is not affiliated with the initial merchant; and
• Obtain from the consumer the “full account number of the account to be charged.”
• Require material terms of all negative option offers, whether by an initial merchant, upseller, or other seller, to be disclosed “before obtaining the consumer’s billing information.”

In anticipation of passage of the Rockefeller bill, some online 3d party upsellers already have begun to adapt to the data pass restrictions, by having consumers reenter the billing information.  Those who have not will need to do so now to be in compliance.

What was not anticipated, because it was not in the original legislation, is the requirement that material purchase terms of upsells, and of all negative option offers (whether in an initial sale or upsell), be disclosed before obtaining the consumer’s billing information.  This “late hour” change to the law has the FTC’s fingerprints all over it.  While current law (and earlier versions of the Rockefeller bill) requires only that material purchase terms be disclosed “before sale,”(before billing authorization), the FTC favors the stricter “before billing information” standard and routinely places it in consent orders.  Now, with the imminent enactment of the Rockefeller Law, this disclosure standard will be the law, one that is sure to have an impact on negative option and other online sales in 2011 and beyond.

I expect the FTC and the Attorneys General to enforce the Rockefeller Law aggressively.

On December 29th President Obama signed into law Senate Bill 3386 the “Restore Online Shoppers’ Confidence Act”. This one really snuck by our industry and it did not show up on my radar until Joe Lilly wrote about it on his blog. If you don’t know Joe Lilly, he is former president of an INC 500 powerhouse in the specialty finance industry and is one of the smartest guys I know in our industry.

Here are the highlights from his post:

• The bill expressly prohibits data transfer of any consumer financial information for the purpose of billing a 3rd party transaction. For post-transaction upsells, billing information has to be re-collected. Ouch.
• The bill requires material terms of all negative option offers to be disclosed prior to the collection of consumer billing information.
• The bill includes references to credit, debit, AND bank account information (meaning that the ACH and check 21 billers in the industry are no longer off the hook.)

Considering most affiliate offers in the re-bill space work off of the model of the, “break even or lose money on the front end because we will make lots of money from pitching our other products, pitching other people’s products, or selling user data” model. This is a HUGE one.

How in the hell is this going to be enforced? Especially for offers outside of the USA. Will they go after affiliate networks pushing these offers?

I assume the goal in this bill was to go after all the Acai Berry, Grant, and Make Money Online negative option re bill offers that have the “FREE, just pay shipping, then we fuck you for the rest of your life and hide behind a bazillion shell companies” model. But who knows.

Think about this for a second. Specifically this part. “ for post-transaction upsells, billing information has to be re-collected”.

Really????

Unless I am missing something, virtually everyone selling a product on Clickbank is now a criminal. (besides the non FTC compliance).

Also Amazon, Omaha Steaks, and every other company that tries to upsell me is now breaking the law.

Am I reading all this right? Did 99% of Internet marketers just become criminals?

Did this just sneak through much like the gambling “Unlawful Internet Gambling Enforcement Act” which didn’t make it illegal to gamble online… It just made the software which allowed you to gamble online illegal… which basically made all online gambling illegal. Costing the USA an estimated 5 trillion dollars in taxable revenue (don’t even get me started on this).

I am hoping I am reading this wrong…. Hopefully Joe and other industry/legal experts will weigh in soon.

Whats your take?