California, seeing blood in the water once again has entered the fray by recently enacting one of the toughest laws in the nation on negative option, or “continuity,” marketing, which is mostly the free+shipping or trial offers you see.
A while back you probably remember the new Online Restore Shoppers’ Confidence Act (also known as “Rockefeller,” after its sponsor, Sen. Jay Rockefeller, D-WV) now requires disclosure of Internet continuity offer terms before the seller obtains consumer billing information.
The Federal Trade Commission also is continuing to crack down on negative options, most recently in its big Internet marketing case against iWorks.
Now, California has joined the act, and raised the ante, by enacting Business and Professions Code §§17600-17606, which gets quite a bit more specific.
The new California law requires marketers to:
- Clearly and conspicuously disclose the terms of negative options, either in “larger type than the surrounding text,” or, if the same size as surrounding text, then in “contrasting type, font, or color” or “set off” by markings, “in a manner that clearly calls attention to the language.” This minimum mandate of “equal or greater size” is more precise and inflexible than the FTC’s “clear and conspicuous” standard.
- Obtain the consumer’s advance affirmative consent for future recurring charges.
- Provide a written acknowledgement of the negative option that includes the offer terms, cancellation policy and cancellation method.
- In the case of a free-trial offer, disclose and honor the cancellation policy.
- Provide a toll-free telephone number, E-mail address, postal address (when the seller directly bills the consumer), or another easy and timely cancellation method.
- Notify consumers of any material changes to the negative option terms prior to their implementation.
Violations can lead to civil penalties of up to $2,500 per violation (each unlawful continuity offer or transaction).
The California Attorney General and District Attorneys are among the most aggressive state consumer protection agencies in the country.
I suspect we will see VERY swift action making examples of several free + offers.
In the last couple weeks MANY affiliates have been nailed for deceptive marketing practices and I think they will also be targeted by the California AG.
This is no joke… $2500 per infringement. I know many people doing 300-500 leads a day… which would add up pretty fast.
Those of us in the mobile industry remember the Florida Attorney General’s (AKA FAGS) going after everyone and their mom for millions of bucks a couple years ago. This will be very similar.
Hat tip to the FTCadblog for all the updates in the space. A must mailing list for any marketer who wants to keep up on rules and regulations.
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Jeremy Schoemaker – who has written 2473 posts on ShoeMoney.com.
Hi I am Jeremy Schoemaker and ShoeMoney.com is my blog. 99% of the post here are done by me but you will see others occasionally make guest posts. This blog is fun to write but for my day job I run several online companies.
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{ 21 comments… read them below or add one }
This is pretty swift action that might be the only thing stopping many marketers from defrauding consumers. They might disclose it, but people still don’t read anything in small print.
This is going to be interesting for many affiliates. Time for them to make look over the offers they’re promoting and be sure to be following the law. I expect them to hit some companies pretty fast.
I can see California going after tons of internet marketers… at $2500 per incident they could make up that budget deficit in no time!
Yes there are unscrupulous people on the Internet, but they are everywhere… Go to 3rd & 4th Streets in L.A. to the wholesale district where you can buy practically ANYTHING and there are a LOT of knock-offs… and if you’re not careful you’ll get ripped off.
There are places like that in every city across the nation. Why don’t the AGs crack down on them? Because it’s easier to crack down on people doing business on the Internet because all they have to do is get online opposed to driving somewhere.
I’m tired of paying our government to take care of us. Our government is full of the biggest con artists of all time.
Getting ripped off online should be a good learning experience for most, because it should teach those people to be more careful about whom they do business with… If it happens multiple times to the same people, well; that means they are idiots and no matter what anyone does (including our government) it will still happen to them.
wow, this sucks I live in CA. I’m just starting to bring in the bucks.
Would this apply to credit reports or foreclosures?
Thanks!
Well, this should only apply to sales/rebills/complaints that are made in California, right? If you’re a California affiliate (or advertiser) doing rebills in China – surely this law doesn’t effect you.
Shoemoney, could you expand on this at all?
Actually no… Just like with ringtones anyone who is targeting people in california (or selling to people in california) is liable.
Good question though
Thanks Jeremy, but maybe I asked that question backwards.
What i meant to say is that if I am an affiliate who lives in California, but my rebill campaigns only run in China, those Chinese sales would not be affected by the new California laws (or the FTC for that matter).
No they would be. Many states have won suits against foreign entities (see piratebay). Now getting it enforced in that country is another story (from my understanding)
If you live in a third world country, they can threaten you, but as far getting it enforced, good luck with that. A good example of this would be a town known as Hackerville, in some eastern europe country. There’s a wired article on it. Folks driving lamborghinis and ferraris with profit generated from scams and anything related to the internet.
I think he isn’t referring to foreign entities, but rather the opposite. Since this is a California law, he is wondering if it only effects purchases made by California residents, or if a California resident doing business outside the state, in his example china, would still be liable under the same law, if he were to sell products to non-residents.
In general, the FTC or AGs are not going to care about consumers in other countries if you are marketing to people outside the US from the US. You still need to follow the local laws in that country.
Hope it does not apply to international marketers.
Interesting new law.
Was it not high time they did this?
I think that this might have a positive impact on chargebacks being reduced and maybe even the ability to fight chargebacks by the merchants who are a victim of buyers remorse.
This type of biilling practice is not only online, its on TV as well. People won’t always read the small print and they will still sign up.
Having experienced this myself, my wife signed up for a free trial of something, and could not get them to stop billing. She used her debit card, big mistake. We actually had to cancel the card because they would not stop billing. It is not surprising at all that this is happening and it will be just a matter of time before other states start rolling this stuff out.
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