Earlier this week I told you about my thoughts on the â€œRestore Online Shoppersâ€™ Confidence Actâ€. 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 â€œRestore Online Shoppersâ€™ Confidence Act,â€ sponsored by Senator Jay Rockefeller (D-WV), sailed through Congress and is headed to President Obama.Â Since it contains no effective date, I believe it willÂ take effect immediately on his signature.Â It will be enforced by the FTC and the state Attorneys General.Â Violators will be subject to substantial monetary penalties.
The â€œRockefeller Law,â€ as itâ€™s known, will apply to Internet sales only.Â It caps Senator Rockefellerâ€™s aggressive investigation of online marketing practices involving the transfer of consumer account data (â€œdata passâ€)Â from merchants to â€œpost-transactionâ€ 3d party club upsellers for use in negative option offers.Â The law, while it arose from a specific investigation of the club industry, nevertheless will apply to the data pass and marketing practices ofÂ all â€œpost-transaction third party sellers,â€ as defined in the statute, and to negative option offers ofÂ allmerchants, not just upsellers.
In chief, the Rockefeller Law will:
- Prohibit an â€œinitial merchant,â€ as defined in the statute, to pass a â€œcredit card, debit card, bank account, or other financial account number,â€Â which it has used to charge a customer, to a â€œpost-transaction third party seller,â€ as also defined, for â€œuse in an Internet-based sale.â€
- Require the post-transaction 3d party seller to disclose all material terms of purchaseÂ â€œbefore obtaining the consumerâ€™s billing informationâ€;
- Disclose it isÂ not affiliated with the initial merchant; and
- ObtainÂ from the consumer theÂ â€œfull account number of the account to be charged.â€
- Require material terms ofÂ all negative option offers, whether by an initial merchant, upseller, or other seller, to be disclosedÂ â€œbefore obtaining the consumerâ€™s billing information.â€
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.Â 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 disclosedÂ before obtaining the consumerâ€™s billing information.Â This â€œlate hourâ€ change to the law has the FTCâ€™s fingerprints all over it.Â While current law (and earlier versions of the Rockefeller bill) requires only that material purchase terms be disclosed â€œbefore sale,â€(before billing authorization), the FTC favors the stricter â€œbefore billing informationâ€ standard and routinely places it in consent orders.Â 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.
24 thoughts on “An FTC Legal Specialist Repsonds to The Senate Bill”
They’ve got more regulation coming in 2011. The “Do Not Track” FTC regulations include opt-ins for affiliates. So when someone clicks your affiliate link they will have to opt-in (Yes Or No) before moving on to the vendor website.
This alone will destroy conversion rates.
Affiliates would have to get creative.
So how long til Shoemoney Inc moves to Ireland?
All in all its not so bad really. Could have been a lot worse. Offline marketing is subject to so many standards and regulations – it was online a matter of time til they cleaned up the Acai Berry sellers of the world.
Yeah, it’s about time. Marketers just have to be doubly creative for this not to translate to lower conversion rates.
Considering Ireland’s current financial situation I would suggest China.
Never thrust such countries. worst financial situation in Western European countries is better that the best Asian countries except japan of course.
Maybe I’m missing something, and please correct me if I’m wrong (please do); but my understanding is that it makes your business practices more honest.
Can someone tell me the negative reprocussions, I am stupid.
Chris, just because any possible negative repercussions are not immediately apparent to you doesn’t mean that you are stupid by any stretch of the imagination. Please, never say negative things like this about yourself, even as a joke.
Promoting a business model that is based on honesty isn’t such a bad thing, right? Soon enough we’ll see how this would work out for both businesses and consumers. But it’s a good start.
I also think that this is not really a bad thing, all it requires are some rearrangements 🙂
I agree. Change always disrupt existing practices but given time this may prove to be a good thing all around.
This may be the end of the wild, wild west analogy that people use about the internet economy. The smart affiliate will go back to economic history and will start to strategize based on certain assumptions.
To be honest, I wouldn’t want my info sent to a third party for a negative opt-in offer. This may initially impact profits for online marketers but if it makes the internet a more trusted place it can also lead to more online sales.
It’s just right that this would prohibit the passing of billing information to another party. Sensitive data should never be shared like that without consent.
Hey Jeremy – thanks for covering this new legislative development. Everyone has been keeping an eye on the Do-Not-Track proposals, but I hadn’t heard much buzz about this new Act. It is definitely going to be an interesting year for the industry.
Realistically, this gives the FTC the power to pursue negative option scams, where they had to resort to trying to fit them under old “racketeering” laws before.
The FTC has given guidelines on this before, but it’s still open to interpretation.
So exactly how will this affect affiliates??? letÂ´s say IÂ´m promoting a free trial offer…does this mean that the merchant needs to clearly tell the buyer that in 15 days he will be charged again??? Or is it that customers will be asked for their credit card info on that 15th day?? Thanks
At least this would discourage companies that resort to shady dealings from ripping off their customers. But the thing is, businesses that employ tactics like that would always find a way to circumvent the law.
We’ll adapt. We always do 🙂
Does this mean many offers are going to drop? Then competition for keywords will drop?
Good blog, lots of helpful facts.
Fantastic article.Much thanks again. Keep writing.
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