An FTC Legal Specialist Repsonds to The Senate Bill

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.