Entrepreneurs and small business owners beware.

In December 2010, President Obama signed into law the Restore Online Shoppers’ Confidence Act (“ROSCA” or the “Act”), Pub. L. No. 111-345, 124 Stat. 3618 (2010).  In effect, the new law tries to live up to its name by banning certain Internet sale practices so consumers can feel confident in online shopping.

ROSCA sets forth its purposes as follows:

“[c]onsumer confidence is essential to the growth of online commerce. To continue its development as a marketplace, the Internet must provide customers with clear, accurate information and give sellers an opportunity to fairly compete with one another for consumers’ business.”

Id. at Section 2.

Two specific practices that the new law targets are “cross-sales” and “negative option features.” Cross-sale marketing refers to a sales practice where a consumer is offered additional goods or services that are both unrelated to the original purchase and provided by a third party seller. An example of this would be an offer for a magazine membership through a third party website. The concern with this practice is that customers are misled to believe that they are still conducting business with the initial merchant. Also, the consumer’s payment information may be passed to an unauthorized vendor or payment processor without that consumer’s knowledge or consent.

To regulate this practice, ROSCA makes it illegal for post-transaction third party sellers to charge or attempt to charge consumers for any online sale unless they:

(a)    disclose all material terms (including description and price of the good or service being offered) to the consumer before obtaining the consumer’s billing information; and 

(b)   obtain the purchaser’s informed consent to billing (i.e. checking an unchecked box affirming the transaction).

Id. at Sec. 3.

ROSCA also places limits on the negative option features. These concern offers to consumers that are binding unless the consumer opts out of the sale by, for example, deselecting a pre-checked box. ROSCA makes it illegal for a person or company to charge any consumer for any goods or services sold in a transaction through a negative option feature, unless the person:

(a) “provides text that clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information; 

(b) 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 

(c) 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.”

Id. at Sec. 4.

Under the new law, the Federal Trade Commission is able to take action against online businesses that use cross-sale or negative option feature marketing but do not comply with the law’s requirements. Additionally, state Attorneys General are also empowered to prosecute against those found to be in violation of ROSCA. Therefore, it is crucial that any business engaging in such practices adjust their methods in order to be compliance with the new law.

Comments/Questions: gdn@gdnlaw.com

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