While FTC attorneys continue to focus upon recurring payment issues and aggressively enforce ROSCA compliance, a number of states have recently enacted or supplemental legislation on automatic renewal contracts (e.g., California, North Dakota, Vermont and Washington D.C.).  Federal lawmakers may now be getting into the oversight act.

Rep. Mark Takano (D-Calif.) recently introduced the Unsubscribe Act of 2019.  The proposed legislation would apply to automatic renewal contracts, continuity plan contracts and free-to-pay conversion contracts.  Sellers would be required to provide consumers with a simple mechanism to cancel such agreements in the same manner and by the same means in which the agreement was entered.

Increased Consumer Protection

The primary purpose of the Act is to increase consumer protection with respect to negative option agreements entered into on the Internet.

Sellers would be required to obtain express informed consent and provide notification of the terms of a free-to-pay conversion contract before charging a consumer.  Consumers would be required to perform an “additional affirmative action” (e.g., clicking on button or checking a box) to indicate affirmative consent to material terms and charges.

The Act also provides that it “shall be unlawful for any person to charge or attempt to charge any consumer’s credit card, debit card, bank account, or other financial account for any good or service sold in a free-to-pay conversion contract entered into on the Internet, unless: (i) before obtaining the consumer’s billing information, the person has obtained the consumer’s express informed consent to enter into the contract and has provided the consumer with a notification of the terms of the contract, including the fact that (a) for an introductory period, the consumer will receive the good or service at no charge or for a nominal charge; and (b) after the introductory period, the consumer will be charged or charged an increased amount for the good or service; and (ii) before the initial charge or initial increase after the introductory period, the person requires the consumer to perform an additional affirmative action, such as clicking on a confirmation button or checking a box, which indicates the consumer’s consent to be charged the amount disclosed.

Following the introductory period in a free-to-pay conversion contract entered into on the Internet between any person and any consumer, and on a quarterly basis while the contract remains in effect, the person shall provide the consumer with a copy of the notification of the terms of the contract.

There would be mandatory notifications with respect to other negative option agreements.

With respect to an automatic renewal contract entered into on the Internet between any person and any consumer: (i) not later than 30 days before the end of the initial fixed period in the contract, the person shall provide the consumer with a notification of the terms of the contract; and (ii) after the initial fixed period in the contract, and on a quarterly basis while the contract remains in effect, the person shall provide the consumer with a copy of the notification of the terms of the contract. 

With respect to a continuity plan contract entered into on the Internet between any person and any consumer, the person shall provide the consumer with a copy of the notification of the terms of the contract on a quarterly basis while the contract remains in effect.

In the case of a material change in the terms of a negative option agreement entered into on the Internet between any person and a consumer, the person shall provide the consumer with a notification of the terms of the agreement as changed before the change takes effect.

Enforcement

FTC attorneys may prescribe regulations to carry out this Act.  A violation of this Act or any regulation prescribed under it would be treated as an unfair or deceptive act or practice.  The Federal Trade Commission would enforce this Act in the same manner, by the same means, and with the same jurisdiction, powers, and duties as though all applicable terms and provisions of the Federal Trade Commission Act were incorporated into and made a part of the Act.  Those that violate the Act would be subject to the penalties.

In addition to enforcement by FTC attorneys, the attorney general of a state would be permitted to bring an action on behalf of the residents of the state in any United States district court for the district in which the defendant is found, resides or transacts business, or wherever venue is proper.

The term “automatic renewal contract” is defined under the Act as a contract between any person and any consumer for a good or service that is automatically renewed after an initial fixed period, unless the consumer instructs otherwise.

A “continuity plan contract” is defined under the Act as a contract between any person and any consumer under which the consumer agrees to incur charges in exchange for periodic shipments of goods or the provision of services, unless the consumer instructs otherwise.

A “free-to-pay conversion contract” is defined under the Act as a contract between any person and any consumer under which: (i) for an introductory period, the consumer receives a good or service at no charge or for a nominal charge; and (ii) after the introductory period, the consumer is charged or charged an increased amount for the good or service.

A “pre-notification negative option plan contract” is defined under the Act as contract between any person and any consumer under which the consumer receives periodic notices offering goods and, unless the consumer specifically rejects the offer, the consumer automatically receives the goods and incurs a charge for such goods.

A “negative option agreement” is defined under the Act as an automatic renewal contract, a continuity plan contract, a free-to-pay conversion contract, a pre-notification negative option plan contract or any combination of the contracts described above.

This Act would apply with respect to contracts entered into after the date that is 1 year after the date of its enactment.

Contact experienced Federal Trade Commission (FTC) attorneys if you have questions about complying with applicable automatic renewal laws, or if you are the subject of an FTC investigation or enforcement action.

Richard B. Newman is a digital advertising and compliance lawyer at Hinch Newman LLP.  Follow FTC defense lawyer on Twitter.

Attorney Advertising. Informational purposes only. Not legal advice.