Federal Law Enacted re Post-Transaction, Data Pass and Negative Option Marketing

The Restore Online Shoppers' Confidence Act ("Act") was recently enacted, which sets forth specific requirements for certain Internet-based sales, including post-transaction sales by third parties, data-pass procedures, and negative option marketing.  Under the Act, a post-transaction third-party seller is an entity that offers for sale goods or services to the consumer through an unaffiliated initial merchant with whom the consumer has initiated a transaction (a practice also known as "third party upselling"). A "negative option" feature is defined as an offer or agreement for the sale or provision of any goods or services, where the consumer must take an affirmative action to reject goods or services or to cancel the agreement.

Under the federal law, post-transaction third-party sellers are required to clearly and conspicuously disclose the following, prior to charging a consumer for any good or service: (1) the description of the goods or services; (2) that the seller is not affiliated with the initial merchant, which may require disclosure of the seller's name in a manner that clearly differentiates the seller from the initial merchant; and (3) the cost. A post-transaction third-party seller must also obtain the consumer's express informed consent prior to charging the consumer by requiring the consumer to perform an affirmative action, such as checking a consent box and by collecting either the consumer's full account number that is to be charged or the consumer's name and address. The new law also prohibits the initial merchants from disclosing a consumer's billing information to a post-transaction third-party seller for use in the seller's sale of goods and services over the Internet to the consumer.

For entities offering plans with a negative option feature, such entities must: (1) clearly and conspicuously disclose all material terms of the transaction prior to obtaining the consumer's billing information; (2) obtain the consumer's express informed consent prior to charging the consumer for any goods or services; and (3) provide the consumer with a simple mechanism to stop recurring charges.

TIP:  Companies that engage in post-transaction sales through unaffiliated third-party merchants on the Internet should review their sales procedures to ensure that they are no longer engaging in data pass and are adequately securing consumer consent. Entities that use a negative option feature in their offers should review their procedures to ensure that they are adequately disclosing all material terms, obtaining the proper consent and have a simple cancellation method available to consumers.