Online shoppers scored a victory today, as the House passed S. 3386 aka the “Restore Online Shoppers Confidence Act”. The bill was previously passed (unanimously) by the Senate in late November, and will now go to President Obama for his signature. The bill will prevent online marketers from engaging in certain types of credit or debit card “data pass” or “post transaction” marketing.
The “Restore Online Shoppers Confidence Act” follows detailed hearings and investigations by Senator Rockefeller (D WVA) in which Senator Rockefeller looked into so-called “data pass” or negative option marketing programs that had become commonplace on the Internet. As a result of those hearings, credit card companies, including Visa, banned a number of merchants from processing credit cards and debit cards on the Internet.
The new law will regulate how merchants may sell certain marketing programs online and prohibits and restricts certain “post transaction” offers as well as certain “negative option” offers.
In particular, the bill will prohibit, in most cases, any third-party seller from charging or attempting to charge a consumer, after an initial transaction, for any good or service sold over the Internet. The bill defines a third-party seller as a vendor that offers a good or service to a consumer after the consumer has completed a transaction with a different Internet merchant.
The bill prohibits certain “data pass” processes, such that merchants that engage in post-transaction sales would be required to clearly disclose their product and terms of any agreement to the consumer. This bill requires that merchants create a process for the consumer to re-enter personal and financial information, before any transaction could be completed.
The bill also prohibits certain types of “negative option” or “negative response” marketing, by prohibiting merchants from using a “negative response” or opt-out tactic as defined by the Federal Trade Commission (FTC). Sellers that engage in this practice would be required to provide a form that discloses all the terms of any agreement, obtain expressed consent from the consumer, and provide a simple way for the consumer to cancel ongoing charges or subscription fees.
The bill also treats any violation of the prohibitions as an unfair or deceptive act and practice under the Federal Trade Commission Act. These violations of the FTCA could result in a fine of $10,000 per violation, in addition to civil action taken by the FTC. Additionally, the bill would provide a right of action to states to enforce and prosecute any violation of the bill that occurs within their borders. A state attorney general would be permitted to take civil action against a third-party seller should the official deem it necessary.
The bill is the result of detailed investigations by Senator Rockefeller and his staff which found that a number of companies gain access to online consumers by entering into financial agreements with reputable online websites and retailers. In exchange for bounties and other payments, reputable on-line retailers agree to let marketers sell club memberships to consumers as they are in the process of buying movie tickets, plane tickets, or other online goods and services. The sales tactics used by these marketers were found to exploit consumers expectations about the online checkout process.
With the cooperation of their online partners, the marketers would insert their sales offers into the “post-transaction” phase of an online purchase, after consumers have made a purchase but before they have completed the sale confirmation process. These offers generally promise cash back rewards and appear to be related to the transaction the consumer is in the process of completing. Misleading “Yes” and “Continue” buttons were found cause consumers to reasonably think they are completing the original transaction, rather than entering into a new, ongoing financial relationship with a membership club operated by a marketer.
The investigation found that the “data pass” process used by these marketers was even more misleading. In the data pass process, the marketers and their online partners would automatically transfer consumers credit or debit card information from the familiar web seller to the third-party membership club.
The committee investigation found that such passing of consumers billing information directly to a marketing partner, without requiring consumers to re-enter it, deprives consumers of notice that they are entering a new, ongoing financial relationship with an unfamiliar company. After a 30-day “free trial” period, the marketer would then begin charging the consumer a monthly fee of $10-$20 dollars until the consumer canceled the membership.
The result of such tactics was great confusion on the part of consumers and great profits to the marketers and their partners. Such practices, thanks to Senator Rockefeller, are now prohibited.