Various federal and state laws require marketers to clearly disclose the complete terms and conditions regarding the product offers and billing practices. We routinely review our clients’ advertising materials and terms and conditions for compliance with disclosure and notice requirements regarding free-to-pay conversions, refunds, and continuity billing programs – as well as the associated terms of such offers, under the FTC Act, the Restore Online Shoppers Confidence Act, and California’s Automatic Renewal Law among others.
The FTC Act prohibits unfair or deceptive advertising in any medium. It must tell the truth and not mislead consumers. A claim can be misleading if relevant information is left out or if the claim implies something that’s not true. For example, a lease ad for a car that promotes “$0 down” may be misleading if significant and undisclosed charges are due when you sign that lease.
What does “free” cost?
FTC regulations require that “free” offers must be made with extreme care. With respect to disclosure of conditions, FTC regulations provide that: “When making ‘free’ or similar offers, all the terms, conditions, and obligations upon which receipt and retention of the ‘free’ item are contingent should be set forth clearly and conspicuously at the outset of the offer so as to leave no reasonable probability that the terms of the offer might be misunderstood.”
Nationally, the Online Restore Shoppers’ Confidence Act requires disclosure of internet continuity offer terms before the seller obtains consumer billing information. California’s Automatic Renewal Law is even more exacting than the federal law in several respects.
California’s Automatic Renewal Law requires marketers to:
- Clearly and conspicuously disclose the terms of negative options, either in “larger type than the surrounding text,” or, if the same size as surrounding text, then in “contrasting type, font, or color” or “set off” by markings, “in a manner that clearly calls attention to the language.” This minimum mandate of “equal or greater size” is more precise and inflexible than the FTC’s “clear and conspicuous” standard.
- Obtain the consumer’s advance affirmative consent for future recurring charges.
- Provide a written acknowledgment of the negative option that includes the offer terms, cancellation policy, and cancellation method.
- In the case of a free-trial offer, disclose and honor the cancellation policy.
- Provide a toll-free telephone number, email address, postal address – when the seller directly bills the consumer – or another easy and timely cancellation method.
- Notify consumers of any material changes to the negative option terms prior to their implementation.
Violations can lead to civil penalties of up to $2,500 per violations – each unlawful continuity offer or transaction. The California Attorney General and District Attorneys are among the most aggressive state consumer protection agencies in the county. If you don’t comply, you may have to pay restitution damages of 100% of the renewal revenues collected from California customers – regardless of whether they actually wanted and used the service, were actually deceived, or suffered any damages.
An important reminder.
California’s Automatic Renewal Law applies to any contract entered into by any consumer in California that provides for automatic renewal by a recurring charge to his/her credit card or bank account, regardless of where the business is located.
If you’re a marketer using free-to-trial conversions or continuity billing programs, it is critical that you have your advertising content, terms and conditions, and marketing and billing practices reviewed for compliance with these laws which can be done with the help of a continuity attorney.
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