On December 29, 2010, President Barack Obama signed into law the Restore Online Shoppers' Confidence Act (ROSCA). ROSCA, effective immediately, restricts companies that collaborate online in offering products and services and imposes requirements on those offering so-called negative option billing plans online.

Financial institutions that have come together to offer products online and have a joint agreement in place may be affected, as well as other online marketing relationships of such institutions. In light of ROSCA, financial institutions should review all such marketing relationships and alter, as necessary, the flow of customer information to ensure compliance.

Retailers often collaborate online to offer "add-on" products or services. For example, some travel Web sites, after the initial transaction, will alert customers to products or services offered by unaffiliated third parties, such as trip-cancellation protection. The new law applies as follows:

  • The initial merchant may not pass billing information, including account number and mailing address, to the unaffiliated third party to enable that third party to bill the customer.
  • The unaffiliated third party must do the following:
    • Disclose clearly and conspicuously all material terms of the transaction, including the cost of, and a description of, the goods or services being offered
    • Provide customers with its name, clearly and conspicuously, and a statement that it is not affiliated with the initial merchant
    • Only after making the above disclosures, obtain express informed consent to charge the customer by collecting his/her full debit card, credit card, or other account number, and his/her name, address, and contact information
    • Before charging the customer, require that he/she "perform an additional affirmative action," such as clicking a button or checking a box attached to a statement that the consumer agrees to be charged for the amount shown

ROSCA also puts requirements on "negative option" billing plans—whereby a consumer agrees, for a price or for free, to receive a product or service for an initial period of time, after which the consumer will be charged without giving additional consent for another period of time, unless he/she affirmatively cancels the product or service.

The Federal Trade Commission already addresses negative option billing plans in its trade regulation rule Use of Prenotification Negative Option Plans (16 C.F.R. Section 425). Currently, the rule contemplates mail or paper-based transactions, and requires all retailers to disclose how consumers may cancel the plan, the cost of continuing in the plan, and the frequency with which consumers will be charged. The FTC's Telemarketing Sales Rule (16 C.F.R. Section 310) addresses negative option billing plans offered via telephone. 

ROSCA requires that any transaction that is "effected on the Internet through a negative option feature" occur as follows:

  • The retailer must clearly and conspicuously disclose all material terms of the transactions before obtaining the consumer's billing information.
  • The retailer must obtain the consumer’s express informed consent before charging the consumer’s account.
  • The retailer must provide simple mechanisms for consumers to stop recurring payments. The law does not specify what qualifies as a "simple mechanism" or whether it must be offered online.

The FTC, which wields ROSCA enforcement authority, can issue a new trade regulation rule or revise a current rule and assess civil penalties for non-compliance (currently,  up to $16,000 per violation). ROSCA also provides that state attorneys general may bring suit, if the FTC has not, to seek injunctive relief.

FTC jurisdiction continues to limit its enforcement authority over financial institutions regulated by federal banking agencies, and ROSCA does not explicitly extend enforcement authority to the Consumer Financial Protection Bureau (CFPB). However, as this law identifies these Internet marketing activities as unfair and deceptive, as of July 21, 2011, the CFPB could act under its authority to stop unfair, deceptive, and abusive practices.

The Gramm-Leach-Bliley Act permits unaffiliated financial institutions to enter into joint agreements with each other to share customer nonpublic information while marketing financial products and services. That includes the billing information that ROSCA specifically prohibits unaffiliated parties to share. As such, financial institutions with joint agreements may be restricted from transacting online or need to alter how the transaction occurs. Additionally, many financial institutions market non-financial products or services offered by unaffiliated third parties.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring, documenting, and marketing innovative consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).  For more information, please contact group Chair Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Vice Chair Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; John L. Culhane, Jr., 215.864.8535 or culhane@ballardspahr.com; Barbara S. Mishkin, 215.864.8528 or mishkinb@ballardspahr.com; or Mark J. Furletti, 215.864.8138 or furlettim@ballardspahr.com.

 


 

 

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