The Federal Trade Commission (FTC) recently brought its first enforcement action under the Restore Online Shoppers’ Confidence Act (ROSCA) against multiple defendants that the FTC alleges engaged in a common enterprise to offer consumers dietary supplements and health care-related products. In a post on the FTC’s Business Center Blog, a senior attorney with the agency’s Bureau of Consumer Protection noted that “the complaint offers the first example of how the FTC has used the statute.” In light of this action, businesses involved in e-commerce should review their online marketing practices.

ROSCA prohibits unfair and deceptive Internet-based sales practices, including certain third-party billing practices and enrolling consumers in negative option programs without adequate disclosures. A summary of ROSCA’s restrictions is available in our prior ROSCA alert. Understanding ROSCA is important for any financial institutions that partner with third parties to offer products online to their customers, especially if those third parties are able to market to a financial institution's customers immediately following online transactions with the customers' financial institution.

In the complaint, the FTC alleges that the defendants falsely marketed “free” trials or deceptive buy-one-get-one (BOGO) offers to obtain consumers’ credit or debit card information. Rather than merely charging consumers for the shipping costs associated with these offers, the FTC alleges that the defendants also automatically enrolled consumers—without their authorization—in “guarantee programs.” These programs billed monthly fees to the consumers’ accounts for monthly product shipments on a recurring basis unless the consumers take affirmative action to cancel their agreements with the defendants. The FTC alleges that enrolling consumers in this type of negative option feature violated ROSCA because the defendants failed to provide clear and conspicuous disclosures, to obtain the consumers’ express informed consent, and to establish a simple mechanism for consumers to stop the recurring charges.

The FTC also alleged that the defendants violated the prohibition against unfair and deceptive acts or practices in Section 5 of the FTC Act, the Electronic Funds Transfer Act, and the Telemarketing Sales Rule. At the FTC’s request, a Nevada federal district court has imposed a temporary restraining order against the defendants.

Members of Ballard Spahr’s Consumer Financial Services Group regularly assist clients to comply with FTC guidance on online marketing, including ROSCA and other consumer protection laws and regulations. The Group has a team of lawyers with extensive experience assisting clients with marketing campaigns, including telemarketing and direct marketing.

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com.


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