Risk-free trialIt’s no secret that automatic renewal (or continuity or negative option programs) are on many regulators hit lists. Regulators argue that consumers are often unaware that they have signed up for services or products for which they will be billed on a monthly basis unless and until they cancel, particularly when it involves a free trial period. In some cases cancellation may not always be easy and the billing descriptor that appears on the consumer’s credit card statement may differ significantly from the branded product or service name. Finally, otherwise busy consumers may simply forget about the upcoming renewal, particularly if the subscription term is lengthy.

Regulators have responded by bringing numerous law enforcement actions, many of which seek to heighten disclosure requirements. At the federal level many of these enforcement actions are based in part upon ROSCA, the Restore Online Shoppers Confidence Act. (See our previous posts on ROSCA here.) The Unsubscribe Act, introduced in the House of Representatives earlier this year, seeks to tighten legal requirements for such programs even further.

The Act seeks to regulate several different types of Internet-based negative option programs:

  1. Contracts that are automatically renewed after an initial fixed period;
  2. Contracts pursuant to which charges are incurred on a periodic basis for shipped goods or provided services; and
  3. Contracts in which goods or services are provided for free or a nominal charge during an introductory period after which those goods or services are then provided for a fee or increased fee.

The Act then seeks to deal with the potential provision of unwanted goods or services in several ways. First, the cancellation process is simplified by providing that a cancellation mechanism must be provided that is via the “same manner” and “same means” that the original agreement was entered into. In other words, if the consumer signed up online then they should be able to cancel online rather than, for example, having to call a toll free number.

Second, the Act also seeks to heighten consumer awareness of impending charges. For so-called “Free-to-pay” contracts, the consumer must affirmatively consent to the initial charge before the end of the introductory period (this is in addition to any affirmative consent required before obtaining the consumer’s billing information.) In addition, consumers must be provided with notification of the terms of any negative option agreement not later than 30 days before the end of the initial fixed period and then on a quarterly basis thereafter.

Finally, enforcement authority is vested in both the Federal Trade Commission (FTC) and the State Attorneys General. Indicative perhaps though of the shifting political winds here in Washington, DC, no action may be brought by a State Attorney General if the same conduct is the subject of an FTC action.

Whether the bill will survive the arduous process of becoming a law (here’s a schoolhouse rock refresher on how that works) is uncertain. At least one issue that likely needs to be resolved is whether the legislation is intended to cover such commonplace negative options as mobile phone and cable contracts. For example, if your cable operator offers you a movie channel for free for 30 days and you sign up for that offer on the Internet will they have to get your affirmative consent at the end of the 30 days in the same way as other service or good providers? To find out what happens maintain your subscription to our blog. Our free trial period never ends.