With much of the economy disrupted as a result of the COVID-19 pandemic, one area that continues to grow is automated clearing house (ACH) payments, according to data recently released by Nacha, the non-profit that governs ACH payments. While the recent jump in ACH volume was driven in part by the delivery of federal stimulus payments, it is reflective of a longer term trend of growth in the industry, as ACH becomes increasingly popular for consumer bill payment (rent and utilities), health care payments, payroll processing, and business account payables

Also contributing to the growth in ACH payments is the ability of banks to partner with “third-party senders” to facilitate the origination of ACH payments. Like a payment facilitator in the credit card space, a third-party sender can help a bank expand its ACH origination capabilities by signing up customers to receive the bank’s ACH services. Working with a third-party sender, however, can increase a bank’s exposure to legal, compliance, credit, and reputation risks. These risks are reflected in news articles last year about an ACH payroll processor in New York that allegedly absconded with almost $30 million of its clients’ payroll and tax payments.

As ACH continues to grow, it is critical for banks and their partners to understand the ins and outs of facilitating these payments. Accordingly, this article provides a brief overview of the ACH system, the roles and responsibilities of the key players, and best practices for minimizing risk when banks partner with third-party senders. Continue Reading Managing Risks in Third-Party Sender ACH Processing

We have written previously about the FTC’s vigorous enforcement efforts relating to negative option marketing and its crackdown on alleged wrongdoing seeking to exploit the difficulties presented by COVID-19 (see blog posts here and here). Recently, the FTC continued its efforts with a complaint and settlement concerning negative option marketing to parents seeking online educational resources for their children.

On September 1, 2020, the FTC brought a complaint against online children’s education company Age of Learning, Inc., d/b/a as ABCmouse, alleging that it operated a deceptive negative option program between 2015 and 2018. The FTC alleged that ABCmouse’s actions violated both the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA) by (1) failing to adequately disclose that its 12-month memberships would automatically renew indefinitely; (2) failing to disclose that extensions on 30-day free trial memberships at reduced rates would automatically renew indefinitely; (3) advertising “easy cancellation,” but creating a myriad of procedural hurdles to prevent cancellation; and (4) embedding pitfalls in the cancellation process to mislead customers into extending their memberships, as opposed to cancelling them. Furthermore, in some instances, even if a customer successfully navigated the cancellation process, ABCmouse would still charge for the cancelled services.

Continue Reading FTC Schools Marketers on the ABCs of Negative Option Marketing

A major point-of-sale financing and leasing company and the Federal Trade Commission (FTC) have reached a proposed settlement to resolve an investigation into whether the company’s practices and representations to retail consumers violated the FTC Act. The announcement of the settlement highlights the importance of disclosing all material pricing terms to consumers, including in an e-commerce environment and, for point-of-sale financing companies, reviewing and synchronizing their promotional messages with retail partners. The settlement also revealed disagreements among the Commissioners on issues of individual liability and the proper measure of monetary relief.

The settlement resolves an investigation into Aaron’s, Inc. and its wholly owned subsidiary, Progressive Leasing (Progressive), regarding disclosures related to lease-to-own and other financial products. Under the proposed agreement, which remains subject to the approval of the United States District Court for the Northern District of Georgia, Progressive would make a payment of $175 million to the FTC and enhance certain of its compliance-related activities, including monitoring, disclosures, and reporting.

Continue Reading FTC Settlement Underscores Importance of Pricing Disclosures for Lease-to-Own Companies

Subscription merchants that take payment by Visa cards will have new acceptance, disclosure, and cancellation requirements imposed on their transactions beginning April 18, 2020. As Visa recently announced, the card brand is updating its rules for merchants that offer free trials or introductory offers as part of an ongoing subscription program.

The Visa rules follow on the heels of similar Mastercard rules that became effective earlier this year. However, while MasterCard’s rules focus on merchants selling subscriptions for physical goods, Visa’s rules apply to merchants selling either physical or digital products if the merchant offers a free trial or introductory offer that rolls into an ongoing subscription arrangement.

The new requirements are more specific than what the Restore Online Shoppers’ Confidence Act (ROSCA) prescribes, and while they don’t have the force of law, noncompliance could put a merchant’s credit card processing capabilities at risk. Here are some of the components of the new Visa rules:

Continue Reading New Requirements for Subscription Merchants Accepting Visa Cards

The Federal Trade Commission’s “Negative Option Rule” is up for review, and the FTC is steering toward stricter regulations for automatic renewal plans and subscription programs. The FTC completed its last regulatory review of the Negative Option Rule in 2014 and decided then to retain the rule in its current form. But, will this time be different?

The Rule Under Review

The rule under review is the “Rule Concerning the Use of Prenotification Negative Option Plans,” also referred to as the “Negative Option Rule.” However, the scope of the Negative Option Rule only covers prenotification plans, like book-of-the-month clubs, where the seller sends notice of a book to be shipped and charges for the book only if the consumer takes no action to decline the offer, such as sending back a postcard or rejecting the selection through an online account.

Continue Reading The FTC’s Negative View of Negative Options – Are Expanded Regulations Coming?

Positive online reviews have become essential for any business marketing goods or services over the internet, especially for trendy services like food delivery and custom health product sales. But the FTC’s newly-announced settlement with startup healthy snack service UrthBox reminds marketers that online praise must be freely given, not bought—even if the compensation offered isn’t monetary.

UrthBox, Inc., a San Francisco company offering direct-to-consumer snack deliveries on a subscription model, drew the FTC’s ire by maintaining an incentive program that offered free snack boxes to consumers who posted positive reviews on the BBB’s website. According to the FTC’s complaint, the plan was simple: when a consumer reached out to UrthBox, customer service representatives would offer to send free products to the consumer in exchange for a screenshot of a positive review. The program began with the customer service department at UrthBox, where representatives were paid bonuses based on the number of consumer complaints they were able to turn into positive online reviews. The impact was significant: where UrthBox’s BBB profile had only nine reviews (all negative) in 2016, by the end of the next year, the company boasted 695 reviews, 88% of them positive.

Continue Reading FTC’s Snack Service Settlement Reminds DTC Companies Not to Incentivize Reviews

As 2019 goes into full swing, it’s important for providers of payment processing services (referred to here as “acquirers”) and their merchants or submerchants to prepare for the various regulatory and industry changes coming this year. One such significant change comes in the form of Mastercard’s updated rules for negative option billing programs.

Set to take effect on April 12, 2019, Mastercard’s new rules will tighten consumer protection requirements for negative option merchants and their acquirers that process Mastercard transactions. Several laws such as the Electronic Fund Transfer Act, the Restore Online Shoppers’ Confidence Act, and various state laws already apply to negative option billing programs, but Mastercard’s new rules go even further. Among other things, the rules include a requirement for merchants to notify consumers at the end of a trial period before charging the consumer.

Applicability

Notably, the new rules cover any card-not-present transaction where the consumer purchases a subscription to automatically receive a physical product (such as cosmetics, healthcare products, or vitamins) on a recurring basis. Fully digital services are not covered.

This means the rules apply to free trial offers and most forms of negative option programs involving product sales. The negative option plan may be initiated by a free trial, nominally priced trial, or no trial at all. However, if a trial is used, special rules apply to ensure the consumer is aware of and consents to subsequent payments at the trial’s conclusion.

Continue Reading Mastercard Targets Negative Options In 2019 – Demands Transparency

Recently, we wrote about new faces at the FTC, which, for the first time in its history, has five new Commissioners in a calendar year. This unprecedented change has cast some uncertainty on how the FTC will approach consumer protection enforcement. Recent actions by the Commission, however, indicate that despite new leadership, the Commission’s focus will be largely unchanged. Unsubstantiated health claims and unauthorized billing appear to remain high on the FTC’s list of priorities.

Last week, the FTC won a preliminary injunction from the Central District of California regarding the sale of oral dissolvable film strips promising smoking-cessation, weight loss, and enhanced sexual performance—all past favorites of the FTC. The advertisements for all three products made objective claims concerning performance such as the “88% Success Rate” of the smoking-cessation product or the promise that you can “lose 10, 20, even 100 pounds without giving up your favorite foods or adding any exercise.” The FTC alleged these claims were false, misleading, or unsubstantiated. The FTC also challenged alleged phony testimonials and threw in a false “Made In The USA” claim.

In addition to the product claims, the Commission also alleged that the defendants allegedly charged consumers without their knowledge or consent through an automatic renewal plan violating the FTC Act, ROSCA, and EFTA. Automatic renewal or negative option plans have frequently been the subject of enforcement by the FTC as well as several states in recent years. It does not appear that the new Commission will be changing course.

Finally, the FTC also alleged that the defendants violated the Telemarketing Sales Rule by sending prerecorded outbound calls to induce the sale of their products. So, while there might be new faces at the top of the FTC, it appears that for many marketers, it’s business as usual.

The FTC has been waging a steady war against advertisers that use introductory offers that turn into subscription agreements. With the FTC threatening to seek full consumer redress and to impose joint and several liability, most companies and their principals cannot afford to litigate such cases and are forced to settle. In March 2015, the FTC sued DIRECTV, alleging that DIRECTV failed to properly disclose material terms of its introductory offer and its subscription agreements. DIRECTV chose to fight. Last August the case went to a bench trial. After the close of the FTC’s case, the judge suspended the trial so that DIRECTV could move for a judgment in its favor. Last week, the judge granted DIRECTV’s motion in part, tossing out large parts of the FTC’s case. The opinion provides insightful guidance on how to structure continuity offers and illustrates the difference between alleging something is deceptive and proving it.

In its complaint, the FTC alleged that DIRECTV failed adequately to disclose that: (1) introductory prices were limited to the first 12 months of 24-month subscriptions; (2) the subscriber is subject to a 24-month commitment; (3) early termination fees would apply if subscriptions were cancelled early; and (4) premium channels were free for three months and then would be automatically charged at the regular rate unless the subscriber called to cancel. The FTC alleged these deceptive statements were made in print, TV, and banner advertisements as well as the directv.com website. Based on these allegations, the FTC sought restitution of $3.95 billion based on DIRECTV’S alleged unjust gains from the deception.

Continue Reading A Victory for Introductory Offer and Subscription Advertisers: FTC Fails to Prove Deception Against DIRECTV

Opting OutWhat do golf and sex have in common? According to the old joke: They’re two things you don’t have to be good at to enjoy. Similarly, some men – ok, most men – tend to exaggerate their prowess at both. You can add one more common trait: The FTC scrutinizes online continuity offers for the accessories associated with both, as the FTC last week settled a case involving lingerie and we blogged previously about the FTC’s golf ball ROSCA case, which settled recently. One final note on the connectivity between golf and lingerie: Supermodel and actress Kelly Rohrbach appeared in lingerie on the AdoreMe site and played college golf.

On November 20th, the FTC filed suit in New York against an online seller of lingerie for violating the FTC Act and Section 5 of the Restore Online Shoppers’ Confidence Act (ROSCA). According to the complaint, AdoreMe generates most of its revenue from its “VIP members.” For $39.95 a month, VIP members receive discounted prices, but are not charged if they buy apparel within the first five days of each month or affirmatively click a button to skip that month. If a consumer forgets to click the button or buy something within the first five days, the amount becomes store credit that supposedly can be used at any time. However, according to the FTC, many consumers were surprised to learn that the store credit could not be used at any time. The FTC alleged that AdoreMe failed to disclose that if a consumer cancelled their VIP membership, their store credit would be forfeited. The FTC sought $1.3 million for the forfeited store credit.

Continue Reading Sex, Golf, and the FTC