Subscriptions and Renewals

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A lawsuit filed by the CFPB last week against a national credit reporting agency provides some insight into the types of website features and designs that regulators like the Consumer Financial Protection Bureau and Federal Trade Commission will target. As we covered previously, digital dark patterns—or website design, features, and interfaces used to allegedly deceive, steer, and manipulate users—are a priority for both rulemaking and enforcement actions by the FTC. Although the focus has been on website features that “trick or trap” consumers into subscriptions, the potential for broad and arbitrary application of this concept is worrisome. What is the line between a website that is acceptably optimized for conversion and one that is illegally steering users to make purchases?

In the highly detailed complaint, the CFPB alleged, among other things, that the net impression of various advertising messages, combined with the design of the webpage where users landed when clicking on the ads, obscured the nature of the offer (a month-to-month subscription of a credit-monitoring service and credit score), the status of a user’s enrollment in the service, and the purpose of collecting a user’s payment information.

More specifically, the complaint described how call-to-action buttons, email subject lines, font color and size, text placement, and website flow were employed to confuse consumers who were seeking information about or copies of their annual free credit report and steer them instead into unwittingly purchasing a subscription for credit monitoring.…

Continue Reading Latest CFPB Lawsuit Sheds Light on Digital Dark Patterns

A few weeks ago, we wrote an article discussing two enforcement actions by the Federal Trade Commission in the Central and Southern Districts of California that highlighted the risks to payment processors and financial institutions for their relationships with companies engaged in allegedly unlawful “negative option” marketing.

In both FTC v. Triangle Media Corporation et al. (the “Triangle Action”) and FTC v. Apex Capital Group, LLC (the “Apex Action”), the FTC accused the defendants of engaging in an alleged scheme to offer fake “free trials” of personal care products and dietary supplements to obtain consumers’ credit and debit card information.

Also, in both cases, the court granted the FTC’s request and recommendation that a Receiver be assigned to oversee, manage, and preserve the assets of both sets of defendants. That Receiver then sued Wells Fargo—the bank used by the defendants in both the Triangle and Apex Actions—alleging that Wells Fargo engaged in illicit activity, including, but not limited to, aiding and abetting fraud, conspiracy to commit fraud, breach of fiduciary duty, negligent supervision, and violating the California Unfair Competition Law (UCL). Last week the court denied most of Wells Fargo’s motion to dismiss, allowing the claims against the bank to proceed.…

Continue Reading Update: Judge Allows Most of Receiver’s Claims Against Wells Fargo for Involvement with Negative Option Marketers to Proceed

Mastercard recently announced new requirements for merchants using a subscription billing model or negative option model, or both.  The new standards focus on disclosures made to consumers at the point of payment; providing adequate confirmation, notices, and billing receipts; and affording customers an online or electronic cancellation method.  Requirements relating to point of payment disclosures become effective on September 22, 2022.  The other requirements will become effective much sooner, on March 22, 2022.  As always, reconciling card brand requirements with current federal and state legal requirements and law enforcement priorities will take particular care and attention, particularly as laws in California and other states continue to evolve.

The Mastercard updates, like those imposed by other card brands, are intended to reduce complaints and chargebacks from consumers who might not understand they were enrolled in an automatic renewal subscription or negative option program (or who do not understand the billing terms), forgot they enrolled, or have difficulty canceling their subscriptions.

As we summarize below, the new Mastercard requirements apply to merchants using subscription/recurring billing models, including programs that charge a consumer for goods or services on a prearranged schedule (such as streaming video services, membership clubs, and software licenses).  Mastercard included certain additional requirements for negative option programs, where the merchant offers an initial free or discounted trial period of a subscription before automatically enrolling the consumer into the subscription, and the consumer must take some action to cancel before the end of the trial to avoid continuing with the subscription.
Continue Reading New Mastercard Requirements for Subscription and Negative Option Billing Models

The laws and regulations surrounding subscription-based offers continue to change on a regular basis. Federal and state regulators and private plaintiffs continue to lodge challenges against companies selling products and services on a recurring basis. Moreover, new cases and law enforcement activity offer evolving interpretations on how to comply. Given the substantial developments, companies offering products or services on an automatically renewing basis should take heed.

The primary federal regulator of autorenewal programs, the Federal Trade Commission (FTC), remains as active as ever in enforcing the Restore Online Shoppers’ Confidence Act (ROSCA), the federal statute governing online negative option programs. The FTC has filed multiple new lawsuits against companies selling products and services on a negative option basis and continues to litigate cases that it has filed.

The district attorneys in the California Automatic Renewal Task Force have also continued to bring actions at a furious pace, demonstrating their clear intention to pick up where the FTC has left off. In fact, the task force recently filed a lawsuit in California state court against Match.com, even though the FTC had already filed a lawsuit against the company. The California district attorneys also announced settlements with Classmates.com, Home Chef, CheckPeople.com, and Care.com, among other companies, and the consent decrees have imposed increasingly stringent requirements on the settling businesses.…

Continue Reading Automatic Renewal Programs: Latest Updates

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

We have written repeatedly about the FTC and various states’ efforts to clamp down on “negative option” offers to consumers (see blog posts here and here). Last week, consistent with a newly found focus on protecting small businesses, the FTC challenged negative option marketing aimed at business entities. The case underscores the FTC’s…

Although the coronavirus pandemic has impacted every business over the past few weeks, companies offering negative option and subscription programs face a unique set of issues. On the one hand, the subscription model offers consumers benefits that are difficult to provide outside of this context (such as streaming services, online learning programs, and uninterrupted access). On the other hand, business interruptions — in addition to consumers tightening their budgets — have presented significant hurdles to the subscription model during the current pandemic.

For example, the current shutdown has prevented many companies that offer membership programs from continuing to provide these services to consumers, such as gyms, access passes, and in-person events. As a result, customers have increasingly begun to cancel their memberships to avoid paying for services that companies simply cannot fulfill. Online services are not immune to the fallout, as consumers who are tightening their belts and looking for ways to reduce spending have started cancelling recurring billing services, which they may view as unnecessary in the present circumstances.…

Continue Reading Automatic Renewal Programs: Reducing Risks During the COVID-19 Pandemic