Congress Approves Measure Aimed at Deceptive Internet Sales

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Legislation aimed at protecting consumers from certain aggressive sales tactics on the Internet has cleared Congress.

The proposed “Restore Online Shoppers’ Confidence Act” (S. 3386), which passed the House of Representatives on December 15, would create new rules for companies using post-transaction marketing and negative options. The measure passed the Senate on November 30 and was presented to the President on December 17.

“We’re pleased Congress passed this legislation,” FTC Chairman Jon Leibowitz said in a December 15 statement. “Too many companies are trying to use phony monthly billing to rip off Americans and this bill will help strengthen our hand. Consumers should be able to make informed decisions, so the terms and conditions of any offer must be disclosed clearly and conspicuously.”

Protections for Online Consumers

The FTC statement explains that the legislation would provide important protections for online consumers. It would prohibit a post-transaction third-party seller—a seller who markets goods and services online through an initial merchant after a consumer has initiated a transaction—from charging a consumer for any good or service sold in an online transaction, unless the seller clearly discloses all the material terms of the transaction and has obtained the consumer’s consent directly from the consumer before charging them.

The sellers must obtain directly from the consumer the full financial account number to be charged. In addition, the legislation would make it unlawful for any online seller to transfer a consumer’s financial account number to a third party seller.

Negative Option Plans

The legislation would also restrict marketers that use negative option plans, under which the seller interprets the consumer’s silence or failure to reject goods or services, or to cancel the sales agreement, as acceptance of the offer.

The proposed Restore Online Shoppers’ Confidence Act would make it unlawful for a seller to charge a consumer for any good or service with a negative option feature in an online transaction, unless:

(1) The seller clearly discloses to the consumer all the material terms of the transaction;

(2) The seller has obtained the consumer’s consent before charging them; and

(3) The seller provides a simple way for the consumer to stop charges.

Further details regarding this bill will appear in CCH Trade Regulation Reporter.