I Subscribed to What? What Online Subscription-Based Marketers Need To Tell Their Consumers

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From Trademark and Copyright Law:

I am certainly not the only person who has been lured into purchasing a too-good-to-be-true, deeply discounted product online, only to learn that what I actually purchased was a subscription to buy more stuff.  Kate Hudson’s athletic wear company Fabletics hooked me about a year ago when I saw a cute workout outfit advertised on social media for only $25.00.  I purchased the outfit on Fabletics’ website, only to discover months later that I had become a “proud” member of the Fabletics “VIP” program.  Despite its fancy name, all it means is that I was paying, unbeknownst to me, $49.95 a month to receive a monthly shipment of more workout clothes.  Despite my VIP status, I never actually received my monthly gear because I was unaware I was a member, and hence I never returned to the website to pick out my monthly items.  This allowed Fabletics to continue to charge me each month, until I noticed the charges almost 5 months later on my bank statements.

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The Federal Trade Commission (FTC), the government agency tasked to enforce truth-in-advertising laws, calls this kind of subscription-based sales “negative option marketing.”  Negative option marketing allows sellers to interpret a customer’s failure to take an affirmative action to either reject or cancel a payment plan, as an agreement to be charged for goods or services, even if the consumer does not need them.  Negative option marketing can pose serious financial consequences to consumers if they are unaware of the sales terms and continue to be billed for products without their knowledge.

There are four kinds of plans that fall into the negative option category:

1. Continuity plans (Fabletics’ model), where consumers agree in advance to receive periodic shipments of products or services until they cancel the agreement.
2. Prenotification negative plans, which allow marketers to send periodic notices to consumers offering goods or services, like a book or CD. If the consumer takes no action, the product ships and you are charged.
3. Automatic renewal plans, which is exactly how it sounds. A magazine publisher, for example, may automatically renew a consumer’s subscription when it expires and charge them for it, unless the consumer cancels the subscription or auto renewal option.
4. Trial offer plans, which may be structured as free-to-pay, or nominal-fee-to-pay. Consumers receive goods for free or at a nominal price during a trial period. After the trial period ends, the marketer usually then charges a much higher fee unless the consumers affirmatively cancel the subscription or returns the products.

With the increase in online shopping, online subscription-based marketing programs are booming.  Because many online shoppers become “click-happy” (like me) and try to navigate through webpages quickly without paying sufficient attention to lengthy notices, they often miss the fine print in the terms of the agreement disclosing that they will be billed monthly until they cancel. Further, in some cases, realizing that you are being billed monthly is not easy.

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To avoid these problems and protect consumers, in 2010 Congress enacted the Federal Restore Online Shoppers Confidence Act (ROSCA). ROSCA prohibits negative option online marketers from charging or attempting to charge consumers for products or services unless the marketer does the following: (1) clearly and conspicuously discloses the material terms of the subscription or program before obtaining the consumer’s billing information; (2) obtains the consumer’s express consent to take part in the subscription program and be charged under those terms; and (3) provides a simple mechanism for the consumer to cancel the subscription and to stop recurring charges. The Act gives the FTC and state attorney generals an additional basis to target companies engaged in unfair and deceptive marketing practices.

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[T]he FTC has brought numerous actions under ROSCA and the Federal Trade Commission Act against online negative option marketers.

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