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FTC Outlines Ingredients of a ROSCA Action

The Restore Online Shoppers' Confidence Act was enacted in order to address aggressive online sales tactics.  It is a fertile area of enforcement by the Federal Trade Commission.

In addition to prohibitions concerning post-transaction data pass, ROSCA restricts charging  consumers for online transactions via negative option features unless all material terms are clearly and conspicuously disclosed prior to any billing data being obtained, express informed consent is obtained prior to any charges being incurred and simple mechanisms are made available to stop recurring charges.

Violations of ROSCA are treated as unfair or deceptive acts or practices under the Federal Trade Commission Act.  The FTC and state Attorneys General have authority to bring actions to enforce ROSCA.

From the FTC’s perspective, key ingredients of a ROSCA action typically include:

  1. A misleading “risk-free” trial offer.
  2. An undisclosed charge if consumers do not quickly cancel the “risk-free” trial.
  3. An undisclosed automatic shipment program that sends consumers unordered merchandise.
  4. Difficult to follow upsells that add another layer of confusion.
  5. Unlawful charges to consumers’ credit or debit cards.
  6. Difficult cancellation procedures.
  7. Straw owners that conceal defendants’ activities.

Most recently, the FTC filed a ROSCA complaint against a Puerto Rico-based individual and eight companies that he purportedly owns.  The case involves online “risk-free” trials of skin care products.

According to the FTC, the check-out pages led consumers to believe their credit cards would be billed just for a $4.95 shipping and handling fee.  The FTC alleges that below the large COMPLETE CHECKOUT button were two small lines of grey type that said “Initially, just pay $4.95 for S&H today to fully evaluate Vita Luminance Cream for fourteen (14) days.  We know that you’ll love your smooth, wrinkle free skin.  You will receive your product within 5 business days.”

The FTC further alleges that buried below the fine print was an inconspicuous “terms and conditions” hyperlink.  Only by clicking on that obscure link, the FTC alleges, would consumers learn that at the end of the 14- or 15-day trial period, the defendants would charge them the full price of the product – $90 or more – and enroll them in an auto-ship program with recurring charges until they cancelled.

The FTC also claims that the defendants’ check-out process was unlawful - an offer of another “risk-free” trial of a second product that promised to “maximize results” for another $4.95 shipping payment.  The agency alleges that this second offer came with the same conditions, the same unauthorized credit card charges, and another undisclosed auto-ship program.

In terms of cancellation, the FTC allege that defendants’ website disclosures regarding consumers’ ability to cancel anytime via telephone or email were unreliable, in Spanish only and often resulted in incomplete refunds.

The complaint also alleges that, to get the merchant accounts necessary to process credit and debit card sales, the individual defendant used bogus names in an effort to conceal the operation from payment processing entities and banks.  According to the complaint, “By doing so, [the individual defendant] shielded himself from consumer complaints and chargeback disputes related to sales processed through his LLCs’ merchant accounts, thereby evading detection from consumers, financial institutions, and law enforcement.”

The complaint also states that the individual defendant had “clean” sites he showed just to merchant processors – sites that differed markedly from the sites consumers saw.

Takeaway:  Internet marketers must be keenly familiar with ROSCA and its state auto-renewal law counterparts.  ROSCA prohibits online negative options unless the seller (i) clearly discloses all material terms of the deal before obtaining a consumer’s billing information; (ii) obtains the consumer’s express informed consent before making the charge; and (iii) provides a simple mechanism for stopping recurring charges.  Marketers that assess a periodic charge should consult with experienced advertising compliance counsel in order to ensure that they are making the necessary disclosures and have provided a simple mechanism by which users can stop the recurring charges. 

 

© 2019 Hinch Newman LLP

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About this Author

Richard Newman, FTC Defense Lawyer, Internet Marketing, Hinch Newman Law Firm

Richard B. Newman is one of the premier FTC advertising compliance and regulatory defense attorneys in the United States.  He regularly provides advertising counsel and represents clients in high-profile investigative and enforcement proceedings initiated by the Federal Trade Commission, state attorneys general, departments of consumer affairs, and other federal and state agencies with jurisdiction over advertising and marketing practices.  Richard also handles  transactional matters relating to the dissemination of national advertising campaigns, including the gamut of...

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