State Attorney General Letitia James today co-led a coalition of 23 attorneys general from around the nation urging the Federal Trade Commission (FTC) to adopt greatly needed regulations over negative option marketing schemes offering free services for a limited time, but only if you input your credit card information.
With negative option marketing, a marketer presents consumers with an offer and the consumers’ silence or failure to take action in response to that offer is deemed acceptance or approval of the offer.
One especially problematic type of negative option offer involves a so-called “free” trial, where consumers are offered a free trial period of a product or service. To receive the free trial, consumers are required to submit their credit or debit card number. However, the free trial has additional terms and conditions — which are not clearly or conspicuously disclosed to the consumer — stating that unless consumers cancel the goods or services they are agreeing to continue to receive and pay for them.
Companies are not required to remind consumers before their free trials come to an end, which could result in some consumers being charged automatically once the free trial comes to an end.
In a letter to the agency, the coalition argues for the FTC to use its rulemaking authority to further expand existing negative option regulations.
“We’re urging the FTC to take action and use its power to protect consumers from the harm of predatory marketers,” said James. “Deceptive marketing hurts us all, which is why I will continue to use every tool in my office’s arsenal to protect consumers and stop marketers from targeting consumers.”
The current regulations were adopted in 1973 and regulate only one type of negative option marketing — the delivery of merchandise where consumers receive periodic announcements that merchandise will be delivered unless they decline within a set time frame (ie. book-of-the-month clubs).
In their letter, the coalition of attorneys general recommends that the FTC expand its regulations in order to achieve the following:
- Informed Consent: In addition to consenting to any trial offer, sellers should have to obtain a separate consent to charge for goods or services after the trial period has ended.
- Periodic Notices: Sellers should be required to send regular notifications to consumers enrolled in negative option plans that disclose the timing, amount, and method by which the seller bills the consumer for the renewal, and that provides the consumer with a convenient method to cancel the goods or services.
- Define Simple Cancellation Processes: Consumers should be allowed to cancel their memberships using the same method they used to enroll in a program.
- Refunds: Consumers who are unwittingly enrolled in negative option plans should be entitled to a refund from the date the free trial ended and their enrollment began to be charged.
In the meantime, James’ office reminds consumers to proceed carefully before submitting billing information to a marketer — whether online, by phone, or through any other means. To avoid ending up with unauthorized charges, consumers are encouraged to scrupulously review the details of any offer — including the fine print — which may contain important details of an offer.
James and Pennsylvania Attorney General Shapiro drafted the letter, which has the support of the attorneys general of Colorado, Delaware, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Dakota, Oregon, Rhode Island, Vermont, Virginia, Washington, Wisconsin, and the District of Columbia.
