FTC’s “Operation Full Disclosure” and ROSCA Enforcement Efforts Gaining Momentum

Jennie Scholick Mar 17, 2015

We’re thrilled to be featuring the first guest post in our FTC Compliance series, written by attorney Richard B. Newman. Richard has been a great source for us at BrandVerity as we’ve developed our knowledge regarding regulatory issues, as well as a noted leader in the field, working on the Performance Marketing Association’s Blogging and New Media Disclosures Guide and contributing frequently to publications including mThink, OfferVault and LeadsCon.

For more information on the Restore Online Shoppers’ Confidence Act, check out the full text on the FTC’s website and, as always, please leave any questions or feedback in the comments below or contact us at BrandVerity.

In October 2014, the Federal Trade Commission filed its first Restore Online Shoppers’ Confidence Act (“ROSCA”) action against weight loss marketers in conjunction with the use of allegedly deceptive free trial offers to lure consumers into repeated charges. A second ROSCA case was initiated against a dating website the following month.

The Commission’s efforts to enforce ROSCA’s negative option mechanisms have been gaining traction. In other words, online marketers have more to consider now than just the FTC Act.

It should not be news to online marketers that proper substantiation is required as it relates to both express and implied advertising claims. Similarly, between ROSCA, the Commission’s Dot Com Disclosure Guidance, and Operation Full Disclosure, compliance obligations with respect to online marketing and negative option programs could not be clearer.

In short, ROSCA prohibits marketers from charging consumers in an online transaction, unless the marketer has clearly disclosed all material terms of the transaction and obtained the consumers’ express informed consent. All material terms of negative option plans must be clearly and conspicuously disclosed. Express informed consent must be obtained prior to consumers being charged and an easy way to stop recurring charges must be provided.

One need only look to recent consent orders for a roadmap of what, exactly, all of this really means.

Despite the Commission’s best efforts to outline triggers and red flags, DIRECTV is the most recent company to be invited to the ROSCA party. Earlier this week, the FTC filed a complaint under Section 5 of the FTC Act and ROSCA against the broadcast satellite service provider based upon its negative option program.

Briefly, the complaint alleges that DIRECTV misled consumers with its 12-month discount package. The FTC claims that the company failed to clearly and conspicuously disclose that a two-year contract is required. Compounding the matter, the price of the 12-month package increases in year two.

But wait, there’s more!

Consumers that attempted to cancel early were charged with a significant fee, according to the complaint.

The FTC also alleges that the continuity aspect of the company’s service was unlawful in that it failed to clearly disclose that consumers had to proactively cancel the free premium channels provided during the three-month trial period, or incur automatic additional charges.

According to the Commission, other material limitations and conditions were not properly disclosed, including that DIRECTV used credit or debit card information to charge consumers monthly for the negative option continuity plan.

Interestingly, also at issue are the relative size of written disclosures and the absence of material disclosures in the voiceover.

DIRECTV may ultimately challenge the FTC’s findings with respect to whether their disclosures were in compliance with the Dot Com Disclosure Guidance. Regardless, however, of the product or service being sold, and regardless of the medium, negative option marketers are advised to consult with an experienced advertising law attorney so as not to lose sight of ROSCA’s requirements and the clear and conspicuous standard: placement, proximity, prominence and presentation.

With increasing regularity, failing to proactively address these issues at the outset is triggering costly regulatory investigations and enforcement actions.

Disclaimer: Information conveyed in this article is provided for informational purposes only and does not constitute, nor should it be relied upon, as legal advice. No person should act or rely on any information in this article without seeking the advice of an attorney.

About the Author

Richard B. Newman is an Internet law, online marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns across all media channels, regularly representing and defending clients in investigations and enforcement actions, complex commercial and intellectual property litigation defense, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.

Topics: Marketing Compliance

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