New Federal Law Concerns Online Subscription Sites & Paid Membership Sites: If You Do Recurring Billing or Trial Offers – Watch Out!

Last Wednesday, Dec. 29th, President Obama signed a new law known as the ‘Restore Online Shoppers Conference Act’ into being immediately. This new Act

Last Wednesday, Dec. 29th, President Obama signed a new law known as the ‘Restore Online Shoppers Conference Act‘ into being immediately. This new Act affects your business if you market services on the Internet to US consumers and you either offer recurring billing (also known as auto-renew) and/or you offer trials requiring a credit or debit card that will be charged when the trial is over.

That’s the vast majority of companies in the online subscriptions, paid membership site, and SaaS businesses.

My strong advice to everyone in these industries (after you skim the rest of this quick blog) is to call an executive meeting THIS WEEK to figure out how you can update/change your site’s paywalls, offer pages, and marketing to obey the law.Here are some more details to share with your executive team:

Much of the Act is focused on so-called “data pass” activities, wherein online merchants, including many well-known subscription sites, passed their customers’ credit card info to third-party partners such as membership clubs so they could make offers during the check-out process. Data pass has been largely eliminated for nearly a year now, after many of the sites involved paid millions in legal settlements, and Visa, among other cards, said they’d cut off anyone doing it.However, lawmakers tacked on another section to the Act that affects online merchants who have nothing to do with data pass. It’s called, ‘Section 4. Negative Option Marketing on the Internet’. It regulates every single merchant selling goods or services via a “negative option feature” online in the US.

“Negative Option” is the legal term for offers where a customer has to contact you to cancel their account… or you’ll charge them for it. This could be a one-time charge, perhaps after a trial, or a recurring/autorenew charge. Anything where they signed up once in the past and now you’re going to charge them until they tell you not to.

Section 4 regulates your offer page itself as well as the way you accept cancels. We’ve examined more than 500 subscription and membership sites… and only ~10% came close to looking like they adhered to what Section 4 seems to require.

Basically, you probably are going to have to change your offer pages and/or cancellation procedures if you don’t want to get into trouble.Why bother? Let’s face it, there’s the law and then there’s enforcement. In this case, enforcement is BAKED IN. Actually, I’d say it’s double-baked.The FTC has the power to enforce this law, but they’ll probably only go after major offenders, the big bad guys who are worth their time. However, ‘Section 6′ of the Act gives state attorneys general or other authorized state officers such as district attorneys enforcement rights as well.

This should scare you. During this recession, many US states need all the cash they can get. This Act gives them a relatively easy way to raise cash. If they see that your site’s marketing doesn’t appear to obey the new law they can go after you. (Yes, even if you gave a 100% refund to every customer who ever cancelled.) Chances are, especially if you are a small to mid-sized company without deep pockets for legal fees, you’ll wind up agreeing to a quick cash settlement to get rid of the case.

I’m not in the fear-monger business. The fact is that district attorneys in states such as California have already been going after small-mid-sized subscription sites that break related local laws. This new Federal Act is icing on the cake for them.

My recommendations — To learn how your site’s offer pages, paywalls, and cancellation procedures may be problematic, click over to Subscription Site Insider’s on-demand video workshop starring attorney Lisa Dubrow. (This 50-minute video is a free service for all of our Members.) In fact, I’d recommend you set up a computer in your conference room so everyone on your executive team can view this legal workshop as a kickoff to your meeting.

You might also want to go to the legal section on our Member site and print out copies of the legal documents from the FTC as well as the Act itself for everyone in the room to peruse.The, call your lawyer and figure out what you want to do. I can tell you that’s what we’re going to do.

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