Downloads
Overview:
Understand state, Federal, and credit card regulations that cover promotional and trial offers as well as auto-renewal practices. This one-hour on-demand training session features Lisa B. Dubrow, Esq., Subscription Insider’s Guide to Regulation and Compliance and one of America’s leading attorneys specializing in helping paid subscription businesses, membership organizations, and continuity clubs understand how the law impacts their business on a practical level.
This training you will understand legal requirements so your subscription business or membership organization can comply with placement of offer copy, auto-renewing subscribers or members, trial offers, raising prices, cancellation and more. Also, this training includes real-life examples so you can see what businesses like yours are typically doing well and not so well in their wording and design.
Transcript:
| Kathy: | I would like to welcome Atty. Lisa B. Dubrow. Lisa, our Subscription Insider Guide to Subscription Regulation and Compliance and partner at Brand Marketing Law, specializes in the legal issues surrounding bringing goods and services to market, as well as state and federal compliance with all methods of sales, including subscriptions, e-commerce, direct mail, telemarketing, and negative option sales. Lisa is also a Certified Information Privacy professional. |
| One of the things I would like to share about Lisa today before we get started is her … She is amazing, first of all, and her knowledge of laws and regulations impacting recurring revenue businesses is really deep and encyclopedic. What I really appreciate most about her is that her ability to take that expertise and really apply it in a pragmatic way to a business. She gets it. She gets running a business and her understanding of both in my view is what makes her insights so valuable. | |
| Lisa, thank you so much for joining us. | |
| Lisa: | You’re welcome. Hi everybody, I’m really happy to be here today. I hope that the next 50 minutes or so, which is frankly not that much time, I can provide you with the guidance on how to properly implement health products using recurring billing models and free trial offers. I have some ambitious goals to the hour. I want to get into the different types of negative option plans so you know what laws apply to your business. |
| I also want to give you some idea of who regulates the types of offers. I can hopefully then provide you with some practical advice, and that’s my goal today, about the requirements of what disclosures has to be made and when, and where they should be disclosed. Some of the issues that you have to watch out for is free to pay trial offers, when you need to send renewal notices, and if we have time I also want to touch on some common themes or words that are used and promises that you need to watch out for because of FTC guidelines and state Consumer P0rotection Laws. But unfortunately before I do that, I am a lawyer so I have to give you a standard disclaimer that the webinar is not providing legal advice and doesn’t create an attorney-client privilege relationship. | |
| What’s really important though to keep in mind is besides the fact that I had to state that, is that I’m going to be showing you various examples in the course of this next hour. It’s really important to know that one snapshot of a particular page is not necessarily going to decide whether something comply to the law or not. It really all depends on the entire order path, from beginning to end, from search engines to thank you page or from the beginning of the relationship that you have with your consumer through the end. It depends on your business model. It depends on your business. It depends on the type of risk assessment that you’re willing to make. There are so many things that go into “compliance” that I really, that is something that one couldn’t do without knowing more about your particular business, but let’s move on because I want to try and convey some actual practical advice. | |
| Unfortunately, automatically renewing subscription plans and memberships are still a really hot topic with the regulators and class action attorneys. As you can see from the next couple of slides there are a number of really big brand names that have been caught for one reason or another in litigation or investigation. Many of them paid a lot of money in settlements or fine. I mean, serious $3.8 million settled with 45 AGs. DirecTV got into trouble with the FTC last year. Angie’s List $2.8 million. I had sent out a notice just last week, the Washington State Attorney General fined Julep $2 million in penalties. | |
| As you can see from the next couple of slides, there’s a lot of businesses that have been caught in the crosshairs, and it’s not just big businesses. The regulators are just as interested in small businesses. The key is to know what you need to worry about or what you need to change in any of your advertising copy and any of your practices. A lot of the settlements in auto-renewal cases are confidential, sometimes they’re not public. A lot of the cases had been dismissed, but can still costs an awful lot of time, and not just attorney’s fees but opportunities lost, and a lot of effort goes into defending yourself. | |
| The key takeaway is that negative option sales is, I sometimes call it the nuclear holocaust of advertising, but it also is legitimate. It also is a way that you can really have a lucrative business, and also frankly, assist consumers who are often just lazy. The key is to look at what the laws are to know what your risks are and to assess them in the context of your business model. | |
| Since I’m talking about legal compliance, the first thing that’s important to know is what are the legal terms. A lot of you think of yourself is in the business of recurring billing sale, that is a negative option offer. Anytime you have consumers consenting in advance to receive in paper goods and services of an on-going basis until they take some affirmative action to cancel, you have a negative option offer. | |
| There are four different types. There’s the Pre-notification Plans that are specifically regulated by one particular federal statute, that came into play in the 1930’s, dealing frankly with mostly, in those days the Book of the Month Club. The next is Continuity Plans that are similar to pre-notification plans except they don’t give you a notice, and I will talk about that in just a minute. We then have the Trial Conversions or free to pay, automatic renewal offers, and finally the Automatic Renewing Subscriptions and Memberships, which I know most of you are involved with. Often in a free to trial conversion it then converts to an automatically renewing subscription. | |
| I’m not going to get into the pre-notification plan too much the statute, just suffice to say that if you are dealing with a recurring billing model, where you send a notification to consumers telling them what they’re going to receive if they don’t take an affirmative act to cancel, and that notification tells them what they’re going to receive, you are subject to a particular federal statute that gets into the minutiae of exactly when that notice has to be sent, exactly when consumers have to cancel, and so forth. I don’t think most of you on this call are dealing with that particular type of negative option offers so we’re going to move on. By the way, those offers that I said are usually Book of the Month Clubs or the DVD of the Month Club. | |
| Continuity Programs are very similar, except in this instance you’re not sending a notification out to consumers, they sign-up upfront, they get regular shipments, and again, if the consumer has to affirmatively cancel and if they don’t they’re continually getting products and paying for them. That is a continuity program. | |
| The next on the hit parade are free to pay conversions. It’s a mouthful. In the free to pay conversion scenario the regulators often take the position that consumers are more likely to be harmed, and there’s some merit to that. Consumers often sign-up because they think they’re getting something for free and they don’t read the fine print. They don’t recognize that they’re actually going to have their credit card charged. In this instance again, as seen here, consumers consent in advance, they get products or services for some period of time for free or the reduced rate. The cost is often higher when they are ultimately charged and unless they take affirmative action, an action, they will be charged. | |
| Often in a free or in a trial scenario the consumer is charged a small amounts, a $1.99 for shipping and handling or a $1.99 for processing fee. The reason for that is in a free scenario if you are trying to ensure that the credit card is good when they initially signed-up, you might put a pre-authorization onto that card. If you’re putting a pre-auth on a debit card often the consumers funds are held for that particular amount. Regulators often take the position that consumers should be advised of that, even for something as nominal as a $1.99. That’s why a lot of my clients will actually charge something for that initial trial subscription. | |
| The last on the list is the Automatically Renewing Subscriptions or Memberships. Again, consumers consent in advance, the subscription term automatically renews. It could renew for the same term they initially signed up for or in different terms. It just depends on what you disclosed, until they take an affirmative action to cancel. | |
| Unfortunately, there are many federal and state laws, court cases, regulations, attorney general settlements, federal commission consent decrees. There have been senate investigations. You’d think they have better things to do. There have been FTC reports. Then you also have to worry about MasterCard and VISA Card Issuer Regulations, not to mention reputational harm if something goes wrong. Having said that, I really do think that negative option plans are a legitimate way to sell, you just have to do it properly. | |
| I did indicate that there are state laws. I also get clients asking me, “Why do I have to worry about the law in the state of California, the state of Connecticut, I’m residing in New York? Most of my customers’ in New York.” The reality is, unfortunately, we do live in a number of different state [inaudible 00:09:37] federation, if any one of your customers resides in a particular state, those laws apply to you. | |
| I have a slide with just a list of some of the laws. A lot of these deals specifically … It’s the next slide, Kath. A lot of these deals specifically with renewal notices, but there are a slew of state laws to take into consideration. Again, some of the analysis once you know what those state laws or just determine whether or not you need to comply with those laws. I have certain lowest common denominators. If you send out, for instance dealing with renewal notices, which we will get into later, but if you send a renewal notice out no earlier than 30 days and no later than 60 days before the renewal charge have hit, you basically would have complied with almost all the state laws, but there are an awful lot of laws to be aware of. That’s the only point that I wanted to bring across with this one. | |
| Let’s start with the largest regulatory agency and talk about what the FTC requires. The Federal Trade Commission, as well as the state law, first and foremost, requite a clear and conspicuous disclosure for any material terms of an offer. What is material? Anything that can affect the purchasing decision on the part of the consumer is deemed to be material. | |
| Now the FTC came out with these guidelines .com Guidelines, first in 2009 to address e-commerce, and then recently they updated them to deal specifically with the lack of real estate in mobile apps and social media. The Federal Trade Commission frankly doesn’t care if you are providing an offer in a 140 characters, their position is that, “If you don’t have enough room in order to make all the material terms and conditions clear and conspicuous, you shouldn’t be making the offer.” | |
| One of the things I want to go through today is what is deemed clear and conspicuous at the FTC level. The most important thing to be aware of is the that the Federal Trade Commission will look at the overall net impression that you have communicated to your consumers. Again, that then goes in the entire order path, when you’re talking about the first [inaudible 00:11:44] search engine, always through to the thank you page. If that isn’t confusing enough, you also have to think about each individual page and ensure that one is not potentially misleading. | |
| Disclosures in general. It cannot be used to qualify something that would be otherwise misleading. You need to look at all of your copy. The good news is at the FTC level, presumably you have a reasonable person standard, but watch out for state standard. There are state statute that particularly, specifically state that you have to watch out for the incredulous uneducated consumer. I don’t know what that is, but keep that in mind. | |
| However, the .com Guidelines were really clear that marketers cannot assume that consumers read an entire screen. In the old days we used to talk about disclosures being above the fold and below the fold. Obviously that has gone away ages and ages ago, but you need to be aware of the line of sight, which I will get into in some of the specific examples, because the FTC has gone on record stating that when consumers are looking at offers they’re often looking at them on their iPhones or other mobile device or a mobile app, and therefore they have to scroll right to left to see all the disclosures. That type of scrolling has been deemed to be potentially misleading. Disclosures now have to be as close as possible to the claim. | |
| One more thing that I want to convey is that, if something is material and it’s supposed to be disclosed under the law, it has to be unavoidable. By definition a hyperlink cannot be used when you’re dealing with your offer terms, because the hyperlink is by definition unavoidable. | |
| I would be remissed if I didn’t just mention, they’re kind of cute but annoying FTC articulation of what you need to look for when determining whether something is clear enough. They call it the Four P’s, Prominence, Presentation, Placement, and Proximity. What the heck does that mean? Well, in marketing terms I would say that you want to watch out for positioning, layout, type, point size. Please do not have your negative options disclosure be the smallest print on the page, it is just a recipe for disaster. Make sure that your wording is actually readable and understandable and watch out for contrast, beige on white will not just cut it. Clear copy which is obscured by, like animation that’s underneath the copy or a really dizzy photograph also is a problem. It’s all relevant and as I said, it has to be unavoidable. The consumer shouldn’t have to click to get all of the disclosures. | |
| Now that we’ve talked a little bit about how disclosures need to be clear and conspicuous, let’s talk about what needs to be disclosed in the negative option offer. First I will say that if there’s something that is material about your particular business in your particular offer it needs to be disclosed, but I am just dealing generically with what needs to be disclosed in the negative option plan at sometimes. | |
| The first thing is that a consumer needs to understand that unless they take an affirmative act something’s going to happen, they fall asleep at the switch, their credit card’s going to be charged. That needs to be conveyed. The total cost, how to cancel, the refund policy, if you are giving a pro rata refund, that is something that the law will presume. However, if you’re telling consumers that they can cancel a monthly recurring billing model in order to avoid future charges, and you have no intention of giving a refund for partial months, which is totally legitimate, you need to disclose that in your offer block. Again, no linking to material terms, I know I’m emphasizing it, but I see it all the time and it is something that gets marketers into trouble a lot. | |
| Now the salient material terms that something is a negative option plan is, by the FTC Standard is supposed to be required before a purchasing decision is made by the consumer. Federal Trade Commission has articulated over and over again that a consumer should not be clicking “Yes” to a free trial for instance and putting it into a shopping cart, and only finding out when they’re looking at the language in the shopping cart that it also is a negative option sale. That goes to certain decisions, that you as a company might have to make, in terms of whether or not you’re going to worry about that articulation made up on the part of the FTC, but it is something to take into consideration. | |
| Can you go back, Kathy, to one slide before that? | |
| Kathy: | I sure can. |
| Lisa: | Sorry about that. |
| Kathy: | All right. |
| Lisa: | Also, I just also want to get into a little bit that the full disclosure of all of the terms and conditions need to be made before you capture the billing information. In the next slide we’ll be talking about ROSCO, ROSCO is the law that was promulgated by the Feds. This is a federal law. Again, I always wonder how the federal government can promulgate certain laws such as being silly, but in any event it is called the Restore Online Shoppers Confidence Act and it was applied [inaudible 00:16:57]. It specifically required that the disclosure of all material terms and conditions be disclosed to the consumer prior to capturing, that’s the word capturing the billing information. |
| Now I have been before a number of state AG’s and I have argued that because the law does not define what capture means that capture would be when the consumer clicks “Submit.” Before that I have argued the merchants has not captured the billing information. I can assure you that there is not one state AG who’s agreed with that articulation. Their position is that when the consumer is literally inputting their credit card numbers, that is what it meant by capture. That is not something that has been litigated. That is not something that is defined in the congressional record, but it is something for you to take into consideration. We will get into examples later as to where you would make your disclosures on the checkout page. This law also requires that consumers provide their express informed consent, and obviously you can’t give informed consent unless you have been informed, hence the disclosure of the terms. It also requires simple mechanisms for cancellation, which we will get into later. | |
| Regulation E is another law that we have to unfortunately worry about. Regulation E is promulgated by the Federal Reserve Board, it’s a banking regulation. You might wonder why you have to worry about a banking regulation, but it is because for any of you in the e-commerce world you are accepting debit card. The moment you’ve accepted a debit card for a periodic charge, which is the recurring bill, you are under the jurisdiction of Regulation E. | |
| Regulation E requires you have listings, but the two I want to focus on today is it requires that you get an authorization from the consumer for that periodic charge. That’s why sometimes you will see the words, “I authorize,” in the e-commerce recurring billing world. It requires a signature which is almost impossible to get in direct mail, but obviously very easy to get online because clicking “Submit” is in fact a digital signature. It also requires that you provide the consumer with a confirmation of that authorization, which we will get into later. What does that mean? What does it mean to provide the consumer with a confirmation? I will get into that with the examples. | |
| Let’s get to the examples. The first example that I want to show you is actually a really crappy example. It’s the FTC’s example that’s in their exhibit on the .com Guideline. The reason why I think it’s really horrific is because the Federal Trade Commission, their only example of a negative option plan was one, where the purchaser was buying a Dutch oven and bundled with the Dutch oven was a negative option cooking club. | |
| Obviously this is a situation where if I’m going to look to buy a Dutch oven I’m not necessarily going to be thinking, “Oh, I’m also going to be getting a cooking club.” Which is very different than the type of recurring business model that we are all familiar with, where somebody arguably ought to know if they’re getting a box on a monthly basis. They’re getting a box on a monthly basis. Because of this the Federal Trade Commission’s .com Guideline’s only example of negative option requires, which I can show you on the second screen, that the consumer literally has to affirmatively check a box indicating that they totally understand that they’re getting into a negative option plan. | |
| Now the reason why this is just horrific from a regulatory or from a consumer standpoint, I should say from a merchant standpoint, is that the state AGs have taken this .com example and they have required it in an awful lot of enforcement actions against merchants who got into trouble for not adequately disclosing their negative option’s terms and conditions. | |
| I have successfully argued, and therefore not have this requirement in settlements that I have been negotiating on behalf of clients with the AGs of various states. But I can assure you that this is a hard battle to win, because a lot of merchants who’ve gotten into trouble have actually signed settlements agreeing that going forward they will get an affirmative checkbox for any negative option offer that they make. I can assure you that’s a real conversion killer. My clients have tested it, it is a disaster. You want to avoid it, which is just one more example of why you want to avoid entering into any source of enforcement action with an AG. | |
| Let’s get to some real world examples which are more in tuned with what probably most of you are doing, as opposed to the FTC’s example. The first one is a generic example of what I would say is a common mistake. This is the type of copy that used to exist many years ago. I would never approve this today, and in fairness this is old copy but I wanted to show it to you. If you look under the Unsubscribe, and you may not be able to read it, but just to give you an idea, the reference to automatic renewal is the first circled copy block and then below that in the larger circle copy block, that merchant talked about what they meant by automatic renewal. | |
| The key takeaway from this particular example is that both of these disclosures are below the subscribe button. They’re obviously … There’s no reference to automatic renewal before the consumer inputs their credit card, but this doesn’t comply with anything. It’s not enclosed proximity. It’s not above the submit button. I mean, it just does not comply with anything. Let’s move on to one that does. | |
| In this Food & Wine example you have the automatic renewal disclosure right above a submit button. There’s not other submit button to the left, which is important by the way because in a lot of web pages, even when they’ve been formatted for mobile, there’s more than one place where you can actually accept an offer. You need to be careful that if you’re going to put your automatic renewal terms and conditions on that page, that you cannot click submit arguably without reading it. Interesting to look at this in terms of the fact that you would have to scroll over to the right if you’re on a small mobile app or mobile device, but you definitely would have to see it before you click submit. | |
| I questioned whether or not this is ROSCO compliant. I can assure you that some lawyer carefully placed this language in the same line as the input of the credit card information. That was not done unintentionally, that’s not a coincidence. I would say this does comply, but that’s why you’ll sometimes seen these things lined up and you can see their automatic renewal guidelines is like, even one line above where you’d input the credit card number, and I suspect that was done intentionally. | |
| The next one is Sports Illustrated. Again, this is interesting because Sports Illustrated at time took the position that they would mention automatic renewal, just the words automatic renewal prior to you inputting the credit card, which is something that I strongly recommend for compliance with ROSCO. Then the terms of what is meant by automatic renewal is above the Submit Order button, again, compliant. | |
| One of the things that you are suppose to clearly and conspicuously disclose is the method upon which you could cancel, that is right below the submit button, but I still think that this is compliant. I often split that articulation so that the reference to, “You can cancel by calling customer service,” is right below the Submit button, but again, that is a risk that I assume Sports Illustrated decided they were willing to take. | |
| I can assure you that if you spoke to a regulator they would feel all of those disclosure should be right above the credit card input, and these are the decisions that you as marketers have to make all the time. The first thing is to understand what the law requires and then to figure out how you’re going to implement your interpretation of that law, where you might be able to address things sufficiently that you wouldn’t have an enforcement action against you. | |
| Let’s move on to the next one. This is a really interesting example. It seems pretty clear that a consumer looking at this page would understand that something happens. They’re getting a free trial to Ancestry for 14 days and presumably it’s clear that after the free trial they’ll be charged $19.99. This is a landing page so they’re making a purchasing decision here, but they’re not signing out, they haven’t, this is not where they’re inputting their credit card information. | |
| The problem is that Ancestry use language that I frankly would never approve. They said, “If you decide,” and in my opinion, and reasonable lawyers can differ, if you decide is positive option. It is conveying impliedly, but still conveying that you would have an opportunity to decide later. I frankly would not have approved that language. If you move on to the checkout page you will see that they have a pretty good description of what is meant by “if you decide,” you know, if you don’t cancel you will be charged, but look at the placement of that automatically renewing language. It’s on the right-hand column, if you were, it is not above the “Start your free trial” language. | |
| From a regulatory mindset you would see “Activate your 14 day free trial,” all you would have heard on the first page is if you decide, you’d put in your billing information. You arguably would click start your free trial and maybe not even see the 14 day trial automatic renewal terms that are on the right-hand column. That concerns me, and by the way, as long as we’re on this page, note the Ancestry’s 100% guarantee, we will talk about those types of promises later. | |
| The next example is The New York Times. Payment information on left-hand column, what happens afterwards on the right-hand column? But this is just the landing page I assume. This is just the page that talks about, “Let’s sign-up.” You’re not paying yet, and arguably it’s conveying you’re going to be charged every four weeks so I’m not that concerned. Again, business decisions are made everyday in terms of risk analysis, but if you get to the checkout page which is the next page you’ll see first the automatic renewal language is on the right-hand column. At this point, again, not even above the payment information or the capture of the credit card information, in fact it’s not even above where you click “Purchase Subscription.” To make matters worst, this is gray on white. I cannot tell you how gray on white just does not cut it. I strongly urge that all of you think of the 100% black on your copy or at the very least, as dark as any other copy on the page. | |
| Birchbox is our next example. It’s a really good articulation to enable a proper purchasing decision and I will tell you why, it’s two characters, the letters LY. You’ve got monthly, you’ve got yearly, in my opinion that connotes that it’s not just a sixth-term, that it’s going to be a recurring billing model. On the shopping cart page they have the automatically renewing terms and conditions. Above where you would be inputting your billing information, above the checkout page. In this instance they don’t talk about a pro rata refund, and what happens when you cancel that I’ve got to assume, given that it’s a box that recurs every month, that they would probably give you a refund for any boxes that you have not received. Again, if they were doing something different it would have to be disclosed. | |
| The next example is Julep. I’ve got to assume that Julep has had all of their advertising copy carefully dotted. They got into trouble with the Washington AG, and there’s nothing like a client who’s gotten into trouble to know about compliance. I have to tell you though, I don’t know that when you join Julep Beauty Box, even though the word “join” is clearly connotes something, whether that connotes a negative option plan of any sort, it doesn’t talk about a subscription, it doesn’t talk about a membership, although “join” obviously implies membership. | |
| I’m not sure I’d fall on my sword on this. If the client really felt strongly about it then I am not sure that I love that articulation. I’m assuming that their checkout page is totally compliant. I just wanted to show it for this particular aspect of does this convey. Convey is you’re signing up for something, but does it convey that it’s an automatic renewing subscription plan and I’m not sure at that. | |
| I said before that I wanted to show an example of Regulation E compliance, as you can see this specifically says you authorize Real Simple. It uses the word authorize, not every marketer does. I think it’s a good idea in my experience, and I’m not sitting there doing the testing, but my clients are. It doesn’t seem to hurt conversion and why not … My feeling is why not comply with something if it doesn’t hurt conversion? But I also wanted to show this example because it also says, “Please print a copy of this form for your record.” I have no idea whether or not Real Simple was relying on that. | |
| If you comply with Reg E which require that you provide a confirmation of the consumer’s authorization prior to the periodic charge, which would be the second charge. There are certain state laws that also require that you send an order acknowledgment, and they don’t use the word send. The statute specifically say provide, so some people might be … some merchants might be relying on, “Please print a copy of this form for your record.” I don’t recommend that. I think in order to comply with the order acknowledgment statute, Oregon has one, California has one, there are a few others, and Reg E, it is easily done in either a thank you page or a welcome e-mail, why not do it? It’s hard to imagine that would really hurt a lot of conversions since it’s right after the sale. | |
| Remember, last but not least, on the confirmation, if you do any sort of phone orders, even if somebody is calling in, they’re complaining and you upsell them a negative option plan, the law does require that you will also send them an order acknowledgement. That just all goes to that kind of thank you page, welcome page scenario. | |
| I’d like to move on and get into some discussion of free trial period. Nothing like a free trial period to hook in a consumer, right? A couple things to worry about. The first thing, if you are providing a 7-day, a 30-day trial to a consumer just make sure you don’t charge the consumer before that full period has commenced and ended. This comes into play sometimes when you have to convey … provide a consumer with a PIN number. I mean, these days almost everything is ubiquitously instantaneous, but you never know. | |
| I’ve had clients who would took two days for them to get a PIN number to a customer and then they charge their card in 30 days, well obviously they only had 28 days of full access. You really want to make sure that they could get full access to whatever it is that you’re promising them before you charge their card. | |
| Now if you’ve got some sort of processing issues, and I deal with these with clients all the time, you know, “When can we charge the card? Can we charge it early? Can we charge it late?” All these questions that swirl around the actual charge, then delay your billing. Delay the billing for the period of time that you need and then charge every 30 days thereafter, but make sure the consumer gets the benefit of any doubt you might have. | |
| The other issue that comes into play with free trial or with any sort of trial is the Premium Model. The Premium Model is where the consumer signs up for some sort of basic subscription, the basic subscription provides them certain benefits, and then inevitably, because that’s your business model, you’re going to upsell them the Premium Model, the Gold Model, the Platinum Model, and that obviously is going to cost money. | |
| There are a couple of things to think about in the Premium Model, but first is to ensure that you are not inadvertently creating a bait-and-switch, and that can happen in two different ways. The first way is that whether you do it intentionally or not, and this happens a lot. You will advertise something that the consumer will get in their basic subscriptions, that the consumer really can’t get in the basic subscription. | |
| In the example that I think of, I had a client, [inaudible 00:33:43] have a dating site and you might say, “You can meet the man of your dreams and you will have unlimited ability to contact anybody in our database.” Now that that would be their advertised copy, but that’s the concept, and then it turns out that in the basic model you can only … I’ll make up an example, send out three e-mails in a month. That’s an obvious silly example, but it’s to make the point that you need to make sure that you don’t inadvertently exaggerate what the consumer can get in that free basic subscription. | |
| The second thing, and this is much more common, it’s generally in the same order path that an upsell will occur. I signed up for my basic service and maybe I’ve been promised that I will get all these fabulous videos, unlimited videos about how to create a quilt. Quilting [inaudible 00:34:29], isn’t that wonderful? I signed up, I clicked submit, I automatically get some sort of pop-up or some sort of screen that says, “Wait! The stuff that you’re going to get is not really terrific, but we can give you the really good videos if you’ll just pay money.” Bad idea to do that, not only do consumers feel that they’ve been bait-and-switched, but honestly the regulators tend as well. | |
| It is very simple to simply say, “Terrific. Thank you. You have been signed up for our basic service,” whatever it’s called, “and we will send those videos to you immediately. Oh, and by the way, we also have these better videos, would you like them? They cost money.” That differentiation between the basic and the premium can really save you when you’re dealing with consumers complaining. Consumers are going to complain no matter what. You want to make sure tat you’ve got the census to those consumer complaints. | |
| Another thing to think about in terms of free trial conversions is that New York law specifically requires, and I think Oregon does as well, that you would send a notice to residents in those states prior to charging that first charge, telling them how they could cancel to avoid being charged. You do have some state laws notice requirement to concern yourself with. | |
| Another issue that comes up often with trial, obviously not free trials but trial, is that you as marketers would try and hook in the consumer by giving them some sort of fabulous introductory rate. Nothing wrong with that, it’s America, it’s legal. The issue though is that the regulatory protection agencies feel quite strongly that consumers rarely understand that they’re going to be bumped up to a much higher cost. As we all know sometimes these introductory trials are 50% off, sometimes they’re like 80% off, I mean they could be any number off. The consumer will ultimately be charged a year to or a month to or whatever. | |
| One of the ways that you can really avoid regulatory ire is if you make it in a very positive spin. Think of the political spin, instead of saying, “Oh, by the way we’re going to charge you 100% more,” articulate it as, “Get your service for 30 days at our introductory rate of blank, and that’s 50% off our regular rate.” Presumably the consumer can do the math, they are on notice that they will be charged $20 at renewal. It is something that I strongly recommend that my clients do. | |
| Now we can get into cancellations. First of all, almost all of the enforcement action were provoked by consumers yapping, right, consumers complaining. Consumers often complain when they can’t cancel easily. I want to go through some of the things that you should take into consideration to make it a little bit easier for your consumers to cancel. There are also a number of state laws, not to mention the federal law ROSCO, that specifically articulate that you need to make an easy method of cancellation. | |
| You need to make it obvious. You’re supposed to tell the consumer how it is that they can cancel prior to them actually even signing up for negative option sales. You don’t want to create too many hoops. You certainly don’t want to require a consumer filling out a form why they’re cancelling before you will allow them to cancel, not a good idea. A client got into a lot of trouble for doing that. If you’re trying to say to somebody, “We wanted you to stay onboard,” and you want to do save attempts, there’s nothing wrong with that, but you don’t want them to rise to the level of harassment. There has been cases in a number of enforcement actions where merchants have just gone on and on and on and made it really hard for consumers to cancel without feeling guilty actually. You don’t want to do that, it’s not worth it. | |
| You also want to look at whether or not you’re quibbling over refund. I mean, yes, your … they did offer terms that say you can get a pro rata refund, this should be determined on ad hoc basis, but I would probably tell my customer service folks to give a full refund if somebody is complaining. It’s not worth the $3 to sit there and not give somebody a full refund after they’ve been charged, not in my opinion anyway. | |
| One thing to keep in mind, a number of merchants used to do, I don’t know if they do anymore, but they used to take the position, “Oh, we’re not going to worry about all these laws. We’re just going to give people a refund if they complain.” I can assure you that the regulators don’t feel that that is adequate. If the consumer’s card has been charged and they were not adequately notified of what it is that they got into when they signed up, even if you provided them with a 100% refund, that is sufficient harm for the regulators to come after you. Keep that mind. | |
| Also, under California and a number of other state law, I think Oregon as well, but I think of California just because of the California class action attorneys. If the consumer has not been adequately notified of all the disclosures, under California law they’re entitled, that those products and services are an unconditional gift, and the class action attorneys have interpreted that to mean that you and the merchant would have to refund your gross revenues, not your net but your gross revenues for those sales. Again, let’s try and avoid the complaints and give people a full refund, but just giving them refund will not be enough. | |
| One of the things that I’d like to impart upon you, if nothing else, would be to empower your customer service representative. You want to start looking at customer complaints. You want to even think about grouping them into what state they’re coming in, whether or not there’s a pattern, if people are complaining and cancelling a lot, whether or not there’s a pattern to a particular offer copy that you’ve just changed or you’ve implemented. | |
| It doesn’t really matter whether a legal vetting has taken place or whether you think your copy is clear, again, it’s the net impression that you communicate to your consumers. If for some reason the consumers are still being confused or cancelling, cancelling in it of itself doesn’t concern me, but cancelling saying, “I didn’t understand that I was going to be charged,” does. If you are getting a number of consumer complaints you want to start looking into that. | |
| Billing is also important. I think that using proper merchant billing descriptions can avoid chargebacks. Including a phone number is a really good idea so that they’ll call you instead of calling their banks. You want to avoid chargebacks. You want to avoid complaints. Although I know it cost money if a consumer calls you, I can assure you it’s less money in the long run. | |
| Renewal notices. They are required by a number of state laws. They’re required under every single settlement that I’ve seen. They are not required for monthly billing, but they are required for six months and longer, and in the state of Connecticut for quarterly billings. The information to include would be, the most important is the cancellation date, a specific date that the consumer has to contact you to avoid whatever the next charge is going to be not, “We’re going to charge you in the next month,” but, “Call by December 15th to avoid the charge.” The amount of the charge, how you can cancel, so they have that. | |
| Those notices to comply with all the state laws should go no earlier than 60 days and no later that 30 days prior to the next charge. E-mail notifications are fine if you’ve been selling through e-commerce, but you do need to worry about it in direct mail. I really do recommend that you actually have in your contract or copy block that you will send an e-mail notification, because a lot of regulators take the position that consumers should understand that if something is coming to them by e-mail, so they have some at least implied understanding that they have to give you a real e-mail, as opposed to it going in SPAM. | |
| Keep in mind that under a number of state laws, not to mention probably the FTC, if a material change is being made to an offer, I can’t think of anything that would be more material than billing, but anything else that might change, like you normally had 12 issues and now you’re going to offer 10 issues in any given year term. A notice should go out to consumers giving them an opportunity to cancel. Now if your copy block is proper and you’ve said, “We are going to charge you our then current rate,” because you do need to presumably get permission. The consumer needs to understand that the rate would increase, and that’s where that then current rate language came from. You can, in fact increase your prices without getting the affirmative opt-in, which of course would be impossible from a consumer, but you still have to send a notice prior to increasing price. | |
| Next slide. Don’t forget that credit card issuers have regulations. The worst thing you want to do is have a permanent ramification of your privileges, which actually happens. We’ve got chargeback rates, we’ve got high-risk programs to concern ourselves with. They actually incur like, what you see is I think up to $25,000, I think that’s VISA and they have it long, it might be MasterCard, but you get the point. | |
| These days even your merchant processor often gets involved in whether or not they feel that what you’re doing is legitimate. I have actually had to negotiate with some merchant processors when some of my client’s copy is in fact compliant, because they to love that little affirmative opt-in which can be a problem. | |
| Before I move on to the next slide I just want to mention something that I hadn’t gotten into before. I had talked about empowering your customer service representatives, but I want to explain what I mean by that, because I don’t think it’s clear. First of all, just like lawyers, customer service representatives are a call center. They’re not a revenue garnerer generally, but if you empower your customer service representatives to really think about what they’re doing, you could actually save yourself a lot of heartache. I’m going to give you an example. | |
| I had a client who got a complaint from a consumer. Consumer came in and bought product A and provided credit card A. Consumer came in a few months later and bought product B and provided credit card B. All of the sales for product A and product B were then subsequently charged on that credit card B, forever, and this went on for years. A customer complains instead of just giving them a refund the customer service person understood that they should probably start digging, and it turned out that there was a glitch in the system. Millions of customers over a five year period had come in and if they ever gave a subsequent credit card, their subsequent credit card was charged. I think it actually was like an 18 month period, but we’re talking a lot of money. | |
| Customer service took the time to actually dig, listens to the consumer complaints, had enough, the wherewithal, and also support from management to actually do a little bit digging and solve what could have been an unbelievable class action lawsuit. That’s the type of thing that if you actually do some training with customer service you might avoid. | |
| Also, I’m for templated responses. I’m all for it. You need to save time. You want to send out a template, it’s fine, but you need to make sure that your customer service representatives also respond to the complaints that the consumer has made, because if the consumer feels that they’re not being listened to they’re more likely to go to a regulator. If you’re getting BBB complaints or you’re getting AG complaints, even though they’re forum complaints, and we all know they are forum complaints, you want to make sure that you are addressing each allegations in those complaints, because they actually could end up being a record on the file if you have a full blown enforcement action. I think I’ve said enough about this, but I do want to make sure that your customer service folks are trained and empower. | |
| In general, I just wanted to, since we have a couple of minutes and I do want to leave time for questions, but in general I just want you to think about that there are also Consumer Protection Laws and FTC Guidelines that come into play. I just wanted to mention two things, because they are so ubiquitous in the recurring billing model space. | |
| The first are the promises that we make, 100% safe and secure. I can assure you that nothing in life is a 100% safe and secure, not the least of which e-commerce. If you have safe and secure on your site, guess what? Just take it off. Just get off this webinar, take it off your site. I promise you it will be worth the price of admission on this webinar. 100% satisfaction guarantee or money back guarantee, guess what that means? Without language that qualifies what that means, that means that if Lisa Dubrow’s find out on your website for a recurring subscription, and she’s been on your website for 10 years looking at your streaming videos. If you did not qualify what you meant by that, I would be entitled to 10 years refund for everything that I had paid you. | |
| You need to watch out about your promises. If you say a 100% risk free, you need to not only give a refund for the products and services, but also for processing fees and shipping and handling. These are just things to take into consideration. You can easily qualify them with copy. You know, “100% satisfaction guarantee, you can cancel anytime and receive a refund of unused months or unserved issues,” or whatever it is that you are allowing them to have, but make sure that and just be aware that these are promises and they’re taken seriously by the regulators and class action attorneys. That’s free, I mean there’s nothing that sells better than free. Again, I’ve already mentioned risk free. | |
| The FTC has a guideline, and more importantly all the states have a very similar statute that talks about when you’re using the word free you need to convey any material terms and conditions that are associated with that. Which is why the free to pay conversion is so difficult, because you’re saying you get 14 days free, but you need to convey when you sign up for our subscription plan or however else you would articulate it. But also keep in mind that words like bonus, I mean I use an example here, “free bonus,” but frankly just bonus without any other articulation can connote free, and so can a whole slew of different things. Just be aware of that since there’s nothing more regulated than the use of the word free. | |
| In summary, and hopefully I’ll have enough time for questions. The disclosure that something is a negative option plan should be conveyed prior to the consumer making a purchasing decision. All of your material disclosures need to be made prior to the credit card capture or the billing information capture. I’ll let you decide how you want to interpret capture, what risks you might want to take. Make sure your consumers get the full benefit of whatever free trials you’re offering them. Do send out confirmations of their authorization prior to that second charge or an order acknowledgement. | |
| Renewal notices, they should be sent. You may decide that you’re not going to worry about Connecticut because it is an outlier, but anything that’s six months and more, I strongly recommend sending out renewal notices. The good news is if you do send out renewal notices sometimes the language in the upfront copy doesn’t have to say the then current price, because it can say, “We will send you e-mail notices each year, and if you do nothing you will be charged the amount shown on that notice.” It’s kind of a nicer copy. Sometimes they are benefits to complying with the law that can help your conversion rates, it’s not all negative. | |
| Make sure if your price increases or if you have any other material change to whatever you’ve offered consumers, that you send out a notice. Lastly, although we didn’t get into affiliate sales, because that would be an entire hour, be aware that if you have third parties making offers on your behalf, you are responsible for those offers. You need to monitor. You need to be aware of it. In free to pay conversions, I’m sure you can imagine how some of your affiliates might just say, “Free, free, free, free, free.” Obviously once they get the consumer onto your site it might be fine because you would have adequately conveyed, but they might have left a lasting misimpression as to what the consumer’s getting into, and I can assure you that it could be something that you would be responsible for. The FTC has made it quite clear that merchants are responsible for affiliate offers that are made on their behalf. | |
| With that, I just want to add just one more thing that although negative option, obviously, is heavily regulated, it still depends on your specific business models in terms of how you’d comply with all these laws that I’ve mentioned. I hope I’d given you some practical advice, but you need to look at the entire relationship that you have with your consumer from the very beginning, search engine until the customer complaints, because what’s more important, the quick revenue which might be important to some of you or the lifetime value of that customer, and obviously avoiding regulatory and class action ire. | |
| That’s it for the presentation. | |
| Kathy: | Wow, thank you, Lisa, as always you are informative and you have a lot of very actionable information. I would like to invite everybody attending today to use the chat box to ask questions and we are going to stay on the line and answer as many as possible in order to do that. The first one that came in actually is just a question, Lisa, about this the business versus business to consumer, is there a difference in the laws that people need to be mindful of? |
| Lisa: | That’s actually a really, really good question. Some of these state laws specifically talk about consumers, most of the FTC and actually some state laws do not. The reality is that if you’re selling even to B to B you are still selling a negative option plan. A lot of the things that I talked about, particularly under federal law would still have to be disclosed. |
| To be perfectly honest with you, today the merger of consumer and business is one that I deal with a lot, because I have a lot of clients that do B to B. Unlike negative option’s sales there are some laws that specifically would think address just consumers, like the Telephone Consumer Act, but unfortunately there’s been a lot of case law and a lot of law that conveys there really shouldn’t be a difference. When you think about it if you need to convey the terms and conditions of an offer prior to having an adequately consented agreement, then really there is no difference between B to B and consumer B to C. | |
| Often though, there is the negotiated contract, I mean I just recently revised a contract for somebody that signed up businesses and then automatically renewing plans and it wasn’t something that was just because of offer copy online, it was something that would have been in their contract, with their businesses. But for the most part, what I’ve conveyed today would have to be adhered to whether it was B to B or B to C. | |
| Kathy: | Great. I have another question and this is a clarification. “Lisa, did you really say that monthly recurring charges, no notice is required?” |
| Lisa: | If you have a, the state law that require that you send a renewal notice out, exempt monthly recurring charges. You would still have to send a notice prior to making a change. If your monthly recurring billing, like the Netflix example I used, was all of a sudden going from 799 to 999, you would have to send out a notice, but you do not have a legal requirement to send out a notice prior to renewing that monthly charge or charging that monthly fee. |
| Kathy: | Great. Steve says, “Great webinar.” Thanks Steve. His question is, “If you could pick the top high-risk states to not market to, do you have any suggestions?” |
| Lisa: | That’s a great question. Well, first of all if you’re selling online there is no way to avoid a state. There just isn’t and trust me, I have looked into it for clients who’ve gotten into trouble with various states and signed settlements in various states. Obviously you can stop mailing into a particular state, but you can’t stop e-commerce. |
| I would say Florida is a bit of a top state, but you know what? There are a number of them in … You know what? I feel a little uncomfortable giving that answer without knowing the particular business model and what the particular issues are. I would hate for you to not all of a sudden sell into the state of Florida because of a particular concern that you have. I’m going to take back what I said, there are some attorney general in particular states, Florida is one of them, who are very active in this area, Washington’s another, but it kind of depends on what you’re doing. | |
| I will say that many, many years ago Member Works used to sell into 50 states and then as they got into trouble in various states they stopped selling into those particular states. It became somewhat of a joke in the industry, because as they’ve had 16 consent orders they would still sell on the remaining of the states. Over time the AGs started talking and it was a big problem for Member Works. Avoiding a state is not necessarily the answer, but there’s just too many facts that go into that type of analysis to be able to give it into a webinar I’m afraid. | |
| Kathy: | I move the slide to Lisa’s contact information if anybody … We’ll be capturing your questions, but if anybody wants to contact Lisa directly it is up on the screen. |
| Erin is from a subscription box company and they have a product that ships quarterly with two payments options, a seasonal and an annual which renews annually. It says, “With the upsell from a seasonal to an annual be considered premium? The product that is shipped is the same and there’s no differences. I hope that makes sense.” | |
| Lisa: | Not entirely, you have quarterly that you then want to change to an annual subscription, I would assume the consumer would be paying more for that annual subscription. Whether you call it a premium or you call it something else, that would be a change that I would not feel comfortable if you’re making without it being deemed an upsell, with all the required terms and conditions being conveyed against the consumer. But having said that, I will say one more time, it’s really hard to answer some of these questions without seeing the copy, but just based on that question I would say that would definitely be an upsell. |
| Kathy: | Jane is asking, “If a magazine subscriber chooses a two-year term for the initial term, can you auto-renew them for another two years?” |
| Lisa: | Absolutely. You can auto-renew them for a year to year, you can auto-renew them for a month to month. You could go to a six-month. You can do anything you want as long as it’s adequately disclosed. If you say that you will be renewed for the term that you selected and it was a two-year term, you would be automatically renewing him on a two-year basis. There is nothing to prevent that. |
| Kathy: | Gotcha. Let me, there’s a question here, “What are the ramifications of auto-renewing a multi-turn magazine?” I think this is a similar question. “We don’t want to lose the term on the initial offer. Are we required to renew at the same term?” |
| Lisa: | No, you’re not required to renew at the same term as long as it’s adequately disclosed. It gets a little tricky sometimes and I’ve also had clients who’ve had more than one magazine in a shopping cart, and one might renew on an annual basis, and one might renew on a six-month basis. It really gets to the more confusing the offer is, the more difficult it is to make sure that you conveyed in the way that’s understandable to a consumer, but there’s nothing inherently wrong in all sorts of different mixing and matching as long as it’s been disclosed. |
| Kathy: | Gotcha. I have one last question, because I think we need to wrap up here. “If you are based outside the US is there anything additional you need to keep in mind?” [Crosstalk 00:58:35] you’re doing your business in the US, but the business is based outside the US. |
| Lisa: | There’s a lot of things that you would have to worry about. Well, first of all I’m only licensed to practice in the United States of America, so if you are doing business in the UK for instance, because I did see that somebody was on from London and there might be other considerations to worry about. I happen to know loosely, because again I don’t practice law outside the United States, but Canadian law and UK law is somewhat similar in terms of a lot of the requirements for automatic renewal in billing, but I would not be equipped to answer that question, except on a loose basis as I just said. |
| Kathy: | That might be a great follow-up question to contact Lisa directly. |
| Lisa: | I do however have contacts outside of United States, lawyers who are experts in the area of negative option, which I often will go to if I have a client who’s branching out from the United States into other territories. It goes both ways. |
| Kathy: | Absolutely. Good suggestion. If anybody has any other questions for myself, for Lisa, feel free to contact us at the information on this slide. I want to thank you all for attending. As you go, feel free to use the chat window to let us know what you’ve learned, how you liked it, and probably more important for myself and Lisa, is any other topics that you’d like to hear about, we’d love to hear from you. We’ll be leaving the chat window open for a few minutes to capture these answers, and if you have any other questions as I mentioned feel free to contact us directly. Again, Lisa, thank you so much for this session. It was really great. |
| Lisa: | My pleasure, bye, everybody. |
| Kathy: | Have a great day everyone. |
