When President Obama signed the “Restore Online Shoppers’ Confidence Act” into law two days before the close of 2010, nothing in the e-commerce landscape really changed: after all, the Federal Trade Commission (FTC) has been clamping down on recurring, unauthorized charges to consumer credit and debit cards since the Acai Berry weight loss scams of 2009.

What’s most interesting about this latest piece of legislative consumer protection? Actually it’s the pedigree of some of the partners to the consumer rip-off that inspired it. The “Restore Online Shoppers’ Confidence Act” is the brainchild of Democratic Senator John Rockefeller (West Virginia) who introduced the measure following a year-long Senate Commerce Committee investigation into the aggressive sales tactics used by Affinion, Vertrue, and Webloyalty, three post-transaction marketing companies. These three companies partnered with scores of well-known businesses including 1-800-Flowers, Priceline, Fandango, Travelocity, US Airways, Barnes & Noble, Blockbuster, Pizza Hut and 80 other partner websites who earned between one million and ten million dollars apiece for referring customers to these post-transaction marketing companies, in essence becoming their affiliate marketers.

The scam works like this. Say you buy a movie ticket online through Fandango or MovieTickets.com (two of the sites that partnered with Webloyalty.) Immediately you are besieged by a pop-up saying you can get $10 off your next purchase just by entering your email address. In the absence of any language clearly identifying the source of the pop-up offer, you – like many thousands of others – may assume that the offer is coming from better well known merchant with whom you are trying to complete your transaction.

What’s really happening when you enter your email however is that you’re giving permission to that merchant to pass on your credit card information to Webloyalty. An offer flashes across your computer screen for a free trial (rebill) in a discount buyers’ club. At this point you generally have two choices: click on “Yes” to complete your transaction (and be signed up through a specialized contract called a negative option for the discount buyers’ club) or click on “No” to complete your transaction – without the discount buyers’ club. Many hurried consumers automatically go for the affirmative without closer examination.

The 2010 Restore Online Shoppers’ Confidence Act

The new legislation is short and to the point, only four pages in length. Basically all the Act does is stipulate greater transparency in the post-transaction market. Participating companies must:

• Disclose when they are not affiliated with the referring merchant.
• Provide a clear description of the product or service they’re offering.
• Obtain informed consent expressly from consumers before enrolling them in recurring, fee-based programs.
• Disclose the terms of any recurring, fee-based programs, including instructions for membership cancellation.
• Require consumers to enter all 16 digits of his or her credit card in order to accept a post-transaction marketing offer

Although the new law arose from a specific investigation of the discount buyers’ club industry, it will apply to the post-transaction marketing practices of all third party sellers as well as to the negative options offered by all Internet merchants, not just upsellers. Every Internet merchant that sells products or services with recurring charges – this includes all membership sites – will have to make sure they comply with the new regulations.

The new Act grants the FTC enforcement authority and authorizes states’ attorneys to sue for injunctive relief in federal courts. But since the Act references what is clearly an unfair and deceptive business practice, it could be agued that these post-transaction marketing practices had already been addressed by Section 5 of the 1914 Federal Trade Commission Act.

How Will the Restore Online Shoppers’ Confidence Act Affect Affiliate Marketers?

The two business concepts at the heart of the Restore Online Shoppers Confidence Act are negative option billing and re-billing. Negative option refers to a type of transaction in which goods and services are automatically provided unless the customer specifically declines them in advance of the billing. The practice is commonly deployed in conjunction with free trail memberships set to expire after a specific term, and is not in itself illegal or unethical so long as the customer understands the terms of the arrangement and the seller allows the customer opportunities to opt out of buying.

Rebilling refers to free trial offers. These are generally promoted in verticals like weight loss (all hail, acai berry!), anti-aging, and buyers’ discount club and are promoted in hyperbolic, flamboyant language on merchants’ landing pages. But again, free trials are an excellent way for consumers to try something before committing to it entirely; they are not inherently illegal or unethical so long as they are advertised in a way that allows buyers to understand the precise nature of the offer. (We should note, however, that enough buyers didn’t so that at the end of 2009, Wells Fargo Bank made a formal decision to stop issuing payments for any transactions related to rebill/continuity offers.)

Really? The 2010 Restore Online Shoppers’ Confidence Act should have no effect whatsoever on the vast majority of affiliate marketers operating out of the United States who are not slipping their customers’ credit card information to third parties or otherwise engaging in marginal back end sales practices after a customer has made an initial purchase. The Act doesn’t prohibit rebills, third party sales, or negative options: all the Act does is require a greater level of transparency, informed consent and a mechanism that gives customers the ability to stop recurring charges. Additionally, Internet merchants will no longer be able to funnel consumer credit information to third parties, and before they can charge a consumer’s credit card themselves, they must provide unambiguous information about any offers they’re making and obtain informed consent to the transaction through an affirmative step such as putting a check mark in an acceptance box or clicking on a button marked I Agree.

The Restore Online Shoppers’ Confidence Act may even benefit certain affiliate marketers who may see their CPAs (cost per action) rise since they are no longer to having compete with the overly aggressive sales tactics of Affinion, Vertrue, and Webloyalty and their ilk.

For more information about the Act’s rules, and how they may apply to your business, consider contacting a qualified marketing attorney.