Understand Auto Renewals To Stay Out of Trouble
Consumers opt into free trials all the time. They are essential in trying a product before having to commit to it. But sometimes what the consumer doesn’t realize is that they actually opted into an auto-renewal. Auto-renewals are those pesky trials that roll into a paid subscription without any action taken by the customer.
While they are great for business, these efforts need to be carefully scrutinized to ensure they comply with state and federal regulations. Inability to comply with federal and state laws regarding auto-renewals could lead to an unwanted federal regulatory enforcement action, multistate investigation or class action lawsuit.
Negative Option Marketing
Negative option marketing involves the consumer enrolling in a program that continually renews without any further action. The good or service is continually delivered and billed until the consumer cancels. Negative option marketing can include free trials, continuity programs and automatic renewal plans and they are all subject to regulation by the state and federal government.
Free trials are a popular way to introduce a new product. Typically, federal and state laws require the seller of the free trial to clearly disclose the terms and conditions of the plan, including what will happen when it ends and if the subscription will continue without consumer action. If the subscription continues without consumer action, the seller must disclose the date the consumer will be charged at the point of the free trial ending, as well as a clear cancellation procedure. Consumers must also give their consent to the terms of the trial.
The Restore Online Shoppers’ Confidence Act
The ROSCA regulates how negative option marketing programs can be sold online. It is enforced by the Federal Trade Commission and requires online retailers to clearly disclose the terms of an online negative option transaction before collecting the consumer’s billing information.