What Is A Continuity Program?
In simple terms, a continuity program is a recurring billing plan where the consumer is charged a periodic fee until the consumer elects to terminate the plan. The typical example is a membership website that charges members’ credit cards monthly until they terminate their membership.
The legal status of continuity programs is not new. In 2010, President Obama signed into law the Restore Online Shopper’s Confidence Act which in part established three statutory rules for continuity programs: (i) clearly and conspicuously disclose all material terms of the program prior to obtaining billing information (i.e.disclose the continuity program billing procedure prior to collecting credit card information), (ii) obtain express informed consent before charging the consumer’s account, and (iii) provide a simple mechanism for canceling the plan.
False And Deceptive Notice Regarding Continuity Programs
What’s significant with the two recent cases is that they were actually litigated in U.S. District Courts, not settled, as is the typical situation with recent FTC cases against Internet marketers. In both cases, the court found against the defendants, and in their opinions the courts discussed in detail the facts and circumstances that were false and deceptive regarding the requirement to provide clear and conspicuous notice regarding the continuity programs at issue.
In both cases, the Internet marketers represented that consumers would receive a free trial or free 30-day membership; however, in both cases the marketers failed to disclose adequately, that after the free trial or membership ended, they would be charged monthly unless they take affirmative action to cancel the continuity program. The failure to make these disclosures adequately was deceptive, according to the FTC and the respective courts.
Internet marketers who believe that all they need to protect themselves are disclosures in a hyperlinked Terms of Use or Terms of Membership Page should understand that the FTC and the courts clearly stated that these disclaimers do not automatically exonerate deceptive activities. Instead, the key is the “net impression” created, despite truthful disclosures.
In one of the two cases, the court discussed five reasons why hyperlinked legal disclaimers were inadequate to shield the defendants from liability.
* The hyperlink was “buried at the bottom” and not placed in “close proximity” to the call to action, making it unlikely that consumers would notice or click on the link.
* When the consumer clicked on the hyperlink, the actual terms of the membership would appear on a separate pop-up page rather than being directly inserted on the landing page. This resulted in inadequate disclosure of the continuity program because the disclosure appears in a different context than the claims and call to action.
* The disclosures regarding the continuity program were buried with other densely packed information and legalese, which made it unlikely that average consumers would wade through the material and understand that they were signing up for a continuity program.
* The continuity program was not clearly defined in the legal disclaimers, stating that the consumers “may” be liable for payment in the future if they fail to cancel the service. The disclosures must be prominent and unambiguous.
* The call to action did not provide notice of the continuity program resulting in consumers taking action by clicking prior to the disclosures of the continuity program. Even if the consumer is later fully informed of the continuity program (which the FTC and court held was not the case) before entering into a contract, if the first action is induced by deception, a deceptive practice has been perpetrated.
Additional Problems If You Follow Up With Call Centers
In addition to violations of the FTC Act for false and deceptive practices, both the FTC and one court found that a defendant had violated the Telemarketing Sales Rule (i) by failing to adequately disclose the enrollment of consumers in continuity membership plans, (ii) by submitting payment information of consumers without their express consent, and (ii) and by placing outbound calls to consumers who previously stated that they did not wish to receive calls.
So, Internet marketers who follow up their sales pages with solicitations by telephone call centers should be aware of these rules.
Conclusion
Although these two cases don’t establish new legal precedents, they do provide detailed discussions of the deficiencies of disclosures of two separate continuity programs, despite legal disclaimers.
All Internet marketers and online entrepreneurs should also realize that the use of continuity programs is a relatively high risk marketing practice, with the result that great care should be taken to ensure adequate consumer disclosures.
This article is provided for educational and informative purposes only. This information does not constitute legal advice, and should not be construed as such.
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FTC Slams Internet Marketers for Deceptive Continuity Programs
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