CONSUMER ALERT: Attorney General James Issues Warning Against Marketing Schemes Aimed at Trapping Consumers into Recurring Payments

 

AG James Provides Tips to Consumers to Avoid Being Tricked into Unwanted Charges  

AG James Warns Industries That New York Law Requires Most Industries to Allow Consumers Who Enroll Online to Cancel Online

 New York Attorney General Letitia James today issued an alert to New Yorkers reminding them to take precaution when presented with deceptive marketing offers that may unwittingly result in recurring charges. This kind of marketing, known as negative option marketing, comes in several forms. Each contains a term or condition under which a seller interprets a consumer’s silence or failure to take affirmative action to reject a good or service or to cancel the agreement as acceptance or continuing acceptance of the offer.

“Consumers should never be tricked into paying recurring charges for goods and services that they are not aware of and did not authorize,” said Attorney General James. “As consumers continue to suffer the financial harms of COVID-19, the last thing companies should be doing is making it harder for consumers to end a service. We encourage any consumer who has been unwittingly trapped by these offers to file a complaint with our office, as we will do everything in our power to protect New Yorkers’ wallets.” 

One example of negative option marketing involves a so-called “free” or low-priced trial offer, where consumers are offered a trial period of a product or service. To receive the trial, consumers are required to submit their payment information, such as a credit or debit card number. However, the trial has additional terms and conditions — which may not be clearly or conspicuously disclosed to the consumer — stating that unless consumers cancel the goods or services by a certain date they are agreeing to continue to receive and pay for them. Often, once consumers discover that they have been unwittingly charged, many companies make it difficult to cancel, resulting in consumers incurring additional charges until they succeed or give up trying.

The Federal Trade Commission (FTC) recently issued guidance on this topic, which provides consumers and businesses with the FTC’s interpretations of federal laws and regulations in this area. Earlier this year, New York’s Automatic Renewal Statute, GBL § 527-a, became effective, which provides important consumer protections and adds to the tools available to the Office of the Attorney General (OAG) to combat problems with this type of marketing.

Under both federal guidance and New York’s laws, businesses engaged in these negative option marketing tactics must follow three key requirements

• Clear and Conspicuous Disclosures
  • Material terms of the offer must include, among other notices:
    • That consumers will be charged for the good or service and how much,
    • That those charges will increase after any applicable trial period ends,
    • That the charges will be made on a recurring basis, unless the consumer timely takes steps to prevent or stop such charges in a timely manner, if applicable, and
    • How to prevent or stop such charges.
  • Internet disclosures should be unavoidable, meaning consumers need not take any action, such as clicking on a hyperlink or hovering over an icon to see it.
  • Written disclosures, including on the Internet, should appear immediately adjacent to the means of recording consumer consent to the negative option feature and should appear before consumers make a decision to buy.

• Informed Consent
  • The consumer’s acceptance of the negative option offer should be obtained separately from any other portion of the entire transaction and should not include any information that interferes with, detracts from, contradicts, or otherwise undermines the consent process.
  • A “pre-checked box” does not constitute affirmative consent.

• Simple Cancellation Processes:
  • It must be just as easy to cancel as it was to sign up.
  • Consumers should be allowed, at minimum, to cancel using the same method they used to enroll, i.e. if consumers accept an offer online, they should be able to cancel online.
  • Consumers should not be subject to new offers or attempts to “save the sale” that impose unreasonable delays on the cancellation effort.
  • New York requires most industries that allow consumers to purchase goods or services via online enrollment to allow consumers to cancel online as well.

In December 2019, Attorney General James co-led a coalition of 23 attorneys general from around the nation in urging the FTC to adopt greatly needed regulations to prevent consumers from being deceived by negative option marketing schemes. In a letter to the agency, Attorney General James and the coalition argued for the FTC to use its rulemaking authority to further expand existing negative option regulations. As part of its recommendations, the coalition recommended that consumers should be allowed to cancel their membership using the same method they used to enroll. The FTC guidance issued late last month states that the FTC is still considering various options, including rule amendments.

Consumers who feel they have fallen victim to a negative option marketing scheme are encouraged to file a complaint on the OAG website or call (800) 771-7755.

The OAG has also settled a number of matters involving deceptive recurring fee-based membership programs, including settlements with dietary supplement manufacturers, an online language learning program, an online apparel seller, and a credit monitoring program.