The Association of Magazine Media

President Signs Legislation Regulating “Data Pass” and Negative Option Marketing

Following an unusual legislative path to approval, in December President Obama signed S. 3386, the “Restore Online Shoppers’ Confidence Act” into law.  The new law regulates post transaction third-party “upsells” and negative option sales in general online.  A series of legislative stands by MPA before the August and Thanksgiving recesses produced significant changes in the bill, including the removal of Federal Trade Commission (FTC) authority to promulgate rules for negative options sales and highly prescriptive regulations for online negative option transactions.   These changes succeeded in modifying the bill to reflect current magazine industry best practices, as well as mirror existing credit card merchant requirements.

Spurred by a Senate Commerce Committee investigation into the business practices of several companies engaged in post-transaction marketing of membership clubs on numerous online retail sites, Senator Rockefeller introduced legislation in May 2010.  While the hearings focused solely on post-transaction marketing, the legislation also included restrictions and requirements for online negative option offers not presented in a post-transaction marketing context.  Over continuing industry objections to a complete ban on the transfer of data to a third party, the bill was passed out of the full Commerce committee in June.

Without addressing the outstanding issues, in the final days before the August recess, an effort was made to “hotline” the bill.  This process, where a bill is deemed passed by unanimous consent unless a Senator objects, is generally reserved for non-controversial bills.  Further, the hotline version of the bill included a significant change from the version that was passed out of Committee, granting the FTC authority to promulgate regulations for all negative option marketing using an expedited process that affords industry no opportunity to comment.   Acting quickly, MPA reached out to Senators on both sides of the aisle to ensure that there would be objections to the hotline, and the bill did not pass before the recess.

Throughout the fall, a concerted effort was made to find language amenable to all interested parties.  Once again, before the Thanksgiving break, an effort was made to hotline the bill.  During the hotline process, MPA was successful in securing critical changes to the bill, including removal of any FTC rulemaking authority.  In early December, the bill passed the Senate, and was placed on the House suspension calendar where it passed via voice vote.

The online post transaction marketing regulations in the new law do not allow transfers of credit card information to a third party.  Third party sellers must obtain express consent from consumers, including the full sixteen digits of their credit or debit card – a provision consistent with rules put in place by Visa in April of 2010.  In addition to obtaining the full account number to be charged, a post-transaction third party seller must require the consumer to perform an additional affirmative action.  The data pass prohibition does not apply to information shared between a seller and its corporate subsidiaries or affiliates.

The new requirements for online negative option marketing are consistent with existing MPA best practices.  Before charging a consumer, an online negative option offer must clearly and conspicuously disclose all material terms; obtain the consumers express informed consent to be charged, and where there is a recurring charge, provide the consumer with a simple mechanism to stop such charges.