Are Your Continuity Programs in Compliance with the FTC?

Recently, Jarrod Morris from Marketing Mavens, tipped me off about an important regulatory change that may impact the way you do business. Specifically, the Federal Trade Commission (FTC) has a series of guidelines on how negative-option marketing, “forced continuity programs” and similar methods are marketed to consumers. I’ll share what you should know about negative-option marketing and how to keep your business in compliance.

Unlike the guidelines concerning affiliate/blog disclosure, these set of guidelines actually have teeth and aren’t as ambiguous as you might expect from the regulatory agency charged to protect American consumers. You can read the details from the FTC in their 72-page report titled Negative Options [PDF].

These guidelines aren’t new; they are in effect since last year, but now merchant providers have begun their crackdown on businesses who are operating out of compliance. Recently, Visa dropped at least 100, and likely more, merchants who use deceptive practices to bill consumers. This is the reality merchants are faced with – no one wants to end up on a TMF list, do they?

Specifically, the practice of having consumers purchase a product and having a monthly-recurring charge hit their account without their affirmative knowledge is known as “negative-option marketing.” Though not illegal in itself, the FTC has cracked down on shady practices where forced-continuity agreements are slipped into fine-print and the creation of lengthy hoops consumers have to jump through.

A number of consumer watchdogs have warned about this practice by describing them as scams.

Here’s a simple example of how negative-option marketing works:

And yes, this includes “free trials.” Essentially, you can’t auto-bill on a free trial without obtaining a consumers’ direct consent. While this feels restrictive, it yields an opportunity to qualify prospects more effectively and get “good customers” who won’t chargeback.

Nothing seems wrong with this picture; the FTC targets how the consumer authorized the monthly fee. Forced continuity can no longer be authorized in the fine print.

Marketers need to obtain “affirmative consent” from consumers to any continuity (subscription) billing that takes place. This could be a checkbox, a text field or even an additional button. The idea is to have the consumer specifically authorize the additional monthly fee on top of what they originally purchased.

Here’s a better, FTC-compliant example from mentioned earlier:

It’s not just the FTC that’s cracking down. Many merchants have been notified by their merchant provider about policies around negative-option marketing. By not conforming to the new guidelines, this could result in higher fees and even risk termination from the merchant account. These guidelines are essentially being enforced by credit card networks such as Visa, MasterCard and American Express.

I doubt these changes would severely hurt conversions or profitability -– if you’re providing a valuable service that people are willing to pay for, they will give consent and will let you bill them. If your continuity program isn’t worth clicking an additional checkbox, it’s time to think about making it worthwhile. What it will do for sure is change the way some marketers sell their services to others.

These changes have been talked at length in the marketing community. Mike Young, an attorney who helps small businesses stay legal, shared his perspective as well as number of resources to guide you into understanding the FTC guidelines on his blog.

The FTC primarily has big businesses who engage in shady practices in their crosshairs. While small businesses usually fly under the radar, you don’t want to raise any “negative” attention towards your business from a regulatory complaint. Gaining explicit consent from consumers is not only ethical, but it will keep your merchant account happy and customers happy.

Here’s a little bit of transparency for you. Infusionsoft has since changed the way we do free trials months ago. Not because of this bit of legislation, but because we want to provide small businesses a solution they can feel at ease to try the app risk-free. After a couple weeks, users can pull the trigger and commit to one of our affordable monthly plans. You can start your Infusionsoft free trial now and you can trust that we won’t bill until you tell us.

Have you made changes to your order forms or shopping cart to make you in compliance with these guidelines? Share your advice on how other small businesses can do it in the comments.

(Note: We’re not attorneys and this post does not constitute legal advice, but we’re here to inform you to changes in the industry and how this might impact the way you do business.)

[Image credit: oregondot]