New US Law Restricts Online Sales Practices

The new Restore Online Shoppers' Confidence Act in the US aims to restrict deceptive online sales tactics and mandates heightened transparency for online sellers. The Act introduces three restrictions that target post-transaction sales by third-parties and negative option marketing.

The first two restrictions address sales that are solicited by a third-party through an initial merchant with whom a consumer has entered into an online transaction — for example, a third-party's offer to a consumer for a magazine subscription after the consumer has finished giving their billing information to an online retailer to purchase a video game. The Act addresses this type of transaction by:

  1. prohibiting the initial merchant from disclosing ( i.e ., passing along) a consumer's billing information to any post-transaction third-party seller for use in an online sale; and
  2. requiring any post-transaction third-party seller to clearly and conspicuously disclose the material terms of the third-party sale to the consumer (including that the third-party is unaffiliated with the initial merchant), and, following this disclosure, to collect billing information from the consumer and have the consumer perform an additional affirmative consenting action (such as clicking a confirmation button).

The third restriction under the Act addresses negative option marketing. Here, negative option marketing means interpreting a consumer's silence or failure to take an affirmative action to reject goods or services or to cancel an agreement as acceptance of the offer. The Act prohibits the use of a negative option unless: (i) the material terms are clearly and conspicuously disclosed before obtaining the consumer's billing information; (ii) the consumer gives express informed consent before their account is charged; and (iii) a simple mechanism is provided to stop recurring charges.

Responsibility for enforcing these provisions is given to both the Federal Trade Commission and the attorney general for each state.

This Act is the result of a Senate Committee investigation into aggressive online sales tactics, including the passing along of consumer billing data by many reputable online retailers to third-parties. In many cases, those third-parties then used aggressive and deceptive tactics to enrol consumers in paid membership clubs as part of the initial sales process such that consumers would think the offers were part of the initial purchase, rather than a new transaction with a new seller. While the new law arose in response to such deceptive practices, the provisions apply more broadly and so all sellers must take care to ensure compliance.

McCarthy Tétrault Notes

In Canada, consumer protection laws that guard against different forms of negative option billing and other deceptive marketing practices vary by province. Privacy laws, such as the Personal Information Protection and Electronic Documents Act ( PIPEDA ), serve to restrict disclosure without consent of consumer billing information that is personal information.

Businesses that are involved in online sales to US consumers, or that are contemplating an expansion to include US consumers, should ensure that their online sales practices conform to these new rules. Particular attention should be paid to the fact that disclosure of material terms under this Act must occur prior to the collection of billing information.