Curbing Sneaky Sales Practices on the Internet

A “negative option agreement” is a twist in the way that making a purchase usually works. Instead of paying when you order something, in negative option sales you provide your payment information and agree to be charged unless you say “no” within a certain time.

Negative option agreements are used on the internet to sell everything from cosmetics to credit monitoring, and one of the most common types is the “free trial offer.” You get to try the products or services for a week or two, and then if you don’t contact the company to cancel you’ll be charged. In many cases you’re agreeing to continue receiving the products or services and be billed for them every month, but that’s not always made clear. Even if you understand the terms of the deal, you may forget that you have to cancel by a certain date to avoid charges. Sometimes companies deliberately make it hard to cancel or keep on charging consumers even after they’ve cancelled.

A case that the Federal Trade Commission settled last year against IWorks provides a vivid example of how free trial offers can be abused. The company’s websites offered “free,” “no-risk” information about government grants and other money-making opportunities. Consumers gave their credit card or bank account numbers to pay a small shipping and handling charge in order to get the information. What they didn’t realize was that in the fine print it said that they were entering into a negative option agreement, with a one-time fee as high as $129.95 plus monthly fees thereafter. It was only when they saw the charges on their statements and called the phone number that appeared there that they discovered they were enrolled in a free trial offer – and that the cancelation deadline had already passed. On top of that, the promises of easy money were totally bogus.

Another type of negative option agreement frequently found online is the automatic renewal contract. This is convenient if you want to sign up for a subscription or membership and renew it every year without having to contact the company each time. With any negative option agreement, however, there’s the possibility that you could be charged for a purchase that you didn’t really mean to make.

That’s why CFA supports H.R. 1097, the “Unsubscribe Act of 2017,”a bill sponsored by Representatives Mark Takano of California and Sanford Bishop of Georgia to curb sneaky negative option sales practices on the internet. For a free trial offer, it would require the seller to get your “express informed consent” – meaning that you’ve been provided with clear information about the deal and agreed to it – before asking for your payment information. You would also have to take an extra step, such as clicking a confirmation button or checking a box, before the initial charge could actually be made. In addition, the seller would be required to send notices to remind you about the terms of the contract when the introductory period ends and every three months after that. Quarterly notices would also be required in other types of online negative option agreements. In the case of automatic renewal contracts, you’d have to be notified no later than 30 days before the renewal date that you’re due to be charged again.

Importantly, you’d have the right to cancel a negative option agreement in the same way that you entered into it, preventing the seller from making cancelation unduly difficult. Legitimate companies that use negative option sales should have no problem with these requirements. After all, if it’s a square deal, there’s no need to trick you into it.