By Bradley O. Cebeci

A proposed settlement announced by the FTC this week signals a new enforcement strategy against negative option marketers that engage in unfair or deceptive practices in connection with automatic renewal billing programs.

The Restore Online Shoppers Confidence Act (“ROSCA”) is a federal statute that prohibits charging consumers for goods or services sold in transactions effected on the Internet through a negative option feature unless the seller (1) clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information, (2) obtains the consumer’s express informed consent before making the charge, and (3) provides a simple mechanism to stop recurring charges.

The FTC’s recent action against MoviePass did not challenge its billing disclosures or consent and cancellation mechanisms, however. Instead, the Commission used ROSCA to challenge the Company’s deceptive practices, which prevented consumers from taking advantage of the advertised subscription service.

MoviePass promoted a subscription service that allowed subscribers to view “one movie per day” at local theaters for a $9.95 monthly service fee. But, according to the FTC, MoviePass employed three tactics to block customers from accessing the advertised benefits, including:

1. Fabricating claims of “suspicious activity or potential fraud” on the accounts to invalidate subscriber passwords, which obligated customers to use a cumbersome password reset system that often blocked them from regaining access;
2. Using a ticket verification program, which required subscribers to submit photos of their physical ticket stubs for approval through the MoviePass app within a certain timeframe, in order to discourage use of the service; and
3. Using “trip-wires” to block certain groups of users that viewed more than three movies per month from using the service to buy more tickets.

The Commission alleges that these deceptive tactics rendered the “one movie per day” promise illusory; and, as a result, MoviePass failed to obtain consumers’ informed consent for the recurring subscription fee.

While the proposed settlement does not provide for monetary relief (MoviePass has declared bankruptcy), this action appears to signal a new strategy by the FTC to get around the Supreme Court’s recent AMG Decision, which cut off its ability to pursue consumer redress in federal district court under Section 13(b) of the FTC Act. Critically, ROSCA allows the FTC to seek consumer redress, damages and other monetary relief directly in federal court under Section 19 of the FTC Act, without the need for an administrative action as would be required for claims of unfair and deceptive practices brought under Section 5 of the FTC Act.

Thus, by the MoviePass case, FTC has communicated a willingness to expand its use of ROSCA to challenge any aspect of a continuity-billing program that it deems unfair or misleading, thereby opening the door to monetary relief in the form of consumer redress and penalties that would not otherwise be in play.

This should be a warning call to negative option marketers. ROSCA compliance is no longer limited to a simple evaluation of pre-enrollment billing disclosure and consent mechanisms, but should also encompass service quality and fulfillment practices. Those who fail to take heed may face dire consequences.

Bradley O. Cebeci is a Partner with Rome & Associates who focuses his practice on payments, FTC defense, and digital marketing.