On December 29, President Obama signed the “Restore Online Shoppers’ Confidence Act” into law.  The legislation prohibits e-commerce retailers from passing customers’ billing information to post-transaction third-party sellers, and also requires post-transaction sellers to meet certain requirements before charging consumers’ financial accounts.  Specifically, the post-transaction seller must (1) disclose all material terms of the transaction, including the fact that the post-transaction seller is not affiliated with the initial retailer; and (2) obtain billing information and affirmative consent for the transaction directly from the customer. 

The Act arose out of an investigation by the Senate Committee on Commerce, Science, and Transportation into the sales practices of Affinion, Vertrue, and Webloyalty.  These post-transaction sellers offered membership club enrollment to consumers who were completing transactions at popular online retail sites, although consumers often did not understand that they were entering into a separate relationship with the membership club or that they would be charged periodic fees. 

The legislation also imposes restrictions on online merchants who use negative option marketing.  With negative option marketing, a consumer’s silence or failure to cancel is treated as consent to be charged for the good or service.  Under the Act, companies using negative option marketing must (1) clearly and conspicuously disclose all material terms before obtaining billing information; (2) obtain express informed consent before charging the consumer; and (3) provide simple mechanisms to stop recurring charges.  The Act’s requirements largely mirror the recommendations made in a January 2009 Federal Trade Commission Staff Report on Negative Options

The Federal Trade Commission is charged with enforcing the legislation, and state attorneys general may also bring actions for violations of the Act’s provisions.  The activities of post-transaction sellers have already prompted numerous investigations by state attorneys general, including an investigation by former New York Attorney General Andrew Cuomo that resulted in multimillion dollar settlements with Affinion and Webloyalty in August and September 2010.