Attorneys General from 22 states reached agreement with Classmates, Inc., Florists’ Transworld Delivery, Inc. and FTD.com (the “Settling Parties”) to settle allegations that the Settling Parties sold consumer information to negative option marketers. Of the $11 million settlement sum, $8 million will be paid by the Settling Parties directly to the various state attorneys general, while a $3 million fund will be established for consumer restitution. The settlement agreement also contains terms which will prevent the Settling Parties from knowingly transmitting consumer information to negative option marketers in the future.
What are “data passing” and “negative option marketing”?
Data Passing to Negative Option Marketers
Negative option marketing is a practice in which a seller treats a consumer’s failure to take an affirmative action, either rejecting an offer or canceling an agreement, as assent to be charged for future goods or services. The Settling Parties were accused of selling consumer information to third-party marketers who subsequently billed those same consumers for goods or services that were never affirmatively ordered. The Settling Parties obtained consumer information when consumers visited their respective websites to order products/services. The consumers were unaware, and the Settling Parties did not disclose, that consumer information would be sold to third-party marketers. This practice, known as “data passing,” has been prohibited in Internet transactions since Congress passed the Restore Online Shopper’s Confidence Act in 2010.
Along with paying $11 million to settle the allegations, the Settling Parties have also agreed that before sending consumer information to third-party marketers, they must obtain consumer consent. The Settling Parties and their marketing partners also cannot state that an offer is “free” or “risk free,” if the offered program will ultimately convert to a paid subscription. Additionally, the Settling Parties can only present third-party offers after the consumer’s transaction with the Settling Party has been completed in order to ensure that consumers understand that they are receiving a separate and distinct offer from a company other than the Settling Parties.
We recently blogged about Sirius XM Radio’s $3.8 million settlement with 45 state attorneys general concerning Sirius’ automatic subscription renewal policy. Companies that engage in automatic renewals or negative option marketing, and even those who work in association with them, have come under close scrutiny by the various states. Businesses must ensure that clear and conspicuous disclosures concerning subscriptions and/or renewals are made to consumers or face the prospect of responding to attorney general inquiries.