One of the keys to managing a successful trade or professional association is maintaining steady revenues from membership dues, the sale of publications and educational materials, and other products and services. An important corollary to maintaining revenues is providing members with benefits, including the ability to conveniently pay for membership and other association services. With these two goals in mind, some trade and professional associations have been looking to offer members (or the public at large) the ability to set up preauthorized recurring payments for membership dues and other association products and services online.
While recurring payments have clear benefits for both an association and its members, they should be structured to comply with applicable federal and state consumer protection laws. This article summarizes The Restore Online Shoppers' Confidence Act (ROSCA) and the various federal and state payment-specific laws and regulations that govern setting up recurring payment plans for online sales. Although these laws and regulations are generally focused on transactions with consumers (and not business-to-business transactions), regulators often treat small businesses and sole proprietors like consumers. Moreover, trade and professional associations should consider setting up compliant payment systems, given the difficulty in determining when a transaction involves a business versus a consumer, especially where an association's membership includes individual members (as in a professional association) or the association regularly sells subscriptions to the public.
ROSCA—Negative Option, Automatic Renewal, and Continuity Plans
Trade and professional associations that allow members or the public to purchase memberships, subscriptions, or other products or services on a recurring basis should review their websites and other online payment portals for compliance with ROSCA. For online transactions with a negative option feature, whether in the form of trial offers, automatic subscription renewals, or continuity plans, ROSCA (15 U.S.C. § 8403) requires the seller to disclose to the consumer the material terms of the offer before the consumer enters payment information or completes the order. To comply with ROSCA, a website must: (1) clearly and conspicuously disclose the material terms of the transaction before obtaining billing information; (2) obtain the consumer's express informed consent before charging the consumer; and (3) provide a "simple mechanism" for the consumer to stop recurring charges.
In addition to ROSCA, a number of states have laws that govern online sales with recurring payments. California's continuity law, for example, is similar to ROSCA but includes the additional requirement that a website must send the purchaser an acknowledgment—"in a manner that is capable of being retained by the consumer"—that includes the sale terms, the cancellation policy, and how to cancel. A standard email confirmation and/or physical welcome letter with the required information should suffice, because both items can be retained by the consumer. As often happens, given the size of the California market, California law often becomes a de facto national standard.
Payment-Specific Laws and Regulations
To the extent that members (or the public) can submit payment by credit card, debit card, or an electronic fund transfer from a checking account, each of these payment mechanisms is subject to specific requirements that govern preauthorized, recurring payments.
The Electronic Fund Transfer Act (15 U.S.C. § 1693 et seq.) and the Consumer Financial Protection Bureau's implementing Regulation E (12 C.F.R. Part 1005) are the primary legal authorities governing electronic fund transfers (EFTs). In addition, NACHA (a not-for-profit association, previously known as the National Automated Clearing House Association) manages the ACH Network, a system for the electronic movement of money and data. Together, Regulation E and NACHA set forth the steps that a website must take to obtain authorization from a consumer to initiate recurring debits from the consumer's debit card (Regulation E) or checking account (NACHA and Regulation E) (although not addressed in this article, Regulation E also applies to telephone sales, with a few unique challenges when it comes to obtaining consumer authorization).
Under Regulation E, an EFT authorized in advance to recur at substantially regular intervals (e.g., every 30 or 45 days) can be authorized only by a "writing, signed or similarly authenticated by the consumer." A copy of the signed authorization must be provided to the consumer. If the amount of a preauthorized debit or check card payment will vary, the merchant must notify the consumer at least ten days before the scheduled transfer that the amount of the preauthorized debit will vary from the amount of the previous debit or will vary from a preauthorized range of amounts.
An electronic signature or a recording will satisfy the "similarly authenticated" requirement if the authorization would constitute a written and "signed" authorization under Electronic Signatures in Global National Commerce Act (E-SIGN). Electronic signatures include, but are not limited to, digital signatures (e.g., retyping the email address) and security codes. Ideally, a merchant should require consumers to "check" or re-type their name or email address into a specific box to complete the transaction, and include language informing the consumer that by checking the box or re-typing the email address, the consumer is providing an electronic signature to authorize his or her account to be debited/charged in accordance with the offer terms and conditions. In addition, a merchant should require the consumer to click an "I agree" button on the screen to authorize the transaction. Satisfaction of the Regulation E requirements for online transactions also will satisfy the NACHA requirements.
Similar to the requirements of Regulation E and ROSCA, the credit card brands (e.g., Visa and MasterCard) have established their own regulations governing merchant transactions. The Visa rules, for example, require merchants to obtain a consumer's authorization to set up a recurring payment plan and provide an online cancellation procedure.
Suggested Best Practices
Trade and professional associations interested in allowing members or the public to purchase goods or services on a recurring basis online should review their websites and payment portals to ensure that they comply with ROSCA and the various payment-specific laws and regulations discussed above. Implementing the following best practices will go a long way toward ensuring compliance with the law:
- The website terms and conditions should include a section on preauthorized recurring payments for products and services.
- The website offer page and payment portal should include clear disclosures regarding the recurring nature of the transaction.
- The consumer should indicate his or her affirmative consent for recurring payments by clicking a checkbox and an "I Agree" button to complete the transaction.
- The association should provide the consumer a copy of his or her authorization that can be printed, from either a print screen following the purchase or a welcome email sent to the consumer, at least three days in advance of the first recurring payment.
- The association should send the consumer a payment reminder notice in advance of the next scheduled payment (especially for annual payments or other payment terms longer than month to month).
- The association should be properly equipped to handle and process cancellation requests and manage other customer service issues.
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For trade and professional associations seeking to increase revenues and enhance member benefits and satisfaction, allowing members or the public to set up recurring online payment plans for association products and services may seem like a no-brainer. Before doing so, however, an association should review its website and payment portal for compliance with ROSCA, Regulation E, and the other laws and regulations discussed above. Otherwise, an association might find itself answering questions from angry consumers or, even worse, federal or state regulators.