With the holiday season often accounting for one-third of a retailer’s annual sales, competition can be fierce. Tempting as it is to grab for every advantage, this can have the unpleasant consequence of legal entanglements with the Federal Trade Commission (FTC) or a state attorney general that are expensive to resolve and can bring reputational damage at a critical time of year.
Retailers can protect themselves by focusing on three key areas where regulators look for potential violations this time of year: advertising disclosures, compliance with laws on continuity plans and bogus discount prices.
1. Clear Disclosures
In my former position as Director of the Florida Attorney General’s Consumer Protection Division, I saw first-hand that the prime driver of consumer complaints about retailers usually involved feeling duped by hidden fees, costs or payment plans. The best way to avoid these types of complaints is through clear and conspicuous disclosure of all key terms. This is easy to say, but, as always, the devil is in the details on how to implement it. My favorite saying about “clear and conspicuous” disclosures is that the disclosure should find the consumer, not the other way around. Common complaints include: items noted as free when there was, in fact, a charge (or perhaps shipping and handling roughly equal to the retail value of the item), a list price that is not actually the charged price and receiving charges based on a continuity plan when they had no idea they had been enrolled in one.
Retailers engaged in any of these practices should take great care to make sure that any consumer buying the product is fully aware of the terms – true cost, any shipping fees and any recurring charges. State and local consumer protection agencies take these complaints very seriously, as they represent real, out-of-pocket expenses for their consumers.
2. Continuity Plans
In addition to disclosure considerations, there are specific laws about recurring charges which retailers must be ready to navigate. Chief among them is ROSCA, the Restore Online Shopper’s Confidence Act. Enacted by Congress in 2010, this law has seen considerable enforcement activity in recent years from both state and federal regulators. As referenced in the name, the law speaks to online retail sales involving recurring negative option charges and has two main areas of focus: disclosures and consent before purchase, and means of cancellation.
ROSCA requires a retailer to disclose terms of the recurring charge prior to obtaining billing information, and then the consumer’s consent prior to charging. With cancellation, ROSCA requires that the retailer must provide, “simple mechanisms for a customer to stop recurring charges.” “Simple mechanisms” does not mean that if the consumer enrolled online they have to be able to cancel online, but again, in my time investigating complaints, a prime motivator for a consumer to contact the Attorney General was getting the runaround from a retailer when they tried to cancel. Retailers engaged in online sales should make sure that they comply with ROSCA’s terms for recurring charges, as it will be very easy for a regulator to find a violation.
3. Discount Pricing
Discount pricing is another area where state and local regulators keep a sharp watch. Regulators have no issue with consumers getting a good deal, but when a discount sale becomes a permanent event, it may be seen as a deceptive act designed to generate an urgent ‘buy-now’ mentality in the consumer.
A related issue is whether there is even a sale at all. Some retailers have received unwelcome regulatory scrutiny by listing products at a discount, with a hidden disclaimer that the ‘original price’ was, in fact, essentially made of whole cloth. There are some specific state statutes that address when and for how long items must be offered at the original price, but beyond this, there is the simple theory of deception – you can’t really say something is at a discount when the ‘original’ price is simply made up.
Keeping an eye on the issues addressed above will help a retailer avoid any unwelcome regulator attention this holiday season. As mentioned above, indulging in a deceptive practice might be tempting, but unlike a new year’s resolution to work off the excess pounds gained during this time of year, working out a regulator action will be much more unpleasant.
This article was originally published in Retail Merchandiser (www.retail-merchandiser.com) on November 17, 2016. See the original article at: http://www.retail-merchandiser.com/blog/2951-how-retailers-can-avoid-regulatory-scrutiny-this-holiday-shopping-season