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A gavel on top of a legal document.Recurring billing and the subscription business model have a lot of benefits for both businesses and consumers. Unfortunately, a few too many unscrupulous businesspeople in recent years have taken advantage of recurring and automated billing, leading to angry customers, class action lawsuits, and regulation at both the state and national level.

There’s absolutely nothing wrong with offering a subscription service or recurring billing to clients and customers, but it’s important as a business owner that you stay aware of relevant laws and regulations. The last thing you want is to end up in hot water over a careless mistake or oversight. Let’s take a look at some examples and what you can do to stay in line.

Case Study: Vistaprint

Vistaprint is a popular online printing service, widely used especially for creating custom business cards. Despite their popularity, though, they have been involved in more than one high profile controversies and lawsuits. In one, Vistaprint took serious criticism from consumers and advocates for providing customers’ credit card information to a third party, consumer services marketing company Vertrue Incorporated. Customers were then charged by Vertrue without their consent. (Vertrue has also been independently involved in deceptive solicitation practices involving gifts and free trials.)

In 2009, a Federal Judge in Texas ruled in favor of Vistaprint when plaintiffs in a class action lawsuit alleged that they were tricked into enrolling into a membership programs with monthly billing.

The 5th Circuit Court ruled that a membership signup process is not deceptive if it possesses two elements:

  1. Prominent and Conspicuous Notice
  2. Clear, Easily Understandable Terms

Essentially, the court found that Vistaprint’s sign-up process clearly and un-deceptively contained all the information consumers need to know what charges sign-up would entail. This included:

  • Membership terms located in a box beside the survey required for enrollment.
  • Disclosure presented above the space for entering email addresses.
  • Disclosure contained the following, unambiguous language in a font the same size and color as the rest of the copy on the page: “The membership fee of $14.95 per month will be charged/debited by Vistaprint Rewards to the credit/debit card you used today.”
  • Customers were required to check a box indicating they had read the details of the agreement.

The takeaway from this case for consumers, obviously, is that it’s important do one’s reading any time a credit card is involved. The takeaway for businesses: provide billing terms prominently, conspicuously, and unambiguously.

California’s Automatic Renewal Law

Seal of the California SenateWhile the courts may have been less than sympathetic to plaintiffs in the Vistaprint case, legislatures have unsurprisingly stepped in to make sure that businesses uphold the “clear and conspicuous standard.” One prominent example is California’s Automatic Renewal Law, passed in 2010, which opens:

“It is the intent of the Legislature to end the practice of ongoing charging of consumer credit or debit cards or third party payment accounts without the consumers’ explicit consent for ongoing shipments of a product or ongoing deliveries of service.”

The law requires the clear and conspicuous display of service terms before purchase agreements are fulfilled; affirmative consent from consumers before any credit card charges are made; acknowledgment that includes the automatic renewal or continuous service offer terms, cancellation policy, and information regarding how to cancel in a manner that is capable of being retained by the consumer; that businesses making automatic withdrawals provide a toll-free phone number for consumers; and more.

Violation of California’s law doesn’t result in criminal action, but it does make businesses vulnerable to class action lawsuits in the state. (We recommend you read and comply with the law in full to avoid the possibility.)

Restore Online Shoppers’ Confidence Act (ROSCA)

Also passed in 2010, the Federal ROSCA prohibits charging consumers for goods or services over the Internet through a negative option feature (in which a failure to opt-out is considered implicit opting-in). Charges must be made with clear and conspicuous disclosure of material terms before billing information is obtained, with express informed consent as well as a “simple mechanism” to stop recurring charges.

Conclusion

If you’re going to offer paid membership, or recurring billing in return for ongoing delivery of goods and services, it is imperative that you provide the terms of your offer in a clear and conspicuous manner, and that you get express affirmative consent from your customers.

For quality recurring billing and membership management software, try Subscription DNA. Fill out the form below to learn more.