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New 2011 Federal Laws for Selling Subscription Websites

President Obama signed the “Restore Online Shoppers’ Confidence Act”, so here are the rules that apply to us.

A Subscription Website is an online information product. It is a gated, content-based site that requires registration and payment in order to view the content (or most of the content) that has been placed behind a firewall.

Similar to subscriber-supported print magazines or newsletters, subscription sites are considered user-supported—although some carry advertising. Subscription Websites compare to a book, an encyclopedia, or a library, but one that is online, frequently updated, and available 24/7.

In the past few days, President Obama signed the new “Restore Online Shoppers Confidence Act“, which is meant to, as you might have guessed, restore confidence in online shoppers. Most relevant to subscription websites, this act is important because it has some new rules that we need to double-check in our own practices to make sure we’re abiding by them.

The two biggest items relevant to subscription websites are “free-to-pay conversions” and the “negative option”.

The “free-to-pay conversion” is when a company completes a sale and then offers a “subscription” to the customer, through a third party. The subscription is offered as a “free trial” and the customer is then charged without notice as soon as the trial is over and continued to be charged until the customer cancels.

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This most likely isn’t the case on your regular subscription website, but if you’re working as a third-party vendor in a partnership with another online retailer, then you’ll need to be aware of your new rules as a third-party vendor that prohibits you from charging someone’s credit card unless these rules are followed:

  • You must make clearly and conspicuously display all details of the transaction.
    • You must provide a description of the goods or services being offered.
    • You must tell the buyer that this offer is not through the original seller, and state your business information to let the customer know that this is a new transaction through a new merchant.
    • You must tell the buyer the cost of the subscription up front.
  • You must get express consent from the customer to charge their credit card after the trial is over through your own means, not through a back-door API with your partners.
     

    • You cannot get your credit card information from the original vendor who’s upselling your product. The customer must use the forms that follow all of these rules in order to collect their billing information.
    • You must collect the user’s name, full address and a way to contact the customer.
    • You must provide something like a check box that gives you permission to charge the customer when the trial is over, including the exact amount they will be charged.
    • As a third-party vendor, you will no longer be able to collect billing information from a partner or a back-end funnel.

Most people reading this won’t find that this is applicable to them. These laws are really tailored to those back-door deals that Internet Marketers have been scamming for years, however it’s important to know the details.

Something that may be relevant however, are the new laws referring to the “negative option”, which is something like the old “Book of the Month”, where you’d sign up to get 5 free books, and then every month (unless you contacted them to cancel), you’d receive a new book in the mail. This reverses the sales process so that the customer is automatically enrolled in a monthly club until they cancel, rather than ever needing to sign up for the club.

So if in your subscription website model, you’re selling a product with an automatic inclusion of a subscription product that recurs every month, just make sure you’re following these guidelines:

  • You must disclose all information about the transaction before ever collecting any of the billing information.
  • You must get the customers’ express consent before charging their credit card.
  • You must provide a simple way for customers to cancel the recurring charge.

So there they are, the new rules. They shouldn’t affect most of us, but in case they do, here’s everything.

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