If you’ve been passing your Internet customers’ accounts to other online merchants, you’ve just been picked by Congress.

Late last year, S. 3386, the “Restore Online Shoppers’ Confidence Act,” sponsored by Senator Jay Rockefeller (known as “Rockefeller”), sailed through Congress. The measure, the capstone to an investigation by Rockefeller into consumer abuses in online upsells of negative option plans for membership clubs, codifies, for online transactions only (offline is unaffected), existing Visa/MC restrictions on transfer of account data (“data pass”) between merchants. No longer will an online upseller legally be able to use pre-acquired account data.

While the statute arises from a club industry inquiry, it applies to the data pass and marketing practices of all online upsellers, and to negative option offers of all online merchants, not just upsellers. It:

• Forbids an “initial merchant” to pass billing accounts, which it has used to charge a customer in an Internet-based sale, to an unaffiliated upseller, or “post-transaction third party seller,” for use in an Internet-based sale (data pass between corporate affiliates is still allowed) .

• Requires the post-transaction 3rd party seller to:

- Disclose purchase terms before obtaining billing data;
- Disclose it is not affiliated with the initial merchant; and
- Obtain the full account number from the consumer.

• Requires the terms of all negative option offers by any type of seller to be disclosed before obtaining billing information.

In anticipation of Rockefeller, some online upsellers already had begun to abide by data pass restrictions, by having consumers reenter billing data. If you’re one who hasn’t, you need to do so now to be in compliance.

Unanticipated, because it was not in the bill earlier, is the requirement that a merchant disclose the terms of upsells and negative options (whether an initial sale or upsell) before getting the consumer’s billing information. This “late hour” amendment has the Federal Trade Commission’s fingerprints all over it. While prior law (and earlier versions of Rockefeller) had only required disclosure of terms “before sale” (before the consumer clicks and buys), the FTC favors the stricter “before billing information” standard and routinely places it in consent orders. This disclosure standard is now federal law for online sales under Rockefeller.

While the law is pretty clear, certain questions remain. Does the data pass ban apply to accounts that have been collected, for example, by an online lead generator, but not charged? May an online seller who receives account data that has not been charged use it without getting the account number from the customer again?

These and other questions will be sorted out as the agencies responsible for administering the law, the FTC and state Attorneys General, issue guidance and enforce it. It’s important they be answered, because violators will face substantial monetary penalties.

William Rothbard is a former FTC attorney and specializes in FTC advertising and marketing law.

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Advertising claims by merchants have long attracted the attention of state Attorneys General (AG) and the Federal Trade Commission (FTC), but recently these regulators have signaled a willingness to pursue advertising cases against a new target: online affiliate marketers.

Until recently, affiliates have operated anonymously and attracted little scrutiny, because they do not sell the goods/services featured in their published content. But affiliate-published pages have always been vulnerable: if they contain misleading claims about a product, or fail to disclose connections with sellers, the affiliate may face liability for deceptively driving online sales.

Recently, the FTC and AGs have stepped up scrutiny of online claims. Regulators have attacked a variety of questionable practices, from misleading product claims, to deceptive trial offers with unauthorized charges, to falsely implied celebrity/expert endorsements and fake consumer blogs.

Affiliate-created blogs, review sites and other pages have proliferated, filled with claims that drive traffic to merchants. When this content contains suspect claims or fails to disclose connections with sellers, there may be liability for deceptively inducing sales.

It is no surprise that the FTC shows increased interest in affiliates. It has long held that it is not just advertisers who are liable for deceptive advertising. Anyone who plays a promotional role, be it ad agencies or shopping channels, is liable for its role in allegedly deceptive advertising.

Now the FTC may apply this expanded liability principle to affiliates. It is revising its Endorsement Guides to clarify that both advertisers and endorsers could be liable for the endorsers’ false advertising claims, and for failing to disclose material connections between advertisers and endorsers. But it has not confronted this issue – until recently.

In May, the FTC sued affiliates who pretended to operate “MakingHomeAffordable.gov,” the official Web site of a federal program providing free mortgage assistance. The defendants purchased links on results pages when consumers searched for “making home affordable.” A sponsored link displaying the official site’s full URL appeared in the search engines’ results.

Consumers clicking on the ads were directed to sites that sell paid loan modification services. Although the FTC did not sue those Web sites, it alleged the affiliates were attempting to defraud homeowners by falsely implying through search results that visitors were being sent to the government’s Web site.

Also, state AGs have cited the role of affiliates in their latest actions against online promotions, and these may be followed by other AG and/or FTC actions against merchants, affiliates, and/or networks that either engage in deceptive advertising, or knowingly assist and facilitate it.

In addition, affiliates’ unauthorized use of celebrity and news images and marks is subjecting them (and the merchants they link) to charges of trademark infringement, false endorsement and related allegations, under state and federal law.

Now that the FTC and AGs have brought cases, affiliates should consider themselves on notice: any affiliate who engages in or assists with fraud might end up in the crosshairs of law enforcement. Affiliates must be careful to publish truthful content that is not deceptive and contains the proper disclaimers and disclosures.

Mr. Cohn, of counsel with Venable LLP in New York, advises clients on the legal and practical aspects of compliance with state and federal consumer protection regulations and industry self-regulation programs, and represents clients during investigations and enforcement actions; he can be reached at tacohn@venable.com.

Download the entire FeedFront issue 8 here – http://www.scribd.com/doc/20220412/FeedFront-Magazine-Issue-8
FeedFront issue 8 articles can be found here as well: http://feedfront.com/archives/article00date/2009/10

Advertising claims by merchants have long attracted the attention of state Attorneys General (AG) and the Federal Trade Commission (FTC), but recently these regulators have signaled a willingness to pursue advertising cases against a new target: online affiliate marketers.

Until recently, affiliates have operated anonymously and attracted little scrutiny, because they do not sell the goods/services featured in their published content. But affiliate-published pages have always been vulnerable: if they contain misleading claims about a product, or fail to disclose connections with sellers, the affiliate may face liability for deceptively driving online sales.

Recently, the FTC and AGs have stepped up scrutiny of online claims. Regulators have attacked a variety of questionable practices, from misleading product claims, to deceptive trial offers with unauthorized charges, to falsely implied celebrity/expert endorsements and fake consumer blogs.

Affiliate-created blogs, review sites and other pages have proliferated, filled with claims that drive traffic to merchants. When this content contains suspect claims or fails to disclose connections with sellers, there may be liability for deceptively inducing sales.

It is no surprise that the FTC shows increased interest in affiliates. It has long held that it is not just advertisers who are liable for deceptive advertising. Anyone who plays a promotional role, be it ad agencies or shopping channels, is liable for its role in allegedly deceptive advertising.

Now the FTC may apply this expanded liability principle to affiliates. It is revising its Endorsement Guides to clarify that both advertisers and endorsers could be liable for the endorsers’ false advertising claims, and for failing to disclose material connections between advertisers and endorsers. But it has not confronted this issue – until recently.

In May, the FTC sued affiliates who pretended to operate “MakingHomeAffordable.gov,” the official Web site of a federal program providing free mortgage assistance. The defendants purchased links on results pages when consumers searched for “making home affordable.” A sponsored link displaying the official site’s full URL appeared in the search engines’ results.

Consumers clicking on the ads were directed to sites that sell paid loan modification services. Although the FTC did not sue those Web sites, it alleged the affiliates were attempting to defraud homeowners by falsely implying through search results that visitors were being sent to the government’s Web site.

Also, state AGs have cited the role of affiliates in their latest actions against online promotions, and these may be followed by other AG and/or FTC actions against merchants, affiliates, and/or networks that either engage in deceptive advertising, or knowingly assist and facilitate it.

In addition, affiliates’ unauthorized use of celebrity and news images and marks is subjecting them (and the merchants they link) to charges of trademark infringement, false endorsement and related allegations, under state and federal law.

Now that the FTC and AGs have brought cases, affiliates should consider themselves on notice: any affiliate who engages in or assists with fraud might end up in the crosshairs of law enforcement. Affiliates must be careful to publish truthful content that is not deceptive and contains the proper disclaimers and disclosures.

Mr. Cohn, of counsel with Venable LLP in New York, advises clients on the legal and practical aspects of compliance with state and federal consumer protection regulations and industry self-regulation programs, and represents clients during investigations and enforcement actions; he can be reached at tacohn@venable.com.

Download the entire FeedFront issue 8 here – http://www.scribd.com/doc/20220412/FeedFront-Magazine-Issue-8
FeedFront issue 8 articles can be found here as well: http://feedfront.com/archives/article00date/2009/10

The Federal Trade Commission (“FTC”) has taken action in the recent months to target advertisers in the nutraceutical market for advertising deemed misleading. I couldn’t be more thrilled.

This is something that is long overdue and unfortunately, even with the changes that have been made by those who are FTC compliant; the acceptance by most advertisers is slow at best.

The FTC has come down on some continuity program offers for statements claimed in their advertising and have offered guidance to those willing to make the changes on their own.

The advertisers that are in it for the long run have adhered to the requests from the FTC, whereas those that are in it for the short term are making it very difficult to compete.

The company where I work has spent hundreds of thousands of dollars on compliance lawyers and has made the required changes to our landing pages and creative. Unfortunately, we are seeing traffic by some long standing partners and networks redirected to non-compliant offers which continue to convert higher on the front end.

With enough complaints to the FTC from consumers, eventually the non-compliant offers will have their merchant accounts pulled, close shop and reopen within days, peddling a new offer. It’s frustrating to be among those trying to run an honest campaign with a legitimate offer.

It is a never-ending battle to compete with this ongoing problem and until the non-compliant advertisers feel the repercussions of remaining non-compliant, things will not change.

Even though there are no strict laws published at this time regarding compliance, if the networks and publishers are all on the same page with the recent guidelines the FTC disseminated, it would be much easier to rise to the top.

This industry needs a clean, fresh start on how we promote products. As advertisers, we have become accustomed to sky-rocketing CPA’s and higher re-bills on products.

The last thing we need is for a handful of non-compliant advertisers to ruin it for the rest. We, as an industry need to come together and set realistic limits for all to follow.

There’s enough of a market for everyone to have a piece.

Stacey Sicard is the Director of Marketing and Advertising at E4 Media and the founder of TheAffiliateCore.com.

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Over the past few months, the FTC has filed a number of complaints against affiliates for failing to clearly and conspicuously disclose financial terms as required by Section 144 of the Truth in Lending Act “TILA” and Section 226.24 (c) of Regulation Z.

TILA and Regulation Z require that lending entities disclose finance charges and related aspects of credit transactions in writing, that finance charges are expressed as an annual percentage rate, and establish certain requirements for advertisers of credit terms.

TILA, along with other regulations , was created to prevent businesses from engaging in unfair acts or practices, to ensure representations do not mislead consumers and affect consumers’ behavior or decisions about a particular product or service, and to prevent consumer fraud by encouraging business to accurately and honestly represent products and services.

As an affiliate, you may be responsible for compliance with these regulations, particularly when using your own creative or driving traffic to a landing page that you host and maintain.

TILA and Regulation Z in particular, have certain terms that are often referred to as “trigger terms” which when used in advertising, require specific disclosures.

Although some rules apply specifically to lenders, affiliates often use such trigger terms, but then fail to provide the required disclosures. As in the recent complaints filed by the FTC, such trigger terms included:

• Stating the amount or percentage of any down-payment;
• Stating the number of payments or periods or repayment;
• Stating the amount of any payment; or
• Stating the amount of any finance charge;

Since compliance can be rigorous, and representing loan terms imposes unnecessary and unwanted liability, the safe bet is to just stay away from TILA trigger terms! Examples of TILA trigger terms include:

• Only $15 per hundred borrowed!
• 0% APR
• Low interest rate!
• No Money Down!

Affiliates’ failure to comply with applicable laws can also result in enforcement actions or civil lawsuits.
For advertisers under the FTC’s jurisdiction, that alone could mean court orders to cease and desist, fines for each violation, injunctions, civil penalties, and/or actual damages.

The overwhelming task of trying to figure out what needs to be done to comply with applicable laws and regulations can be quite daunting.

There is hope, however, and such hope may be found in obtaining proper and competent legal advice along with some good old-fashioned common sense.

***DISCLAIMER*** This article represents independent research and opinion of the author and is not to be considered or construed as legal advice. Affiliates should seek independent legal counsel for assistance in their particular advertising activities.

Brad Norton, Esq. is In-House Counsel for PartnerWeekly, LLC and SellingSource, LLC, an Inc 100 company.

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