How is a continuity plan different from a subscription?

Under Utah's Telephone Fraud Prevention Act, a continuity plan is distinguished from a subscription by having no binding commitment period or purchase amount. The same statute describes subscription arrangements as products or services provided, with the buyer's prior express request or consent, for a specified period of time at a price dependent on the duration of service and to complement an initial purchase.

Is linking to the terms and conditions enough to disclose the plan?

Not when the link is buried away from the order button. In Commerce Planet, the court found the hyperlink to the terms inadequate because it was buried at the bottom and not placed in close proximity to the “Ship My Kit!” button, which made it unlikely that consumers would notice or click on it. The FTC's position in that case was that it did not challenge the use of a terms page as such, but the manner in which the defendants used the page to conceal material terms.

Does the FTC have to prove consumers were actually deceived?

Not for a Section 5 violation. One court put it directly: actual deception is not required. In the Commerce Planet litigation, the FTC nonetheless pointed to consumer complaints, a high rate of chargebacks, and a low rate of product usage as evidence of actual deception.

Does a continuity plan billed to a bank account need a signed authorization?

Recurring debits from a bank account may be authorized only by a writing signed or similarly authenticated by the consumer, and the person who obtains it must give the consumer a copy. That is how the Triangle Media court recited Regulation E, 12 C.F.R. § 1005.10(b).

BillingLegal test

Continuity plan

Q: Is a continuity plan a negative option covered by ROSCA?

It can be, and the FTC has taken that position. In Triangle Media, the FTC alleged that the defendants’ auto-renewal continuity plan constituted a negative option feature under ROSCA. An FTC stipulated order likewise lists a continuity plan among the forms a negative option feature can take. ROSCA, for its part, generally prohibits charging for goods or services sold on the Internet through a negative option feature unless the seller meets its disclosure, consent, and cancellation conditions.

Q: Can a notice sent after enrollment cure a missing upfront disclosure?

Not under the Telemarketing Sales Rule, which requires the disclosure before the consumer gives payment information. In the John Beck matter the court held that Section 310.3(a)(1)(vii) requires disclosures before the consumer divulges credit-card or bank account information, so disclosures made after the initial call were inadequate. For online sales, ROSCA sets the same timing: the seller must provide text that clearly and conspicuously discloses all material terms before obtaining the consumer’s billing information.

Berkeley Robinson, Managing Attorney at Robinson Law Firm PLLC

Author

Berkeley Robinson, Esq.

Managing Attorney, Robinson Law Firm PLLC

Berkeley has served as the go-to counsel for many scaling businesses in a transactional and litigation management capacity. Before becoming an attorney, Berkeley grew sales teams, ran online marketing campaigns, and did everything else an entrepreneur does—and still does today as the founder of two online businesses.

Definition

“Continuity plan” is used in more than one setting, and its meaning depends on the context. In consumer protection, it means any plan, arrangement, or system in which a consumer is periodically charged for products or services without prior notification by the seller before each charge. Source: FTC v. BunZai Media Group, Inc., Order as to Stipulating Defendant Oz Mizrahi, Definitions A stipulated order against Cleo AI, Inc. lists a continuity plan among the forms a negative option feature can take, along with an automatic renewal, a free-to-pay or fee-to-pay conversion, and a pre-notification negative option plan. Source: Stipulated Order for Permanent Injunction, Monetary Judgment, and Other Relief (Cleo AI, Inc.), Definition G

Key legal rules

A continuity plan is an offer to sell, so it must be disclosed truthfully and agreed to before the first charge. The main rules are these:

Section 4 of the Restore Online Shoppers’ Confidence Act (ROSCA), 15 U.S.C. § 8403, generally prohibits charging consumers for goods or services sold in transactions effected on the Internet through a negative option feature unless the seller clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information, obtains the consumer’s express informed consent before making the charge, and provides a simple mechanism to stop recurring charges. Source: Triangle Media: Complaint for Permanent Injunction and Other Equitable Relief, ¶¶ 50–51
Under the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(1)(vii), if a telemarketed offer includes a negative option feature, the seller or telemarketer must disclose all material terms and conditions of that feature, including the fact that the customer’s account will be charged unless the customer takes an affirmative action to avoid the charge(s), the date(s) the charge(s) will be submitted for payment, and the specific steps the customer must take to avoid the charge(s). Source: Order Granting FTC's Motion for Summary Judgment (Apr. 20, 2012) Section 310.3(a)(1)(vii) requires that those disclosures be made before the consumer divulges credit-card or bank account information, so any disclosures made after the initial call are inadequate. Source: Order Granting FTC's Motion for Summary Judgment (Apr. 20, 2012)
Under Section 5 of the FTC Act, an act is deceptive if there is a representation, omission, or practice that is likely to mislead consumers acting reasonably under the circumstances and that is material. Source: Order Granting FTC's Motion for Summary Judgment (Apr. 20, 2012)
A solicitation may be likely to mislead by virtue of the net impression it creates even though the solicitation contains truthful disclosures. Source: FTC v. Gugliuzza, Memorandum of Decision of the District Court (OnlineSupplier) In the Commerce Planet decision, the court said that fine-print disclosures may not overcome the net impression of a deceptive representation. Source: FTC v. Gugliuzza, Memorandum of Decision of the District Court (OnlineSupplier)
Acts or practices are unfair under Section 5 of the FTC Act if they cause or are likely to cause substantial injury to consumers that consumers cannot reasonably avoid themselves and that is not outweighed by countervailing benefits to consumers or competition, 15 U.S.C. § 45(n). Source: AH Media Group, LLC: First Amended Complaint for Permanent Injunction and Other Equitable Relief (Oct. 23, 2019)
Section 907(a) of the Electronic Fund Transfer Act, 15 U.S.C. § 1693e(a), provides that a preauthorized electronic fund transfer from a consumer’s account may be authorized by the consumer only in writing, and a copy of the authorization shall be provided to the consumer when made. Source: Memorandum Order RE: Preliminary Injunction, FTC v. Triangle Media Corp. et al. (Aug. 24, 2018)
In the AuraVie order, “clear and conspicuous” means that a required disclosure is difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers. Source: FTC v. BunZai Media Group, Inc., Order as to Stipulating Defendant Oz Mizrahi, Definitions In the same order, a disclosure in an interactive electronic medium such as the Internet must be unavoidable. Source: FTC v. BunZai Media Group, Inc., Order as to Stipulating Defendant Oz Mizrahi, Definitions

For the sake of space, this page lists only the primary rules related to this term that most businesses should follow. More may apply to your situation, and your unique facts affect how they apply.

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Why these rules exist

A continuity plan keeps billing on the strength of one sign-up, and the Telemarketing Sales Rule defines the negative option feature underneath it as a provision under which the customer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer. Source: Complaint for Permanent Injunction and Other Equitable Relief (Credit Bureau Center), ¶¶ 44–47 Because silence is the only thing that keeps the charges coming, the duties attach at sign-up: if the terms are not in front of the consumer before the billing information is taken, the first sign of the plan is the charge itself. Congress passed the Restore Online Shoppers’ Confidence Act for a related reason, that to continue its development as a marketplace the Internet must provide consumers with clear, accurate information. Source: Triangle Media: Complaint for Permanent Injunction and Other Equitable Relief, ¶¶ 50–51 Congress found that sales combining free-to-pay conversions with negative option sales take advantage of consumers’ expectations that they will have an opportunity to accept or reject an offer at the end of the trial period. Source: Motion for Preliminary Injunction and Memorandum of Points and Authorities in Support (Willms defendants) The record it relied on included testimony that disclosures must be especially clear and prominent when negative options are used, because consumers are not accustomed to purchasing items without affirmatively assenting to those purchases. Source: Motion for Preliminary Injunction and Memorandum of Points and Authorities in Support (Willms defendants)

The unfairness theory rests on the same gap: in deciding whether an injury was avoidable, “courts look to whether the consumers had a free and informed choice.” Source: FTC’s Opposition to Defendant Gugliuzza’s Motions for Summary Judgment No. 1 and No. 2 In the Commerce Planet litigation, the FTC argued that more than 380,000 consumers could not consent to the charges because they did not see the offer for the negative option continuity plan. Source: FTC’s Opposition to Defendant Gugliuzza’s Motions for Summary Judgment No. 1 and No. 2

Enforcement examples

FTC v. Mentoring of America (John Beck and Jeff Paul money-making kits)

Order: (1) Granting FTC's Motion for Summary Judgment; (2) Denying Defendants' Motion in Limine; and (3) Ordering Supplemental Briefing on Scope of Injunctive Relief and Monetary Damages (Apr. 20, 2012)

The defendants represented that buyers of each of three money-making systems would receive a free 30-day membership, to the “John Beck Property Vault,” “John’s Club,” or “Jeff Paul’s Big League.” Source: Order Granting FTC's Motion for Summary Judgment (Apr. 20, 2012) The FTC alleged that the defendants failed to disclose, or failed to disclose adequately, that once the trial ended consumers were still enrolled in a continuity membership plan costing $39.95 per month, and that they were charged that amount each month unless they took affirmative action to cancel. Source: Order Granting FTC's Motion for Summary Judgment (Apr. 20, 2012)

Outcome. The court found no reasonable dispute that the defendants failed to adequately disclose to purchasers that they would be automatically enrolled in continuity programs. Source: Order Granting FTC's Motion for Summary Judgment (Apr. 20, 2012) Timing decided the point: Section 310.3(a)(1)(vii) requires disclosure before the consumer divulges credit-card or bank account information, so disclosures made after the initial call were inadequate. Source: Order Granting FTC's Motion for Summary Judgment (Apr. 20, 2012) The court granted summary judgment on the claims that the continuity programs were deceptive (Claims 2, 4, and 6). Source: Order Granting FTC's Motion for Summary Judgment (Apr. 20, 2012)

FTC v. BunZai Media Group, Inc. (AuraVie skincare trial)

AuraVie: Default Judgment and Order for Permanent Injunction and Other Equitable Relief as to Defendant Kristopher Bond, also known as Ray Ibbot, Individually or Manager of Bunzai Media Group, Inc., July 26, 2017

The amended complaint alleged that AuraVie failed to disclose adequately that consumers who accepted its trial offer would be enrolled in a continuity program, under which it sent additional shipments of its skincare product each month and charged consumers’ credit or debit cards the full cost of each product shipped until consumers affirmatively cancelled. Source: Amended Complaint for Permanent Injunction and Other Equitable Relief (AuraVie) Consumers, it alleged, were typically unaware of the enrollment until they discovered the charges, usually $97.88 a month, on their statements. Source: Amended Complaint for Permanent Injunction and Other Equitable Relief (AuraVie)

Outcome. The default judgment as to Kristopher Bond concluded that the Commission was entitled to equitable monetary relief of $45,095,123, for which he was jointly and severally liable. Source: AuraVie: Default Judgment and Order for Permanent Injunction and Other Equitable Relief as to Defendant Kristopher Bond (July 26, 2017) It also concluded that a ban on future negative option sales was appropriate. Source: AuraVie: Default Judgment and Order for Permanent Injunction and Other Equitable Relief as to Defendant Kristopher Bond (July 26, 2017) Roi Reuveni, in a separate stipulated order, was permanently enjoined from advertising, marketing, promoting, or offering for sale any good or service with a Negative Option Feature, directly or through an intermediary, including by consulting, planning, participating, facilitating or advising. Source: Stipulated Order for Permanent Injunction and Monetary Judgment as to Defendant Roi Reuveni (AuraVie)

FTC v. AH Media Group, LLC (online skincare and supplement trial offers)

AH Media Group, LLC: First Amended Complaint for Permanent Injunction and Other Equitable Relief, October 23, 2019

The amended complaint alleges that the defendants offered low-cost “trials” of their products for just the cost of shipping and handling, typically $4.99 or less, then enrolled consumers in a continuity plan without their knowledge or consent, charged about $90 after a two-week trial, and kept charging the full price plus shipping each month until consumers cancelled. Source: AH Media Group, LLC: First Amended Complaint for Permanent Injunction and Other Equitable Relief (Oct. 23, 2019) The landing pages, it alleges, contained no visible statement that consumers would be enrolled automatically in a continuity plan, with additional products sent and charged each month until cancellation. Source: AH Media Group, LLC: First Amended Complaint for Permanent Injunction and Other Equitable Relief (Oct. 23, 2019)

Outcome. The complaint pled that the failure to disclose, or to disclose adequately, the material information in its list is a deceptive act or practice in violation of Section 5(a) of the FTC Act. Source: AH Media Group, LLC: First Amended Complaint for Permanent Injunction and Other Equitable Relief (Oct. 23, 2019) Among the listed terms is that the defendants will automatically enroll consumers in a continuity plan with additional charges. Source: AH Media Group, LLC: First Amended Complaint for Permanent Injunction and Other Equitable Relief (Oct. 23, 2019)

FTC v. Commerce Planet, Inc. (OnlineSupplier “free” auction kit)

Memorandum of Decision of the District Court Concluding That Defendant Charles Gugliuzza Is Individually Liable For the Deceptive and Unfair Marketing of Online Supplier; That A Permanent Injunction Is Appropriate; and That Monetary Equitable Relief In the Amount of $18.2 Million As Restitution Is Proper

The FTC's complaint alleged that Commerce Planet marketed and sold through the internet a free “Online Auction Starter Kit.” Source: FTC v. Commerce Planet, Inc., Complaint for Permanent Injunction and Other Equitable Relief The terms page for the offer said that consumers who did not cancel within 7 days would automatically be charged a monthly membership fee of $59.95, and every 30 days thereafter until they cancelled. Source: FTC v. Commerce Planet, Inc., Complaint for Permanent Injunction and Other Equitable Relief Other disclosure language, the complaint alleges, appeared below the bottom of the screen, so consumers could complete the entire transaction without ever having seen it. Source: FTC v. Commerce Planet, Inc., Complaint for Permanent Injunction and Other Equitable Relief

Outcome. The court found the landing and billing pages materially misleading because they created the net impression that consumers could obtain a free auction kit, when in fact they were subscribing to a continuity program with monthly subscription fees. Source: FTC v. Gugliuzza, Memorandum of Decision of the District Court (OnlineSupplier) Disclosing the program's terms on a separate, hyperlinked “Terms of Membership” page did not cure that impression; in the court's words, it was an insufficient cue. Source: FTC v. Gugliuzza, Memorandum of Decision of the District Court (OnlineSupplier) The court held the individual defendant, Mr. Gugliuzza, liable for restitution of $18.2 million. Source: FTC v. Gugliuzza, Memorandum of Decision of the District Court (OnlineSupplier)

FTC v. Credit Bureau Center, LLC (credit monitoring trial)

Complaint for Permanent Injunction and Other Equitable Relief (Credit Bureau Center)

The complaint alleges that the defendants used fake rental ads and landlord emails to lure consumers to websites offering “free” credit scores and reports, then deceived them into signing up for a negative option seven-day trial of a credit monitoring service, after which many consumers were charged $29.94 monthly without their authorization. Source: Complaint for Permanent Injunction and Other Equitable Relief (Credit Bureau Center), ¶¶ 10–35 Many consumers, it alleges, did not know they had been enrolled until they discovered a $29.94 charge on their bank or credit card statement. Source: Complaint for Permanent Injunction and Other Equitable Relief (Credit Bureau Center), ¶¶ 10–35

Outcome. The complaint pleads that failing to disclose, or to disclose adequately, the five listed terms, including automatic enrollment in a negative option continuity plan with additional charges and the means of cancelling, is a deceptive act or practice under Section 5(a). Source: Complaint for Permanent Injunction and Other Equitable Relief (Credit Bureau Center), ¶¶ 35–43 The complaint also alleges that the defendants advertised and sold the credit monitoring service through a negative option feature as the Telemarketing Sales Rule defines that term, which brings ROSCA into play. Source: Complaint for Permanent Injunction and Other Equitable Relief (Credit Bureau Center), ¶¶ 44–47

Exposure

A ROSCA violation is treated as a violation of a rule promulgated under Section 18 of the FTC Act, and therefore as an unfair or deceptive act or practice in violation of Section 5(a). Source: AH Media Group, LLC: First Amended Complaint for Permanent Injunction and Other Equitable Relief (Oct. 23, 2019) The FTC is authorized to bring federal district court proceedings to enjoin violations of the FTC Act and ROSCA, among other laws, and to secure such equitable relief as may be appropriate, including rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies. Source: Complaint for Permanent Injunction and Other Equitable Relief (Credit Bureau Center), ¶ 5

The money at stake can be large. In the AuraVie matter, a judgment of $73,326,054 was entered against Roi Reuveni as equitable monetary relief. Source: Stipulated Order for Permanent Injunction and Monetary Judgment as to Defendant Roi Reuveni (AuraVie) Upon his timely payment of $15,000, the remainder was suspended. Source: Stipulated Order for Permanent Injunction and Monetary Judgment as to Defendant Roi Reuveni (AuraVie) That suspension is lifted if the court finds that he failed to disclose any material asset, materially misstated the value of any asset, or made any other material misstatement or omission in his financial representations. Source: Stipulated Order for Permanent Injunction and Monetary Judgment as to Defendant Roi Reuveni (AuraVie) Other defendants in the same matter faced the full measure: the default judgment as to Kristopher Bond found the Commission entitled to $45,095,123, and a proposed default judgment would hold the defaulting defendants jointly and severally liable for $72,692,812. Source: [Proposed] Default Judgment and Order for Permanent Injunction and Other Equitable Relief (AuraVie) In the Commerce Planet litigation, the court ordered $18.2 million in restitution against the individual defendant, and the Ninth Circuit has held that unjust gains in such a case are measured by net revenues, not net profits. Source: Federal Trade Commission v. DIRECTV, Inc., 2018 WL 3911196

Exposure also reaches individuals. An individual may be held liable for corporate violations of the FTC Act if the individual participated directly in the wrongful practice or had authority to control it, and had knowledge of it, was recklessly indifferent to the truth or falsity of the misrepresentation, or was aware of a high probability of fraud along with an intentional avoidance of the truth. Source: Memorandum of Decision of the District Court Concluding That Defendant Charles Gugliuzza Is Individually Liable (Commerce Planet), Part C Relying on in-house counsel did not help the defendant in Commerce Planet, because advice of counsel and good faith are not defenses to whether the defendant had the requisite knowledge under Section 5(a). Source: FTC v. Gugliuzza, Memorandum of Decision of the District Court (OnlineSupplier) A stipulated order can also tighten the consequences later: in the AuraVie order as to Alan Argaman and Secured Merchants, LLC, the facts alleged in the complaint are taken as true, without further proof, in any later civil litigation by or for the Commission, including a bankruptcy nondischargeability complaint. Source: AuraVie: Order for Permanent Injunction and Monetary Judgment as to Stipulating Defendants Alan Argaman and Secured Merchants, LLC, Only (June 29, 2018) After a permanent injunction was entered, Wolf and Eliasson started Membership Services, LLC, a continuity program with negative option features. Source: Order for Contempt The court concluded that they violated the injunction in many respects. Source: Order for Contempt

FAQs

1.161011_aura_vie_440_order. FTC v. BunZai Media Group, Inc., Order as to Stipulating Defendant Oz Mizrahi, DefinitionsSee also Complaint for Permanent Injunction and Other Equitable Relief. FTC v. Commerce Planet, Inc., Complaint for Permanent Injunction and Other Equitable Relief
2.Stipulated Order For Permanent Injunction, Monetary Judgment, and Other Relief. Stipulated Order for Permanent Injunction, Monetary Judgment, and Other Relief (Cleo AI, Inc.), Definition G
3.Triangle Media: Complaint for Permanent Injunction and Other Equitable Relief. Triangle Media: Complaint for Permanent Injunction and Other Equitable Relief, ¶¶ 50–51See also Federal Trade Commission v. DIRECTV, Inc.. Federal Trade Commission v. DIRECTV, Inc., 2018 WL 3911196