The term “negative option” generally references subscriptions, automatic renewals, continuity plans, or other programs where consumers continue to be charged unless they cancel.
However, a recent New York federal court held that unless a consumer unchecks a box, a one-time shipping protection fee that is automatically added to that consumer’s cart can also be a “negative option” under ROSCA.
The decision could significantly expand the reach of ROSCA, both by applying the law to a one-time add-on fee and by giving private plaintiffs a potential avenue to pursue alleged ROSCA violations under California law. The ruling could have broader consequences for common e-commerce checkout practices that require consumers to affirmatively decline optional charges.
In Harris v. LoveShackFancy, LLC, a California consumer alleged that LoveShackFancy automatically added a “Shipping Protection” fee to her online shopping cart through a pre-checked box. The consumer could remove the fee by unchecking the box, but she alleged that she did not know the charge was optional and would not have purchased shipping protection had she known.
The defendant moved to dismiss, and the court allowed several of the plaintiff’s California consumer protection claims to proceed. The decision is noteworthy for two reasons. The court:
- Held a one-time charge can be a negative option
- Permitted a consumer putative class action to essentially enforce the Restore Online Shoppers’ Confidence Act under California law
How ROSCA Applies to Negative Options
The plaintiff alleged that the shipping protection fee violated the federal Restore Online Shoppers’ Confidence Act (ROSCA).
ROSCA prohibits charging consumers for goods or services sold online through a “negative option feature” unless the seller clearly and conspicuously discloses all material terms, obtains the consumer’s express informed consent, and provides a simple mechanism to stop recurring charges.
The defendant argued that ROSCA applies to recurring subscription charges, and that ROSCA did not contemplate a one-time shipping protection fee like the one at issue in the case.
This aligns with current case law involving ROSCA and the legislative intent underlying the statute. Congress enacted ROSCA in response to concerns about online membership programs that enrolled consumers in recurring charges. ROSCA itself expressly requires sellers to provide a mechanism for consumers to “stop recurring charges,” thereby indicating that a one-time charge is not subject to the law. The court disagreed, concluding that the statute was broad enough to cover a one-time fee. Why?
One-Time Fees Can Be Negative Options
ROSCA incorporates a definition of “negative option feature” that applies when a consumer’s silence or failure to take affirmative action to reject goods or services is treated as acceptance. The court reasoned that nothing in this definition expressly requires recurring charges.
Because shipping protection was automatically selected unless the consumer affirmatively unchecked the box, the court found that it fit the definition.
The court also addressed ROSCA’s express requirement that sellers provide a simple mechanism to stop recurring charges, holding that the requirement was “automatically satisfied” if there are no recurring charges to stop. The “simple cancellation mechanism” prong did not impact the court’s determination of whether ROSCA applied in the first instance.
That is a significant interpretation of ROSCA. If the statute does not require recurring charges, plaintiffs may argue that ROSCA applies every time an online seller automatically adds an optional product or service to a transaction and requires the consumer to take some action to remove it. The FTC could very well take advantage of this in its own cases by using ROSCA to challenge a broader “negative option”/ “opt-out” regime in a plethora of contexts.
ROSCA Claims Through California’s UCL
ROSCA does not provide consumers with a private right of action and is generally enforced by the FTC and state attorneys general. However, the court’s decision allowed a private plaintiff to proceed under ROSCA in a consumer class action. California’s Unfair Competition Law (UCL) prohibits business practices that are “unlawful,” and plaintiffs frequently use alleged violations of other statutes as the predicate “unlawful” act.
The plaintiff in Harris took the same approach here, and the court concluded that she had adequately alleged a ROSCA violation and then stated that the violation “gives rise to liability under the UCL.”
Thus, the court did not create a private right of action under ROSCA itself. As a practical matter, unfortunately, its reasoning provides California plaintiffs with a potential avenue to privately litigate alleged ROSCA violations through the UCL. This could open the door to many lawsuits and court decisions interpreting ROSCA.
The decision is only one district court decision. It also remains to be seen whether other courts will agree that a statute enacted largely in response to recurring membership programs extends to a one-time add-on fee.
E-Commerce Checkout Practices Face New Risks
If other courts follow Harris, the question companies need to ask is whether their offer results in consumers being charged unless the consumer affirmatively declines.
That could bring a much broader range of ordinary e-commerce checkout practices within the scope of federal negative option law and the sights of the plaintiffs’ bar. For more information about evaluating subscription programs, contact Venable’s Autorenewal Solutions Team (VAST). For more insights into advertising law, bookmark the All About Advertising Law blog and subscribe to our monthly newsletter. To learn more about Venable’s Advertising Law services, click here. And listen to our Ad Law Tool Kit Show—a podcast from Venable.
