For centuries, commerce was simple and straightforward. A merchant would offer a good or service for sale and a consumer would decide whether or not to buy. Today, with "negative option" marketing, commerce can be anything but simple, and consumers can end up being charged for products or services they never intended to purchase.
Simply put, negative option turns the sales transaction around. Instead of the merchant having to "sell" you a product or service, it starts with the assumption that youve already bought it. Its up to you, the consumer, to contact the merchant and cancel the order if you dont want to complete the transaction.
The Columbia Record Club and various "book-of-the-month" clubs were early pioneers of negative option marketing. The hook was an offer of five or ten books or records for free or at a heavily discounted price.
By accepting the offer, the consumer agreed to "join" the club and receive regular shipments of other books or records at the full price, unless the consumer took the "negative option," telling the company it did not want to receive that months offering.
As you might expect, negative option has been abused as its use has become more prevalent. The widespread use of credit cards and the growth of the Internet have fueled that abuse, to the point that federal and state consumer authorities have taken action.
In 2001, the Federal Trade Commission cracked down on negative option abuses, suing nine companies for charging customers credit cards for products or services without gaining their express approval. The FTC found the companies, as part of a transaction with consumers, offered "free offers" or "trial offers" of other products and services, without disclosing that consumers would be billed for additional products or services unless they exercised the negative option.
"Negative option marketing is particularly troubling when marketers already have consumers' credit card or billing account information and can easily charge consumers' accounts without their permission or when marketers fail to disclose that consumers' credit card numbers will be transferred to another company and charged unless consumers call to cancel," the FTCs Elaine Kolish told Congress in November, 2001.
But Congress took no action, and in the last four years, negative option marketing has increased, and so has its abuse.
According to the FTC, companies selling magazine subscriptions through the negative option are among the worst offenders. In 2001 the FTC logged 204,000 complaints about deceptive magazine sales. Two years later, the number of complaints had more than doubled, to well over 500,000.
Magazine publishers are a bit defensive about that. In fact, the Magazine Publishers of America, an industry trade association, says it prefers to call negative option marketing "advance consent marketing." The group defends the practice, saying continuous service and automatic renewals also benefit consumers.
"The FTC has expressed concern about the disclosures associated with such marketing techniques and ensuring that consumers understand the terms and conditions of the marketing offers. A number of industry groups have established guidelines for advance consent marketing. MPA has created an educational document around one such set of guidelines," the group said in a statement on its Website.
The lengthy MPA document, written in 1998, is a set of "voluntary" guidelines for the independent contractors hired by publishers to sell magazine subscriptions. Judging from the growing number of complaints received at the FTC about magazine sales, a reader might conclude these guidelines are not always followed.
Banned in Motown
Michigan Attorney General Mike Cox warns consumers in his state to be wary of negative option traps. He says businesses employ them for one simple reason they work.
"Studies show that if a company asks a customer to sign up for a new service or product, less than 15 percent of consumers receiving the solicitation will sign up," Cox said. "On the other hand, if the service or product is supplied without the consent of the consumer, up to 80 percent of the consumers will be recruited into the new service plan."
In Michigan, negative option marketing is illegal, based on the states interpretation of the law.
"Basic contract law requires an agreement, not a unilateral tender of goods by a shady merchant," said Allison Pierce, Communications Director for the Michigan Attorney Generals Office.
"Thus, a pure negative option arrangement is no good under contract law, and a bill for the goods involved is deceptive and violates various laws, including the Michigan Consumer Protection Act and state and federal unsolicited merchandise laws."
Even though negative option marketing is considered illegal in Michigan, consumers in that state still fall victim to the systems abusive practices. Clarence, of Pleasant Lake, Michigan complained to ConsumerAffairs.com about an unauthorized charge of $149 on his credit card from Triligiants Health Saver Plan.
"I called the phone number for their health saver plan to find out how and why I was charged for a membership on my credit card," Clarence told us.
"For starters, the individual I spoke to was very rude. When I asked him how and why my credit card was charged he said I cashed a $2.50 check that authorized them to set up and charge me for a membership. In the first place, I don't remember any check for $2.50. Secondly, I purposely don't cash these checks when they come in the mail for this specific reason. When I gave him the opportunity to take this charge off from my credit card he proceeded to tell me the benefits of their plan. I told him I had insurance and wasn't interested in their plan but, instead of listening to me, he continued to try to push their plan."
State and federal governments all have rules in place that are designed to protect consumers from inadvertently committing to purchases through a negative option pitch. Still, angry consumers complain they are being victimized. How can this be?
Defending The Status Quo
Very simply, some companies follow the rules while some dont. Any attempt to toughen these rules even outlawing negative option marketing, for example would be met with stiff opposition from magazine publishers, specific marketing companies, and the marketing industry as a whole.
The Electronic Retailing Association, which represents radio, TV and Internet marketers, has noted with alarm, on its Web site, that "state and federal regulatory activity threaten the effectiveness and viability of these types of promotions potentially resulting in a loss of convenience for consumers as well as unnecessarily burden industry with increased costs associated with compliance."
The association said it believes that current law provides an adequate infrastructure to protect consumers from "rogue" companies abusing "advance consent marketing (negative option) practices."
Staying Out Of The Negative Option Trap
The law does, in fact, provide many consumer-friendly remedies. The problem is, they arent all that well publicized and therefore rarely enforced. The problem is compounded by the fact that most consumers who fall victim to negative option marketing are completely blindsided by it.
The law requires that consumers give an informed consent before a negative option purchase can be considered legitimate. Yet the overwhelming majority of complaints received at ConsumerAffairs.com are from consumers who have no idea why they are being charged for a particular service. Under the law, the burden of proof is on the marketer, not the consumer.
"Telemarketers need to be sure that consumers agree to be charged, and what account will be charged -- even if they have an account number from another transaction," said Howard Beales, Director of the FTC's Bureau of Consumer Protection.
"If you charge consumers without their permission, we'll charge you with committing a fraud."
When an unauthorized charge appears on their credit card statement, many consumers make the mistake of calling the toll-free customer service number of the company placing that charge, which appears on the same line of the statement. That rarely leads to satisfaction.
A more successful and less frustrating action is to call your credit card issuers customer service number and report the charge as unauthorized. The credit card company, which controls the flow of money, will be a much more effective advocate.
In addition to taking action to remove the charge, consumers should always file complaints with ConsumerAffairs.com and appropriate government agencies.
Finally, consumers should be aware of the pitfalls that lurk behind many ordinary purchases. Anytime a consumer is offered a "free gift" or "trial offer," more than likely there is a longer-term, more expensive negative option transaction taking place. The best policy is to just say no. Otherwise, read the fine print very carefully.
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