The Truth About Re-Bills

Are they really OK?

A cursory look at any paysite establishes the fact that the easiest thing for a surfer to do is to sign up, and the most difficult is to cancel — often much too difficult. The problem lies in just how difficult is "too difficult," because the line — as with others in the law — is dim and uncertain.

Start with obvious extremes. At one end of the continuum would be a site where the sign-up process is for one defined period, such as a week or a month. Then, if the customer attempts to sign on after the week or month has expired, the customer is confronted with a screen explaining that his time has expired, asking if the customer is interested in another week or month of membership.

Toward the other end of the continuum might be a site at which the customer is automatically re-billed, and the only method of avoiding a re-bill is for the customer to call a long-distance number not listed anywhere on the site, and at which the phone is answered only one hour per week.

Perhaps a good starting point would be the AOL saga from a few years ago. According to the office of New York State's attorney general, it received over 300 complaints about AOL's customer service. An investigation evidently revealed that the nub of the problem was that customers who wanted their service terminated were having an impossible time doing so. According to the Attorney General's office, "the company had an elaborate system for rewarding employees who purported to retain or 'save' subscribers who had called to cancel their Internet service.” In many instances, such retention was done against subscribers' wishes, or without their consent:

"Under the system, consumer service personnel received bonuses worth tens of thousands of dollars if they could successfully dissuade or 'save' half of the people who called to cancel service. For several years, AOL had instituted minimum retention or 'save' percentages, which consumer representatives were expected to meet. These bonuses, and the minimum 'save' rates accompanying them, had the effect of employees not honoring cancellations, or otherwise making cancellation unduly difficult for consumers.

"Many consumers complained that AOL personnel ignored their demands to cancel service and stop billing."

Now, you are probably thinking that there must be something illegal about that, but may not be sure what. Well, for starters, if someone enters a merchant charge with no authorization whatsoever from the cardholder, that is outright larceny, covered in most states by laws regulating credit card transactions — sometimes called credit card fraud or credit card abuse. Fundamentally, it is outright theft.

However, the response is usually a sea of terms and conditions, in which there are buried detailed, vaguely worded instructions, supposedly explaining how to avoid repeat billing. Then, the unscrupulous webmaster would say, the customer consented. But is that really an accurate statement?

Putting aside the question of whether the customer technically approved the re-bill under those or similar circumstances, there are laws in most states — most notably and most harshly in California — providing remedies for so-called "unfair competition." Every state and the District of Columbia have enacted some combination of civil or criminal penalties against acts of unfair competition and/or false advertising.

While the 2005 AOL case happened in New York, which has a set of laws similar to California's (New York's is General Business Law §349; California's is Business and Professions Code §17200), the California one (California has been dubbed the "Sue Me State," and not without cause) is said to be the most frequently used, including in private class actions brought by greedy plaintiffs' lawyers, and therefore perhaps is the best example. Everyone has customers in California and, as it happens, America Online was sued in California by private parties complaining about essentially the same practice involved in the New York case. America Online, Inc. v. Superior Court (Mendoza), 90 Cal.App.4th 1, 108 Cal.Rptr.2d 699 (1st Dist. 2001).

The fundamental prohibitions of California's Unfair Competition Law are against any "unlawful business act or practice," any "fraudulent business act or practice," and any "unfair business act or practice." Now, if you look at that carefully, you would not be surprised to see that there are remedies for businesses that engage in "unlawful" practices, which violate some statute, or "fraudulent" businesses practices, which usually amount to outright theft. But what in the world is "unfair"? Well, that is the $2,500-per-day question (that being the amount of civil penalties allowed under the California Act for each violation, plus restitution, attorneys fees, and costs).

California courts have announced that the "unfair" standard is intentionally broad, allowing courts maximum discretion to prohibit new schemes to defraud. While it is not clear just how broad California's definition will stretch, it is at least as broad as that of the Federal Trade Commission, which applies three criteria to determine whether an act or practice is unfair:

"(1) Whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — whether, in other words, it is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers (or competitors or other businessmen)."

This brings up something else. The Federal Trade Commission is looming out there, as well. So, why is California's Unfair Competition Law so much more powerful than the federal one? The answer lies in the fact that an injured consumer can bring a private lawsuit under California's law, which cannot be done under the Federal Trade Commission Act.

The moral of the story is that if you are a re-billing webmaster, a reality check is in order. In performing that reality check, the key issue is complaints. If you generate complaints, there will be a response — witness AOL and the New York attorney general! You need to think about all kinds of scenarios. There is the easy one: The customer who signs up, uses the service for a while, but soon decides this just isn't the entertainment for him. Will he have an easy time terminating service? That includes issues such as the degree of difficulty in finding instructions to terminate the account, and the extent that the customer is made plainly aware of your automatic re-billing policy. Was the customer, as would be the best policy, required to affirmatively click something that plainly discloses re-billing? Or will the customer be required to carefully read all 4,597 words of the terms and conditions (this is an actual count of a randomly chosen set of them, copyrighted by a well known attorney in this industry) in order to realize that he is signing up in perpetuity? Is the procedure for rejecting further re-bills easy to find?

And then there are circumstances like the guy who wakes up in the morning with a magnitude 7.0 hangover, and doesn't even remember that he signed up for anything, only to be reminded when his MasterCard bill arrives. There needs to be an easy way for him to find out about what he did and avoid another bill.

Complaints lead to chargebacks, class actions, enforcement actions by a state attorney general or the Federal Trade Commission, and more. So, once you think that your re-bill procedure would pass muster against a claim of an unfair business practice, try this: Find a friend that is not a webmaster and demonstrate the operation of your re-billing program, but tell your friend that the site belongs to one of your competitors (thus increasing the likelihood of an objective criticism). If your friend thinks the procedure is unfair, so too might an attorney general or consumer attorney, and an adjustment therefore is in order.

Fair?

Clyde DeWitt is a Los Angeles attorney whose practice has been focused on adult entertainment since the early 1980s. He can be reached through AVN Online's offices, or at ClydeDeWitt@Earthlink.net. Readers are considered a valuable source of court decisions, legal gossip, and information from around the country, all of which is received with interest. Books, pro and con, are encouraged to be submitted for review, but they will not be returned. This column does not constitute legal advice but, rather, serves to inform readers of legal news, developments in cases, and editorial comment about legal developments and trends. Readers who believe anything reported in this column might impact them should contact their personal attorneys.

This article originally appeared in the July 2009 issue of AVN Online. To subscribe, visit AVNMediaNetwork.com/subscribe.