Or, how not to get sued for having said product or service subscription offering with recurring billing
Today Julep settled a consumer protection lawsuit with the Washington State Attorney General over their free-to-paid conversion billing practices for monthly beauty product packs. It amazes me that in 2016 companies are still getting tangled up in this.
Companies, and in this case apparently Julep, get mired in two different areas:
- They are sloppy in how they set it up in the first place. This isn’t 2006 and there is no excuse for not getting it right. Especially in a VC-backed business where there *should* be advisers who know better.
- They grow rapidly and do not keep up with the operational requirements necessary for quickly growing sales; specifically telecommunications and customer service personnel and policies.
There are, at minimum, three things that you need stay in the good graces of both your prospective customers and the regulatory and legal powers that be.
1. Disclosure. Also, disclosure. Ahem; disclosure! All material terms and conditions of the offer must be clearly, conspicuously, and contemporaneously disclosed before obtaining the consumer’s billing information. That means on the checkout page, preferably above the checkout button, in a readable font. The information in this disclosure should include
- a description of the product or service
- that the credit card will be charged after the trial period
- exactly the amount of all fees and costs that will be charged, including any shipping, handling, fairy dust, etc
- who is charging the customer and how it will appear on their bank statement
- exactly the amount of all subsequent fees, costs, shipping, etc that may occur later
- any material limitations, conditions, or other requirements to use, return, or otherwise consume or operate the product or service
- the precise steps or where to find the precise steps to cancel
2. Consent. Clicking the checkout button with the item in the cart is not sufficient consent. You need to get the buyer’s express consent, preferably using something like a checkbox, initials box, or the like on the checkout page above the checkout button.
3. Cancellation. You must provide a simple mechanism for the consumer to cancel. If your phone system sucks you better invest in a real one. If your order tracking or support ticket system is non-existent or otherwise also sucks you better invest in a real one. If you cannot respond to your customer phone calls or emails for refund within one business day you better hire more customer service representatives.
Subscription business models are great business models. When done correctly, the customer gets a great product or service and the business achieves its goals. When done incorrectly, you could face serious legal and financial consequences. See how Jane did it incorrectly. Don’t be like Jane.
PS: Please note that there are a bunch of legal considerations with respect to negative option billing and free-to-pay conversion billing (the latter being what Julep was doing). In this post, I’m not providing any sort of legal advice. I’m simply providing a brief overview of the business and customer experience issues surrounding the business model. I recommend all business owners obtain legal counsel from a licensed and experienced legal professional before offering such billing arrangements.