Free trials and deceptive trade practices

Earlier this week, I wrote about an interesting development in Quebec regarding the interpretation of section 230(c) of the Quebec Consumer Protection Act. A Quebec court concluded that this provision did not require a merchant to obtain the fresh agreement of a consumer at the end of a free trial or introductory rate period before rolling the consumer over into a regular rate plan if the consumer expressly agreed to the regular rate plan when signing-up for the free trial or introductory rate period. You can read my blog post here.

As mentioned in that post, the court’s interpretation of section 230(c) remains open to debate given that the plaintiff filed an appeal. Although the court’s judgment appears to be consistent with explanatory material from the Quebec Office of Consumer Protection (at least at the time of writing), the Court of Appeal is not bound to give deference to that material. It is still possible that the Quebec Court of Appeal might conclude that the policy behind the law is simply to outlaw these types of inducements unless the merchant obtains the positive agreement of the consumer to continue the subscription during or after the free trial or introductory rate period.

So what are the policy considerations that might support a bright line approach prohibiting automatic rollover into full rate plans without the consumer’s fresh consent?

The most compelling reason for a bright line rule is the frequency with which free trial and introductory rate offers are used as deceptive marketing practices. A bright-line approach makes enforcement easier. The U.S. Federal Trade Commission enforcement shows a robust history of enforcement action against marketers using free trials as part of a deceptive marketing plan. A particularly egregious example is detailed in an FTC complaint against a teeth whitening product marketer. Consumers who enrolled in a supposed low introductory offer actually agreed to an on-going full rate monthly charge. The agreement was buried in the fine print. You can read the FTC complaint here. Arendt Fox has a quick summary that you can find here.

Another reason has to do with the psychology of the consumer. Free trials and introductory rate offers emphasize the “no risk” or “free” or “low price” aspect of the offer. Marketers do not give equal prominence to the true cost of the goods or services. The consumer is induced to enroll on the basis that they can change their mind. The consumer may be less apt to comparative shop or reflect on whether the value of the product or service is reflected in the true “after deal” price.

Finally, the effectiveness of free trial and introductory rate offers depends, in part, on consumer inaction. This is the heart of the “negative option billing” issue. While it may be paternalistic for governments to effectively “save” the consumer from doing something as theoretically simple as sending a cancellation notice, all consumer protection law is intended to relieve the consumer of what would otherwise be the outcome of freedom to contract.

Notwithstanding the arguments in favour of a bright-line approach, a prohibition against free trials and reduced rate offers that automatically roll over into full rate plans seems heavy-handed for online contracts.

While there are policy options to support this approach, governments have other policy options available to them. Most Canadian consumer protection laws require the merchant to deliver a copy of the consumer agreement formed online to the consumer in a form that can be retained and containing specific details. Theoretically, the government could simply require merchants to provide an easy and effective online method to opt-out that is promimently displayed at the beginning of that agreement, followed by a notice to the consumer prior to the full-rate plan kicking in.