Category: FTC

  • How to Make More Money with the FTC’s “Click to Cancel” Rule

    How to Make More Money with the FTC’s “Click to Cancel” Rule

    Over the past few years, subscription-based business models have gained significant traction. However, as these services continue to grow in popularity, regulatory bodies such as the Federal Trade Commission (FTC) are stepping up their efforts to protect consumers from deceptive practices.

    One such initiative is the “Click to Cancel” rule, which mandates that subscription merchants provide an easy method for customers to cancel their subscriptions, in the most simple of terms. While compliance with this rule is essential, it can also present challenges for businesses looking to reduce churn and cancellation rates.

    In this blog post, we’ll explore the intricacies of the FTC’s “Click to Cancel” rule and offer valuable insights on how subscription merchants can maintain a healthy customer base while staying compliant with industry regulations—and even increasing conversions.

    Easier for Consumers to Cancel Any Recurring Payment

    The FTC recently proposed a new “click to cancel” rule that would make it easier for consumers to cancel recurring subscriptions. This rule is designed to ensure companies provide customers with clear information about what they are agreeing to when signing up for a subscription and make it simpler for them to opt out if they choose.

    The FTC’s proposal requires companies to make canceling a negative-option program as easy as signing up for the service in the first place. This means that customers should be able to easily find and access the cancellation process, without having to jump through hoops or search through pages of fine print. The FTC also wants companies to provide clear information about their subscription services, such as how long the membership lasts and what happens after it ends.

    Quick Note: Negative option rules and negative option marketing are marketing tactics that continue an automatic renewal when the customer doesn’t take any action.

    This new rule could be especially beneficial for those who have been stuck in difficult-to-cancel free trials or auto-renewals. With this new regulation, consumers will no longer have to worry about being charged unexpectedly or having difficulty canceling a service they no longer want.

    Overall, the FTC’s proposed “click to cancel” rule is great news for consumers. It will help protect them from unwanted charges, fraud, scams, and deceptive practices as well as give them more control over their subscriptions.

    Challenging for Subscription Merchants in a Tight Economy

    Though it may be great for consumers, the FTC.gov’s new “Click to Cancel” rule is a major challenge for subscription merchants. The proposed rule would require companies to make it as easy for consumers to cancel their subscriptions as it is to sign up for one. This means that companies must provide clear information and make the cancellation process as simple and straightforward as possible.

    This new rule has the potential to have a significant impact on subscription merchants, who are already facing an uphill battle in the current economic climate. With more people turning to online services, subscription merchants are having to adapt quickly in order to remain competitive. The FTC’s new rule could add another layer of complexity and cost, making it even harder for these retailers to survive.

    At the same time, this new rule presents an opportunity for subscription merchants who are willing and able to comply with its requirements. By providing a clear and easy way for customers to cancel their subscriptions, these businesses can demonstrate their commitment to customer service and build trust with their customers.

    Overall, the FTC’s Click To Cancel Rule is a challenge that subscription merchants must face head-on if they want to remain competitive in today’s market. It may take some time and effort, but those who can successfully implement this new requirement will be well-positioned for success in the future.

    Cancellation isn’t the only thing hurting your opt-in rate. We can help.

    How Subscription Merchants Can Keep Cancellation Rates Low and Reduce Subscriber Churn

    If you’re worried about how this new rule will negatively affect your subscription business, don’t be. Here are some tips for maintaining a low cancellation rate, low chargeback rate, and low churn rate.

    Clearly Explain the Terms, Fees, and Recurring Charges

    To ensure that customers understand what they are signing up for and have an easy way to cancel their subscription if needed, merchants should provide a clear description of the subscription service on their website or app.

    This should include information about any fees or recurring charges associated with the service and how long the customer will be subscribed for.

    According to the notice of proposed rulemaking, merchants must provide an annual reminder in addition to a cancellation mechanism that matches the enrollment method (internet, phone, mail, and in-person). This doesn’t apply to physical goods. The cancellation method must contain an acceptable number of steps (re: minimal) as well as confirmation and notification of the successful cancellation.

    Provide Easy Access to Account Information and Subscription Management

    To make sure customers have an easy way to access their account information and manage their subscription preferences, merchants should provide clear instructions on how to do so. This includes providing detailed information about the cancellation process, such as what steps are needed in order to cancel a subscription and what options are available for canceling a subscription. Additionally, merchants should make sure that customers can easily find the cancellation option within their account settings or on the merchant’s website.

    Allow Customers to Pause a Subscription

    In order to reduce subscriber churn, keep chargeback rates low, and keep cancellation rates low, businesses should allow customers to pause or temporarily suspend their subscriptions if needed. This will give customers more control over their recurring-payment programs and help them avoid unnecessary charges.

    Companies can also offer flexible payment options such as monthly payments or one-time payments instead of annual plans, so customers can choose a plan that best suits their needs.

    Implement Multiple Ways for Customers to Contact You and Vice Versa

    The FTC’s rule requires businesses to prominently display simple cancellation options on their website, and provide customers with an easy way to cancel their subscription. In light of this, businesses should consider providing multiple ways for customers to contact customer service (or vice versa). For example, a chatbot/live agent popup in the corner of the screen during the cancellation process.

    This extends to including a phone number and email address for contacting support. Providing these options allows customers who may be having difficulty with their subscriptions the ability to get help quickly and easily.

    In addition, businesses should make sure that all customer service representatives are well-trained on how to handle cancellation requests and any other inquiries related to subscriptions. Cancellation and customer retention mechanics should be fast; nobody has time to waste these days.

    Incentivize Subscriber Loyalty

    Subscription merchants need to find creative ways to reduce subscriber churn and maintain low cancellation rates while still adhering to the regulations. One such approach is to offer incentives such as discounts or freebies to subscribers who remain active for a certain period of time.

    This strategy not only helps in fostering customer loyalty but also keeps chargeback rates low.

    1. Tiered Incentives: Introduce a tiered incentive system that rewards subscribers based on their longevity with your service. For example, after three months of continuous subscription, customers may receive a 10% discount on future payments or a complimentary service upgrade. This encourages subscribers to remain active and engaged with your offerings.
    2. Exclusive Access: Offer exclusive content, features, or services to long-term subscribers, making them feel valued and appreciated. This could include early access to new products, priority customer support, or even invitations to special events.
    3. Milestone Rewards: Recognize and celebrate subscriber milestones, such as a one-year anniversary or reaching a specific usage level. Send personalized messages, offer discounts on their next billing cycle, or provide a free gift as a token of appreciation for their continued support.
    4. Referral Programs: Encourage subscribers to refer friends or family members to your service by offering them a reward for each successful referral. This could be in the form of a discount on their next billing cycle, a free month of service, or a unique promotional item.

    Provide an Additional Offer from your Business or an Affiliate

    Lastly, when a customer is adamant about cancelling, offer them something else instead. This is much easier if the customer is vocal about why they’re cancelling, but can be done even when details are vague.

    There are three easy ways to do this:

    1. Offer a discount: First, offer the customer a discount for the next 6 months. It’s better to keep the customer on and make a little less than allow them to leave completely, resulting in a complete loss.
    2. Cross-sell a different product: Sometimes, customers want to cancel because the product isn’t right for them. But that doesn’t mean none of your products align with their needs.
    3. Promote an affiliate offer: It’s better to make a little on a lost customer than nothing at all. Promote an affiliate product that the customer might be more attracted to.

    Secure Your Subscription Business with the Right Payment Processor

    The Federal Trade Commission’s proposed “Click to Cancel” rule is a major step forward in consumer protection from recurring subscription traps. By requiring sellers to make it as easy for consumers to cancel their subscriptions, the FTC is helping to ensure that merchants are held accountable for their practices and that consumers have the power to make informed decisions about their purchases.

    For subscription merchants, this new rule could mean an increase in cancelation rates. To help reduce those rates, merchants should consider opening a high-risk merchant account with DirectPayNet. With DirectPayNet, subscription merchants can take advantage of secure credit card payment processing and fraud prevention tools that will help protect them from potential losses due to subscription cancellations.

    By taking these steps, merchants can ensure that they are providing a safe and secure shopping experience for their customers while also reducing their risk of losses due to subscription cancellations.

    OPEN A SUBSCRIPTION MERCHANT ACCOUNT TODAY

  • The Checkbox Debate: Are They Required for Subscription Signups?

    The Checkbox Debate: Are They Required for Subscription Signups?

    Subscription signups are changing, where a seemingly small detail—like a checkbox—can make all the difference. These simple little squares are how the FTC wants (in part) to make simple cancellations mandatory for all subscription merchants.

    In this blog post, we’ll explore the ins and outs of using checkboxes in subscription signups, including the FTC’s stance on this matter, the benefits of incorporating them into your process, and best practices for doing so.

    Whether you’re a seasoned subscription merchant or just starting your journey, this guide will equip you with the knowledge to create a seamless and customer-friendly experience.

    FTC Subscription Regulations Breakdown

    A recently proposed rule from the Federal Trade Commission (FTC), as an amendment pending review of the existing Negative Option Rule, would make it easier for consumers to cancel recurring subscriptions. This new rule is an important step in ensuring that subscription merchants adhere to the FTC’s guidelines and maintain consumer trust.

    As a subscription merchant, there are several guidelines you must follow in order to remain compliant with the FTC. For example, you must:

    –       notify customers prior to charging their credit card,

    –       provide clear cancellation mechanisms policies,

    –       and ensure that customers have the ability to opt out of auto-renewals.

    These rules are designed to protect consumers from deceptive practices and ensure they have control over their own finances.

    It is essential for merchants to comply with these regulations in order to maintain a trustworthy image and establish consumer trust. Failure to do so can result in legal action, fines, and negative PR—all of which can be damaging for any business.

    We’re focusing today on whether checkboxes are required by the FTC to be compliant regarding subscription opt-in. Checkboxes allow customers to easily opt out of auto-renewals or cancel subscriptions without having to contact customer service or search through lengthy terms and conditions documents. This makes it easier for customers to manage their own finances while also helping merchants remain compliant with the FTC’s rules.

    Checkbox Guidelines: Navigating the Subscription Compliance Landscape

    You might be surprised to learn that the FTC doesn’t actually require checkboxes for subscription signups. That’s right—there’s no legal mandate stating that merchants must include these handy little boxes.

    But, as we’ll discuss later, there are still plenty of reasons to consider using them.

    The FTC’s True Focus: Easy Cancellation and Consumer Consent

    While checkboxes aren’t a must, the FTC is deeply committed to ensuring that subscription merchants prioritize easy cancellation and informed consent. The goal here is consumer protection from deceptive practices.

    By making the cancellation process a breeze and ensuring that customers understand the terms of their subscription memberships, merchants not only comply with the FTC’s guidelines but also create a positive customer experience.

    The term “negative option” might sound like a legal thriller, but it’s actually an important concept for subscription merchants to understand. According to the FTC, a negative option refers to a customer’s failure to take affirmative action—either to reject an offer or to cancel a subscription.

    This means that if customers don’t explicitly opt-out, they may be unwittingly enrolled in a subscription or additional service. The FTC frowns upon such practices, so it’s vital to give your customers the chance to make informed decisions and to avoid any semblance of negative option billing.

    Regulatory Updates: ROSCO and Notice of Proposed Rulemaking

    The Restore Online Shoppers’ Confidence Act (ROSCO) is a 2010 federal act that requires merchants to conspicuously state the terms of the subscription and obtain clear, informed consent from the subscriber.

    ROSCO is just a small part of FTC compliance. The bigger news is how they propose to handle negative option features. Here’s what you need to know:

    –       All negative options are covered: from prenotification plans and free trials to automatic renewal plans and continuity plans.

    –       All negative option media is covered: internet, telemarketing, print, in-person.

    –       Disclosure and informed consent: merchants must conspicuously disclose that the payment is recurring as well as obtain informed affirmative consent to the negative option SEPARATE from any other part of the offer.

    –       Cancellation changes: sellers CANNOT pitch additional offers to prevent cancellation until they receive informed consent from the customer to receive additional marketing offers; the cancellation method must be available in the same medium as the signup; and annual reminders of cancellation must be sent to the customer. (Cancellation reminders do no apply to physical goods)

    Checkbox Checkup: So, what does this have to do with checkboxes?

    Consent from the customer is deemed acceptable and compliant according to the FTC guidelines if they:

    –       affirmatively check a checkbox (not uncheck a pre-checked checkbox),

    –       sign on the dotted line,

    –       or some other, similar method of recording consent.

    Some states do require a checkbox, like Vermont. So it’s best practice to use one unchecked checkbox for consent to comply with federal and state laws.

    Is your subscription service compliant?

    The Power of Checkboxes: Reaping the Rewards for Subscription Signups

    Now that we’ve explored the FTC’s stance on checkboxes, let’s dive into the many compelling reasons you might want to include them in your subscription signups.

    Building Trust: Transparency as the Cornerstone of Customer Relationships

    In the world of subscription services, trust is everything. And including checkboxes in your signups is a fantastic way to promote transparency with your customers. By giving them the choice to opt-in, you’re demonstrating respect for their preferences and reinforcing the notion that they’re in control. This kind of clarity is key to fostering long-lasting relationships with your subscribers.

    Informed Consent: Empowering Customers with Choice

    As we mentioned earlier, the FTC is all about informed consent. By using checkboxes in your subscription signups, you can ensure that customers are explicitly agreeing to your terms and conditions. This not only helps you stay compliant with FTC guidelines but also creates a sense of empowerment for your customers. After all, who doesn’t like having control over their decisions?

    Happy Customers, Healthy Business: The Impact of Fewer Complaints and Improved Retention

    One of the secret weapons of checkboxes is their ability to reduce customer complaints and improve retention rates. When customers have a clear understanding of what they’re signing up for and can easily opt-in or out, they’re less likely to feel deceived or unsatisfied. This can lead to fewer complaints, better customer retention, and ultimately, a healthier bottom line for your subscription business. In other words, checkboxes are a win-win for everyone involved!

    Mastering the Art of Checkboxes: The Do’s and Don’ts for Subscription Merchants

    So, you’ve decided to include checkboxes in your subscription signups. Now, let’s make sure you’re using them in a way that complies with FTC guidelines and enhances the customer experience. Follow these best practices, and you’ll be well on your way to checkbox success.

    Compliance is Key: Avoiding the Checkbox Pitfalls

    Believe it or not, there’s a right way and a wrong way to use checkboxes. Non-compliant usage might include pre-checked boxes that automate customers’ enrollment in subscriptions or additional services. To stay on the right side of the FTC, ensure that your checkboxes are always unchecked by default, giving customers the freedom to actively opt-in.

    To create a seamless and user-friendly experience for your customers, keep these best practices in mind:

    1.     Be clear and concise: Use straightforward language to describe the purpose of the checkbox and what customers are agreeing to.

    2.     Make it visible: Place the checkbox in a prominent location during the signup process, ensuring it’s easy for customers to find and understand.

    3.     Keep it simple: Avoid overwhelming customers with too many checkboxes. Stick to the essentials and prioritize the most important opt-in choices.

     Conclusion: Embracing Checkboxes and Empowering Your Subscription Business

    As we’ve explored throughout this post, checkboxes may not be required by the FTC, but they offer numerous benefits for subscription merchants who choose to embrace them. From promoting transparency and trust with your customers to facilitating informed consent and improving customer retention, these little boxes can have a big impact on your business.

    But, as important as checkboxes are, there’s more to consider when it comes to running a successful subscription business. That’s where a high-risk merchant account comes in. With a high-risk merchant account, you’ll be able to manage the unique challenges of subscription billing, navigate potential risks, and optimize your payment processing experience.

    So, why wait? If you’re a subscription merchant looking to level up your business, it’s time to sign up for a high-risk merchant account. Combine the power of checkboxes with the robust capabilities of a high-risk merchant account, and you’ll be well on your way to creating an exceptional experience for your customers and growing your subscription empire.

    STAY COMPLIANT WITH A SUBSCRIPTION MERCHANT ACCOUNT

  • Navigating FTC Compliance and Avoiding Legal Pitfalls in the Supplement Industry

    Navigating FTC Compliance and Avoiding Legal Pitfalls in the Supplement Industry

    The supplement industry is booming with an ever-increasing demand for products that help consumers achieve their health and wellness goals. However, with great opportunity comes great responsibility, and in this dynamic industry, compliance and staying on the right side of the law are of utmost importance.

    Here at DirectPayNet, we’re well-versed in the realm of compliance and have a wealth of experience helping high-risk businesses like yours navigate the often-complex landscape of rules and regulations. We understand how crucial it is to avoid takedown notices and any potential conflicts with the Federal Trade Commission (FTC).

    With that in mind, we’ve put together this friendly and informative guide to help you stay compliant and maintain a stellar reputation. You can also use the FTC’s own new health products compliance guidance in addition to our third-party literature below. Their new guide is a replacement for one titled Dietary Supplements: An Advertising Guide for Industry which was published in 1998 and is clearly outdated.

    These are the 4 best things any supplement merchant can do to maintain compliance and stay far away from the FTC and the Food and Drug Administration’s watchful eye.

    1. Monitor Reputation and Address Customer Complaints

    In today’s digital age, a business’s reputation can make or break its success. Consumers often rely on online reviews and ratings to make purchasing decisions, so it’s essential to maintain a positive reputation for your supplement business.

    By doing so, you’ll not only attract new customers but also keep your existing ones coming back for more.

    By actively monitoring your reputation and addressing customer complaints on public consumer testimonial platforms, you’ll not only demonstrate your commitment to customer satisfaction but also foster a positive image for your supplement business. This, in turn, can lead to increased trust among potential customers, which can translate into higher sales and long-term success for your business.

    Who knows, maybe those burnt customers can turn into expert endorsements.

    One of the most prominent resources that consumers turn to when assessing a company’s reputation is the Better Business Bureau (BBB). The BBB is a nonprofit organization that assigns ratings to businesses based on various factors, including the number of complaints received and how they’ve been resolved. A positive BBB rating can significantly boost your credibility and trustworthiness in the eyes of potential customers.

    How to Monitor Your BBB Page

    To stay on top of your BBB reputation, make it a habit to regularly monitor your business’s page on the BBB website. You can sign up for notifications that will alert you when new reviews or complaints are posted.

    By doing this, you can quickly address any issues that may arise and demonstrate to both existing and potential customers that you value their feedback.

    Assigning a Team Member to Address Complaints

    To ensure that customer complaints are handled promptly and effectively, designate a member of your team to monitor your BBB page and other review platforms.

    This person should be well-versed in your company’s policies and practices, as well as possess excellent communication skills. They should be responsible for acknowledging complaints, addressing them with empathy and professionalism, and working towards a satisfactory resolution.

    ALWAYS respond to customer complaints in the politest way possible. The best outcome is when you can convince that customer to mark their review or comment as resolved.

    Has a bad reputation sabotaged your business? We can help!

    2. Oversee Affiliate Marketing and Product Representation

    Affiliate marketing plays a significant role in the supplement industry as it allows businesses to tap into a vast network of promoters who can help expand their reach and boost sales.

    However, it’s essential to remember that, as a supplement business owner, you are ultimately responsible for how your product is represented, regardless of who is promoting it.

    You need to ensure that your affiliates are promoting your products in a manner that is accurate, transparent, and compliant with all relevant regulations. This means that any health-related claims made by your affiliates must be supported by reliable scientific evidence, and they should not engage in misleading or deceptive marketing practices.

    To maintain compliance and uphold your brand’s reputation, follow these guidelines for monitoring your affiliates:

    1. Regularly review affiliate content: Periodically check your affiliates’ websites, social media posts, and other promotional materials to ensure they are making accurate claims about your health-related products and adhering to your brand guidelines.
    2. Ensure accurate and compliant claims: Provide your affiliates with clear instructions and resources to help them understand what they can and cannot say about your products. This may include a comprehensive list of approved marketing claims, any necessary disclaimers, and new guidance on how to reference scientific studies.
    3. Provide training and resources for affiliates: Offer training sessions, webinars, or other educational materials, like an implied claims and advertising claim substantiation standard, to help your affiliates stay up to date on the latest industry regulations and best practices. This will not only empower them to promote your products more effectively but also reduce the risk of non-compliance.

    If your affiliates engage in non-compliant marketing practices, your supplement business could face serious consequences, including hefty fines, takedown notices, and damage to your brand’s reputation.

    Whether you’re selling homeopathic drugs, prescription drugs, health-related apps, medical devices, or other homeopathic products you must pay equal attention to the health benefit claims and conspicuous disclosures from your own storefront as your affiliate promoters. The FTC’s enforcement actions will always land on you.

    By staying vigilant and actively monitoring your affiliates’ promotional activities, you can mitigate these risks and maintain the trust of your customers and regulatory authorities.

    3. Implement Comprehensive Legal Documentation

    Transparency and compliance are crucial for building trust with your customers and avoiding legal issues. One of the most effective ways to demonstrate your commitment to these principles is by implementing comprehensive legal documentation on your website.

    Clear and accessible policies not only help protect your business from potential legal disputes but also provide customers with the information they need to make informed purchasing decisions.

    To ensure your website is compliant and user-friendly, be sure to include the following essential legal documents:

    1. Terms and Conditions (T&C): Your T&C should outline the rules and guidelines that customers must agree to when using your website or purchasing your products. This may include information on product usage, intellectual property rights, and limitations of liability.
    2. Privacy Policy: A privacy policy is crucial for demonstrating your commitment to protecting customer data. This document should outline what personal information you collect, how it’s used, and the steps you take to safeguard it. Be sure to comply with applicable data protection laws, such as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA).
    3. Refund Policy: Providing a clear refund policy helps build trust with customers and can minimize disputes. Outline the conditions under which customers can request a refund, the process for doing so, and any applicable timeframes or fees.

    All these policies should be unique to your business. DO NOT copy and paste the terms or refund policy from another business. There are too many risks. We recommend hiring a lawyer to write your or at least review the one you have (especially if it was copied from elsewhere). There are also many terms and services generators out there that cost very little.

    In addition to having comprehensive legal documentation, it’s essential to provide your company’s contact information on your website. This should include your company name and address in the footer. Displaying your company name and address prominently in the footer of your website not only helps establish credibility but also ensures compliance with various e-commerce regulations.

    DirectPayNet Makes Compliance Easy

    4. Maintain Ethical Business Practices

    Some businesses may operate multiple companies or brands under a single umbrella. While this can be a viable strategy for diversification, it’s essential to maintain ethical business practices when handling customer information.

    1. Privacy concerns: Transferring customer information between companies without proper consent can lead to privacy breaches and erode trust in your brand. Customers expect their personal information to be handled responsibly and securely, so it’s crucial to respect their preferences and adhere to relevant data protection laws.
    2. Legal implications: Sharing customer information without proper consent or disclosure can result in serious legal consequences, including fines, regulatory action, and damage to your business’s reputation.

    Another key aspect of maintaining ethical business practices involves the management of merchant accounts for processing customer payments.

    1. Separate accounts for different businesses: If you own multiple businesses, it’s essential to maintain separate merchant accounts for each one. This ensures that customer payments are processed correctly and transparently, avoiding any potential confusion or disputes.
    2. Consequences of charging customers from the wrong account: Charging customers from one company on another company’s merchant account can lead to serious financial and legal issues. Both businesses are at risk of being shut down and you could be put on the MATCH list.

    Aside from the above, it’s important to understand other legal and ethical aspects of selling over-the-counter drugs (OTC) and other healthcare supplements. We have a guide here for FDA approval and compliance that covers labeling, cautions, qualifying information as well as the type of claims and type of products you can sell.

    Reliable results are just as important to your reputation and compliance as DSHEA disclaimers and FTC law.

    By prioritizing ethical business practices, you can foster trust among your customers and demonstrate your commitment to their satisfaction. This, in turn, can lead to increased loyalty, positive word-of-mouth, and long-term success for your supplement business. Always remember that maintaining high ethical standards is not only the right thing to do but also a smart business strategy.

    Is Your Supplement’s Business Truly Compliant?

    In the fast-paced and competitive world of the supplement industry, staying compliant and maintaining a positive reputation are essential for long-term success. By implementing the strategies outlined in this blog post, you can minimize the risk of legal issues and build a strong foundation of trust with your customers.

    To recap, you can use the FTC guidance document, and below are the four key takeaways every supplement business should prioritize:

    1. Monitoring your company’s reputation on sites like the BBB and addressing customer complaints in a timely manner
    2. Keeping a close eye on what affiliates are saying about your product and ensuring that their claims are accurate and compliant
    3. Implementing comprehensive legal documentation on your website, including Terms and Conditions, Privacy Policy, and Refund Policy, while displaying your company’s name and address prominently
    4. Upholding ethical business practices, particularly when it comes to handling customer information and maintaining separate merchant accounts for different businesses

    As a supplement business owner, it’s your responsibility to adhere to industry regulations and maintain the highest ethical standards in your operations. By doing so, you can not only avoid costly legal pitfalls but also create a loyal customer base and a thriving, successful business.

    At DirectPayNet, we’re committed to helping you navigate the complex world of compliance and risk management. We hope that this guide has provided valuable insights and actionable tips to help you stay on the right track. If you have any questions or need further assistance, don’t hesitate to reach out to our team of experts.

    SUPPLEMENTS ARE HIGH-RISK, ARE YOU USING THE RIGHT PAYMENT PROCESSOR?

  • AI Claims, Like Any Other Ad, Need to Be Substantiated—FTC Warns

    AI Claims, Like Any Other Ad, Need to Be Substantiated—FTC Warns

    As artificial intelligence continues to become a more significant part of our lives, it’s important that companies who sell AI-powered products make sure they remain accountable.

    The Federal Trade Commission (FTC) is making sure its voice is heard on the issue, warning companies that any claims made about the benefits and effectiveness of their products must be supported with reliable evidence. Consumers need to be able to trust these claims without having to worry whether or not what they’re being told about a product has been properly validated.

    Michael Atleson from the FTC Division of Advertising Practices wants AI developers along with marketers and advertisers to understand that “AI” is a hot marketing term and should not be taken advantage of, overused, or abused.

    With the popularity of generative tools like OpenAI’s ChatGPT or Microsoft’s Bing chat AI tool, AI hype is at an all-time high—not to mention our decades-long obsession with science fiction and the possibilities of AI guidance.

    We all know what happens when a word gets hyped: marketers throw it around to catch wandering eyes. Be careful not to make unsubstantiated claims, or you’ll be faced with more than just financial fines.

    What are AI claims?

    AI Claims are any representations made by artificial intelligence (AI) developers and marketers about their AI-powered products and services. These claims may range from the benefits to performance indicators or other facts related to it.

    Consumers must be able to trust these claims without having doubts as to their validity, which is why it’s important that companies using AI technology remain accountable for them. The Federal Trade Commission (FTC) recognizes this need and has issued warnings insisting that developers and marketers back up such assertions with reliable evidence.

    This not only gives consumers confidence in the product they decide to purchase but also reinforces consumer protection laws around marketing practices more generally.

    In addition, the FTC needs AI makers and promoters alike to clearly label these skills as “automated” or “assisted by automation” when labeling certain features so customers understand how their ability may differ from human labor in terms of its accuracy rate, reliability, or aspects of its operation such as speed or judgment.

    In doing so, customers can have realistic expectations when engaging with an automated skill within a service provided by AI creators and marketers – allowing buyers to ultimately make better-informed decisions on what they buy based on trusted appraisals done prior to entering into a contractual relationship regarding these goods/services powered by AI.

    Why do AI claims need to be substantiated?

    AI has revolutionized the way brands reach their target audience, due to its ability to personalize messages and optimize advertising. Technology companies are increasingly using AI technology as a major selling point for their products, making claims about its supremacy when it comes to performance, accuracy, or dependability.

    However, those claims need reliable evidence in order to ensure that consumers can trust what they’re being told about the product. This is why the FTC is taking an active role in ensuring that all AI-related claims are substantiated before artificial intelligence-related products can even enter the market.

    The FTC regulates truth-in-advertising rules which require marketers and developers of AI technology to be held responsible for any marketing or product representations (including advertising language like phrases such as “the most accurate” or “the first-ever”) claiming superiority against any competitor.

    As such, stipulated images cannot serve as adequate proof of success — claims must be backed up with solid data from testing and consumer reviews — something that no trustworthy business should have an issue providing if they believe in their product’s efficacy anyway.

    Questions to Ask as a Marketer

    Here’s some food for thought about the AI claims you make about your product:

    Do you claim the AI product you sell can do something it, in its current state, cannot?

    Of course, every product has a roadmap. But you cannot make AI claims about the future of your product and the capabilities you hope it will have one day. You must make claims about what it can do at this moment. Nothing more.

    Your claims also cannot apply to a certain group of users or under specific conditions, just like any other ad claim. It has to apply to the public/audience in its entirety. Results should easily be replicated by new users from any demographic.

    Do you claim your product is better than a similar product that is not powered by AI?

    It is standard practice to claim that your product’s features are superior to those of non-AI products. However, you must be able to prove that a significant difference in performance exists between your AI and the other products.

    If that cannot be proven, then you should not make such unsupported claims as it can easily lead to consumer deception and FTC takedown.

    Does your product actually use AI?

    There is a difference between selling an AI product and using AI to create a product.

    The FTC has the power to check your backend and see what, exactly, is powering your product. So, if you make AI claims about using it to power your product when it doesn’t OR you make statements that can mislead consumers into believing your product has AI without saying so explicitly, the FTC will know.

    Using an AI too in the development process of your product DOES NOT mean your product includes AI. You cannot make exaggerations about the use of AI and how relates to your product.

    Are you aware of the risks?

    You are the seller of the product, the merchant. You are the one that takes responsibility if your product does not work as advertised. Not the developers, not the marketing team, not the consumer—you.

    These are the reasonably foreseeable risks you must assume responsibility of at all times, whether you’re a startup or a 7-figure business owner. The risk is the same for everyone.

    What are the challenges to validating AI claims?

    One of the key challenges to validating AI claims is determining how best to appraise the data generated by these systems. Since artificial intelligence involves complex algorithms and processes, it can be difficult to validate results since they don’t always have reasonable explanations for their decisions or conclusions.

    Furthermore, some AI technologies are so advanced that companies may not even fully understand exactly how it functions and why certain decisions were made due to their intricate nature. This lack of sufficient knowledge about a product makes claims about its efficacy hard or impossible for consumers to believe.

    Additionally, traditional regulatory approaches are ill-suited for assessing AI performance given variables like dynamic operational parameters and continuously changing datasets associated with natural language processing systems. Existing regulatory processes typically require a great deal of time and resources which necessitates an appropriate application of enforcement action when false claims are encountered.

    The FTC will likely need to adjust its laws and regulations in order to meet the challenge of properly monitoring promises related to artificially intelligent products as well as other claims made by marketers concerning new technologies. Tools must be developed that can provide accurate assessments while also taking into account all relevant contextual details such as user input types and outcomes available from past experiences using different models.

    Examples of Substantiated AI Claims

    AI claims are no different than any other advertising and need to meet the same standards of credibility. As such, companies using AI technology need to ensure that the performance outcomes they promise consumers with their products can be backed up by reliable evidence. In particular, if an advertisement does not accurately convey what a product can do and fails to deliver on those promises then it will be viewed as deceptive advertising practices by the FTC.

    Here are five examples of AI claims that can be substantiated:

    1. An AI-powered customer service chatbot can resolve 90% of customer inquiries within 5 minutes.
    2. An AI-powered translation tool can accurately translate complex legal documents from English to Spanish with an average accuracy rate of 95%.
    3. An AI-powered medical diagnosis system can accurately detect early-stage lung cancer with a sensitivity of 92% and a specificity of 95%.
    4. An AI-powered financial forecasting tool can accurately predict stock market trends with a margin of error of less than 1%.
    5. An AI-powered image recognition software can accurately identify objects in photos with an accuracy rate of 99%.

    While these claims can be spruced up, each is specific and measurable, and there is evidence to support the accuracy of the claim (which you would link to).

    How Companies Can Ensure Compliance with FTC Guidelines for AI Claims

    To ensure compliance with FTC guidelines for AI claims, companies need to examine the accuracy of their marketing material and any insights they may be drawing from research. Specifically, marketers should carefully evaluate all existing empirical data used for comparison purposes and whether specific AI technology can deliver on its stated goals. Marketers must never allege that results obtained from a particular AI are guaranteed or not based on solid scientific evidence.

    Another important aspect of compliance is maintaining transparency in communication about algorithms and methods used to power products leveraging AI technology, as well as openly discussing any issues customers might encounter using them. This also includes debunking popular myths associated with artificial intelligence of which developers should be aware, such as suggesting that “more raw data automatically leads to better performance” without considering issues like possible over-fitting due to excessive information included in training sets.

    If changes have been made after launch which could potentially lead to differences in predicted outcomes, then these updates should always be communicated.

    One More Major Risk of Selling AI Products Online

    AI is exciting and new. We’re in a phase of figuring out how tech like this should be regulated. While many factors may still remain up in the air, substantiation will always be part of the requirements for any ad, no matter the industry.

    Selling any digital product, including AI-powered products, is high risk. As you’ve read above, the FTC has you in its sights. But it’s not just the FTC, it’s payment processors as well. What’s the point in selling a million-dollar-idea product if you can’t accept the payment?

    DirectPayNet will help. We hook you up with a high-risk merchant account linked with a payment processor that accepts your business model. Get in touch today to secure your business.

  • FTC’s Business Opportunity Rule Expands to Coaching — Must Read!

    FTC’s Business Opportunity Rule Expands to Coaching — Must Read!

    In a recent press release, the Federal Trade Commission (FTC) is considering an expansion to its Business Opportunity Rule to include coaching services, e-commerce merchants, and investment opportunities.

    As an online coach, you must provide potential customers with a disclosure document that outlines key information about your business. Failure to do so could result in legal action being taken against you. The rule is meant for consumer protection against making bad investments, but does it do more harm to business owners than good to consumers?

    Keep reading to find out what this new franchise rule entails and how it may affect your business.

    What is the Business Opportunity Rule?

    The Business Opportunity Rule is a federal trading law that requires sellers of certain types of business opportunities to give potential customers specific information about money-making opportunities before they buy. This includes details about the company’s products and services, as well as earnings claims.

    The key elements of the rule include:

    • Disclosure document: Sellers must provide potential buyers with a disclosure document that contains information about their business and the risks associated with it.
    • Earnings claims: Sellers must provide potential buyers with specific information about earnings claims made by the seller or other people promoting the business opportunity ventures.
    • Cooling-off period: Buyers have three days to cancel their purchase and receive a full refund.
    • Connection to FTC: Sellers must provide potential buyers with contact information for the FTC and/or their state attorney general’s office.

    How does the rule affect coaching businesses?

    The FTC is now considering an expansion of this rule to include coaching services, e-commerce merchants, and investment opportunities. This means that if you are a life coach, business coach, health coach, etc., you must provide potential customers with a disclosure document that outlines key information about your business.

    Failure to comply with the rule could result in legal action being taken against you or your business. Additionally, it could lead to penalties and other sanctions from regulatory agencies like the FTC or the IRS.

    The pandemic brought about many new work-from-home or work-at-home businesses to fruition, but the gov agency is now seeing how unregulated those business models are. The amendment of the rule is designed to provide a level of substantiation (on a reasonable basis) for prospects from established and new business opportunity sellers.

    Benefits for Coaching Businesses

    First, let’s go through a list of potential benefits coaches may see if the rule is expanded to include this merchant category.

    1. Establish trust with potential customers – Ensuring that potential customers have full disclosure of the details of your business and any associated risks is likely to make them more comfortable with investing in your services.
    2. Mitigate risk for consumers – The rule allows buyers to make informed decisions about investing in a coaching business and protects them from possible scams or other fraudulent activities.
    3. Encourage transparency – The rule encourages coaches to be transparent and honest about their services, which is an increasingly popular request from consumers and quarterly review services.
    4. Foster a competitive market – By encouraging transparency and providing information on risks associated with investment, the rule also creates a more competitive market for coaching businesses.

    Drawbacks for Coaches

    The rule may be more detrimental to coaching businesses, namely newcomers to the market.

    1. Barrier to entry – The Business Opportunity Rule can create a barrier to entry for new businesses, preventing them from competing with more established companies since they don’t have the documentation to backup their success yet.
    2. Expensive to comply – The rule can also be expensive and time-consuming to comply with, making it difficult for small businesses to participate in the market.
    3. Misguided information – The rule may limit the amount of information businesses can share with potential customers, potentially hindering their ability to make informed decisions about whether or not to invest in a business opportunity.
    4. Focus on negative results – Consumers may ignore the positive results and information in the documentation and focus too heavily on the few previous negative investments other customers may have made.

    What should coaches do to prepare?

    If the expansion of the commission’s Biz Op Rule does lead to the inclusion of coaching businesses, you don’t want to wait until that announcement to start preparing. Transparency is always met with praise, so why not start now?

    Create a Top Sheet

    Just like when you applied for a merchant account, you should create a top sheet or a cover sheet of your business that acts as one big friendly disclaimer. This single page contains succinct information regarding your business. In this case, it should include bullet points of the Business Opportunity Rule’s requirements.

    • Company Name
    • Business Address
    • Phone Number
    • Owner’s Name
    • FTC or legal violations in the last 10 years (deceptive practices, etc.)
    • If you have a cancellation policy, refund policy, or buy back policy
    • How much money a prospective buyer can earn (if stated in marketing material)
    • 10 real customers that you will allow to be contacted as a designated person representing the quality of your business opportunity.

    This is most, but not all, of the disclosure requirements necessary. But this will cover the main points and give prospects an idea of what they’re getting into.

    You should aim to update this document every month to avoid misrepresentation as per the trade regulation rule (if it goes into action).

    Prepare an Earnings Claim Statement

    After you have determined your total income and expenses, you can prepare a Statement of Earnings. This statement summarizes the profit or loss for a given period of time.

    Steps to prepare a Statement of Earnings are as follows:

    1. Beginners should start by creating a spreadsheet that includes total income, total expenses, and the net profit or loss for the period being reviewed.
    2. List your sources of income on the left side of your spreadsheet, such as sales revenue, interest income, dividends earned, etc. Add up all these amounts to get your total income for the period.
    3. Now list all types of expenses incurred during the same period on the right side of your spreadsheet. This may include payroll costs, rent payments, taxes paid, marketing costs etc. Add up all these amounts to get your total expenses for the period.
    4. Subtract the total expenses from your total income to determine your net profit or loss for the period.
    5. If you have more than one type of asset or activity, such as investments in stocks or owning a rental property, then keep separate columns for each type of asset and its related income and expenses. This will help you see how profitable each activity is during the specified period of time.
    6. After calculating the net profit or loss for all activities, create a summary statement that shows your overall earnings performance across all activities.
    7. Finally, review your Statement of Earnings carefully to ensure accuracy and make any necessary corrections before submitting it to the relevant party.

    Put Aside Resources

    Complying with this rule can be costly, especially for new business owners. Coaches should start putting aside funds to comply with this rule. Otherwise, you risk not being able to comply and losing a prospective purchaser.

    Promote 3rd-Party Reviews

    If you have it available, direct potential customers to sites like TrustPilot or GlassDoor. Promote customers to do their own research on your company before investing in your services.

    Reading public comments that are completely outside of your reach will help to create a positive atmosphere around your business (if public sentiment is positive).

    Doing so also promotes your compliance with the Advanced Notice of Proposed Rulemaking (ANPR), which is an FTC act that helps to combat fake reviews and endorsements.

    You can also guide prospects to the Federal Register, where they can search for your business to find any public documentation (good and bad).

    The FTC’s Business Opportunity Rule can help you bring in more profit. Are you prepared?

    The biz op rule puts a lot of pressure on businesses currently affected as well as coaches and other investment opportunity providers, if added. But it doesn’t have to be the end of your business or a barrier to entry. View this expansion as an opportunity of your own and reap the benefits it grants.

    Customers may want to know what they’re getting into before making a purchase, but they can easily drop out of the buy if your checkout process sucks. Perfect it with DirectPayNet.

    Contact us today to set up your payments ecosystem for the influx of new customers your coaching business will receive.