On October 16, the FTC issued its final amendments to the Negative Option Rule, which now applies to all negative option programs and includes a “click to cancel” provision intended to make it easier for consumers to cancel their enrollment in order to halt continued charges.
“Negative option” is a term used to describe commercial transactions in which an underlying condition or term will continue unless the consumer takes an affirmative action to either cancel the agreement or reject the good or service. These plans typically take the form of agreements or subscriptions that automatically renew, continuity plans (where a consumer agrees in advance to receive goods or services periodically), or free trial marketing (where a consumer receives goods or services for free or for a nominal price for a limited time period). The amendments issued by the FTC expand the coverage of the rule beyond pre-notification plans – in which sellers send periodic notice offering goods or services to consumers and then charge them for the goods or services if they fail to affirmatively decline – to all other forms of negative option marketing. Until now, the Negative Option Rule did not cover continuity plans, automatic renewals, and trial conversions.
The FTC said the final rule is intended to provide a consistent legal framework by prohibiting sellers from:
- Misrepresenting any material fact made while marketing goods or services with a negative option feature.
- Failing to clearly and conspicuously disclose material terms prior to obtaining a consumer’s billing information in connection with a negative option feature.
- Failing to obtain a consumer’s express informed consent to the negative option feature before charging the consumer.
- Failing to provide a simple way to cancel the negative option feature and immediately halt charges.
Under the amendments to the rule, the FTC may obtain monetary redress and impose civil penalties for first time violations.
According to the FTC, while negative option marketing programs may be convenient for consumers and sellers, it receives thousands of complaints about negative option and recurring subscription practices every year. The number of complaints has increased during the past five years. In 2024, the commission has received nearly 70 consumer complaints each day, up from 42 per day in 2021. The commission said it is attempting to modernize the rule to fight unfair or deceptive practices related to “subscriptions, memberships, and other recurring-payment programs in an increasingly digital economy where it’s easier than ever for businesses to sign up consumers for their products and services.”
Most of the final rule’s provisions will go into effect 180 days after it is published in the Federal Register. However, provisions related to misrepresentations and other procedural requirements are effective 60 days after publication.
The commission issued its proposed rule in March 2023. Several key changes were made to the rule from the proposed rule. The final rule:
- Removes a requirement to disclose the exact amount (or range) of each charge that will be submitted for payment. Instead, sellers are required to provide a reasonable approximation of the amount when an exact figure is impossible.
- Modifies recordkeeping to require sellers to maintain verification of consumer consent for three years from the date of consent, rather than three years or a year after cancellation, whichever is longer
- Requires that the cancellation mechanism be as easy to use as the mechanism used to enroll in the negative option feature.
- Removes a requirement that sellers be required to obtain a consumer’s unambiguously affirmative consent before presenting additional offers, modifications to an existing agreement, arguments for keeping the arrangement in place, or similar information when a consumer attempts to cancel..
- Removes a requirement for sellers to provide annual reminders to consumers enrolled in negative option plans.
- Adds a new section that allows sellers to petition the FTC for partial or full exemptions from the rule if they can demonstrate that the rule’s requirements are not necessary to prevent the acts or practices to which the rule relates.
The Commission vote approving publication of the final rule in the Federal Register was 3-2, with Commissioners Melissa Holyoak and Andrew N. Ferguson voting no. In a statement, Holyoak warned that she believes the final rule may not survive a legal challenge, noting that the Commission is issuing a broad final rule even though the ANPR was far narrower and that it fails to define with specificity acts or practices that are unfair or deceptive.
We would note that the FTC rule is not the only agency pronouncement on negative option marketing. The CFPB issued a circular on negative option marketing in January 2023 addressing the circumstances in which negative option marketing may constitute an unfair, deceptive, or abusive act or practice under the Consumer Financial Protection Act.
Finally, last week, we hosted two law professors—Kaitlin Caruso from the University of Maine Law School and Prentiss Cox from the University of Minnesota Law School—on our Consumer Finance Monitor Podcast, for a discussion of their article “Silence as Consumer Consent: Global Regulation of Negative Contracts,” which will soon be published in the American University Law Review. We recommend this podcast to anyone who wants to learn more about the existing regulatory framework and development of the Negative Option Rule.