FTC’s Negative Option Rule Gets Big Lift with Click-to-Cancel and Other Revisions

Last week, the Federal Trade Commission announced revisions to the Negative Option Rule to strengthen consumer protections for negative option marketing plans. The revisions aim to protect consumers from misleading enrollment tactics, billing practices, and cancellation policies, and include a provision requiring a “Click-to-Cancel” mechanism to make ending a subscription or membership as easy as signing up for it.

A Broad Expansion

The FTC has regulated negative options using the Negative Option Rule and other enforcement actions since 1973; however, the Rule only applied to pre-notification plans for the sale of goods and did not cover common practices such as continuity plans, automatic renewals, and free-to-pay conversions.

The new changes expand the scope of the Negative Option Rule considerably. Automatic renewals, prenotification plans, continuity plans, and free trial offers, whether the offer appears online, on the phone, or in person, are now covered. Additionally, the Rule now covers both business-to-business transactions and business-to-consumer transactions. To better reflect the scope of the revised Rule, the FTC has retitled it as the “Rule Concerning Recurring Subscriptions and Other Negative Option Programs.”

New Compliance Obligations

Applying to all negative option programs in any media, the final Rule:

1. prohibits misrepresentations of any material fact of a negative option offer, such as the terms of the offer, the benefits of the offer, product features, processing or shipping fees, billing information use, deadlines, and refunds, cancellations;
2. requires sellers to provide important information related to the payments and cancellation of the plan prior to obtaining consumers’ billing information and charging consumers;
3. requires sellers to obtain consumers’ unambiguously affirmative consent to the negative option feature prior to charging them; and
4. requires sellers to provide consumers with simple cancellation mechanisms to immediately stop all recurring charges.

While most of the changes will take effect 60 days after the Rule’s publication in the Final Register, the Click-to-Cancel, disclosure, and consent requirements will not take effect until 180 days after publication of the Rule in the Final Register.

What About State ARL Laws?

Importantly, the amended Rule does not preempt state laws. Many states regulate automatic renewal plans, and several of these laws are broadly applicable. This resulting legal patchwork includes varied applicability thresholds and exclusions that may actually impose more onerous requirements on businesses. If state law requirements go beyond the FTC’s rule, you must still comply with those laws.

Given the potential for FTC civil penalties, compliance with the new Rule is crucial. Businesses should review and update their compliance procedures accordingly. It’s also a good time to check compliance with state automatic renewal laws, especially those that may impose more stringent requirements.

Questions about how to prepare for changes to the Negative Option Rule or how state automatic renewal laws apply to your business? We can help.

* Vince Sears contributed to this article.