Are You Ready for the FTC’s Negative Option Rule? What Businesses Need to Know

Subscription services and automatic renewals have become commonplace in today’s digital age. The FTC recently amended its Negative Option Rule to take into consideration this proliferation. Though initially set to take full effect on May 14, 2025, the FTC postponed enforcement of the Rule until July 14, 2025, to allow more time for businesses to implement compliance obligations.

With its compliance date just around the corner, here are the key aspects of the Rule your business should be ready to comply with beginning on July 14, 2025.

What is a Negative Option Feature?

The Rule applies to any consumer or B2B contract with a “negative option feature,” a provision that allow sellers to interpret a customer’s silence or inaction as acceptance (or continuing acceptance) of an offer. These programs generally fall into four categories:

1. Prenotification Plans: These involve sending periodic notices, such as book-of-the-month clubs, where the consumer must decline the offer to avoid being charged.
2. Continuity Plans: Consumers agree in advance to receive regular deliveries of goods or services, which continue until the consumer cancels.
3. Automatic Renewals: Subscriptions are automatically renewed at the end of the initial period for a subsequent period unless the consumer cancels.
4. Free Trial Conversions: Consumers receive goods or services for free or at a low cost for a limited time, after which charges begin unless the consumer cancels.

Key Provisions of the Negative Option Rule

The Rule includes several substantive requirements aimed at protecting consumers:

Disclosure Requirements

Before collecting a consumer’s billing information and immediately before collecting consent to the negative option feature, businesses must disclose all material terms of the negative option feature, including:

• The fact that the consumer will be charged, the charges will increase after the trial period, and that charges will recur unless the consumer cancels.
• Deadlines by which the consumer must act to prevent charges.
• The amount or range of costs and their frequency.
• How the consumer can cancel using a simple cancellation mechanism.

These disclosures must be in easily noticeable and understandable plain language to the targeted audience and delivered in the format that matches the medium of communication. For instance, a written disclosure should appear directly next to the consent option in an online setting. For phone interactions, the disclosure must be read aloud in an audible and comprehendible manner immediately before obtaining consent.

Consent Requirements

Consumers must give express informed consent to the negative option feature, separate from any other transaction terms. This involves obtaining unambiguous affirmative consent, which can be collected through a checkbox, signature, or similar method. Businesses must maintain consent records for at least three years.

While the Rule no longer mandates “unambiguously affirmative consent” for other transaction terms, some form of consent is still likely required for enforceability. Contract law arguably allows more flexibility in how that consent may be obtained.

When using pre-acquired account information for payments in phone transactions, additional legal requirements apply. Under the Telemarketing Sales Rule (TSR), consent must be obtained in a manner that is both clear and verifiable, meaning consent given during unrecorded calls is not sufficient. Further, Regulation E, which governs preauthorized electronic fund transfers, also imposes conditions on how and when consent must be obtained. Telemarketers are required to maintain consent records, and failure to do so may result in noncompliance with both the TSR and Regulation E.

Cancellation Mechanism

The Rule mandates that consumers must be able to cancel and stop recurring charges easily and immediately. The cancellation process should be as simple as the consent process, available through the same medium used for enrollment, and should not require interaction with a representative unless necessary. Businesses may offer additional ways for the consumer to cancel.

The principle is simple: if consumers can authorize a negative option feature with a single click online, they should be able to cancel it just as easily with a single click. This concept is often referred to as the “click to cancel” rule. However, the term can be misleading, as it doesn’t account for cancellations related to phone or in-person sign-ups.

Compliance and Enforcement

Non-compliance can lead to significant penalties, including civil penalties up to $53,088 per violation. While there is no private right of action under the Rule, violations may also represent violations of some state laws which may grant a private right of action.

What Should your Business Do Now?

For businesses, understanding and implementing these rules is essential to avoid penalties and maintain consumer trust. As the July 14 deadline approaches, companies should review their practices to ensure full compliance with the FTC’s guidelines. Here are a few key considerations:

• Training: Educate staff on all aspects of the new Rule, especially those involved in developing, implementing, or handling disclosure, consent, and opt-out processes.
• Review of Legacy Systems and Complex Products: Identify where negative option features are embedded and assess whether current disclosure, consent, and cancellation mechanisms meet the new standards. This includes evaluating whether systems can support real-time cancellation and robust recordkeeping.
• Implementation Guidance for New Products or Services: Prepare guidance to assist staff with design enrollment and opt-out flows.
• Recordkeeping: Ensure records of disclosures, consent, payment authorization, and cancellation requests are kept for at least three years.

But… I Heard the Negative Option Rule May Get Thrown Out?

Several trade organizations promptly challenged the Rule after its adoption, arguing that the FTC exceeded its statutory authority and that the Rule is arbitrary and capricious. These lawsuits were consolidated in the U.S. Court of Appeals for the Eighth Circuit. Although some expected the FTC to drop its defense under the Trump administration, the FTC has continued to vigorously support the Rule, most recently during oral arguments in early June 2025. The court has not issued a final ruling, so it’s still possible that the Rule could be modified or overturned in the future, however the court’s initial refusal to stay the Rule may indicate that it will survive the challenge. We will continue to monitor this closely.

Finally, let’s not forget about automatic renewal laws at the state level. This year, states have been especially active in either amending or enacting these laws. Be sure to keep them in mind as you are developing or evaluating your consent and opt-out mechanisms for ARL products and services. And stay tuned for our upcoming state ARL roundup coming soon.

Questions about the Negative Option Rule, Click to Cancel, ARL, or other consumer protection laws? We can help!