On Wednesday, the Federal Trade Commission “FTC” announced a final “Click-to-Cancel” Rule, formally known as the “Rule Concerning Recurring Subscriptions and Other Negative Option Programs” (the “Rule”), requiring companies to make it easier to cancel subscriptions. According to a press release from the FTC, the Rule will apply to any form of negative option programs in all media including internet, telephone, in-person, and printed material and will go into effect 180 days after it is published on the Federal Register, the official publication for federal rules. Businesses have the opportunity to prepare for these changes ahead of them taking effect.
What is a “Negative Option”?
A negative option is an agreement term that assumes acceptance rather than requiring the recipient to accept the offer. In the language of the Rule, a negative option is “in an offer or agreement to sell or provide any goods or services, a provision under which the customer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.” 16 C.F.R. § 310.2(w). These features can be found all over the marketplace today. Negative option features are central to “free-to-pay” plans where consumers receive a good or services for a small introductory price (or for free) during a trial period, but the seller then charges a higher fee after the trial period ends, and unless the consumer cancels the plan. Automatic renewal models—or subscriptions as many consumers know them—also rely on negative option features. Under such plans, the seller automatically renews the subscription unless the consumer takes affirmative steps to cancel it. Subscription models are immensely popular in the marketplace and extend to nearly all goods and services including gym memberships, pet food and supplies, beauty services, flower and grocery delivery, streaming and other software services, and countless other offerings.
What Does the Rule Require?
- prohibits misrepresentations of any material fact made while marketing using negative option features
- requires sellers to provide important information prior to obtaining consumers’ billing information and charging consumers;
- requires sellers to obtain consumers’ unambiguously affirmative consent to the negative option feature prior to charging them; and
- requires sellers to provide consumers with simple cancellation mechanisms to immediately halt all recurring charges.
Specifically, the FTC took care to require that cancellation mechanisms be “easy to find” and provided an example of a clearly labeled cancellation button in an account or user setting as a simple online cancellation mechanism. The FTC also highlighted the importance that the cancellation mechanism be easy to find at the time the consumer decides to cancel; it is not enough to provide the mechanism at enrollment.
Under the FTC’s power, companies that engage in prohibited practices and act unfairly or deceptively can face civil penalties of up to $50,120 per violation.
Why the Rule?
The Rule is designed to target unfair or deceptive practices associated with negative option features. While the FTC acknowledged that negative option features may benefit consumers and sellers by facilitating commercial activity and overall transaction convenience, the agency found a prevalence in harmful negative option practices. Consumer complaints of inadequate disclosures for “free” goods or services and burdensome cancellation procedures were just some of the concerns the agency considered in its rulemaking procedure. According to the FTC, the number of complaints about negative option features and subscription practices has increased to nearly 70 consumer complaints a day, which is up from 42 per day in 2021. Additionally, the FTC’s proposal of the Rule garnered 16,000 comments from consumers, government agencies, consumer groups, and trade associations interested in voicing their support, concerns, and criticisms of the Rule.
What Now?
The FTC approved the Rule for publication in the Federal Register and it will go into effect 180 days after publication. Businesses are encouraged to familiarize themselves with the Rule’s requirements and develop a plan as early as possible to implement any necessary changes. A fact sheet developed by the FTC provides a simple summary and is a great place for a potentially impacted company to assess measures necessary to become compliant.
