Both the Federal Trade Commission and California are heightening their enforcement efforts for businesses that sell auto-renewing subscriptions.
The Federal Trade Commission (FTC) issued a policy statement on October 28, 2021 about “negative options,” a term the FTC uses to refer to auto-renewing subscriptions as well as other offers in which a consumer’s silence or inaction is interpreted as acceptance of the offer or renewal. The policy statement outlines the FTC’s intent to ramp up enforcement efforts against companies offering negative options that (i) use “illegal dark patterns” to mislead consumers, (ii) fail to provide clear, up-front information about the subscriptions, (iii) fail to obtain a consumer’s informed consent to the offer, or (iv) make it unduly burdensome to cancel a subscription.
Separately, earlier in the month, California Governor Gavin Newsom signed into law AB 390, which amends the state’s existing auto-renewal law by requiring companies to provide additional notices and new cancellation options to subscribers.
FTC Policy Statement
The FTC announced its intent to crack down on businesses that (i) lure consumers into negative option contracts without making clear that they will incur recurring charges or (ii) make it excessively difficult for consumers to cancel their subscriptions. The Commission stressed that failure to adhere to the following practices may result in adverse legal action:
Before entering into a negative option contract (in other words at the point of sale), businesses must disclose to consumers all the key terms of the auto-renewal or continuous service agreement. These disclosures must be clear and conspicuous, which the FTC describes as “difficult to miss” and “easily noticeable.” Sellers should also avoid contradictory or inconsistent language about the negative option contract, and should not include unrelated information that might confuse a consumer. Finally, disclosures on websites or mobile apps should be located right next to the negative option consent feature (discussed in the next section).
Before charging a consumer for an auto-renewal or continuous subscription service, a business must obtain verifiable consent from the consumer to enter into a negative option contract, and this should be separate from the consumer’s consent for other parts of the entire transaction. Businesses should not provide misleading information that would undermine a consumer’s ability to understand that they are entering into a negative option contract.
Cancelling an auto-renewal or continuous service subscription cannot be too difficult or complicated, including:
- Cancellation should be at least as easy as signing up for the subscription, and should be offered through the same mediums (e.g., website or app) that consumers can use to consent to the subscription.
- If a business also allows for telephone cancellation, the line should be monitored during regular business hours, and a consumer should not have to wait a long time or engage in a very lengthy conversation to cancel their subscription.
- Businesses should not subject subscribers to new offers or other attempts to save the subscription that impose unreasonable delays on their cancellation efforts.
- Businesses should provide consumers with truthful information and meaningful opportunity to cancel their subscriptions.
Starting on July 1, 2022, businesses that enroll California consumers into auto-renewing and continuous service subscriptions must comply with the following:
- Businesses must provide a notice to consumers who accept a free gift or trial that lasts for more than 31 days and will automatically convert into a paid subscription. The notice must be provided 3 – 21 days before the free trial ends.
- Businesses must provide a notice to a consumer who purchases a subscription at a promotional or discounted price that lasts for more than 31 days and will automatically renew at an increased price. The notice must be provided 3 – 21 days before the promotional price ends.
- Businesses that sell annual subscriptions that auto-renew must provide a consumer with a renewal notice 15 – 45 days before each renewal.
Each of the above required notices must include how to cancel as well as contact information for the business.
Businesses that sell auto-renewing subscriptions online must continue to allow consumers to cancel online (as is already required), but must also provide a method to cancel that is either:
- A prominently placed direct link or button (which can be within a customer’s account, profile, or settings), or
- An immediately accessible termination email—which must be formatted and provided by the business—that the customer can send to the business without providing additional information.
Businesses that sell subscriptions online must allow consumers to terminate their subscriptions “at will” and without taking any steps that obstruct or delay the consumer’s effort to cancel the subscription immediately.