The Federal Trade Commission (“FTC”) issued a Notice of Proposed Rulemaking on March 23, 2023, with proposed amendments to its Negative Option Rule (as amended, the “Amended Rule” or “Proposed Rule”) that would significantly expand the scope of the Rule and incorporate a series of obligations, many of which arguably exceed or match the most onerous obligations under state auto-renewal laws. The Amended Rule (the “Rule Concerning Recurring Subscriptions and Other Negative Option Plans”) would cover all auto-renewing subscriptions and similar offers in which a consumer’s silence or inaction is interpreted as acceptance of the offer, renewal, or conversion from free trial to paid subscription (each a “Negative Option Feature”). If implemented, the Amended Rule would set a heightened federal “floor” that state laws can continue to build on top of and give the FTC a new tool in the toolbox (one that allows for civil penalties) in regulating negative options.
As described in more detail below, the Proposed Rule would require:
- Disclosure of key terms both at the point of sale and before the consumer enters the purchase flow.
- Separate, affirmative consent to Negative Option Features, which likely mandates checking an unchecked checkbox or something similar.
- Easy and immediate online cancellation with severe limitations on save attempts.
- Annual reminders for all subscriptions regardless of the term length unless they provide for the delivery of physical goods.
- Reminders and cancellations via telephone and mail for any subscriber who signed up by telephone or mail.
The Notice of Proposed Rulemaking was published in the Federal Register on April 24, 2023. Consumers can submit comments electronically or in writing until June 23, 2023. Please let us know if you are interested in preparing a comment.
If enacted, the Proposed Rule would echo many of the priorities laid out in the FTC’s October 2021 Policy Statement, namely the following:
Before obtaining a consumer’s billing information (typically when the consumer consents at the point of sale), businesses must disclose all the key terms of the Negative Option Feature, including:
- The price to be charged, and, as applicable, the price after a free trial or promotional period;
- That the charges will recur unless the consumer cancels, and the frequency of renewal;
- The deadline to cancel before charges are incurred;
- The date(s) each charge will be submitted for payment; and
- The information necessary for the consumer to cancel.
These disclosures must appear immediately adjacent to the consent feature and must be “clear and conspicuous,” which the FTC describes as “difficult to miss,” “easily noticeable,” and “easily understandable by ordinary consumers.”
Businesses must also clearly and conspicuously disclose material terms related to the underlying product or service even if not related to the recurring billing feature. These must be disclosed before consumers decide to buy (e.g., before they “add to cart”). Moreover, the Proposed Rule explicitly prohibits making misrepresentations about any aspect of the transaction or service – for instance, the product efficacy, processing or shipping fees, billing information use, and refunds. Similarly, sellers must avoid contradictory or inconsistent language about the contract or underlying offering, and should not include unrelated information that might confuse a consumer.
Businesses must obtain unambiguously affirmative consent to the Negative Option Feature that is separate from the consumer’s consent to the rest of the transaction (i.e., a consent distinct from consent to the broader terms of sale). The FTC states that sellers can obtain appropriate consent by requiring consumers to check an unchecked checkbox tied to the Negative Option Feature.
Additionally, businesses must not provide information that would undermine a consumer’s ability to provide informed consent to the Negative Option Feature.
Businesses must also retain proof of the consumer’s consent for at least three years, or one year after the contract is terminated—whichever is longer.
Canceling a Negative Option Feature cannot be too difficult, time-consuming, or complicated:
- Cancellation methods must be at least as easy to use as subscribing, and a consumer must be able to cancel through the same medium (e.g., internet, telephone, mail, or in-person) that they subscribed to.
- For internet sales, a consumer must be allowed to cancel via the same website or app they used to make the purchase.
- If a business also allows for telephone cancellation, the line must 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.
- When a subscriber attempts to cancel, businesses cannot present the subscriber with a “Save” – an additional offer, modification to the existing agreement/subscription, or reasons to not cancel – unless the consumer unambiguously affirmatively consents to receive a Save.
- Unless the business obtains consent to a Save, it must immediately cancel the Negative Option Feature.
Annual Reminders for Subscriptions Without Physical Goods
For all subscriptions that do not involve automatic delivery of physical goods, businesses must send reminders at least annually, regardless of the subscription term length. The reminders should include (i) the product or service the consumer is subscribed to; (ii) the cost and length of the renewal term; and (iii) how to cancel. The reminders should be provided through the same medium as the consumer signed up for the subscription (e.g., internet, telephone, or mail).
The FTC indicated that the Proposed Rule would not preempt state laws that impose additional protections for consumers related to auto-renewing subscriptions unless a state law requirement directly conflicts with the federal rule. Accordingly, in addition to the requirements of the Proposed Rule, companies must also continue to navigate the obligations in the patchwork of state auto-renewal laws.