In March of 2023 the Federal Trade Commission (FTC) requested comments from industry on their Notice of Proposed Rulemaking to change how the agency enforces the 1973 Negative Option Rule. This rule has allowed the agency to combat unfair or deceptive practices related to subscriptions, memberships and other recurring-payment programs. As online retail has become ubiquitous in recent decades, the agency is reviewing all automatic renewal programs continuity offers in which customers are continually billed for products or services unless they expressly signal their wish to exit their agreement for said products or services.

The new rule would require companies to provide specific express disclosures, obtain the consumer’s unambiguous affirmative consent to the negative option rule separately from the rest of the transaction as well as offering one-click cancellation mechanisms. All the proposed changes would be applicable to all forms of negative option marketing in all media (i.e. telephone, internet, traditional print media, and in-person transactions).

Members are encouraged to closely monitor the developments of this new rulemaking as significant financial penalties could be levied against businesses in violation of the FTC’s rulemaking.

Detailed Analysis

The Federal Trade Commission’s decision to expand their role in monitoring renewal continuity agreements by new rulemaking will require companies offering subscription services to revisit their legal agreements. The new rulemaking will broaden to apply to: automatic renewals, continuity plans, free-to-pay conversions and pre-notification negative option plans. The FTC will be increasing disclosure requirements, imposing specific consent requirements, mandating acceptable cancellation options and limiting the ability of a company to attempt to “save” a deal.

Significant Rulemaking Ramifications:

Clear Disclosures: The FTC will not be altering what companies need to disclose rather how companies disclose information. If an advertisement is made both visibly and audibly a disclosure for a continual subscription and negative options must be detailed visibly and audibly. A hidden hyperlink to the disclosure will not be acceptable.

Consent: The new rulemaking would be expanding the expressed informed consent to “unambiguous affirmative consent”. The negative option offer must be separately and clearly defined in the transaction. A check box or simple click may be used to signal a consumer’s unambiguous affirmative consent.

Simple Cancellation: Companies must provide an easy cancellation method of the negative option method and the FTC offers a “click-to-cancel” option.

Annual Reminders for Non-Physical Goods: Companies offering non-physical goods must offer at least annual reminders of the service and terms along with a means to cancel. The definition of “annual” is under review at FTC and has not been fully determined.

Penalties:

A key change to the FTC’s enforcement will be new financial penalties for companies found in violation of the new rulemaking.

Any violation of the FTC’s negative option rule will come at a penalty of $50,120.

Additional Information & Dates:

In October of 2024 the FTC published its final Negative Option Rule, which applies to any negative option program, including those using online, telephone, print, or in-person mediums. The ruling will apply to all business to business and business to customer transactions. The final Rule requires businesses to obtain a consumer’s “express informed consent” to the negative option feature before charging the consumer.

Companies must be in compliance with this ruling by May 14th, 2025.

This summary and detailed overview of the Negative Option Rule was generously shared by TMA GR Committee Co-Chair James Marcella, and Committee member Dave McCarthy, AXIS Communications.