Sounds kind of sexy, right? Well, sorry to disappoint but this is what the FTC is mandating (excuse me, “providing guidance” about) through its Enforcement Policy Statement For Negative Option Marketing. All that work you’ve been doing to ensure compliance for your subscription program with the ever stricter state standards, like California’s? That new tech build you’ve just completed for your auto-renew program? Hate to say it but you may now need to take another look.
Reacting to what the FTC describes as “prevalent, unabated consumer harm” resulting from abusive negative option marketing (i.e., where consumer’s silence, or failure to cancel, is considered consent for ongoing charges), the FTC has issued this new enforcement guidance based on its enforcement history under ROSCA, Section 5 of the FTC Act, and the Telemarketing Sales Rule. The guidance covers the three most common areas at issue in most negative option marketing cases: disclosures, consent and cancellation.
Disclosure of material terms:
WHAT: Of course, all material terms of a transaction must be disclosed to a consumer prior to purchase. In the context of a negative option transaction, the Policy Statement says that the material terms include, at a minimum, all of the following:
• Any material terms related to the underlying product or service that are necessary to prevent deception, regardless of whether that term directly relates to the terms of the negative option offer;
• That consumers will be charged for the good or service, or that those charges will increase after any applicable trial period ends, and, if applicable, that the charges will be on a recurring basis, unless the consumer timely takes steps to prevent or stop such charges;
• Each deadline (by date or frequency) by which the consumer must act in order to stop the charges;
• The amount (or range of costs) the consumer will be charged or billed and, if applicable, the frequency of such charges a consumer will incur unless the consumer takes timely steps to prevent or stop those charges.
HOW: All of the above disclosures must be clear and conspicuous, meaning "difficult to miss (i.e., easily noticeable) or unavoidable and easily understandable by ordinary consumers." In practice that means, according to the Statement, that the disclosures must be in the same medium as the rest of the communication (e.g., if ad is both audio and visual, the disclosures must be in both audio and visual, "even if the representation requiring the disclosure is made in only one means."). Further, in an interactive electronic medium (such as web or mobile), "a disclosure is not clear and conspicuous if a consumer needs to take any action, such as clicking on a hyperlink or hovering over an icon, to see it."
WHERE: Disclosures about the negative option feature itself must appear right next to the consent button (or the other means used for recording the consumer’s consent). Disclosures about other material terms of the transaction must appear before the consumer makes a purchasing decision, before "add to cart." And the disclosures can't contain other information that "interferes with, detracts from, contradicts, or otherwise undermines the ability of consumers to read and understand the disclosures."
It's always been clear, under ROSCA and state law, that the marketer must obtain the consumer's express informed consent before charging her card. (No pre-checked boxes!) But the Policy Statement adds something new: The acceptance of the negative option feature must be separate from any other portion of the transaction. The Statement says the marketing "should obtain the consumer’s acceptance of the negative option feature offer separately from any other portion of the entire transaction." Further, it should include the name of the billing entity authorized by the consumer’s consent. And the consent should be "verifiable." (Marketers, keep records!)
The Policy Statement reiterates the principle that saying goodbye must be as easy for consumers as signing up. Consumers also should be able to cancel the same way they signed up. Further, marketers "should not subject consumers to new offers or similar attempts to save the negative option arrangement that impose unreasonable delays on consumers’ cancellation efforts." While a single attempt to save the consumer may be okay, "multiple requests for a consumer to listen to additional offers, lengthy pitches, or ignoring a consumer’s request to decline further offers could amount to an unreasonable delay."
In addition to issuing this Policy Statement, the FTC is also in the process of conducting rule making on the same topics (leading one Commissioner to dissent to the issuance of the Statement.) While the Policy Statement does not bind the FTC or the public, because the FTC still must prove in an enforcement action that any act or practice it challenges actually constitutes a violation of law or regulation, the Statement does provide critical insights about the FTC’s interpretation of existing law.
Marketers of subscription services and other auto-renew programs, take note!
"Over the years, unfair or deceptive negative option practices have remained a persistent source of consumer harm, often saddling shoppers with recurring payments for products and services they did not intend to purchase or did not want to continue to purchase."