The FTC has just announced proposed rulemaking to address negative option programs, following from its Advanced Notice of Proposed Rulemaking in 2019 and issuance of its Enforcement Policy Statement Regarding Negative Option Marketing in 2021.  As the FTC noted in the introduction to the proposed rule, “[p]roblematic negative option practices have remained a persistent source of consumer harm for decades, saddling shoppers with recurring payments for products and services they never intended to purchase or did not want to continue buying.”   

The FTC now seeks to amend the 1973 Negative Option Rule, which currently applies only to one form of negative option marketing (i.e. prenotification plans for the sale of goods), in order to extend its reach and to implement new requirements. The proposed changes would cover all forms of negative option marketing in all media (e.g., telephone, Internet, traditional print media, and in person transactions). The updated rule will be called the Rule Concerning Recurring Subscriptions and Other Negative Option Plans.

Although the FTC has used other tools to address harmful negative option programs not covered by the 1973 rule, including Section 5 of the FTC Act, ROSCA, the Telemarketing Sales Rule, and more, the FTC believes that all of these tools are limited: Section 5 requires individualized assessment of an ad’s net impression and the marketer’s practices; ROSCA does not prescribe specific steps marketers must follow to comply with the law’s requirements (disclosures, consent, ease of cancellation) and only applies to online sales; the TSR only applies to phone-based negative option marketing, etc. 

Accordingly, the FTC seeks to address what it considers a “patchwork of laws and regulations [that do] not provide industry and consumers with a consistent legal framework across media and offers.” Further, the proposed Rule, which would establish a common set of requirements applicable to all types of negative option marketing, would also allow the FTC to seek civil penalties and consumer redress in many contexts where such remedies are currently unavailable.

Highlights of the proposed rule:

  1. Disclosures must be “clear and conspicuous,” defined to mean “difficult to miss” (or, if online, “unavoidable,” i.e., no click throughs or hovers) and through the same means through which the communication in presented.  That means, as specifically stated in the proposed rule, that if the communication is made through both visual and audible means, such as in a tv ad, the disclosure must be presented simultaneously in both the visual and audible portions of the communication, even if the representation requiring the disclosure is made in only one means.  They must also appear in specified places: if directly related to the negative option feature, the disclosures must appear immediately adjacent to the means of recording the consumer’s consent for it; or (ii) If not directly related to the negative option feature, the disclosures must appear before consumers make a decision to buy (e.g., before they “add to shopping cart”).
  2. At a minimum, the following information must be disclosed: the charges will be on a recurring basis, unless the consumer timely takes steps to prevent or stop such charges; the deadline (by date or frequency) by which the consumer must act in order to stop all charges; the amount (or range of costs) the consumer will be charged and, if applicable, the frequency; the date (or dates) each charge will be submitted for payment; and how to cancel.
  3. The seller must obtain the purchaser’s "express informed consent" which the rule says means that the seller must obtain the consumer’s "unambiguously affirmative consent" to the negative option feature offer separately from any other portion of the transaction, along with the consumer’s unambiguous affirmative consent to the rest of the transaction.  Separate checkbox? Checkbox plus filling in a credit card number?  This isn’t clear, nor is it clear what this means for programs where the continuing nature of the subscription -- think movie streaming service --  is obvious (as opposed to, say, the purchase of a physical product which the consumer may or may not want to have continuously provided).
  4. The seller must provide a simple cancellation mechanism, i.e., one that is “at least as easy to use as the method the consumer used to initiate the negative option feature." The rule specifies the different minimum requirements for this “simple cancellation mechanism” for various media (phone, online, in person, etc).
  5. A seller cannot attempt to “save” the consumer from cancelling unless the seller obtains the consumer’s "unambiguously affirmative consent" to receive a save prior to cancellation  (e.g., “Would you like to consider a different price or plan that could save you money?”).  If the consumers says no, the seller cannot attempt any more saves and must immediately process the cancellation.
  6. For subscriptions of non-physical goods (think movie streaming service again), the seller must provide reminder notices to consumers, at least annually, identifying the product or service, the frequency and amount of charges, and how to cancel.

The proposed rule provides that state laws are not preempted except to the extent that compliance with both state and federal requirements is not possible. State laws can provide additional protection. (This is similar the federal gift card law which effectively acts as a floor, but not a ceiling; for example, the federal gift card law allows gift cards to expire after 5 years; many state prohibit expiration dates on gift cards altogether.)  So, unfortunately, even if the proposed rule is enacted as is, marketers will still have to pay attention to the “patchwork of laws and regulations” that exist in the states.

Interested parties have sixty days to comment on the proposed rule.