During a virtual informal hearing on January 16, several organizations presented their concerns—both procedural and substantive—with the Federal Trade Commission’s proposed amendments to its Negative Option Rule.

As we previously blogged about, in March the FTC announced a rulemaking to address problematic negative option practices, proposing several significant updates to its rule regarding subscriptions and recurring payments. Highlights of the proposed Rule include guidance around the substance and placement of disclosures, the meaning of “express informed consent,” and a new “click to cancel” provision requiring sellers to make it as easy for consumers to cancel their enrollment as it was to sign up. 

In response to the proposed rulemaking, six of the 1,100-plus commenters—the International Franchise Association, TechFreedom, the Performance Driven Marketing Institute, NCTA (The Internet & Television Association), FrontDoor, and the Interactive Advertising Bureau—requested to present their positions at an informal hearing. 

Securities and Exchange Commission Administrative Law Judge Carol Fox Foelak presided over the hearing, during which many of the speakers raised procedural concerns, including with the FTC’s alleged failure to comply with the required rulemaking process (e.g., evidentiary submissions, cross-examination, etc.), to develop a robust record, and to address disputed issues of material fact.  The consensus was that a rule with such sweeping ramifications deserves more thorough examination by the FTC, a stronger factual foundation, and a more rigorous cost-benefit analysis.

Turning to substance, the organizations raised several key concerns, including that the proposed amendments:

• are unnecessary. Indeed, many laws and FTC rules already prohibit unfair and deceptive billing practices and allow the FTC to obtain civil penalties for violations.   
• are too broad and prescriptive.  According to the speakers, among other things: (i) requirements dictating exactly what automatic renewal disclosures must say and how they must be presented are overly prescriptive, and the FTC has not demonstrated that they will provide meaningful consumer protection benefits; (ii) requiring affirmative consent to the negative option feature itself, separately from any other portion of the transaction, would unnecessarily uproot the industry standard; (iii) whether one cancellation method is as simple to use as another is an inherently subjective standard, and the FTC offers no guidance on how this requirement might be judged; (iv) the proposed ban on “saves” absent consumer consent raises First Amendment concerns by restricting commercial speech, and consumers would be precluded from receiving offers that result in additional cost savings; and (v) expanding the scope of the Rule to cover all false or misleading statements, even if unrelated to the negative option feature, would put all negative option marketing at risk of incurring significant civil penalties.
• impose too high a burden for implementation.  Several presenters accused the FTC of grossly underestimating the costs that businesses will incur in attempting to comply with the proposed Rule, citing the need to modify contracts, materials, online systems, and sales processes, which could take years and cost millions. 
• would harm both businesses and consumers.  Pointing to the benefits that negative option programs provide, including convenience, streamlined transactions, and cost savings, the organizations fear that the proposed Rule would remove potentially beneficial products, services, and discounts from the marketplace, as well as pass along the high costs of implementation to consumers.

At the conclusion of the hearing, ALJ Foelak set a one-week deadline for the parties to brief any further issues of material fact and cite specific causes for their concern, which will enable further hearing sessions.