The Federal Trade Commission today (finally) announced its final “click-to-cancel” rule, which imposes new requirements on negative option programs in all forms (including electronic media, telephone, print and in-person transactions) in an attempt to combat unfair or deceptive practices related to subscriptions, memberships and other recurring-payment programs.  The updated rule, called the “Rule Concerning Recurring Subscriptions and Other Negative Option Programs,” amends the FTC’s outdated 1973 Negative Option Rule, which applied only to one form of negative option marketing (pre-notification plans for the sale of goods).

Among the final rule’s key provisions:

• Scope.  Not only does the final rule apply to almost all negative option marketing, including pre-notification and continuity plans, automatic renewals and free trial offers—whether they appear online, via phone, in print or in person—but it also covers, per the FTC’s blog post, business-to-business, as well as business-to-consumer, transactions.
• Misrepresentations.  Sellers cannot misrepresent any material fact while marketing goods or services with a negative option feature, including terms relating to consumer consent, cancellation, cost, purpose or efficacy of the underlying good or service, and health or safety.
• Disclosures.  Sellers must disclose to consumers, prior to obtaining their billing information, all material terms, including: (i) that consumers will be charged for the good or service, or that such charges will increase after any applicable trial period ends; (ii) that the charges will be on a recurring basis, unless the consumer timely takes steps to prevent or stop such charges; (iii) the deadline (by date or frequency) by which the consumer must act in order to stop all charges; (iv) the amount (or range of costs) the consumer will be charged and, if applicable, the frequency; and (v) how to cancel.
• Placement of Disclosures.  Disclosures must be clear and conspicuous and 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, and if not directly related to the negative option feature, the disclosures must appear before obtaining the consumer’s consent. 
• Consent.  Sellers must obtain the consumer’s express informed consent before charging them.  According to the rule, this means obtaining the consumer’s “unambiguously affirmative consent” to the negative option feature offer separately from any other portion of the transaction.  This can be done through a check box, signature or other substantially similar method, which the consumer must affirmatively select or sign to accept the negative option feature alone, and the consent request must be free of any information not directly related to the consumer’s acceptance of the negative option feature.  (Note that the FTC removed its previously proposed requirement that sellers also obtain separate consent to “the rest of the transaction.”)
• Proof of Consent.  Verification of the consumer’s consent must be maintained for at least three years, unless the seller can “demonstrate by a preponderance of the evidence that it uses processes ensuring no consumer can technologically complete the transaction without consent.” 
• Cancellation.  Sellers must provide a simple cancellation mechanism, i.e., one that is “at least as easy to use” and available through the same medium as the mechanism the consumer used to consent to the negative option feature.  The rule specifies the different minimum requirements for this “simple cancellation mechanism” for various media (online, phone and in person).  Notably, for online cancellations, the rule states that “[i]n no event shall a consumer be required to interact with a live or virtual representative (such as a chatbot) to cancel if the consumer did not do so to consent.”  And for in-person cancellations, an online or telephonic method of cancellation must also be available.
• State Law.  The final rule does not preempt any state law relating to negative option requirements, except to the extent of inconsistency with the FTC rule’s provisions.  State laws that afford consumers greater protection than provided under the FTC’s rule are not considered inconsistent. Therefore, unfortunately, negative option marketers must still pay attention to the patchwork of state laws and regulations, like those that require prior notice of automatic renewals and of material changes and specific requirements for free trials.

Today’s long-awaited announcement follows the FTC’s March 2023 announcement of a notice of proposed rulemaking, which resulted in more than 16,000 comments from consumers, federal and state government agencies, consumer groups and trade associations. Following an evaluation of public comments, including a virtual hearing during which commenters presented their concerns with the proposed amendments (see our recap here), the Commission adopted the final rule with certain changes—most notably dropping a requirement that sellers provide annual reminder notices as well as a prohibition relating to “save” attempts.

The Commission voted 3-2 to approve publication of the final rule.  In an accompanying statement, Commissioner Slaughter commented on the fact that the final rule does not require annual notices of subscription renewals, despite the Commission's policy preference, and invited Congress and state legislators to consider adopting such a requirement.  And in a dissenting statement, Commissioner Melissa Holyoak reminded the Commission that “ Article I of the Constitution vests legislative powers in Congress, not with agencies,” and expressed concern that the Commission exceeded its rulemaking authority under Section 18 of the FTC Act as well as with the breadth of the rule.  In Commissioner Holyoak’s view, “the Chair is hurrying to finish a rule that follows through on a campaign pledge made by the Chair’s favored presidential candidate.” 

The final rule takes effect in 180 days (except for the provisions related to misrepresentations and other procedural requirements, which take effect 60 days after publication of the final rule), so businesses should act quickly to implement compliance efforts to avoid the possibility of civil penalties down the line.