FTC | Negative reinforcement? FTC proposes amending Negative Option Rule to include click-to-cancel and other protections

Prenotification plans, continuity programs, automatic renewals, free-to-pay conversions. They’re all variations on the negative option theme. Under the right circumstances, those marketing methods can be convenient for consumers. But as decades of FTC law enforcement makes clear, when negative options are tainted with untruths, half-truths, and hidden strings, the impact on consumers can be, well, negative. That’s why the FTC is asking for public comment on proposed amendments to its Negative Option Rule designed to combat unfairness and deception.

When the FTC takes a closer look at existing rules, it keeps an eye out for changes in the marketplace that suggest an update may be due. The Negative Option Rule is a good example of that. First, thanks to the burgeoning doorstep economy, consumers can buy just about anything – meals, clothes, household supplies, etc. – on a periodic schedule. However, the current Negative Option Rule applies only to prenotification plans, an older (and frankly, fading) business model. Under a prenotification plan, members of, say, a record club (remember record clubs?) get a notice in advance that the company intends to send them a certain album. If members don’t want that album, they have a limited time to return a postcard (remember postcards?). If they miss the deadline, they’re stuck with the album – and the bill. Given the narrow scope of the existing Negative Option Rule, the time seems right for a rethink.

A second reason why the FTC is asking for your feedback about proposed changes to the Rule is because problematic negative option practices continue to inflict consumer injury. Consumers tell us they’ve been being billed for stuff they never agreed to buy in the first place. Or they’ve made multiple cancellation attempts and yet products keeps coming at ‘em like clockwork. Others recount inconvenient hoops that companies make them jump through to cancel.

Because of the limited applicability of the Negative Option Rule, our approach to date has been to bring individual cases alleging violations of the FTC Act or – if applicable – the Telemarketing Sales Rule, the Restore Online Shoppers’ Confidence Act (ROSCA), and other laws. But the volume of complaints suggests that case-by-case enforcement may not protect consumers sufficiently.

So in 2019 the FTC published an Advance Notice of Proposed Rulemaking. Based on the comments we received, in 2021 the Commission issued an Enforcement Policy Statement Regarding Negative Option Marketing. The latest step is the just-announced proposal to amend the Rule. You’ll want to read the Federal Register Notice for details, but the FTC has a fact sheet with some highlights. And here is a summary of three of the proposals that are on the table:

• Requiring companies to spell out the details of the deal. “They signed me up, but never told me what was involved!” It’s a common theme when consumers file reports about misleading negative option offers. To address that information deficit, the proposed amendment would require sellers to give people important information before getting their billing information: 1) that consumers’ payments will be recurring, if applicable, 2) the deadline for stopping charges, 3) what consumers will have to pay, 4) the date the charge will be submitted for payment, and 5) information about how consumers can cancel.
• Ensuring companies get consumers’ express informed consent. “Why am I getting all this unwanted stuff and who said these people could bill my credit card?!” We hear that a lot from consumers, suggesting that additional provisions may be necessary to protect them from illegal practices. The proposed amendment is consistent with ROSCA’s “express informed consent” requirement, while providing more guidance for businesses on how to comply.
• Requiring companies to implement click-to-cancel. “How the $%#& do I cancel?!” Online marketers have that frictionless enrollment thing down pat. But when consumers want to cancel, some of those same companies set up obstacle courses designed for frustration and failure. Two practices challenged in recent FTC cases illustrate this. One company required people to call a phone number to cancel and then left them on hold for ages. Another company ignored cancellation requests unless consumers sent them to one hard-to-find email address authorized to accept cancellations. The proposed amendment would require companies to make it easy to cancel and one way to further that goal is to mandate that businesses must let people cancel using the same method they used to enroll – in other words, click-to-cancel.

The FTC envisions that proposed changes would apply to all forms of negative option marketing and in all media. The proposed amendments also address other issues of interest to businesses and consumers: the use of “saves” (additional offers made before cancellation to keep the customer signed up), reminders and confirmations, penalties for violations, and the impact on existing state laws, to name just a few.

Another proposed change would change the name from the Negative Option Rule to the Rule Concerning Recurring Subscriptions and Other Negative Option Plans. It may seem like a small revision, but it would signal that “negative option” applies much more broadly than to your dad’s record club.

At this stage, the proposal is just that – a possible approach about which we would like your feedback. Once the Notice is published in the Federal Register, you can save a step by filing a public comment online.

Compliments of the Federal Trade Commission.