The New Negative Option Rule is Here!
The FTC has finalized its updated Negative Option Rule, also known as the “Click to Cancel” Rule. The final Rule covers negative option programs in any media, which the FTC defines as “a provision of a contract under which the consumer’s silence or failure to take affirmative action to reject a good or service or to cancel the agreement is interpreted by the negative option seller as acceptance or continuing acceptance of the offer.” Importantly, the term “consumer” includes business consumers, not just individual consumers.
The final Rule requires:
- Disclosures. First, negative option sellers must disclose, prior to obtaining the consumer’s billing information – all material terms, whether or not they directly relate to the Negative Option Feature. This includes (but is not limited to) the fact that consumers will be charged for the goods or services or that those charges will increase after any trial period, that the charges will be on a recurring basis unless the consumer cancels, each deadline by date or the frequency by which the consumer must act to prevent or stop the charges, the amount or range of costs the consumer will be charged and the frequency of those charges, and the information necessary for the consumer to find the simple cancellation mechanism. Second, the disclosure of the material terms regarding the Negative Option Feature must be placed immediately adjacent to the means of recording consent and before the required consent. Any information that interferes with, detracts, contradicts, or otherwise makes it harder for consumers to understand the disclosure is prohibited.
- Express Informed Consent. Consent to the negative option feature must be unambiguous and separate from any other portion of the transaction. Sellers that offer a “check box, signature, or substantially similar method” presented in a clear, unambiguous manner without any information not directly related to acceptance of the Negative Option Feature will be deemed in compliance. However, the FTC clarified that merely disclosing the negative option feature more clearly with bold or underlined font is not a substitute for obtaining express informed consent.
- Record Keeping. Sellers must keep or maintain verification of each consumer’s unambiguously affirmative consent for at least three years unless the seller can demonstrate by a preponderance of the evidence that it uses processes to ensure that no consumer can technologically complete the transaction without consent. An audio recording of the entire transaction must be maintained for transactions covered by the Telemarketing Sales Rule.
- Click-to-Cancel. The Rule requires an easy-to-find, simple cancellation mechanism. The cancellation mechanism must be at least as simple as the mechanism used to consent, which means there must be symmetry between the consent and the cancellation mechanisms in terms of time, burden, expense, and ease of use. The cancellation method must be through the same mechanism consumers used to sign up. Importantly, sellers cannot require consumers to interact with live or virtual representatives (i.e., a chatbot) if the consumer did not do so to consent to the Negative Option Feature. Where consumers enroll in person, the seller must offer a simple cancellation mechanism via an “interactive electronic medium” (which can include MMS, SMS, or e-mail) or provide a phone number.
- Misrepresentations. Any misrepresentations in connection with promoting or offering any good or service for sale with a negative option feature are broadly prohibited. This includes not only the existence of the Negative Option Feature and any term of the Negative Option feature such as consent, any deadline to prevent or stop a charge, or information about cancellation, but also includes any claims related to cost, the purpose or efficacy of the underlying good or service, health or safety or “any Material Fact” (defined as “likely to affect a person’s choice of, or conduct regarding, goods or services”). This means that the Rule can be used as a hook to collect civil penalties for any material false or misleading advertising claims for products or services that happen to have a Negative Option Feature – whether or not the false or misleading claims have anything to do with the negative option plan!
The FTC’s final Rule differs from the NPRM in two important ways. First, the new Rule does not cover “save” offers. Second, the new rule does not have an annual notice requirement. However, the FTC states it will seek further comment through a supplemental NRPM on these two key issues, so stay tuned!
Most provisions will go into effect 180 days after publication of the Federal Register Notice. Remedies include civil penalties, which are currently a steep $51,744 per violation. Importantly, the final Rule does not supersede, alter, or affect state Rules as long as they are not inconsistent with the Rule and clarify that State laws and regulations that offer greater protection are not inconsistent (e.g., California’s new Automatic Renewal Law, which covers save offers and requires annual reminder notices, even for month-to-month subscriptions).
