Today, the Federal Trade Commission (FTC) issued a Notice of Proposed Rulemaking with the stated intent to make it easier for consumers to cancel recurring subscriptions and memberships. This rulemaking is part of the FTC’s review of its Negative Option Rule. Amongst other things, the proposed rule would increase the coverage of the Negative Option Rule to include all forms of “negative option” marketing, require businesses to make it as easy to cancel a subscription as it was to sign up for it, and require sellers of services to provide annual reminders to consumers before their subscriptions are automatically renewed.
According to the FTC, a “negative option” refers to a situation where a seller may interpret a consumer’s silence or failure to take affirmative action as acceptance. Currently, prenotification plans are the only practices covered by the Negative Option Rule. Prenotification plans involve sellers providing periodic notices offering goods to participating consumers and then sending and charging for those goods if the consumers take no action to decline the offer (e.g., book-of-the-month clubs).
The proposed rule would amend the current Negative Option Rule as follows:
- The proposed rule applies to all forms of “negative option” marketing, including prenotification and continuity plans, automatic renewals, and free trial offers.
- The proposed rule applies to offers made on the Internet, over the telephone, in-person, and through printed material.
- Required Disclosures.
- The proposed rule requires sellers to “clearly and conspicuously” disclose the following prior to obtaining the consumer’s billing information: 1) that consumers’ payments will be recurring, if applicable, 2) the deadline by which consumers must act to stop charges, 3) the amount or ranges of costs consumers may incur, 4) the billing date, and 5) the cancellation method.
- The proposed rule requires sellers to: 1) obtain the consumer’s unambiguously affirmative consent to the “negative option” feature separately from any other portion of the offer; 2) refrain from including any information that interferes with or detracts from the consumer’s ability to provide informed consent; 3) obtain the consumer’s unambiguously affirmative consent to the entire transaction; and 4) maintain (for three years or a year after cancellation, whichever is longer) verification of the consumer’s consent.
- “Click to Cancel.”
- The proposed rule requires sellers to provide a cancellation option through the same medium used to enroll, whether through the Internet, telephone, mail, or in-person.
- Under the proposed rule, before making pitches for additional offers or modifications to “save” a cancellation, the seller must first ask consumers whether they would like to hear such offers. If the consumer declines, the seller must immediately proceed to cancel the service.
- The proposed rule requires sellers to provide an annual reminder to consumers enrolled in “negative option” plans involving anything other than physical goods. Such reminders must identify the product or service, the frequency and amount of charges, and the means to cancel.
- The reminder requirement does not apply to subscription services for physical goods since, according to the FTC, each physical delivery serves as a reminder of the contract.
The FTC is seeking comment on whether any entities or activities should be exempted from the proposed rule because existing state licensing or other requirements already address the agency’s concerns.
Interested parties may submit comments on the proposed rule until 60 days after publication of the proposed rule in the Federal Register.