In March 2023, we discussed the Federal Trade Commission’s (FTC) Notice of Proposed Rulemaking (NPRM) aimed at making it easier for consumers to cancel recurring subscriptions and memberships. The proposed rule was part of the FTC’s review of its Negative Option Rule, which sought to broaden its scope. Publication of the NPRM resulted in more than 16,000 comments from consumers, federal and state government agencies, consumer groups, and trade associations.

On October 16, 2024, the FTC issued the final amendments to the Negative Option Rule, now retitled the Rule Concerning Recurring Subscriptions and Other Negative Option Programs. These amendments significantly expand the rule’s coverage and introduce new requirements that purportedly aim to protect consumers from deceptive and unfair practices in negative option marketing.

Key Provisions of the Final Rule:

The final rule now applies to all negative option programs in any media and includes several critical provisions:

  • Prohibition of Misrepresentations: The rule prohibits misrepresentations of any material fact made while marketing goods and services using negative option features.
  • Required Disclosures: Sellers must provide important information before obtaining consumers’ billing information and charging them. This includes clear and conspicuous disclosure of:
    • Recurring payments;
    • Deadlines to stop charges;
    • Costs consumers may incur;
    • Billing dates; and
    • Cancellation methods.
  • Affirmative Consent: Sellers must obtain consumers’ unambiguously affirmative consent to the negative option feature before charging them.
  • Simple Cancellation Mechanisms: Sellers must provide consumers with simple mechanisms to immediately halt all recurring charges.

Differences from the Proposed Rule:

The final rule differs from the proposed rule in two significant ways:

  • Annual Reminders: The proposed rule would have required sellers to provide annual reminders to consumers of the negative option feature. This provision has been omitted in the final rule.
  • Consent for “Saves”: The proposed rule would have prohibited sellers from forcing consumers to receive “saves,” additional offers or modifications to retain the existing offer, without first obtaining consumers’ unambiguously affirmative consent. This provision has also been omitted, with the FTC planning to seek further comment on this issue through a supplemental NPRM.

New Definitions and Provisions:

In response to public comments, the final rule includes two new definitions and two additional provisions for clarity:

  • Definitions of “Material” and “Interactive Electronic Medium”: These terms are now explicitly defined.
  • Severability Provision: Ensures that if any part of the rule is invalidated, the remaining provisions will continue to be effective.
  • Exemption Requests: Allows for requests for exemptions from the final rule consistent with the FTC’s Rules of Practice.

The amendments are effective 180 days after publication in the Federal Register except for the provisions related to misrepresentations, which take effect 60 days after publication.

Implications for Businesses:

The new rule applies to a wide range of industries, from gym memberships to internet services, gift box services to spa memberships. Businesses must now audit their cancellation flows to ensure compliance with the new requirements. Specifically, the rule mandates that it must be as easy to cancel a subscription as it was to sign up for it. This means that cancellation processes cannot be buried behind multiple screens.

Moreover, the rule specifies that consumers must be able to cancel using the same method they used to sign up. For instance, if a consumer signed up online, they should be able to cancel online without being forced to call a customer service number. The rule also prohibits excessive interference during the cancellation process, such as requiring consumers to answer questionnaires or navigate through multiple screens.

Our Take:

Businesses should evaluate whether their current practices align with the new requirements in the rule, along with additional state requirements that may overlap with and at times go farther than the new rule. 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.