By a 3-2 vote, the Federal Trade Commission (FTC) announced its Final Negative Option Rule that covers negative option programs for both consumer and B2B transactions in any media, including online, telephone, print, and in-person. The rule finalizes many of the requirements we previewed last year. Commissioner Melissa Holyoak’s dissent outlines many of the issues that those challenging the legality of the rule are likely to soon raise. 

Under the rule, companies selling goods or services with a negative option feature will be prohibited from:

• Misrepresenting any material fact in advertising and marketing. The FTC expressly declined to limit this prohibition solely to elements of a negative option program and instead defined “material” to mean “likely to affect a person’s choice of, or conduct regarding, goods or services.” A non-exhaustive list of potential misrepresentations includes the cost, purpose, efficacy, and health or safety of the good or service.
• Failing to disclose material terms clearly and conspicuously prior to obtaining the consumer’s billing information. The rule specifies that disclosures must be “unavoidable” and not contradicted or mitigated by, or inconsistent with, anything else in the communication.
• Failing to obtain the consumer’s unambiguous affirmative consent before charging them. This must be done separately from any other portion of the transaction, and no other information may be included that detracts from, contradicts, or undermines the consumer’s ability to provide their express informed consent.
• Failing to provide a simple mechanism to cancel and immediately stop charges

Negative Option Disclosures and Placement Requirements

Before obtaining the consumer’s billing information, a negative option seller must disclose the following:

• That consumers will be charged and (if applicable) that those charges will increase after any trial period ends and that those charges will recur unless the consumer takes steps to stop those charges
• Each deadline, by date or frequency, by which the consumer must act in order not to be charged. The FTC clarified that if a consumer is enrolled into multiple negative option programs with different deadlines, each deadline must be disclosed.
• The amount or range of costs (reasonably approximated) the consumer will be charged
• The information necessary to find the simple cancellation mechanism

The rule goes further and specifies where the company must place these disclosures. They must appear immediately before and adjacent to the means of recording the consumer’s express consent.

Recordkeeping Requirements and the Rise of the Checkbox?

When obtaining a consumer’s consent, companies must maintain records or verification for at least three years from the date of consent unless the company can demonstrate that it uses processes ensuring no consumer can technologically complete the transaction without consent. Additionally, if the company obtains the required consent through a checkbox, signature, or other substantially similar method, which the consumer must affirmatively select or sign, the recordkeeping requirement is satisfied.

“Simple” Cancellation Must Mirror Enrollment Steps

Companies enrolling consumers into a negative option program must also provide a simple cancellation mechanism that is:

• In the same medium as used during enrollment
• “At least as easy to use” as the consent mechanism at enrollment
• Easy to find

The rule completely prohibits companies from requiring consumers to interact with a live or virtual representative when attempting to cancel if the consumer did not do so when they consented to the negative option program (e.g., complete online enrollment).

For cancellation over the phone, the device accessed via a telephone number must be able to record messages, be made available during normal business hours, and be no more costly to use than when the consumer enrolled. If the consumer enrolled in person, the in-person cancellation mechanism must also provide an online or telephonic cancel option.

Application for Exemptions

Companies may petition the FTC for a partial or full exemption from the final rule by demonstrating that its requirements are not necessary to the applicant’s acts or practices. 

FTC Drops Annual Reminders and Complete Prohibition on Save Attempts

In a fit of reasonableness, the agency did not finalize the proposed rule’s limit on save attempts or attempts to retain the consumer when they request to cancel, recognizing that such attempts can provide real benefits to consumers. The FTC also held off on finalizing annual notification requirements, noting it needs to further analyze the issue.

Dissenting Commissioner Decries “abuse and misuse of the tools Congress has given us” 

Holyoak strongly dissented, lambasting the commission’s majority for  procedural irregularities and noting that the final rule vastly expanded the “area of inquiry” that the proposed rule set forth and improperly generalizes industry-specific complaints and evidence to the entire American economy. She also predicted the final rule would not survive a legal challenge. Holyoak charged FTC Chair Lina Khan with prioritizing “political expediency over getting things right” and “pushing politically motivated rulemakings.” Additional criticisms included:

• Compressing the period of review to only weeks, noting that prior rules took years to finalize
• Expanding the scope of the Advanced Notice of Proposed Rulemaking (which elicited 17 comments) to the Notice of Proposed Rulemaking (16,000+ comments)
• Extending the prohibition on misrepresentations from those linked to negative options to any material fact
• Failing to establish the “prevalence” of unfair and deceptive practices related to negative options as required by Section 18 of the FTC Act
• Potentially suppressing the use of negative options when consumers might derive values and benefits from them

The final rule takes effect 180 days after publication in the Federal Register, giving companies a short period to come into compliance. Venable’s Autorenewal Solutions Team (VAST) stands ready to help with questions regarding your company’s negative option, autorenewal, or subscription services.

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