Subscriptions and Renewals

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Last week, a security services company and several trade groups filed their merits brief in the U.S. Court of Appeals for the Eighth Circuit challenging the Federal Trade Commission’s (FTC) newly adopted Negative Option Rule, also called Click-to-Cancel. The rule introduces a host of requirements for companies selling goods or services with a negative option feature in both consumer and B2B transactions, as we outlined last year. Notably, a negative option seller must make cancellation as simple as signing up, including providing an easy online cancellation method if consumers signed up online.

The rule went partially into effect on January 14, 2025, with the prohibition on misrepresentations of material facts relating to the promotion or offering for sale of any good or service with a negative option. The remainder of the rule covering consent and cancellation requirements takes effect in May 2025.

The court previously denied petitioners’ request to stay the rule from taking effect pending litigation.Continue Reading FTC’s “Click-to-Cancel” Rule Challenged by Industry in the Eighth Circuit

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

Continue Reading FTC Announces Final “Click-to-Cancel” Rule on Negative Options, Autorenewals, Free-to-Pay, and Subscription Services

Last month, the Supreme Court of Maryland delivered a pivotal ruling defining the scope of the Maryland Telephone Solicitations Act (MTSA), holding that the act extended to inbound calls initiated by consumers who engaged with merchant advertisements. The Maryland Supreme Court also confirmed that the Maryland Public Service Commission can enforce the MTSA against covered entities.

The case, In the Matter of Smart Energy Holdings, LLC D/B/A SmartEnergy, originated in response to customer complaints to the Public Service Commission’s Consumer Affairs Division (CAD) alleging that their bills were excessive and that they were unable to cancel their service with SmartEnergy, a provider of 100% green energy. After proceedings before an administrative law judge, the Public Service Commission held:Continue Reading The Power of Customer Calls: Maryland Supreme Court Upholds Public Service Commission’s Interpretation of the Maryland Telephone Solicitations Act

In March, the Federal Trade Commission (FTC) asked for comments on a proposal to replace the Prenotification Negative Option Rule with a more expansive Negative Option Rule. Now that the FTC has had the chance to review those comments, the FTC has set an informal hearing to allow for testimony from six of the over 1,000 commenters.

Each presenter will be limited to ten minutes but can supplement their remarks with written content. The FTC has appointed Carol Fox Foelak, an administrative law judge at the Securities and Exchange Commission (SEC), to serve as presiding officer.Continue Reading New Year, New Rule: FTC to Review Updates to Negative Option Rule During January Informal Hearing

Last week, the Federal Trade Commission announced that its proposed rule replacing its Prenotification Negative Option Rule would result in new, expansive requirements for all forms of negative option offers, including automatic renewals, continuity plans, and free-to-pay conversations, made in all media, including Internet, telephone, in-person, and printed material.

Still subject to another round of comments, the proposed Rule Concerning Recurring Subscriptions and Other Negative Option Plans also features a federal requirement to provide an online cancellation mechanism to consumers who enroll in the negative option program online. That requirement is already imposed by laws in California, New York, and other states, and may be the least consequential of the proposed changes.

If enacted, the proposed rule would reach far beyond the scope of usual disclosure, consent, and cancellation requirements. Among other things, it would prohibit misrepresentations related to the underlying product or services, impose restrictions on “save” efforts when a consumer attempts to cancel, and require annual reminders for negative option features not involving physical products.Continue Reading Click to Cancel: FTC Proposes New Rule Regulating Subscription Services and Negative Option Programs with Broad Implications

Last month, the National Advertising Division of BBB National Programs reviewed Pier 1’s subscription rewards program and recommended that the company provide clearer disclosures of the automatic renewal program.

The case, brought as part of NAD’s monitoring activities, analyzed the Pier 1 Rewards program, a subscription-based customer loyalty program through which customers are charged a recurring monthly or annual fee. The membership provides a 10% discount sitewide and free shipping and returns on eligible items.Continue Reading The National Advertising Division Recommends That Pier 1 Modify Subscription Disclosures

Last week, the Federal Trade Commission (FTC) issued a press release, announcing a $100 million settlement with Vonage, an internet-based telephone service company, for alleged violations of the Restore Online Shoppers’ Confidence Act (ROSCA). The action underscores the FTC’s continued focus on “dark patterns” and illustrates the agency’s efforts to require companies to go beyond the plain requirements of ROSCA in enforcement settlements.  

The FTC’s complaint alleged that Vonage offered free trials to business and residential customers for telephone plans. Unless the customer took affirmative action to opt out before the trial ended, Vonage would enroll the customer in an autorenewing monthly phone plan.Continue Reading Vonage, Autorenewals, and the FTC’s Ever-Expanding Interpretation of ROSCA

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Although the concept is not new, challenges to “dark patterns” are rising all over the country.  The Federal Trade Commission, Consumer Financial Protection Bureau, state attorneys general, and class action plaintiffs increasingly cite this phrase in such complaints as deceptively enrolling consumers…

A lawsuit filed by the CFPB last week against a national credit reporting agency provides some insight into the types of website features and designs that regulators like the Consumer Financial Protection Bureau and Federal Trade Commission will target. As we covered previously, digital dark patterns—or website design, features, and interfaces used to allegedly deceive, steer, and manipulate users—are a priority for both rulemaking and enforcement actions by the FTC. Although the focus has been on website features that “trick or trap” consumers into subscriptions, the potential for broad and arbitrary application of this concept is worrisome. What is the line between a website that is acceptably optimized for conversion and one that is illegally steering users to make purchases?

In the highly detailed complaint, the CFPB alleged, among other things, that the net impression of various advertising messages, combined with the design of the webpage where users landed when clicking on the ads, obscured the nature of the offer (a month-to-month subscription of a credit-monitoring service and credit score), the status of a user’s enrollment in the service, and the purpose of collecting a user’s payment information.

More specifically, the complaint described how call-to-action buttons, email subject lines, font color and size, text placement, and website flow were employed to confuse consumers who were seeking information about or copies of their annual free credit report and steer them instead into unwittingly purchasing a subscription for credit monitoring.Continue Reading Latest CFPB Lawsuit Sheds Light on Digital Dark Patterns

A few weeks ago, we wrote an article discussing two enforcement actions by the Federal Trade Commission in the Central and Southern Districts of California that highlighted the risks to payment processors and financial institutions for their relationships with companies engaged in allegedly unlawful “negative option” marketing.

In both FTC v. Triangle Media Corporation et al. (the “Triangle Action”) and FTC v. Apex Capital Group, LLC (the “Apex Action”), the FTC accused the defendants of engaging in an alleged scheme to offer fake “free trials” of personal care products and dietary supplements to obtain consumers’ credit and debit card information.

Also, in both cases, the court granted the FTC’s request and recommendation that a Receiver be assigned to oversee, manage, and preserve the assets of both sets of defendants. That Receiver then sued Wells Fargo—the bank used by the defendants in both the Triangle and Apex Actions—alleging that Wells Fargo engaged in illicit activity, including, but not limited to, aiding and abetting fraud, conspiracy to commit fraud, breach of fiduciary duty, negligent supervision, and violating the California Unfair Competition Law (UCL). Last week the court denied most of Wells Fargo’s motion to dismiss, allowing the claims against the bank to proceed.Continue Reading Update: Judge Allows Most of Receiver’s Claims Against Wells Fargo for Involvement with Negative Option Marketers to Proceed