The Federal Trade Commission (FTC) announced today that it has completed its ongoing review of the 1973 Negative Option Rule as part of its efforts to modernize unfair or deceptive practices related to subscriptions, memberships, and other recurring-payment programs. In response to the growth of the digital economy, the new “click-to-cancel” rule is designed to make it “as easy” for consumers to cancel recurring subscriptions as it is for businesses to sign up consumers for these products and services. The new rule will go into effect 180 days after it is published in the Federal Register.
A negative option program includes a contractual requirement, usually referred to as an “automatic renewal provision,” which requires the consumer to take an affirmative step to reject a good or service or cancel the agreement. The consumer’s failure to take an action is considered acceptance or continuing acceptance of the offer. These types of provisions can be found in free trial offers (e.g., try our service for seven (7) days and then pay $9.99/month unless you cancel).
The new FTC rules require businesses to avoid misrepresenting material facts about the offer and to clearly and conspicuously disclose that:
- The consumer will be charged for the product or service;
- Its cost;
- The duration of any trial period;
- Any increase to the cost after the trial period ends;
- The amounts the customer will be charged unless the consumer takes action to stop the charge;
- The deadline for the consumer to stop the charge; and
- Any instructions to stop the charge, including where to find the cancellation method.
These disclosures must be immediately adjacent to the place the business signs the consumer up for the offer. After presenting these disclosures, businesses must obtain the consumer’s express informed consent before charging them. The consent request must be provided in a clear and unambiguous format, including using a check box, signature, or other similar method that requires the consumer to take an affirmative step to accept the offer. The new rule prohibits businesses from including additional information that is not related to the acceptance or that “interferes with, detracts from, contradicts, or otherwise undermines the ability of the consumer to provide express informed consent.” A record of the consumer’s consent must be maintained for three (3) years.
Businesses must provide a simple cancellation method that is at least as easy to use as the method the consumer used to consent to the offer and are prohibited from creating barriers to deter or prevent consumers from cancelling. For online offers, businesses must make it easy for consumers to find the cancellation method on their website. Consumers must also be able to cancel by phone during normal business hours, and the cost of the phone call cannot exceed the cost of consent. Consumers who sign up in person must be given a way to cancel online or provided a phone number to cancel.
The FTC’s rules do not preempt state laws in this area unless the state law is inconsistent with the rule. It is important for businesses to confirm the requirements in the states where they do business.
Compliance Guidelines
To ensure compliance, businesses should:
- Review its offers and disclosures to ensure they comply with the FTC rule and state requirements;
- Ensure its cancellation methods are easy to locate online;
- Update customer service methods and procedures to make it easy for customers to cancel by phone;
- Review and update any autorenewal provisions in terms of service; and
- Locate collateral and online materials for offers that need to be updated to comply with the FTC’s new rule or removed from the marketplace.
The CommLaw Group Can Help!
Given the myriad of federal and state autorenewal requirements, as well as the increased risk of consumer protection enforcement by the FTC and state attorneys general, and even civil litigation, The CommLaw Group has a team standing by ready to answer your questions and help you navigate your business teams through changes to its operations and practices.
CONTACT US NOW, WE ARE STANDING BY TO GUIDE YOUR COMPANY’S COMPLIANCE EFFORTS
Jonathan S. Marashlian – Tel: 703-714-1313 / E-mail: jsm@CommLawGroup.com
Diana James – Tel: 703-663-6757 / E-mail: daj@CommLawGroup.com
