The Federal Trade Commission has issued a rule “to curb deceptive or unfair negative option practices.”[1] This rule, called “The Negative Option Rule,” requires businesses to make it as easy to cancel a subscription as it was to start it. The rule will apply to subscriptions and memberships that renew unless a consumer takes action to cancel them (e.g., continuity plans, automatic renewals, and free trial offers) and applies to both consumer and B2B transactions. In addition, the rule mandates consent and disclosure requirements.
Key provisions include:
Prohibiting Misrepresentations: Sellers are prohibited from making misleading statements about products or services when promoting products using negative option features. Specifically, the proposed Rule “prohibits any person from misrepresenting, expressly or by implication, any material fact regarding the entire agreement – not just facts related to a negative option feature” (emphasis added). Consequently, marketers using autorenewal features expose themselves to liability for civil penalties or redress if the FTC concludes that any misrepresentation has occurred (e.g., failing to substantiate product claims, inadequate privacy notices, unclear fee disclosures, fake reviews, deceptive endorsements) even if there are no issues tied to explanations of the autorenewal feature.
Writing in dissent, Commissioner Holyoak argues the scope of the rule is overbroad; she asserts that the rule is “a back-door effort at obtaining civil penalties in any industry where the negative option is a method to secure payment.”
Clear Disclosure Requirements: Sellers must provide material information, including pricing and terms, before obtaining billing details. Mandated disclosures include (1) that consumers’ payments will be recurring; (2) the deadline by which consumers must act to stop charges; (3) the costs (reasonably approximated) consumers will be charged and the frequency of the charges; and (4) information on locating the simple cancellation mechanism. The rule also mandates that these disclosures appear “immediately adjacent” to where a consumer signs up for the subscription. The rule preamble also explains that where a consumer previously allowed a seller to store billing information, the seller must give consumers the option to autofill billing information after providing disclosures.
Affirmative Consent: Consumers must give explicit and informed consent to the negative option feature. Companies must obtain records of each consumer’s affirmative consent for a three-year period unless the company can demonstrate that it was technologically impossible for customers to enroll without providing affirmative consent.
Simple Cancellation Mechanisms: Consumers must be able to cancel recurring charges easily and immediately, with no unnecessary barriers. If customers sign up online, then they must offer easy cancellation online. The rule provides that simple cancellation does not necessarily require only one click, but cancellation must require the “same time, burden, expense, and ease of use” as sign-up.[2] And companies may not require consumers to engage with a live agent or chatbot to cancel unless the consumer did so at enrollment. For cancellation over the phone, sellers must be available during normal business hours to take calls or record cancellation messages. And for companies that offered in-person signup, they must offer online or phone cancellation options.
This federal regulation comes on the heels of California’s expansion of the California Automatic Renewal Law (CARL), which explicitly requires “express affirmative consent” to the terms of the automatic renewal. Furthermore, just like the FTC Rule, the California law makes it unlawful for a company to misrepresent any material fact related to the transaction, even if not related to subscription renewal. The law also requires companies to allow consumers to cancel subscriptions through the same method used to subscribe in the first place (e.g., an online form). Finally, the California law requires companies to provide notice of any fee changes and send annual reminder notices to consumers. The California law will apply to a contract entered into, amended, or extended on or after July 1, 2025
What is Next?
Of course, automatic renewal option marketing is used lawfully and non-deceptively in a broad array of common transactions, including subscription, streaming, and delivery services. This rule significantly elevates the risk for companies offering subscriptions. Consequently, companies must take pains to ensure the accuracy of all advertising in the subscription service.
The FTC has a long history of suing companies for Sisyphean cancellation flows.[3] The prospect of civil penalties – nearly $52,000 per violation – gives the FTC an added incentive to pursue enforcement against companies that market products through recurring subscriptions.
The prohibition on misrepresentations takes effect 60 days after its publication in the Federal Register; all other provisions take effect 180 days after publication in the Federal Register. Now is the time for companies to assess whether they should review their subscription disclosures, record keeping procedures, cancellation processes, and product claims. For more information about how the FTC’s new Subscription Rule may apply to your company, please contact any authors of this article for additional information.
[1] Negative Option Rule (ftc.gov) Page 156.
[2] “The Commission reiterates the simple cancellation requirement requires symmetry in terms of, inter alia, time, burden, expense, and ease of use. It does not require use of the exact same mechanism.” Negative Option Rule (ftc.gov). Page 130.
[3] See, e.g., Fed. Trade Comm'n v. Amazon.com, Inc., No. 2:23-CV-00932-JHC, 2024 WL 2723812 (W.D. Wash. May 28, 2024) See also, Fed. Trade Comm'n v. AGE OF LEARNING, INC., a corporation, also d/b/a ABCmouse and ABCmouse.com, (C.D. Cal. Sep. 08, 2020)
