2024 was an active year for regulation of customer contracts with “negative option” features. Generally, a “negative option” provision in an offer to sell products or provide services means that a customer’s silence or failure to take action to reject the terms of the offer is deemed by the seller as the customer’s acceptance of the offer terms.

Earlier in 2024, three states updated laws related to negative option provisions in customer contracts (together, the 2024 State Autorenewal Laws)

1. Utah enacted its Automatic Renewal Contracts Act on March 13, 2024, with an in-force date of January 1, 2025. (Utah ARCA)
2. Virginia amended its consumer protection law related to automatic renewal and continuous service offers (which was effective on July 1, 2024) (Virginia AR Law).
3. California amended its Automatic Purchase Renewals law on September 24, 2024 with the amendments in force on July 1, 2025 (California AR Law).

Then, on October 16, 2024, the Federal Trade Commission (FTC) issued the final version of its “Rule Concerning Recurring Subscriptions and Other Negative Option Programs” (FTC Final Rule). (We previously covered the FTC’s notice of proposed rulemaking for negative options on Privacy World here.) The Federal Register publication date for the FTC Final Rule is November 15, 2024. Whether the FTC Final Rule will survive the change in Administration is an open question, as discussed below.

Both the 2024 State Autorenewal Laws and Final FTC Rule include new or expanded obligations. When effective, the FTC Final Rule will preempt the 2024 State Autorenewal Laws (and the other similar state laws) to the extent they are “inconsistent” with its requirements. State laws that afford greater protection than the FTC Final Rule are not inconsistent with the FTC Final Rule. In other words, the FTC Final Rule sets a national “floor,” and states may add more consumer-protective obligations, as reflected in certain aspects of the 2024 State Autorenewal Laws described below.

Key Takeaways

• The FTC Final Rule, like the NPRM Rule, applies to any customer contract that has a negative option feature (negative option customer contract) – regardless of the contract term or the media in which it is made available (i.e., in-person, online, telephone, or hard copy).
  • The 2024 State Autorenewal Laws define the specific categories of negative option customer contracts to which they apply.
• The Final FTC Rule applies to business-to-business (B2B) negative option customer contracts (§ 425.1).
  • The Virginia AR Law treats a “small business” as a consumer, but the California AR Law and Utah ARCA do not address B2B negative option customer contracts.
• The FTC Final Rule expressly prohibits misrepresentation of any fact that is “material” (defined below), including the terms of the negative option customer contract, cost associated with the negative option feature and claims about the underlying good or service even if unrelated to the negative option feature, effective 60 days after the FTC Final Rule is published in the Federal Register. (§ 425.3).
  • The California AR Law now includes a similar express prohibition on misrepresentation of material facts. The other two 2024 State Autorenewal Laws do not include a similar express provision, although the prohibition is presumably implied from those states’ consumer protection laws.
• The FTC Final Rule requires a “Negative Option Seller” (i.e., “the person selling, offering, charging for or otherwise marketing a good or service with” a negative option) (Seller)) to disclose all “Material” terms of a negative option customer contract, including specifically when a customer will be “Charged”; whether a charge is recurring; the date by which the customer must act to prevent or stop a recurring charge; the cost of the recurring charge and frequency charged; and how a customer can cancel. (§ 425.4(a)). Effective 180 days after publication in the Federal Register.
  • The 2024 State Autorenewal Laws have similar but not identical requirements.
• A Seller has enhanced consent obligations under the Final FTC Rule, including related to timing and presentation of the terms of the negative option customer contract and consent record retention. (§ 425.5(a)). Effective 180 days after publication in the Federal Register.
  • The pre-2024 laws in California and Virgina required the customer’s “affirmative consent” to the negative option customer agreement prior to charging the customers credit/debit card or account. (Utah ARCA focuses on notice, not consent).
  • The California AR Law now includes a new general “express affirmative consent” requirement for a negative option customer contract, together with a record retention requirement for the “affirmative consent.”
  • Neither the Virginia AR Law nor Utah ARCA has an express record keeping requirement but, even before the Final FTC Rule is effective, Sellers are well advised to retain records nonetheless (e.g., until the statute of limitations under state contract law that would apply to the customer agreement expires).
• The FTC requires that a Seller allow a customer to cancel a negative option customer contract via the same medium (e.g., online, telephone, mail or in-person) that the consumer used to provide consent to it. (§425.6(c)). Effective 180 days after publication in the Federal Register.
  • The California AR Law now has similar requirements. The Virginia AR Law has a (not new for 2024) requirement that a seller that offers a negative option customer contract online must have available an online cancellation option. (Utah ARCA requires notice about “options for cancellation.”)
• The FTC also requires that cancelling a negative option customer contract is at least as easy as consenting to it. (§ 425.6(b)). Effective 180 days after publication in the Federal Register.
  • The California AR Law now has similar requirements but the other two 2024 State Autorenewal Laws do not have this specific “at least as easy” requirement.
• In the FTC Final Rule, the FTC did not adopt the NPRM’s requirements that (i) a Seller must send an annual reminder about the negative option feature in a customer contract or (ii) a Seller must obtain the customer’s consent prior to offering a benefit for not cancelling (a.k.a., a save offer). Instead, the FTC will seek further input via a supplemental notice of proposed rulemaking.
  • The California AR Law does, however, require annual notices and allow a seller to make a save offer.
• As a rule promulgated under Section 5 of the Federal Trade Commission Act (Section 5), the FTC Final Rule does not empower state Attorneys General to directly enforce it. Nonetheless, the consumer protection laws of some states give express deference to rules promulgated under Section 5 and other states even allow the attorney general to enforce an FTC rule as a violation of the states’ laws. State attorneys general and judges often look to FTC rules and enforcement to determine unfair or deceptive practices under state law.

Deeper Look at The FTC Final Rule

What does the Final FTC Rule replace?

Prior to the effective date of the Final FTC Rule, the FTC’s enforcement power over a Seller’s negative option feature was a combination of several laws and rules, such as Section 5 of the Federal Trade Commission Act (Section 5)(i.e., deceptive and unfair practices), the Restore Online Shoppers’ Confidence Act (ROSCA) and the Telemarketing Sales Rule (TSR). ROSCA’s scope is limited and only applies to goods and services purchased online. The TSR applies to the sales of goods and services by telemarketing, with several notable exemptions. The Final FTC Rule, promulgated under the FTC’s “Mag Moss” rulemaking authority (15 USC Section 57(a)), greatly expands that power, consolidating the principles and requirements found in Section 5, ROSCA, TSR, and the Electronic Funds Transfer Act for all types of negative option customer contracts.

What categories of negative option customer contracts are covered by the FTC Final Rule?

The FTC Final Rule applies to all customer contracts with negative option features, including specifically:

• A prenotification negative option plan, e.g., a Seller that provides periodic notices offering goods to participating consumers and sends and charges for those goods if the consumers take no action to decline the offer;
• A continuity plan, e.g., a customer agrees in advance to receive periodic shipments of goods or provision of services until the customer cancels;
• An automatic renewal, e.g., a Seller automatically renews a subscription when the current term expires, unless the customer affirmatively cancels;
• A free-to-pay or fee-to-pay conversion, e.g., a customer receives a free or discounted trial after which the seller automatically charges a fee unless the customer cancels or returns the good. (§ 425.2(f)).

The FTC Final Rule also applies:

• different requirements for the different media through which a product or service subject to a negative option customer contract is marketed, including in-person, “Interactive Electronic Media,” telephone and through printed materials. The term Interactive Electronic Media is defined as “any electronic means of communicating (except via telephone calls), including Internet, mobile application, text, chat, instant message, email, software, or any online service.” (§ 425.2(d));
• to B2B negative option customer contracts (as per VII.B.1.c of the FTC’s Proposed text of Federal Register publication); and
• to a negative option customer contract of any term length.

These changes are effective 60 days after publication of the FTC Final Rule in the Federal Register.

What does the FTC Final Rule prohibit?

A seller of a product or service under a negative option customer contract (or, in the FTC Final Rule, a Negative Option Seller (Seller)) is prohibited from misrepresenting, either expressly or by implication, any “material” fact. In the FTC Final Rule, “Material” means “likely to affect a person’s choice of, or conduct regarding, goods or services.” This definition is also used for “material” in the FTC’s 1983 FTC Policy Statement on Deception, so the FTC appears to be tying the FTC Final Rule to its long standing practices. The FTC Final Rule lists certain facts as Material, including contract terms, cost, purpose or efficacy of the underlying good or service, and health or safety. The FTC Final Rule prohibits any misrepresentation made about the good and service if that good or service is sold with a negative option feature, not just deceptive descriptions of the negative option process. (§ 425.2(e), § 425.3).

Why did the FTC choose this for the FTC Final Rule? Civil penalties. The FTC can obtain civil penalties and/or consumer redress under Section 19 of the FTC Act, for a violation of the FTC Final Rule, which is not the same as a Section 5 action. This FTC Final Rule would create a difference between the same deceptive product claims regarding the same product sold with or without a negative option, the former subject to civil penalties and the latter not. In other words, misrepresentations about the efficacy of a diet pill sold under a negative option customer contract would be subject to civil penalties under the FTC Final Rule, whereas those claims would not be subject to civil penalties under a Section 5 action.

This noteworthy change is effective 60 days after publication in the Federal Register.

What disclosures are required by the FTC Final Rule?

The FTC Final Rule requires a Seller to make certain disclosures prior to obtaining the customer’s payment information. A Seller must clearly, conspicuously and proximately disclose that customers’ payments will be recurring (if applicable), the date by which a customer must act to stop charges, the costs that a customer may incur, the date the consumer will be charged for the negative option and how to cancel the recurring payments. Further, all communications must be free of “information that interferes with, detracts from, contradicts, or otherwise undermines the ability of consumers to read, hear, see, or otherwise understand the disclosures required” under the FTC Final Rule, i.e., communications must be free of dark patterns. (§ 425.4).

The disclosure requirements are effective 180 days after publication in the Federal Register.

How do Sellers obtain consent from customers?

A Seller must obtain express, informed consent from the customer prior to charging the customer under the negative option customer contract. The customer must unambiguously, affirmatively consent to the negative option feature separately from any other portion of the transaction (i.e., a specific acceptance of the negative option feature on top of the purchase of the good or service generally) and must unambiguously affirmatively consent to the entire contract. The Seller also must refrain from including any information that “interferes with, detracts from, contradicts, or otherwise undermines” the customer’s ability to provide express informed consent – again, free of dark patterns. Consent can be obtained through a check box, signature or other similar method. Finally, the Seller must “keep or maintain” verification of the consumer’s consent for three years. If, however, a Seller can demonstrate “by a preponderance of the evidence” that a consumer cannot “technologically complete the transaction without consent,” the recordkeeping requirement does not apply. (§ 425.5(a)(3)).

The consent requirements are effective 180 days after publication in the Federal Register.

What are the cancellation requirements?

Sellers must allow subscribers to cancel via the same medium (e.g., Interactive Electronic Media (see 2. above), telephone, mail, or in-person) that the Seller used to sell the consumer the negative option customer contract. Cancellation must be simple and as easy as it is to subscribe (e.g., a link a customer can “click to cancel” the negative option). Products or services with negative option features that are sold online must allow cancellation online, and the Seller must provide, at a minimum, the cancellation mechanism on the same website or application the customer used to purchase the negative option. Negative options sold over the phone must allow for cancellation over the phone during normal business hours and be no more costly than the call to consent to the negative option (i.e., toll-free). Negative options sold in-person (e.g., month-to-month cell phone plans sold in a store), must allow for cancellation by phone or online, and in-person (where practical). (§ 425.6).

The “click to cancel” requirements are effective 180 days after publication in the Federal Register.

When is the FTC Final Rule in effect?

The disclosure, consent, and “click to cancel” requirements are effective 180 days after publication of the FTC Final Rule in the Federal Register. The remainer of the FTC Final Rule, including the prohibition on misrepresentations, is effective 60 days after publication.

What was not included in the FTC Final Rule that was part of the NPRM Rule?

In the NPRM Rule (previously covered on Privacy World), the FTC set its sights on including retention offers that many Sellers use to both retain customers and offer customers discounts or better prices —these save offers (defined above) would have been prohibited unless the customer first consented (and the consent is only valid for that cancellation attempt) to receive the retention offers. (As noted below, the California AR Law does allow for save offers.) The FTC also considered requiring annual reminder notices for all subscriptions that do not include the delivery of physical items. The FTC chose to seek further comments through a supplemental notice of proposed rulemaking.

Is the FTC Final Rule subject to challenge?

The FTC Final Rule passed with a 3-2 vote. Commissioners Holyoak and Ferguson – the two Republicans – were the dissenters. In her written dissent, Commissioner Holyoak alleged “procedural irregularities” and that the FTC exceeded its authority by promulgating “the now-capacious [FTC Final] Rule,” thereby setting the stage for legal challenge.

To challenge an FTC final rule, any interested person (including a business, consumer or consumer organization) may file a petition in a U.S. Court of Appeals not later than 60 days after an FTC Final Rule is promulgated. The petitioner must base its challenge on the rulemaking record. (A rulemaking record is required to include at least: a statement regarding the prevalence of the acts or practices treated by the rule; a statement as to the manner and context in which such acts or practices are unfair or deceptive; and a statement as to the economic effect of the rule, taking into account the effect on small businesses and consumers.) 

In response to a petition, the U.S. Court of Appeals may (1) direct the FTC to consider additional submissions, (2) set aside the rule if it is not supported by “substantial evidence” from the rulemaking record, or (3) set aside the rule if the FTC’s limits on evidence precluded disclosure of material facts. The decision of the Court of Appeals is final, subject only to review by the Supreme Court of the United States.

Historically, the U.S. Court of Appeals for the District of Columbia was the chosen forum because of the FTC’s D.C. location. Recently, however, petitioners have sought out more ‘friendly’ Circuits. Seven days after the FTC Final Rule was announced, a Petition for Review was filed in the Sixth Circuit by a group of trade organizations, and the U.S. Chamber of Commerce and the Georgia Chamber of Commerce announced that they filed a Petition for Review in the Eleventh Circuit. On the eighth day, a Petition for Review also was filed in the Fifth Circuit by another group of trade organizations.

The FTC Final Rule also is vulnerable under the Congressional Review Act (CRA). The CRA requires each federal agency to submit each new final rule to Congress and to the Comptroller General of the Government Accountability Office (GAO) for review before the final rule can take effect. If the final rule is deemed a “major rule,” the GAO also must submit a report to Congress identifying whether the agency’s submission complied with the required procedural steps. If Congress does not approve of an agency’s final rule, it can enact a resolution of disapproval, in which case the rule has no force or effect.

Agency rules issued near the end of the previous Administration are eligible for review under the CRA. According to a Congressional Research Service (CRS) report (July 9, 2024), CRS “unofficially estimates that Biden Administration rules submitted to the House or Senate on or after August 1, 2024, until the end of the second session of the 118th Congress are likely to be subject to the CRA.” 

Whether by legal challenge or disapproval by Congress, the FTC Final Rule may not survive.

A Deeper Look at the 2024 State Automatic Renewal Laws

The table below compares key elements of the 2024 State Automatic Renewal Laws, but several other states also have laws that regulate negative options, which are not covered here. Regardless, once effective, the FTC Final Rule will preempt any state law regulating a negative option customer contract except to the extent the state law provides more protections for the customer. As the FTC explains: “any preemptive effect of the [FTC Final] Rule must be limited to instances where it is not possible to comply with both state law and the [FTC Final] Rule, or where application of state law would frustrate the purposes of the [FTC Final] Rule.” That is, to the extent prosecution of a violation of a less restrictive state law would nonetheless violate the FTC Final Rule, a state should remain free to bring a claim and could likely further prosecute also the failure to meet the FTC Final Rule under its general consumer protection authority, especially in states where violation of a FTC Final Rule is deemed to violate the state’s consumer protection law.

In addition to the below, the California AR Law also includes two unique elements:

1. “One Save Rule” – A business subject to the California AR Law is allowed to present a retention offer during the cancellation process, such as discounts or benefits, as long as the business first informs the consumer that the consumer may complete the cancellation process at any time, or if online, simultaneously displays a link or button to cancel. (§17602(e)(1)).
2. Annual reminders – A business must send an annual reminder to a consumer that has agreed to an annual automatic renewal agreement or continuous service agreement in the same medium through which the consumer accepted the agreement or otherwise customarily interacts with the business. The reminder must disclose the product or service to which the notice relates, the frequency and amount of autorenewal charges, and the cancellation mechanism. (§17602(h)).

As noted above, the FTC Final Rule does not address these issues but will revisit this issue in a supplemental notice of proposed rulemaking.

Also, like the FTC Final Rule, the California AR Law prohibits misrepresentation, “expressly or by implication, any material fact related to the transaction,” including “any material fact related to the underlying good or service.” (§17602(a)(7)). The term “material” is not, however, defined in the California AR Law. (The FTC Final Rule includes a rather unhelpful definition of material as “likely to affect a person’s choice or conduct.”)

Auto Renewals and Other Negative Option under EU laws

All of these laws bring the U.S. consumer protection framework closer to the EU’s Consumer Rights Directive and the Unfair Contract Terms Directive, which are EU-wide frameworks subject to national implementation by each Member State. These frameworks apply to all consumer contracts, requiring that a seller obtain a consumer’s affirmative consent to contractual terms, including as relates to automatic renewal and negative option features.

Specifically, a consumer contract must be written in plain, intelligible language, with any ambiguity construed in favor of the consumer. The Unfair Contract Terms Directive requires that a consumer have certain rights and defines the types of terms that are considered unfair to the consumer and, therefore, void and unenforceable. A consumer contract cannot be drafted in a way that causes a significant imbalance in the parties’ rights and obligations to the detriment of the consumer, such as obstacles to prevent the consumer from cancelling a subscription contract early. Likewise, the method of withdrawal must be as simple and straightforward as the method of giving consent, so as not to create an unfair imbalance between the position of the seller and the consumer. In addition, these general rules are complemented by national general civil and commercial laws, which regulate contractual relations in detail.

We will monitor challenges to the FTC Final Rule but, in the meantime, sellers that have so far avoided regulation under U.S. state law should start a process for assessing current practices. Even if the FTC Final Rule does not survive legal challenge, sellers subject to the 2024 State Automatic Renewal Laws likely should consider whether and what changes are needed. Sellers already operating in the EU may wish to carry over many of their EU-specific practices to the U.S. market and then check for technical compliance for the U.S. laws described above.

Additional Author: Sasha Kiosse