/>iRevisions to the Negative Option Rule make it easier for consumers to cancel unwanted recurring subscriptions and memberships.
In an October 16, 2024, press release, the Federal Trade Commission (FTC) announced its final Negative Option Rule, requiring businesses to make it as easy for consumers to cancel their enrollment in recurring subscriptions and memberships as it was to sign up for them. The amendments are part of the FTC’s ongoing review of the 1973 Negative Option Rule, which the Commission is working to update to combat unfair or deceptive practices in a modern, digital economy.
The rulemaking process, launched in March 2023, resulted in more than 16,000 comments from consumers, federal and state government agencies, consumer groups, and trade associations. That process resulted in the final rule and a corresponding fact sheet. Most of the final rule’s provisions go into effect 180 days after publication in the Federal Register. Here are some key takeaways for businesses to keep in mind:
- The rule applies broadly: The rule applies to negative option marketing, including prenotification and continuity plans, automatic renewals, and free trial offers, whether the offer appears online, on the phone, or in person.
- Businesses are covered too: The rule covers business-to-business transactions, as well as business-to-consumer transactions. This means if a business is enrolled in a negative option program, that business must be provided the same protections as an individual consumer.
- Material misrepresentations are prohibited: When advertising a negative option, businesses should ensure they do not mislead consumers about any material aspects of the offer, including the terms of the negative option program or the purpose of the product or service the business is selling.
- Disclose all material terms ahead of time: Material terms should be clear, conspicuous, and available to customers before they enroll in subscriptions or memberships. Certain key information about charges and cancellation must appear at the point where the customer agrees to the negative option.
- Obtain proof of consent for charges: Businesses should be able to show customers fully understood what they were signing up for before the business started charging them. The rule gives some flexibility on what proof looks like; in many cases, it is likely a checkbox, signature, or similar method will suffice. Proof of consent should be retained for at least three years.
- Make cancelling easy: Consumers must be able to find cancellation methods easily. Cancellation should be offered through the same medium (e.g., online, phone, etc.) consumers used to sign up, and it should not be overly burdensome.
- No state law preemption: The rule does not preempt state laws that require more protection for consumers. If other laws apply to your business which impose requirements beyond the FTC’s rule, businesses must still comply with those laws.
- Violators may be subject to civil penalties: Some provisions of the rule go into effect within 60 days of publication, with most parts in full effect within 180 days. Civil penalties can result for noncompliance.
