The Federal Trade Commission (FTC) announced its long-awaited final Negative Option Rule (the “Rule”) on October 16, 2024. “Negative Options” according to the FTC are arrangements “under which the consumer’s silence or failure to take affirmative action to reject a good or service or to cancel the agreement is interpreted by the negative option seller as acceptance or continuing acceptance of the offer.” Such a broad definition could affect a business in just about any industry serving consumers. The FTC estimates (within its comments in the Rule) that over 106,000 businesses currently utilize negative options. In your personal life as a consumer, the Rule may be a welcome development to help manage one’s subscriptions. If you are reviewing the Rule as a business owner, your compliance countdown looms and taking stock now of changes you may need to make is advisable. Some provisions of the Rule take effect 60 days after the Rule is published in the Federal Register; most aspects of the Rule take effect 180 days after it is published in the Federal Register, including disclosure of important information, consent and simple cancellation).

The core provisions of the Rule require businesses using negative options (e.g., recurring subscriptions) for goods and services to provide consumers with a simple cancellation method and to avoid false and misleading practices in connection with the options overall. The FTC has authority to seek significant money damages in connection with such practices it determines to be false or misleading. Statutory damages at the time of this article come close to $52,000 per violation (these are adjusted upward annually for inflation).

Key Requirements under the Rule:

1. Click-to-Cancel. Provide a “simple cancellation” mechanism allowing consumers to immediately cancel the recurring negative option (or subscription) and halt all recurring charges. Consumers should be able to cancel any recurring negative option simply compared to the manner in which signed up for it.
2. Disclosures. Disclose all material terms of the negative option offering in a “clear and conspicuous” manner (defined below) prior to collecting the consumer’s billing information. 
3. Consent. Obtain “express informed consent” to such offering prior to charging the consumer. The consent must be separate from any other portion of the transaction.
4. Recordkeeping. Retain adequate records of such consent for at least 3 years unless the business can demonstrate “by a preponderance of the evidence” that it is not possible to sign up for the offering without such consent.

Cancellation Considerations under the Rule:

The Rule’s “click-to-cancel” provision requires that consumers be able to cancel a recurring subscription made via a negative option in as simple a manner as they signed up for it. Cancellation must be provided by the same means the consumer signed up to purchase the good or service. For example:

• For digital signups (i.e., on the internet or in a mobile app): the cancellation method must be easy to find. The consumer must be able to completely cancel digitally and should not need to speak to representative (live or in a chat) to cancel. 
• For phone signups: the phone number to cancel must take calls or messages during normal business hours, and the call should cost the same or less than the call the consumer made to sign up in the first place. (Most consumers may expect a toll free “800” number option).
• For in-person signups: the business must offer digital (e.g., online) or phone cancellation options (without incurring additional, unnecessary fees). Where practical, the business should also offer in-person cancellation options. 

How to Present the Key Disclosures to Consumers:

The Rule has a “clear and conspicuous” disclosure standard, meaning information needs to be presented as “easily noticeable and understandable” by ordinary consumers. This definition is consistent with the FTC’s “conspicuous” standard under its recently revised Guides Concerning Use of Endorsements and Testimonials in Advertising, which basically means a required disclosure is unavoidable. 

The Rule further benchmarks “easily noticeable and understandable” as follows:

• Match how the negative option sign up was presented with the cancellation option(s). If, for example, the sign up offer is presented orally or audibly, make associated disclosures the same way. Audible disclosures must be delivered in a volume, speed and cadence sufficient for ordinary consumers to easily hear and understand. It’s probably best not to use a crazy-fast “auctioneer” voice to make an audible disclosure.
• Make the disclosures stand out compared to surrounding text or graphics or other elements that could distract from the messaging. For example, look at the font size and color compared to surrounding elements for text-based disclosures. The disclosure must be easily noticed, read and understood. The FTC has long had a focus on “placement” and “presentation” across its consumer protection materials. This is no different.
• Make the disclosures “unavoidable.” In a digital context, you can think of this as not burying the disclosure in “mouse print” or put it at the bottom of a web page or email to which the consumer may not scroll down.
• Use plain English (or Spanish or whichever language is presented). The language and syntax of the disclosure must be understandable to ordinary consumers.
• Avoid conflicting or contradictory information consumers may not understand.
• Obtain a consumer’s unambiguously affirmative consent to the negative option offering separate and apart from any other portion of the transaction. Avoid any information that detracts from, contradicts or otherwise interferes with the ability of consumers to provide the express informed consent.

The Rule does not preempt any state laws that also address negative options except to the extent the state law is inconsistent with the Rule’s provisions (and then limited to the extent of the inconsistency). Businesses are encouraged to take into account applicable state negative option/subscription laws alongside the Rule. Businesses that use negative options also need to exercise care not to run afoul of the federal Restore Online Shoppers’ Confidence Act (ROSCA).

Not all businesses are happy to have to comply with the newly updated Rule. On October 23, 2024, several industry groups (NCTA-The Internet & Television Assoc., the Electronic Security Assoc. (ESA), and the Interactive Advertising Bureau (IAB)) representing numerous companies in the cable industry, home security, and assorted online advertising businesses sued the FTC in the Fifth Circuit Court of Appeals to enjoin the FTC’s application of the Rule. The IAB alone, for example, self-describes as having over 700 members, including “leading media companies, brands and agencies.”¹ The thrust of this petition to enjoin the Rule seems to relate to not wanting to make subscriptions easier to cancel. The FTC for its part is on the record with being motivated to thwart unscrupulous sellers who “don’t tell the truth or leave out necessary information,” bill people who did not agree to pay, and “make it hard – or impossible – to cancel.” While the petition is pending in the Fifth Circuit Court of Appeals, the Rule remains in effect.

Certain federal legislators have also signaled to the FTC that it should pause enforcement and policy making given the transition from the Biden administration to the Trump administration will likely result in leadership changes at the FTC that could impact what issues the FTC prioritizes. How this change impacts the FTC remains to be seen; in the interim, the Rule remains in effect.

¹ See www.iab.com/ourstory/ (last visited November 15, 2024).