A final “Click-to-Cancel” rule to combat unfair and deceptive negative option feature and marketing practices, announced by the Federal Trade Commission (FTC), goes into effect January 14, 2025.
The final rule, which requires compliance by May 14, 2025, is primarily aimed at amending the current “Negative Option Rule,” which was originally announced by the FTC in 1973. The intent of the FTC in modifying the Negative Option Rule is to better address a number of “modern unfair and deceptive practices” utilized by sellers through subscriptions, memberships, and other recurring payment programs.
A “negative option feature” is a program or feature that contains a term or condition that allows a seller to interpret a customer’s non-action or silence as an acceptance of an offer (e.g. continuity plans, automatic renewals, free trial conversion offers, etc.). According to the FTC, current attempts to police negative option features through a patchwork of State and Federal laws have fallen short, making it necessary for the FTC to establish a clear, uniform, and enforceable rule.
Broadly speaking, the new rule will put in place a legal framework that will:
1. prohibit certain misrepresentations of material fact while marketing or promoting any product or service with a subscription,
2. require sellers to provide important payment information before obtaining consumer billing information,
3. require sellers to obtain affirmative consent from consumers prior to charging them by way of negative option features such as recurring subscriptions, and
4. require sellers to provide consumers with simple methods for cancellation.
Despite the well-meaning goals of the FTC, the final rule has not been without scrutinization by outside groups and within the FTC. Such skepticism is exemplified by only three of the five FTC Commissioners voting in favor of approving the new rule. There will likely be additional future legal challenges from outside groups as the new rule nears its effective date. Abrahams Kaslow & Cassman LLP will continue to monitor developments.
The changes to the negative option rule will have wide-reaching implications for both sellers and consumers. The new rule will empower the FTC to more effectively combat deceptive and unfair trade practices utilized by sellers in the modern, subscription-based marketplace. Businesses with negative option features in their business practices should make sure they are within the new parameters before the deadline to avoid legal issues.
Please contact Alex J. Montoya with any additional questions related to the FTC’s new “Click-to-Cancel” rule and how it may apply to you at [email protected].
