On March 26, 2016 the FTC announced today that it is seeking public comment on an Advance Notice of Proposed Rulemaking (ANPRM) concerning the agency’s Rule Concerning the Use of Prenotification Negative Option Plans, commonly known as the Negative Option Rule.
The ANPRM asks the public to comment on the current Rule, whether proposed amendments are required, and about potential alternatives to address deceptive or unfair negative option practices.
What are Negative Option Programs?
Negative options are a form of marketing in which the absence of affirmative consumer action constitutes consent to be charged for goods or services. Negative options can potentially harm consumers when marketers make misleading or inadequate disclosures, bill consumers without lawful consent, or make cancellation unreasonably difficult.
“Negative option subscriptions can offer procompetitive features to consumers and the marketplace more broadly by lowering transaction costs and ensuring consumers receive uninterrupted service,” said FTC lawyer Christopher Mufarrige, Director of the FTC’s Bureau of Consumer Protection. “The Commission’s enforcement track record suggests, however, that negative option subscriptions continue to be plagued by difficult cancellation processes, unlawful retention tactics, and a suite of other impediments that prevent consumers from easily switching or ending subscription services. Neither consumers nor competition are protected when consumers are enrolled in programs that they either do not want or cannot cancel.”
The current Negative Option Rule (16 CFR Part 425) covers only pre-notification programs. It does not cover automatic renewal or subscription programs, which are governed by the Restore Online Shoppers’ Confidence Act and the Telemarketing Sales Rule. ROSCA and TSR apply only in specific contexts.
Consult an experienced FTC defense lawyer if you are considering incorporating subscription, automatic renewal, or other negative option programs into advertising campaigns, or if you are the subject of a regulatory action.
What Information is the FTC Seeking to Address Negative Option Marketing?
The ANPRM announced by the FTC seeks public comment to determine whether and how the FTC should use its authority to address negative option marketing, including whether the agency should amend the current Rule to address deceptive or unfair acts or practices.
Specifically, the FTC is seeking the following information to ensure its rulemaking adequately responds to concerns from both consumers and industry:
- Marketplace for Negative Option Programs. The FTC seeks information on the extent to which businesses market products and services using negative options and how these negative option programs operate
- Negative Option Practices. The FTC seeks information on practices that (i) prevent consumers from understanding the terms of a negative option program, (ii) result in consumers being enrolled without their express informed consent, or (iii) deter consumers from canceling their enrollments, and whether such practices are prevalent in the marketplace
- Addressing Unlawful Practices. The FTC seeks information on specific ways to address unfair or deceptive negative option practices, including retaining the current Rule, adopting provisions of the vacated 2024 Rule or some other provisions, or implementing alternatives to regulation (such as educating consumers and businesses on how to avoid unlawful negative option practices), and the costs and benefits of each of these measures; and
- Supporting Studies and Data. The FTC encourages commenters to submit supporting market studies, economic data, or other empirical evidence.
Once the ANPRM has been published in the Federal Register, consumers are able to submit comments electronically for 30 days. Consumers also may submit comments in writing by following the instructions in the “Supplementary Information” section of the Federal Register notice.
It is anticipated that a final Negative Option Rule will cover a wider range of negative option programs and address a number of problematic marketing practices, such as affirmative consent and easy-to-use cancellation mechanisms. A revised Negative Option Rule would also provide the FTC with broad authority to seek monetary relief for violations.
