On October 22, 2021, the Federal Trade Commission (“FTC”) published an enforcement policy statement on negative option marketing. Soon thereafter, on October 28, 2021, the FTC issued a press release explaining that its guidelines are meant to serve as a warning to businesses against employing deceptive sign-up tactics and/or illegal dark patterns that trap consumers into enrollment in subscription services.
Recurring billing methods provide convenience to both businesses and consumers by doing away with the need to revisit the purchase/payment process each month for products or services that consumers plan to use for an extended period of time. Following the lead of states, such as California, New York, and Vermont, the FTC requires that continuity plan sign-up processes must: (1) be clear and up-front, (2) obtain consumers’ informed consent, and (3) be easy to cancel. If a business’s negative option marketing fails any one of these three requirements, it will be subject to legal action, including potential civil penalties.
What are Negative Options Offers
Negative option marketing is a practice in which sellers treat consumers’ failure to take an affirmative action (such as rejecting an offer or canceling an agreement) as assent to be charged for future goods or services. These offers include automatic renewals, continuity plans, and free-to-pay conversions.
FTC’s Requirements for Negative Option Marketing
(1) Disclosures Must Include Material Terms and Be Clear and Conspicuous
Businesses must clearly and conspicuously disclose all material terms of their offers, including any express claims and deliberately implied claims.
Material terms. Material terms are any terms related to the advertised goods or services that are necessary to prevent deception. Material terms include, but are not limited to, any and all charges for the goods and services, deadlines to cancel charges, and other related cancellation procedures. Businesses need to disclose: (i) the amount or range of charges, (ii) if applicable, any increase in costs after a trial period ends; (iii) the recurring basis (monthly, yearly, etc.) of charges; and (iv) the dates charges will be submitted for payment.
Clear and Conspicuous. For disclosures to be considered clear and conspicuous, offers must be easily understandable by ordinary consumers and difficult to miss (unavoidable). The disclosures may not include distracting or irrelevant information, and if the targeted consumers include groups, such as the elderly or children, the disclosures must be understandable to those groups. In addition, if disclosures are in writing, they must appear immediately next to where consumers are prompted to sign-up for negative option features. For example, if businesses market on the Internet or other interactive software, consumers should not have to take any action (such as clicking a link) to be presented with important disclosures and disclaimers.
(2) Express Informed Consent Before Charging Users
Businesses must obtain consumers’ express informed consent before charging them for products or services. Businesses must obtain consumers’ affirmative consent (check a box) to the negative option feature separately from other portions of the transaction. Businesses may not include information that interferes with consumers’ ability to supply their express informed consent. In addition, businesses must be able to verify that they obtained consumer consent.
(3) Cancelation Must Be as Easy or Easier Than Signing Up
Businesses must provide cancellation mechanisms that are as easy or easier to use than their sign-up mechanisms. Cancellation mechanisms should be offered through the same mediums that consumers used to sign-up. For example, if consumers can call at any time to sign-up in less than three minutes, consumers must be able to call at any time to cancel in less than three minutes. In the cancellation process, businesses may not impose unreasonable delays, such as promoting new offers or attempts to maintain consumers’ subscriptions.
State Requirements for Negative Option Marketing
Businesses need to take note of the negative option marketing laws of the states in which they conduct business because certain states, like California and Vermont, have more detailed requirements than that of the FTC. California leads the country in its regulation of negative option marketing and has several specific requirements, including that notices must be sent to customers a set number of days before program renewal. In addition, California recently passed new regulations on negative option marketing that are set to come into effect in July 2022.
If you are interested in learning more about this topic or require assistance with your negative option marketing plans, please email us at info@kleinmoynihan.com, or call us at (212) 246-0900.
The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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