Advance notification plans, continuity plans, automatic renewal, free paid conversion. They are all variations on the negative option theme. Under the right circumstances, these marketing methods can be convenient for consumers. But decades of FTC enforcement have shown that when negative options are tainted by lies, half-truths and hidden strings, the impact on consumers can be negative. That’s why the Federal Trade Commission is seeking public comment on proposed amendments to its negative selection rules aimed at combating unfairness and deception.
As the FTC takes a closer look at existing rules, it will keep an eye on changes in the market that may require updates. Negative option rules are a good example. First, thanks to the booming doorstep economy, consumers can buy almost anything on a regular basis—food, clothes, household items, and more. However, the current negative election rule only applies to advance notice plans, an older (and, frankly, declining) business model. Under the advance notification program, members of record clubs (remember record clubs?) were notified in advance that a company intended to send them a certain album. If members don’t want the album, they can return the postcard for a limited time (remember postcards?). If they missed the deadline, they were stuck with the album and the bill. Given the narrow scope of the existing negative option rules, it seems time to reconsider.
The second reason the FTC is asking for your feedback on proposed changes to the rule is that problematic negative option practices continue to cause harm to consumers. Consumers tell us they keep paying for things they never agreed to buy in the first place. Or they’ve tried to cancel the order multiple times, but the product just keeps coming to them. Others recounted the inconvenient hoops the company made them jump through.
Because of the limited applicability of the negative option rule, our approach to date has been to file individual cases alleging violations of the FTC Act or, if applicable, the Telemarketing Rule, the Restoring Online Shopper Confidence Act (ROSCA) and other legal laws. But the number of complaints suggests that case-by-case enforcement may not be enough to protect consumers.
As a result, the FTC issued an advance notice of proposed rulemaking in 2019. Based on the comments we received, the Commission issued an enforcement policy statement on negative option marketing in 2021. The latest step is the just-announced proposal to change the rules. You’ll need to read the Federal Register notice for details, but the Federal Trade Commission has a fact sheet with some key points. Here is a summary of the three proposals currently on the table:
- Ask the company to elaborate on the details of the transaction. “They signed me up but never told me what was involved!” This is a common theme when consumers file reports about misleading negative option quotes. To address the lack of information, the proposed amendments would require sellers to provide important information before obtaining billing information: 1) the consumer’s payment will be regular (if applicable), 2) the deadline to stop charging, 3 ) what payment the consumer will have, 4) the date the payment will be submitted, and 5) information on how the consumer can cancel.
- Ensure companies obtain explicit informed consent from consumers. “Why am I getting these things I don’t need and who says these people can charge my credit card?!” We hear a lot of this from consumers, suggesting that additional regulations may be necessary to protect them from illegal practices. The proposed amendments comply with ROSCA’s “explicit informed consent” requirements while providing more guidance for companies on how to comply.
- Ask companies to implement click-to-cancel. “How do I cancel $%#&?!” Frictionless registration is a breeze for online marketers. But when consumers want to cancel, some of these companies create obstacle courses designed to deal with frustration and failure. Two practices challenged in recent Federal Trade Commission cases illustrate this point. One company asked people to call a phone number to cancel, then made them wait for a long time. Another company ignored cancellation requests unless the consumer sent them to a hard-to-find email address authorized to accept cancellations. The proposed amendments would require companies to make cancellation easy, and one way to advance this would be to require businesses to let people cancel using the same method they used to sign up – in other words, Click Cancel.
The FTC anticipates that the proposed changes will apply to all forms of negative option marketing and all media. The proposed amendments also address other issues of interest to businesses and consumers: the use of “saves” (offering additional offers to keep customers signed up before canceling), reminders and confirmations, noncompliance penalties and the impact on existing state laws, only To give a few examples.
Another proposed change is to change the name from “Negative Option Rules” to “Rules Relating to Periodic Subscriptions and Other Negative Option Plans”. This may seem like a small modification, but it shows that negative selection applies much wider than your dad’s record club.
At this stage, this proposal is just one possible approach and we would like your feedback. Once the notice is published in the Federal Register, you can save steps by submitting public comments online.
