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Financial Services Law Insights and Observations

CFPB: Negative option marketing practices could violate the CFPA

Federal Issues CFPB Consumer Finance Dark Patterns Negative Option

Federal Issues

On January 19, the CFPB released Circular 2023-01 to reiterate that companies offering “negative option” subscription services are required to comply with federal consumer financial protection laws. According to the Circular, “‘negative option’ [marketing] refers to a term or condition under which a seller may interpret a consumer’s silence, failure to take an affirmative action to reject a product or service, or failure to cancel an agreement as acceptance or continued acceptance of the offer.” The Bureau clarified that negative option marketing practices could violate the CFPA where a seller: (i) misrepresents or fails to clearly and conspicuously disclose the material terms of a negative option program; (ii) fails to obtain consumers’ informed consent; or (iii) misleads consumers who want to cancel, erects unreasonable barriers to cancellation, or fails to honor cancellation requests that comply with its promised cancellation procedures.

The Bureau described receiving consumer complaints from older consumers about being repeatedly charged for services they did not intend to buy or no longer wanted to continue purchasing. Other consumers reported being enrolled in subscriptions without knowledge of the program or the costs. Consumers also submitted complaints regarding the difficulty of cancelling subscription-based services and about charges on their credit card or bank account after they requested cancellation.

The Bureau also warned that negative option programs can be particularly harmful when paired with dark patterns. The Circular noted that the Bureau and the FTC have taken action to combat the rise of digital dark patterns, which can be used to deceive, steer, or manipulate users into behavior that is profitable for a company, but often harmful to users or contrary to their intent. The Bureau noted that consumers could be misled into purchasing subscriptions and other services with recurring charges and be unable to cancel the unwanted products and services or avoid their charges.

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