InfoBytes Blog
26 state AGs support FTC’s proposal on Negative Option Rule
On June 26, a coalition of 26 state attorneys general from New York, Pennsylvania, Alabama, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Oklahoma, Oregon, Vermont, Washington, and Wisconsin, submitted a comment letter in support of the FTC’s proposed amendments to its Negative Option Rule. While the Negative Option Rule is intended to combat unfair or deceptive practices related to subscriptions, memberships, and other recurring-payment programs, the FTC maintained that current laws and regulations do not clearly provide a consistent legal framework for these types of programs. (Covered by InfoBytes here.)
In March, the FTC issued a notice of proposed rulemaking (NRPM), which would apply to all subscription features in all media (including “the internet, telephone, in-print, and in-person transactions”) and would regulate additional types of negative-option practices, including automatic renewals, free trial offers, and continuity plans. The NPRM proposes to add a new “click to cancel” provision making it as easy for consumers to cancel their enrollment as it was to sign up. Sellers would be required to first ask consumers whether they want to hear about new offers or modifications before making a pitch when consumers are trying to cancel their enrollment. Sellers further must provide consumers who are enrolled in negative option programs with an annual reminder involving anything other than physical goods before they are automatically renewed.
In their letter, the states expressed support for the FTC’s NPRM, in particular, the provisions that would preserve state authority to regulate negative-option marketing and to enact greater protections and stricter laws than those proposed by the FTC. The states also agreed that the NPRM provides additional guidance and clarity on how businesses can comply with existing legal frameworks. However, the states urged the FTC to consider additional clarifications and improvements, including (i) requiring businesses to “clearly and conspicuously inform consumers of any conditions (or lack thereof) concerning cancellation”; (ii) requiring businesses to obtain an additional round of consent before charging a consumer at the end of a free trial; (ii) clarifying businesses’ cancellation mechanisms must be cost effective, timely, simple, and easy to use; (iii) expanding the methods that a consumer may use to cancel a recurring contract and allowing “all consumers to cancel through any medium that the seller uses to sell subscriptions or memberships, regardless of the medium through which that particular consumer signed up”; and (iv) requiring businesses to provide negative option reminders in additional ways—“not only through the same medium that the consumer used to consent to the negative option feature but also through any other medium that the seller uses to communicate with the consumer.”