[Federal Register Volume 88, Number 78 (Monday, April 24, 2023)]
[Proposed Rules]
[Pages 24716-24739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-07035]
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FEDERAL TRADE COMMISSION
16 CFR Part 425
RIN 3084-AB60
Negative Option Rule
AGENCY: Federal Trade Commission.
ACTION: Proposed rule.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') seeks
public comment on proposed amendments to the Commission's Negative
Option Rule (or ``Rule'') to combat unfair or deceptive practices that
include recurring charges for products or services consumers do not
want and cannot cancel without undue difficulty.
DATES: Written comments must be received on or before June 23, 2023.
Parties interested in presenting views orally should submit a request
to do so as explained below, and such requests must be received on or
before June 23, 2023.
ADDRESSES: Interested parties may file a comment online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write ``Negative Option Rule;
Project No. P064202'' on your comment and file your comment online
through https://www.regulations.gov. If you prefer to file your comment
on paper, mail your comment to the following address: Federal Trade
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite
CC-5610 (Annex N), Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Hampton Newsome, Attorney, (202) 326-
2889, Division of Enforcement, Bureau of Consumer Protection, Federal
Trade Commission, 600 Pennsylvania Avenue NW, Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
I. Overview
The Commission seeks comment on a proposal to improve its existing
regulations for negative option programs. These programs are widespread
in the marketplace and can provide substantial benefits for sellers and
consumers. However, consumers cannot reap these benefits when marketers
fail to make adequate disclosures, bill consumers without their
consent, or make cancellation difficult or impossible. Problematic
negative option practices have remained a persistent source of consumer
harm for decades, saddling shoppers with recurring payments for
products and services they never intended to purchase or did not want
to continue buying. In the past, the Commission sought to address these
practices through individual law enforcement cases and a patchwork of
laws and regulations. Nevertheless, problems persist, and consumers
continue to submit thousands of complaints to the FTC each year.
To solicit input about these issues, the Commission published an
advance notice of proposed rulemaking (ANPR) on October 2, 2019 (84 FR
52393). After reviewing the comments received in response and issuing
an ``Enforcement Policy Statement Regarding Negative Option Marketing''
on November 4, 2021 (86 FR 60822), the Commission, as detailed in this
document, now proposes to amend the existing Rule to implement new
requirements to provide important information to consumers, obtain
consumers' express informed consent, and ensure consumers can easily
cancel these programs when they choose. All these proposed changes
would be applicable to all forms of negative option marketing in all
media (e.g., telephone, internet, traditional print media, and in-
person transactions).\1\
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\1\ The Commission proposes to issue such amendments pursuant to
Section 18 of the FTC Act, which authorizes the Commission to
promulgate rules specifying acts or practices in or affecting
commerce which are unfair or deceptive. 15 U.S.C. 57a(a)(2).
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II. Negative Option Marketing
Negative option offers come in a variety of forms, but all share a
central feature: each contain a term or condition that allows a seller
to interpret a customer's silence, or failure to take an affirmative
action, as acceptance of an offer.\2\ Before describing the proposed
amendments, it is helpful to review the various forms such an offer can
take. Negative option marketing generally falls into four categories:
prenotification plans, continuity plans, automatic renewals, and free
trial (i.e., free-to-pay or nominal-fee-to-pay) conversion offers.
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\2\ The Commission's Telemarking Sales Rule defines a negative
option feature as a provision in an offer or agreement to sell or
provide any goods or services ``under which the customer's silence
or failure to take an affirmative action to reject goods or services
or to cancel the agreement is interpreted by the seller as
acceptance of the offer.'' 16 CFR 310.2(w).
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Prenotification plans are the only negative option practice
currently covered by the Commission's Negative Option Rule. Under such
plans (e.g., product-of-the-month clubs), sellers provide periodic
notices offering goods to participating consumers and then send--and
charge for--those goods only if the consumers take no action to decline
the offer. The periodic announcements and shipments can continue
indefinitely. In continuity plans, consumers agree in advance to
receive periodic shipments of goods or provision of services (e.g.,
bottled water
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delivery), which they continue to receive until they cancel the
agreement. In automatic renewals, sellers (e.g., a magazine publisher,
credit monitoring service provider, etc.) automatically renew
consumers' subscriptions when they expire, unless consumers
affirmatively cancel the subscriptions. Finally, with free trial
marketing, consumers receive goods or services for free (or at a
nominal fee) for a trial period. After the trial period, sellers
automatically begin charging a fee (or higher fee) unless consumers
affirmatively cancel or return the goods or services.
Some negative option offers include upsell or bundled offers, where
sellers use consumers' billing data to sell additional products from
the same seller or pass consumers' billing data to a third party for
their sales. An upsell occurs when a consumer completes a first
transaction and then receives a second solicitation for an additional
product or service. A bundled offer occurs when a seller packages two
or more products or services together so they cannot be purchased
separately.
III. FTC's Current Negative Option Rule
The Commission first promulgated the Rule in 1973 pursuant to the
FTC Act, 15 U.S.C. 41 et seq., finding some negative option marketers
committed unfair and deceptive practices that violated Section 5 of the
Act, 15 U.S.C. 45. The Rule applies only to prenotification plans for
the sale of goods, and therefore, does not reach most modern negative
option marketing.\3\
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\3\ The Rule defines ``negative option plan'' narrowly to apply
only to prenotification plans. 16 CFR 425.1(c)(1). In 1998, the
Commission clarified the Rule's application to such plans in all
media, stating that it ``covers all promotional materials that
contain a means for consumers to subscribe to prenotification
negative option plans, including those that are disseminated through
newer technologies.'' 63 FR 44555, 44561 (Aug. 20, 1998).
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The current Rule requires prenotification plan sellers to disclose
their plan's material terms clearly and conspicuously before consumers
subscribe. It enumerates seven material terms sellers must disclose:
(1) how subscribers must notify the seller if they do not wish to
purchase the selection; (2) any minimum purchase obligations; (3) the
subscribers' right to cancel; (4) whether billing charges include
postage and handling; (5) that subscribers have at least ten days to
reject a selection; (6) that if any subscriber is not given ten days to
reject a selection, the seller will credit the return of the selection
and postage to return the selection, along with shipping and handling;
and (7) the frequency with which announcements and forms will be
sent.\4\ In addition, sellers must provide particular periods during
which they will send introductory merchandise, give consumers a
specified period to respond to announcements, provide instructions for
rejecting merchandise in announcements, and promptly honor written
cancellation requests.\5\
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\4\ 16 CFR 425.1(a)(1)(i)-(vii).
\5\ 16 CFR 425.1(a)(2) and (3); 425.1(b).
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IV. Other Current Regulatory Requirements
Several other statutes and regulations also address harmful
negative option practices. First, Section 5 of the FTC Act, which
prohibits unfair or deceptive acts or practices, has traditionally
served as the Commission's primary mechanism for addressing deceptive
negative option claims. Additionally, the Restore Online Shoppers'
Confidence Act (``ROSCA''), 15 U.S.C. 8401-8405, the Telemarketing
Sales Rule, 16 CFR part 310, the Postal Reorganization Act (i.e., the
Unordered Merchandise Statute), 39 U.S.C. 3009, and the Electronic Fund
Transfer Act (``EFTA''), 15 U.S.C. 1693-1693r, all address various
aspects of negative option marketing. ROSCA, however, is the only law
primarily designed to do so.
A. Section 5 of the FTC Act
Section 5(a) of the FTC Act, 15 U.S.C. 45(a), is the core consumer
protection statute enforced by the Commission. That section broadly
addresses ``unfair or deceptive acts or practices'' but has no
provisions that specifically address negative option marketing.\6\
Therefore, in guidance and cases, the FTC has highlighted five basic
Section 5 requirements that negative option marketing must follow to
avoid deception.\7\ First, marketers must disclose the material terms
of a negative option offer including, at a minimum: the existence of
the negative option offer; the offer's total cost; the transfer of a
consumer's billing information to a third party, if applicable; and how
to cancel the offer. Second, Section 5 requires that these disclosures
be clear and conspicuous. Third, sellers must disclose the material
terms of the negative option offer before consumers agree to the
purchase. Fourth, marketers must obtain consumers' consent to such
offers. Finally, marketers must not impede the effective operation of
promised cancellation procedures and must honor cancellation requests
that comply with such procedures.
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\6\ Under the FTC Act, ``unfair or deceptive acts or practices''
include acts or practices involving foreign commerce that cause or
are likely to cause reasonably foreseeable injury within the United
States or involve material conduct occurring within the United
States. 15 U.S.C. 45(a)(4)(A). Section 5(n) of the FTC Act provides
that ``unfair'' practices are those that cause or are likely ``to
cause substantial injury to consumers which is not reasonably
avoidable by consumers themselves and not outweighed by
countervailing benefits to consumers or to competition.'' 15 U.S.C.
45(n).
\7\ See Negative Options: A Report by the Staff of the FTC's
Division of Enforcement, 26-29 (Jan. 2009), https://www.ftc.gov/sites/default/files/documents/reports/negative-options-federal-trade-commission-workshop-analyzing-negative-option-marketing-report-staff/p064202negativeoptionreport.pdf. In discussing the five
principal Section 5 requirements related to negative options, the
report cites to the following pre-ROSCA cases, FTC v. JAB Ventures,
No. CV08-04648 (C.D. Cal. 2008); FTC v. Complete Weightloss Center,
No. 1:08cv00053 (D.N.D. 2008); FTC v. Berkeley Premium
Nutraceuticals, No. 1:06cv00051 (S.D. Ohio 2006); FTC v. Think All
Publ'g, No. 4:07cv11 (E.D. Tex. 2006); FTC v. Hispanexo, No.
1:06cv424 (E.D. Va. 2006); FTC v. Consumerinfo.com, No. SACV05-801
(C.D. Cal. 2005); FTC v. Conversion Mktg., No. SACV04-1264 (C.D.
Cal. 2004); FTC v. Mantra Films, No. CV03-9184 (C.D. Cal. 2003); FTC
v. Preferred Alliance, No. 103-CV0405 (N.D. Ga. 2003); United States
v. Prochnow, No. 102-CV-917 (N.D. Ga. 2002); FTC v. Ultralife
Fitness, Inc., No. 2:08-cv-07655-DSF-PJW (C.D. Cal. 2008); In the
Matter of America Isuzu Motors, FTC Docket No. C-3712 (1996); FTC v.
Universal Premium Services, No. CV06-0849 (C.D. Cal. 2006); FTC v.
Remote Response, No. 06-20168 (S.D. Fla. 2006). The report also
cited the FTC's previously issued guidance, Dot Com Disclosures
(2002), archived at https://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-staff-issues-guidelines-internet-advertising/0005dotcomstaffreport.pdf.
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Although these basic guidelines are useful, the legality of a
particular negative option depends on an individualized assessment of
the advertisement's net impression and the marketer's business
practices. In addition to these deception-based requirements, the
Commission has repeatedly stated billing consumers without consumers'
express informed consent is an unfair act under the FTC Act.\8\
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\8\ Courts have found unauthorized billing to be unfair under
the FTC Act. See, e.g., FTC. v. Neovi, Inc., 604 F.3d 1150, 1157-59
(9th Cir. 2010), amended by 2010 WL 2365956 (9th Cir. June 15,
2010); FTC v. Amazon.com, Inc., No. C14-1038-JCC, 2016 WL 10654030,
at *8 (W.D. Wash. Apr. 26, 2016); FTC v. Ideal Fin. Sols., Inc., No.
2:13-CV-00143-JAD, 2015 WL 4032103, at *8 (D. Nev. June 30, 2015).
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B. ROSCA
Enacted by Congress in 2010 to address ongoing problems with online
negative option marketing, ROSCA contains general provisions related to
disclosures, consent, and cancellation.\9\ ROSCA prohibits charging or
attempting to charge consumers for goods or services sold on the
internet through any negative option feature unless the marketer: (1)
clearly and conspicuously discloses all material terms of the
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transaction before obtaining the consumer's billing information,
regardless of whether a material term directly relates to the terms of
the negative option offer; \10\ (2) obtains a consumer's express
informed consent before charging the consumer's account; and (3)
provides simple mechanisms for the consumer to stop recurring
charges.\11\ ROSCA, however, does not prescribe specific steps
marketers must follow to comply with these provisions.
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\9\ 15 U.S.C. 8401-8405.
\10\ See In re: MoviePass, Inc., No. C-4751 (Oct. 5, 2021).
\11\ 15 U.S.C. 8403. ROSCA incorporates the definition of
``negative option feature'' from the Commission's Telemarketing
Sales Rule, 16 CFR 310.2(w).
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ROSCA also addresses offers made by, or on behalf of, third-party
sellers during, or immediately following, a transaction with an initial
merchant.\12\ In connection with these offers, ROSCA prohibits post-
transaction, third-party sellers from charging or attempting to charge
consumers unless the seller: (1) before obtaining billing information,
clearly and conspicuously discloses the offer's material terms; and (2)
receives the consumer's express informed consent by obtaining the
consumer's name, address, contact information, as well as the full
account number to be charged, and requiring the consumer to perform an
additional affirmative action indicating consent.\13\ ROSCA also
prohibits initial merchants from disclosing billing information to any
post-transaction third-party seller for use in any internet-based sale
of goods or services.\14\
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\12\ ROSCA defines ``post-transaction third-party seller'' as a
person other than the initial merchant who sells any good or service
on the internet and solicits the purchase on the internet through an
initial merchant after the consumer has initiated a transaction with
the initial merchant. 15 U.S.C. 8402(d)(2).
\13\ 15 U.S.C. 8402(a).
\14\ 15 U.S.C. 8402(b).
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Furthermore, a violation of ROSCA is a violation of a Commission
trade regulation rule under Section 18 of the FTC Act.\15\ Thus, the
Commission may seek a variety of remedies for violations of ROSCA,
including civil penalties under Section 5(m)(1)(A) of the FTC Act; \16\
injunctive relief under Section 13(b) of the FTC Act; \17\ and consumer
redress, damages, and other relief under Section 19 of the FTC Act.\18\
Although Congress charged the Commission with enforcing ROSCA, it did
not direct the FTC to promulgate implementing regulations.
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\15\ 15 U.S.C. 8404 (citing Section 18 of the FTC Act, 15 U.S.C.
57a).
\16\ 15 U.S.C. 45(m)(1)(A).
\17\ 15 U.S.C. 53(b).
\18\ 15 U.S.C. 57b(a)(1), (b).
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C. Telemarketing Sales Rule
The Telemarketing Sales Rule (``TSR''), 16 CFR part 310, prohibits
deceptive telemarketing acts or practices, including those involving
negative option offers, and certain types of payment methods common in
deceptive negative option marketing. The TSR only applies to negative
option offers made over the telephone. Specifically, the TSR requires
telemarketers to disclose all material terms and conditions of the
negative option feature, including the need for affirmative consumer
action to avoid the charges, the date (or dates) the charges will be
submitted for payment, and the specific steps the customer must take to
avoid the charges. It also prohibits telemarketers from misrepresenting
such information and contains specific requirements related to payment
authorization.\19\
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\19\ 16 CFR 310.3(a).
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D. Other Relevant Requirements
EFTA \20\ and the Unordered Merchandise Statute also contain
provisions relevant to negative option marketing.\21\ EFTA prohibits
sellers from imposing recurring charges on a consumer's debit cards or
bank accounts without written authorization.\22\ The Unordered
Merchandise Statute provides that mailing unordered merchandise, or a
bill for such merchandise, constitutes an unfair method of competition
and an unfair trade practice in violation of Section 5 of the FTC
Act.\23\
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\20\ 15 U.S.C. 1693-1693r.
\21\ 39 U.S.C. 3009.
\22\ EFTA provides that the Commission shall enforce its
requirements, except to the extent that enforcement is specifically
committed to some other federal government agency, and that a
violation of any of its requirements shall be deemed a violation of
the FTC Act. Accordingly, the Commission has authority to seek
injunctive relief for EFTA violations, just as it can seek
injunctive relief for other Section 5 violations.
\23\ The Commission has authority to seek the same remedies for
violations of the Unordered Merchandise Statute that it can seek for
other Section 5 violations. The Commission can seek civil penalties
pursuant to Section 5(m)(1)(B) of the FTC Act from violators who
have actual knowledge that the Commission has found mailing
unordered merchandise unfair. 15 U.S.C. 45(m)(1)(B).
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V. Limitations of Existing Regulatory Requirements
The existing patchwork of laws and regulations does not provide
industry and consumers with a consistent legal framework across media
and offers. For instance, as discussed above, the current Rule does not
cover common practices such as continuity plans, automatic renewals,
and trial conversions.\24\ In addition, ROSCA and the TSR do not
address negative option plans in all media--ROSCA's general statutory
prohibitions against deceptive negative option marketing only apply to
internet sales, and the TSR's more specific provisions only apply to
telemarketing. Yet, harmful negative option practices that fall outside
of ROSCA and the TSR's coverage still occur.\25\
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\24\ Indeed, the prenotification plans covered by the Rule
represent only a small fraction of negative option marketing. In
2017, for instance, the Commission estimated that fewer than 100
sellers (``clubs'') were subject to the current Rule's requirements.
82 FR 38907, 38908 (Aug. 16, 2017).
\25\ For instance, the Commission recently brought two cases
under Section 5 involving negative option plans that did not involve
either internet sales or telemarketing. FTC and State of Maine v.
Health Research Labs., LLC, No. 2:17-cv-00467-JDL (D. Me. 2018); and
FTC and State of Maine v. Mktg. Architects, No. 2:18-cv-00050 (D.
Me. 2018).
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Additionally, the current framework does not provide clarity about
how to avoid deceptive negative option disclosures and procedures. For
example, ROSCA lacks specificity about cancellation procedures and the
placement, content, and timing of cancellation-related disclosures.
Instead, the statute requires marketers to provide ``simple
mechanisms'' for the consumer to stop recurring charges without
guidance about what is simple.
VI. Past Rulemaking and Enforcement Efforts
The Commission initiated its last regulatory review of the Negative
Option Rule in 2009,\26\ following a 2007 FTC workshop and subsequent
Staff Report.\27\ The Commission completed the review in 2014.\28\ At
the time, the Commission found the comments supporting the Rule's
expansion ``argue convincingly that unfair, deceptive, and otherwise
problematic negative option marketing practices continue to cause
substantial consumer injury, despite determined enforcement efforts by
the Commission and other law enforcement agencies.'' \29\ It also noted
practices not covered by the Rule (e.g., trial
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conversions and continuity plans) accounted for most of its enforcement
activity in this area. Nevertheless, the Commission declined to expand
or enhance the Rule, concluding that amendments were not warranted at
that time because the enforcement tools provided by the TSR and,
especially, ROSCA, which had only recently become effective, might
prove adequate to address the problems generated by deceptive or unfair
negative option marketing. However, the Commission emphasized that, if
ROSCA and its other enforcement tools failed to adequately protect
consumers, the Commission would consider whether and how to amend the
Rule.\30\
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\26\ 74 FR 22720 (May 14, 2009).
\27\ See Negative Options, supra note 7, at 26-29.
\28\ 79 FR 44271 (July 31, 2014).
\29\ The Commission cited a number of its law enforcement
actions challenging negative option marketing practices, including,
for example, FTC v. Process Am., Inc., No. 14-0386-PSG-VBKx (C.D.
Cal. 2014) (processing of unauthorized charges relating to negative
option marketing); FTC v. Willms, No 2:11-cv-00828 (W.D. Wash. 2011)
(internet free trials and continuity plans); FTC v. Moneymaker, No.
2:11-cv-00461-JCM-RJJ (D. Nev. 2012) (internet trial offers and
continuity programs); FTC v. Johnson, No. 2:10-cv-02203-RLH-GWF (D.
Nev. 2010), (internet trial offers); and FTC v. John Beck Amazing
Profits, LLC, No. 2:09-cv-04719 (C.D. Cal. 2009) (infomercial and
telemarketing trial offers and continuity programs).
\30\ 79 FR at 44275-76.
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Since that review, the problems with negative options have
persisted. The Commission and states continue to bring cases regularly
that challenge negative option practices, including more than 30 recent
FTC cases. These matters involved a range of deceptive or unfair
practices, including inadequate disclosures for ``free'' offers and
other products or services, enrollment without consumer consent, and
inadequate or overly burdensome cancellation and refund procedures.\31\
In addition, the Commission continues to receive thousands of
complaints each year related to negative option marketing. These cases
and the high volume of ongoing complaints suggests there is prevalent,
unabated consumer harm in the marketplace.
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\31\ Examples of these matters include: FTC v. Triangle Media
Corp., 3:18-cv-01388-LAB-LL (S.D. Cal. 2019); FTC v. Credit Bureau
Ctr., LLC, No. 17-cv-00194 (N.D. Ill. 2018); FTC v. JDI Dating,
Ltd., No. 1:14-cv-08400 (N.D. Ill. 2018); FTC, Illinois, and Ohio v.
One Techs., LP, No. 3:14-cv-05066 (N.D. Cal. 2014); FTC v. Health
Formulas, LLC, No. 2:14-cv-01649-RFB-GWF (D. Nev. 2016); FTC v.
Nutraclick LLC, No. 2:16-cv-06819-DMG (C.D. Cal. 2016); FTC v. XXL
Impressions, No. 1:17-cv-00067-NT (D. Me. 2018); FTC v. AAFE
Products Corp., No. 3:17-cv-00575 (S.D. Cal. 2017); FTC v. Pact
Inc., No. 2:17-cv-1429 (W.D. Wash. 2017); FTC v. Tarr, No. 3:17-cv-
02024-LAB-KSC (S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 1:17-cv-
09083 (S.D.N.Y. 2017); FTC v. DOTAuthority.com, Inc., No. 0:16-cv-
62186-WJZ (S.D. Fla. 2018); FTC v. Bunzai Media Group, Inc., No.
CV15-04527-GW(PLAx) (C.D. Cal. 2018); and FTC v. RevMountain, LLC,
No. 2:17-cv-02000-APG-GWF (D. Nev. 2018).
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VII. 2019 Advance Notice of Proposed Rulemaking
Given these continued concerns, the Commission published its 2019
ANPR seeking comments on the current Rule, as well as possible
regulatory measures to reduce consumer harm created by deceptive or
unfair negative option marketing.\32\ Specifically, the Commission
sought comment on various alternatives, including amendments to
existing rules to further address disclosures, consumer consent, and
cancellation. The Commission also requested input on whether and how it
should use its authority under Section 18 of the FTC Act to expand the
Negative Option Rule to address prevalent, unfair, or deceptive
practices involving negative option marketing.\33\ In response, the
Commission received 17 comments, which we discuss in Section IX.\34\
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\32\ 84 FR 52393 (Oct. 2, 2019).
\33\ Section 18 of the FTC Act authorizes the Commission to
promulgate rules that define with specificity acts or practices in
or affecting commerce which are unfair or deceptive. 15 U.S.C.
57a(a)(1)(B). The Commission may issue regulations ``where it has
reason to believe that the unfair or deceptive acts or practices
which are the subject of the proposed rulemaking are prevalent.'' 15
U.S.C. 57a(b)(3). The Commission may make such a prevalence finding
if it has issued cease and desist orders regarding such acts or
practices, or any other available information indicates a widespread
pattern of unfair or deceptive acts or practices. Rules under
Section 18 ``may include requirements prescribed for the purpose of
preventing such acts or practices.''
\34\ The comments, which are at www.regulations.gov, include:
Association of National Advertisers (ANA) (#0082-0008); Performance-
Driven Marketing Institute (PDMI) (#0082-0018); Retail Energy Supply
Association (RESA) (#0082-0016); The Association of Magazine Media
(MPA) (#0082-0019); National Consumers League (NCL) (#0082-0013);
ACT--The App Association (#0082-0017); Association for Postal
Commerce (``PostCom'') (#0082-0009); Retail Industry Leaders
Association (RILA) (#0082-0005); Ralph Oakley (#0082-0004); Chris
Hoofnagle (#0082-0002); Pennsylvania Office of Attorney General (on
behalf of The Attorneys General of the States of Colorado, Delaware,
District of Columbia, Illinois, Iowa, Kentucky, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico,
New York, North Dakota, Oregon, Pennsylvania, Rhode Island, Vermont,
Virginia, Washington, and Wisconsin) (``State AGs'') (#0082-0012);
Service Contract Industry Council (SCIC) (#0082-0007); Truth in
Advertising (TINA) (#0082-0014); Rep. Mark Takano (#0082-0003);
Digital Media Association (DiMA) (#0082-0015); The Entertainment
Software Association and Internet Association (ESA) (#0082-0011);
News Media Alliance (``the Alliance'') (#0082-0006).
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VIII. 2021 Enforcement Policy Statement
On November 4, 2021, the Commission published an ``Enforcement
Policy Statement Regarding Negative Option Marketing'' to provide
guidance regarding its enforcement of various statutes and FTC
regulations.\35\ The Statement enunciates various principles rooted in
FTC case law and previous guidance related to the provision of
information to consumers, consent, and cancellations. Among these
principles, the Statement emphasized ROSCA's requirement that sellers
disclose all material terms related to the underlying product or
service that are necessary to prevent deception, regardless of whether
that term relates directly to the terms of the negative option
offer.\36\ In addition, consistent with ROSCA, judicial decisions
applying Section 5, and cases brought by the Commission, the seller
should obtain the consumer's acceptance of the negative option feature
offer separately from any other portion of the entire transaction.
Finally, regarding cancellation, the Statement explained negative
option sellers should provide cancellation mechanisms at least as easy
to use as the method the consumer used to initiate the negative option
feature.
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\35\ 86 FR 60822.
\36\ The Commission recently alleged a negative option seller's
failure to disclose it was impeding access to its movie subscription
service violates ROSCA. In the Matter of MoviePass, Inc. No. C-4751
(Oct. 5, 2021).
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IX. Comments Received in Response to the ANPR
Commenters generally supported the current FTC Negative Option
Rule. However, as detailed below, they split on whether the Commission
should amend the Rule to include new requirements. Some argued existing
provisions are adequate, and any additional regulations could harm
businesses and consumers by creating unnecessary, overly prescriptive
directives that discourage innovation. Others contended that the
Commission should expand or consolidate existing requirements into a
single rule applicable to all types of negative option marketing in all
types of media in order to adequately protect consumers.
A. General Views on Negative Option Marketing
Benefits: Several commenters emphasized the benefits of negative
option marketing to both consumers and businesses and warned new
regulations may limit consumer options.\37\ They discussed the ease and
simplicity such plans offer consumers by allowing them to avoid time-
consuming and inefficient transactions. The Service Contract Industry
Council (SCIC) and the News Media Alliance explained such arrangements
greatly reduce ``the disruption to a consumer's daily life'' by
allowing them to maintain their service without going through the
enrollment process ``month after month, or year after year.'' They also
help customers avoid problems such as breaks in service when they
forget to renew.
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\37\ SCIC, ESA, MPA, and RESA.
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The Entertainment Software Association (ESA), which represents
video and computer game companies, added subscriptions allow
``consumers to replenish commodity items (such as personal care
products), enjoy new
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items or personalized items at designated intervals (such as clothing
and food), and obtain access to products or services at discounts or
with members-only benefits (such as entertainment and content
services).'' The Association of Magazine Media (MPA), an association of
magazine publishers, noted that current automatic renewal subscriptions
feature high transparency, offer ease of use, facilitate long-term
customer relationships, provide a ``frictionless customer service
experience,'' save costs, and allow consumers to receive continuous
delivery for as long as they wish. According to MPA, free trials also
allow consumers to sample magazine titles before committing to a
subscription purchase.
Additionally, commenters detailed the benefits such renewals
provide businesses. MPA stated they help companies avoid the
substantial costs of processing invoices and checks each month. For
publishers, automatic renewals reduce costs by eliminating multiple
notices, forestalling fraudulent mailings, and preventing costly
interruptions in service. Retail Energy Supply Association (RESA) also
noted automatic renewal plans are critical in the competitive energy
supply industry because they promote competition in states with
restructured energy markets.
Negative Aspects: However, not all commenters saw inherent benefit
in the growing negative option market. Commenter Hoofnagle, a law
professor, cautioned the shift to subscription services has caused
businesses to become ``laser-focused'' on enrollment and retention at
the expense of the underlying product or consumer value.\38\ In his
view, the new focus on subscriptions ``corrupts innovation'' because it
motivates companies to ``invest in psychological tricks to maintain
continuous charging'' instead of creating the ``best, most compelling
products.'' According to Hoofnagle, large, dominant platforms devote
resources to developing manipulative subscription systems (i.e., ``dark
patterns'') that induce consumers to sign up for products and services
they would not otherwise pay for. Hoofnagle asserted that, ultimately,
subscription maintenance becomes the firm's ``terminal goal.''
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\38\ NCL also asserted ``[t]here is abundant evidence that
consumers are harmed by negative option clauses.''
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B. Information on Current Practices and Deception in the Market
Various commenters submitted information about the scope, volume,
and types of negative option marketing, indicating negative options
involving free trials, continuity, and auto-renewal programs are
pervasive and growing in number. Additionally, many commenters asserted
deceptive negative option practices continue to be prevalent, with some
describing particular issues with free trials. Finally, commenters
discussed ongoing state enforcement efforts related to these problems.
Expansion of Negative Option Marketing: Several commenters
indicated negative option marketing continues to grow dramatically. For
instance, according to a 2018 McKinsey & Company study, the
subscription e-commerce market increased more than 100% over a five-
year period prior to the study's publication.\39\ The largest retailers
in that market generated $2.6 billion in sales in 2016. A consumer
survey prepared for the same study showed nearly half of the
respondents had enrolled in at least one negative option subscription,
while 35% enrolled in three or more.\40\ PDMI also noted the study
demonstrates consumers' familiarity with these programs and their
embrace of ``the benefits such plans provide including convenience,
lower cost and the ability to try something for free before
purchasing.'' PDMI suggested the number of such programs has likely
increased since the study's completion. It also observed that negative
option sales via mobile devices have increased in recent years,
including the display of ``shoppable ads'' on most social media
platforms. However, it cautioned against projecting the results. Given
rapid changes in technology and advertising models in the digital space
media, PDMI emphasized the difficulty of predicting ``how consumers may
choose to purchase goods and services even just a few years from now.''
Finally, PDMI explained most negative options appear online, offering a
wide array of products and services from major brands including ``media
services, meal preparation kits, shaving and beauty products, beer and
wine, contacts and ordinary household consumables.''
---------------------------------------------------------------------------
\39\ See ESA.
\40\ See Tony Chen, et al., Thinking inside the subscription
box: New research on e-commerce consumers (Feb. 9, 2018), https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers.
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Prevalence of Deceptive Practices Generally: In addition to the
sheer volume of negative option marketing, commenters identified
evidence of ongoing, widespread deceptive practices. No commenter
argued otherwise. TINA, for example, explained negative options are one
of its top complaint categories. These complaints usually involve
consumers who unwittingly enroll in programs and then find it difficult
or impossible to cancel. In addition, NCL cited a 2017 national
telephone survey commissioned by CreditCards.com finding 35% of U.S.
consumers have enrolled in at least one automatically renewing contract
without realizing it. Referring to another survey conducted in 2016,
TINA noted that unwanted fees associated with trial offers and
automatically renewing subscriptions ranked as ``the biggest financial
complaint of consumers.'' \41\
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\41\ See Rebecca Lake, Report: Hidden Fees Are #1 Consumer
Complaint, mybanktracker.com (updated Oct. 16, 2018), https://www.mybanktracker.com/money-tips/money/hidden-fees-consumercomplaint-253387.
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The State AGs also detailed specific deceptive or unfair practices
they see regularly, including the ``lack of informed consumer consent,
lack of clear and conspicuous disclosures, failure to honor
cancellation requests and/or refusal to provide refunds to consumers
who unknowingly enrolled in plans.'' They further explained the nature
of the underlying products often fails to alert consumers of their
enrollment in a negative option program. For instance, many offers
involve credit monitoring or anti-virus computer programs costing less
than $20 a month and have no tangible presence for consumers. The State
AGs explained that consumers are often unaware of having ordered these
products, never use them, and never notice them on their bills. The
State AGs further explained these transactions often pull consumers
into a stream of recurring payments by obtaining credit card
information to ostensibly pay for a small shipping charge. As a result,
many ``consumers have been billed for such services for years before
discovering the unauthorized charges.''
Commenters also noted the ongoing enforcement efforts and
litigation in recent years involving negative option marketing. In
addition to FTC cases, TINA stated that more than 100 federal class
actions involving various negative option terms and conditions have
been filed since 2014. Notwithstanding these actions, according to
TINA, ``the incidence of deceptive negative option offers continues to
rise.'' Citing the increase in consumer complaints and consumer harm in
recent years, Representative Takano stated, ``deceptive online
marketing and
[[Page 24721]]
unclear recurring payment plans are leaving too many consumers on the
hook for products they may not want or even know they purchased.'' \42\
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\42\ Congressman Mark Takano represents California's 41st
District in the United States House of Representatives.
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In addition to inadequate disclosures and consent procedures,
commenters stated some businesses continue to thwart consumers' efforts
to cancel recurring payments. NCL cited the 2017 CreditCards.com survey
finding nearly half of all respondents (42%) complained about ``the
level of difficulty companies have created for the contract/service
cancellation process.'' \43\ Further, consistent with the Commission's
enforcement history, the State AGs explained many harmful unfair or
deceptive practices involve the failure to provide ``consumers with a
simple cancellation method.'' NCL added some companies hide behind
complex procedures ``to prevent cancellation while others surprise
consumers with price increases or contract renewals.'' The State AGs
stated the sellers often deny consumers refunds and force them ``to pay
to return the unordered goods.'' Finally, Hoofnagle concluded
businesses make cancellation difficult in order to raise consumer
transaction costs and deter them from ending the contract. ``To put
this in another perspective,'' he wrote, ``companies would never put
such transaction costs in the way of a purchase option.'' Noting
numerous complaints from consumers stymied in their efforts ``through
long telephone hold times and otherwise,'' the State AGs also explained
that current practices often require consumers to cancel using a
different method than the one used to sign up for the program. Further,
they often force consumers to listen to multiple upsells before
allowing cancellation.
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\43\ Brady Porche, Poll: Recurring charges are easy to start,
hard to get out of, Creditcards.com (Aug. 22, 2017), https://www.creditcards.com/credit-card-news/autopay-poll.php.
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Specific Problems with Free Trials: Several commenters noted
particular problems with free trials or trial conversions. According to
the State AGs, advertisements for free-to-pay conversion offers often
lure consumers by promising a ``free'' benefit while failing to clearly
and conspicuously disclose future payment obligations. These offers
sometimes include information to distract consumers from reading the
actual purchase terms. The State AGs report these deceptive practices
are ``rampant online and throughout social media.'' These agencies
further state, ``trial conversions are rife with the potential for
abuse and deception,'' as companies induce consumers with offers that
imply no obligation.
Despite current requirements such as ROSCA, the State AGs observed
sellers still often fail to clearly and conspicuously disclose
recurring payment obligations incurred by consumers who sign up for
these trials. In addition, to gain access to consumer accounts, sellers
often charge a small shipping fee for the ``free trial'' and obtain
credit card information in the process. Consumers confronting these
sellers often face fees to return the unordered goods and have
difficulty obtaining refunds and cancelling their subscriptions.
Additionally, as commenters correctly noted, FTC complaint data
indicates substantial problems with free trial marketing. According to
NCL and TINA, a Better Business Bureau study of FTC data titled
``Subscription Traps and Deceptive Free Trials Scam Millions with
Misleading Ads and Fake Celebrity Endorsements'' demonstrated
complaints about free trials doubled between 2015 and 2017, with
complaints during the period reaching nearly 37,000 and losses totaling
more than $15 million. The BBB study, which the State AGs also cited,
shows losses in FTC ``free trial offer'' cases exceeded $1.3 billion
(over the ten years covered by the study). NCL stated that, according
to the BBB, the average consumer loss for a free trial is $186.\44\
---------------------------------------------------------------------------
\44\ Steve Baker, Subscription traps and deceptive free trials
scam millions with misleading ads and fake celebrity endorsements,
Better Business Bureau (Dec. 2018), https://www.bbb.org/globalassets/local-bbbs/council-113/media/bbb-study-free-trial-offers-and-subscription-traps.pdf.
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Other studies reveal similar trends. TINA noted the FBI's internet
Crime Complaint Center recorded a rise in complaints about free trial
offers, growing from 1,738 in 2015 to 2,486 in 2017, with losses
totaling more than $15 million. Similarly, a 2019 Bankrate.com survey
cited by NCL found that 59% of consumers have signed up for ``free
trials'' that automatically converted into a recurring payment
obligation ``against their will.'' In NCL's view, these data point to
``a troubling, and costly problem for American consumers.''
Ongoing Law Enforcement Efforts: The State AGs detailed dozens of
enforcement actions taken in recent years to address the proliferation
of deceptive negative option claims. According to these agencies, their
actions ``demonstrate that problems persist in this area and that
additional regulatory action is needed.'' For example, over the last
decade, New York alone has reached 23 negative option settlements
involving a variety of products and services such as membership
programs, credit monitoring, dietary supplements, and apparel. These
cases have garnered over $10 million in consumer restitution and $14
million in penalties, costs, and fees. The State AGs also described
several of the larger settlements reached through multistate
investigations, as well as from individual states, involving negative
option offers for products and services such as satellite radio, social
networking services, language learning programs, security monitoring,
and dietary supplements. They also recounted representative stories of
consumers who ordered what they thought were free, no-obligation
samples but found themselves enrolled in costly programs. The
Commission's recent cases in this area address many, if not all, of the
same concerns.
C. Opposition to New Requirements
No commenter opposed the existing Rule, which applies only to
prenotification plans. ANA, for example, noted it provides consumers
with transparency regarding material terms of marketed advance consent
plans and choices regarding which products or services they want to
receive. The Rule also provides ``businesses flexibility to engage in
marketing that benefits consumers.'' In addition, ANA stated it enables
consumers to purchase goods and services over time and gain exposure to
``new, exciting, and useful products and services to which they likely
would not have been exposed in the absence of advanced consent
arrangements.''
Industry members generally opposed any new regulatory provisions
for negative option marketing, arguing existing laws are adequate.\45\
According to these commenters, current requirements provide adequate
consumer protections, and enforcement agencies possess ample tools to
address deceptive practices. The current framework furnishes, in MPA's
words, ``a sweeping landscape of federal and state laws that govern
such programs, including ROSCA, the TSR, EFTA, and the [Unordered
Merchandise Statute].'' SCIC added that new credit card rules from
MasterCard and Visa contain compliance requirements for auto renewal
programs and thus augment the existing regulatory framework. As ESA
explained, existing laws ``are thorough and allow businesses the
flexibility to craft messages and operational
[[Page 24722]]
procedures'' based on their customers, the message's medium, available
technologies for consent, and cost-effective cancellation methods. In
ANA's view, since ``violations of the various standards are heavily
enforced,'' additional requirements would fail to ``prevent bad and
dishonest actors from behaving unfairly or deceptively in the
marketplace.'' Finally, some commenters suggested the number of actions
the FTC has brought in recent years demonstrates the agency already has
adequate law enforcement tools to combat deceptive negative option
marketing.\46\
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\45\ See ANA, RESA, MPA, PostCom, RI, SCIC, DiMA, ESA, and the
Alliance.
\46\ See ESA, ANA, MPA.
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Industry members also cautioned that new regulations might diminish
the benefits provided by negative option offers and hamper
innovation.\47\ For example, ESA argued current law enforcement
requirements adequately address ``deceptive or abusive negative option
practices'' without overly burdensome new regulation. Others, like DIMA
and MPA, warned new regulations using a restrictive ``one-size-fits-all
model'' would ultimately harm consumers because, for example, they
would restrict marketers' ability to tailor their offers to consumers'
wishes. MPA also noted an expanded Rule might over-burden legitimate
businesses to consumers' detriment while failing to halt specific
problems already subject to existing federal statutes, FTC rules, and
state laws.\48\
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\47\ Two commenters specifically argued any new rule should
avoid creating duplicative requirements for their members. First,
SCIE, which represents service contract companies, argued State
agencies typically regulate their members, and any new FTC rule
should avoid any duplicative or potentially conflicting
requirements. Similarly, the App Association urged the Commission to
consider ``excluding software apps and digital platforms'' from
expanded requirements ``until there is an adequate evidence base
demonstrating that its extension to the app economy is appropriate,
as part of its scaled, flexible approach to implementing ROSCA.''
\48\ See also ANA.
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These commenters also cautioned against adding regulations absent
sufficient information about problematic practices. Specifically, the
Alliance recommended the FTC refrain from imposing new requirements
without ``clear evidence of a significant problem justifying such
measures.'' Similarly, ANA asked FTC to identify a ``clear record'' of
perceived harms so that businesses can provide meaningful comments and
clearly identify any gaps in the regulations.
D. Concerns About Existing State Requirements
Many industry commenters also stated a growing number of state laws
address many forms of negative option marketing. According to PDMI, for
example, there are currently at least 18 state laws, and many more are
sure to follow.\49\ Notable among these is California's negative option
statute, which addresses disclosures, consent, and accessible and cost-
effective cancellation. Virginia has a similar law that provides civil
penalties of $5,000 per violation, as well as a private right of
action. ESA complained many of these state laws ``have imposed unique
and inconsistent requirements'' on marketers. PDMI noted, for instance,
Florida, Hawaii, and New Mexico laws reference inconsistent renewal
periods (six, one, and two months, respectively). Other states have
differing requirements for notifications prior to the renewal period
(e.g., Florida (30-60 days); New York (15-30 days); North Carolina (15
to 45 days)).\50\
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\49\ See, ANA, ESA, PDMI, SCIC, MPA, TINA. Examples of State
laws include: California (Cal. Bus. & Prof. Code secs. 17600-17606),
Vermont (9 V.S.A. sec. 2454a); District of Columbia (D.C. Code secs.
28A-201 to 28A-204); Florida (Fla. Stat 501.165); Hawaii (Haw. Rev.
Stat. sec. 481-9.5); North Carolina (N.C. Gen. Stat. sec. 75-41);
and New York (N.Y. Gen. Oblig. Law sec. 5-903(2)).
\50\ RESA also asked the Commission to exclude from its rule any
activities ``already regulated by state public service commissions''
such as competitive retail electricity and natural gas suppliers.
ACIC explained that many of these state laws exempt contracts that
renew for a period of a month or less and instead focus on longer
term renewing contracts. Additionally, many states have elected to
exempt contracts that consumers may cancel at any time with a pro
rata refund required to be provided to the consumer upon
cancellation.
---------------------------------------------------------------------------
Several industry commenters emphasized these inconsistent state
requirements create problems. PDMI, for example, explained they impose
``a considerable burden on companies that utilize negative option
marketing, particularly small businesses.'' The lack of uniformity
requires some companies to create ``multiple different order pathways
and disclosures'' for consumers in different states. For example, many
marketers must fashion a single ``order experience'' and set of
disclosures that comply with the most restrictive law. According to
PDMI, the continued proliferation of differing state requirements has
made an onerous and burdensome compliance process even worse. For
example, while California's automatic renewal law appears most
burdensome to many, Vermont's recent statute is more restrictive in
certain aspects (e.g., consent requires consumers to check a box). In
addition, the District of Columbia now requires a seller to obtain
separate affirmative consent before a free trial converts to a paid
subscription. PDMI explained compliance issues could lead to contract
voidance and potential exposure in class action litigation.
PDMI argued these various state laws have not helped consumers. Its
members' anecdotal observations suggest little difference in results,
such as cancellation rates, between states with differing degrees of
restrictive requirements. In its view, these observations may indicate
consumers have become generally familiar with negative option programs.
At the same time, it contended the more restrictive state laws have
imposed significant compliance costs while offering little actual
consumer benefit. Thus, PDMI believes consumers and businesses would
benefit from a single FTC Rule that preempts state regulation in this
area. ESA agreed, explaining that if ``FTC regulations in the negative
option space could have a preemptive effect,'' it would be interested
in ``exploring a uniform regime that allows for growth and flexibility
in the industry, much as the current framework permits.''
In contrast, MPA argued that an expanded FTC Rule would layer on
top of the existing ``patchwork'' and fail to provide a consistent
legal framework for industry and consumers. In its view, ``publishers
should be afforded the flexibility to tailor their subscription offers
to their readers within the bounds of existing laws.''
Finally, TINA argued the proliferation of state requirements, as
well as MasterCard and Visa's new rules, reflect ``an attempt to fill
the gap in federal enforcement.'' \51\ According to TINA, the resulting
collection of state rules and credit card policies leaves consumers
with different levels of protection depending on where they live or
what credit card they use. Thus, in TINA's opinion, ``the uniform
protection'' an updated FTC Rule ``can offer is much needed.''
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\51\ See, e.g., MasterCard, ``Transaction Processing Rules,'' at
https://www.mastercard.us/content/dam/public/mastercardcom/na/global-site/documents/transaction-processing-rules.pdf.
---------------------------------------------------------------------------
E. Need for Additional Consumer Education
Several commenters suggested the Commission focus on improving
existing consumer education efforts.\52\ ESA recommended updated
industry guidance and additional consumer education in lieu of issuing
new regulatory requirements. However, other commenters argued the
Commission should not rely on consumer education alone. Hoofnagle, for
example, described consumer and business education as ``an
uneconomical'' tool for addressing problems associated with
[[Page 24723]]
negative options. He explained that such education must compete ``with
hundreds of'' other consumer priorities, from ``organic food labeling
to energy efficiency ratings,'' and creates direct and indirect costs,
including consumer time, potential consumer confusion, and even
misapprehension. The State AGs, who supported education initiatives,
similarly warned, ``such efforts will likely reach only a small
fraction of the consuming public.'' Thus, they recommended the
Commission use its authority to issue ``clear-cut rules'' to help
companies avoid deceptive marketing practices that ``have caused, and
continue to cause, substantial consumer harm.''
---------------------------------------------------------------------------
\52\ See DiMA, ESA.
---------------------------------------------------------------------------
F. Limitations of Existing Requirements
Several commenters discussed the limitations of existing
requirements. For example, the State AGs discussed ROSCA's
shortcomings, arguing while the statute has helped combat abuses over
the internet, it ``lacks specificity as to how informed consent should
be obtained or how clear and conspicuous disclosures should be made.''
They also noted ROSCA does not provide ``any concrete, bright line
requirements that allow enforcement agencies to readily identify
violations.'' Given existing limitations, the State AGs concluded new
regulatory provisions are necessary to establish specific, clear rules
to help businesses' compliance efforts and to allow states to easily
identify nonconforming practices. TINA also asserted ROSCA and FTC
requirements lack needed specificity regarding cancellation
requirements, noting ROSCA only directs marketers to provide ``simple
mechanisms for a consumer to stop recurring charges.'' In contrast,
PDMI said the concept of simple cancellation is well understood by
sellers in the marketplace.
G. Support for New Regulations
Several commenters supported additional FTC regulations to address
negative option marketing.\53\ The State AGs, for example, strongly
urged the Commission to expand the existing Rule or issue new
regulations ``to combat deceptive and unfair marketing . . . in all
forms of negative option marketing, with additional provisions to
address issues that arise with respect to trial conversion offers.''
Similarly, commenter Oakley recommended ``very strong regulations to
stop companies from signing people up for unwanted products/services.''
PDMI, an industry group, favored amending the Rule to broaden its
``scope to apply to all forms of negative option marketing.'' In its
view, such a rule ``would provide greater protection to consumers,
would enhance business compliance and would lower overall compliance
costs.'' PDMI also opined that ``consumers and business would benefit
from federal preemption of state law regulation in this area.''
Representative Takano concluded, ``it is time we update the tools and
policies designed to ensure companies no longer profiteer through these
deceptive practices.'' TINA added the Rule needs updates to ensure both
consumers and businesses obtain the full benefits of negative options.
It further argued the current requirements leave consumers vulnerable
and provide incentives for businesses to ``silently hope consumers
forget about them.'' It predicted that, without changes to the Rule,
the trend of deceptive trial offers and subscriptions will continue to
grow. In TINA's opinion, updates would ``be minimally burdensome to
companies'' because they would merely require businesses to be
``forthcoming and straightforward'' with their customers.
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\53\ NCL, Oakley, TINA, State AGs, PDMI, Takano, and Hoofnagle.
---------------------------------------------------------------------------
Scope: Commenters supporting new provisions generally recommended
the Commission expand the Rule's existing regulatory scope to cover all
negative option marketing methods in all media, and consolidate
requirements.\54\ The State AGs identified unfair or deceptive
practices, such as those associated with free trials, which occur in
the marketplace but are not covered by the current Negative Option
Rule. They also suggested free-to-pay solicitations deserve closer
scrutiny than other negative option features due to the longstanding
evidence of deceptive tactics, prevalence of consumer complaints about
unauthorized charges, and consumer risks associated with these offers.
---------------------------------------------------------------------------
\54\ See, e.g., State AGs, PDMI, and TINA.
---------------------------------------------------------------------------
PDMI agreed a consolidated Negative Option Rule would provide a
significant benefit. It explained having requirements in ``five
different places'' imposes burdens on both consumers and businesses and
heightens the risk of inadvertent non-compliance. Scattered
requirements also create a ``trap for the unwary for businesses who do
not realize that they must ferret out'' applicable mandates across ``a
wide swath of the federal regulatory landscape.'' According to PDMI,
consolidation of negative option marketing into a single rule would
minimize burdens on marketers, reduce consumer confusion, and enhance
compliance. Therefore, PDMI recommended the FTC revise its Rule to
include all negative option types and to include ROSCA's three core
provisions regarding notice, consent, and cancellation. In its view,
``this would provide a solid foundation for protecting consumers and
providing businesses with one uniform set of requirements that can be
easily and consistently implemented across all channels and markets.''
Need for Flexibility: Several commenters urged the Commission to
employ a flexible approach that accounts for technological changes.
They cautioned overly prescriptive rules would jeopardize the consumer
benefits of negative options and harm the businesses that provide
them.\55\ MPA, for example, stated the FTC should not micromanage
``lawful business conduct'' because such an approach would neither
enhance business compliance nor benefit consumers. Several commenters
raised concerns about overly prescriptive regulatory requirements
because a ``one size fits all'' approach reduces flexibility and
hampers innovation. For example, according to ESA, new regulations
would likely create standardization that ``is unworkable across all
industries, media, and technology.'' It added an effort to account for
all the various iterations of a subscription offer or sales medium
would be impractical or unreasonable. Finally, SCIC noted that FTC
staff has emphasized the need for marketers to be ``free to use their
many tools of creativity to figure out the best way to convey that
information.''
---------------------------------------------------------------------------
\55\ See, e.g., App Association, ESA, and ANA.
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According to PDMI, rules ``need to be sufficiently fluid to permit
marketers to adapt their offerings'' to current and future media
channels. It explained that market changes occur too quickly for any
Commission rule to stay apace. Therefore, PDMI strongly urged the
Commission to follow its historical ``performance'' standard approach
and ``avoid dictating precisely how disclosure must be made, consent
must be obtained, or cancellation methods must be implemented.'' For
instance, it recommended leaving terms such as ``clear and
conspicuous'' and ``express informed'' consent undefined to ``preserve
flexibility in the face of rapidly changing technology'' and ensure
meeting the FTC's goals without rigid restrictions.
Important Information: Beyond the need for flexibility, the
commenters provided specific disclosure recommendations. NCL, for
example, suggested the Rule require businesses ``to clearly and
conspicuously disclose their renewal terms prior to the entry of
[[Page 24724]]
payment information.'' It also recommended the Commission incorporate
the ``clear and conspicuous'' definition from both California's and the
District of Columbia's automatic renewal statutes. In NCL's view, these
disclosures should specifically include cancellation instructions and
deadlines, renewal dates, contract length, amendment notifications,
renewal costs, contract changes at renewal, and business contact
information. Hoofnagle asserted sellers also should provide a total
cost disclosure so consumers understand what they will be paying each
year, as opposed to monthly.
NCL also argued the Rule should require marketers to send
notifications electronically, and, for contracts of six months or more,
by postal mail, with links, phone numbers, and prepaid postcards
appropriate to the medium. The State AGs urged the Commission to
require important disclosures (e.g., billing information and requests
for acceptance) on a separate page free of ``any other information that
may serve as a distraction.''
Consent: Commenters offered a variety of suggestions regarding
possible consent requirements. The State AGs recommended requiring
``consumers to take a separate, affirmative action'' to consent to
negative option features, such as ``clicking an `I Agree' button to
accept the trial product'' accompanied by disclosures about the ``terms
of the offer, including the amount and frequency of payments.'' The
State AGs and TINA recommended requirements directing businesses to
obtain consent after the trial period expires. TINA noted the District
of Columbia now requires companies offering free trials of a month or
more to notify consumers between one and seven days before the
expiration of the free trial and obtain affirmative consent to the
renewal prior to charging consumers.
As described above, the App Association suggested the Commission
provide flexibility in any new regulations, but particularly those
involving consent. It advocated for a ``flexible and outcome-driven
regulatory environment'' that would allow small businesses to create
``the best way for their company to implement this specific
requirement'' and ``encourage new innovative approaches in consumer
transparency.'' Given the likelihood of future technological changes
(e.g., faster devices that consumers will want to use quickly), the App
Association suggested any new FTC provisions include ``flexible yet
stable requirements that protect the consumer's right to choose but at
the same time do not stifle innovation.''
Cancellation: Several commenters provided specific recommendations
for new cancellation rules, including, for example, that the FTC
require businesses to provide a cancellation mechanism that mirrors the
customer's method of enrollment.\56\ TINA explained consumers should be
able to cancel their negative options in ``an easy and specific
manner'' using procedures that are ``at least as easy as the
subscription process.'' In its view, at a minimum, if a consumer
subscribed online, they should be able to cancel online. The lack of
such specific requirements leaves consumers vulnerable to a company's
interpretation of what ``simple'' might mean under ROSCA. It also urged
the Commission to consider Visa's new rules requiring businesses to
provide an ``easy way to cancel the subscription'' online, similar to
unsubscribing from an email distribution list. TINA additionally noted
California's new rule mandating an easy-to-use cancellation mechanism
online, such as a termination email. The State AGs similarly
recommended the FTC require ``that consumers be allowed to cancel their
memberships by the same method as their enrollment (as well as by other
methods, at the business's option).'' The App Association, however,
urged flexibility in any new cancellation requirements and cautioned
against ``overly-prescriptive approaches.'' Instead, it recommended FTC
allow ``marketers to decide how to implement their own notification
system to stop reoccurring charges,'' and to efficiently scale
approaches based on consumer expectations and needs.
---------------------------------------------------------------------------
\56\ Takona and TINA.
---------------------------------------------------------------------------
Hoofnagle, who discussed the negative impacts of abusive
cancellation procedures, suggested the Commission prohibit certain
specific ``transaction costs'' imposed on some consumers. Such
practices include requiring users to repeatedly request cancelling, to
sign in with additional security (e.g., requiring a CAPTCHA
completion), to accept third-party scripting, and to re-enter
information such as a credit card number. Hoofnagle agreed with other
commenters that ``cancellation should never be more transactionally
burdensome than enrollment'' and there should be ``symmetry between
purchase and cancel.'' He also recommended the FTC consider a ``one-
time `no' rule'' to require marketers to accept a consumer's first
``cancel'' request and end the transaction without trying to convince
the consumer to change their minds or pitching further offers.
Material Changes: Commenters also recommended requirements to
address material changes to contract conditions after the consumer
enrolls, including changes to price, service, goods, and other material
terms. According to TINA, for example, the FTC should require
businesses to notify consumers of such changes and provide them an
opportunity to cancel before the terms take effect. TINA stated current
FTC requirements, as well as ROSCA, do not address ``instances in which
the terms may change.'' Several states, including Virginia, California,
and Oregon, require businesses to provide consumers with a clear and
conspicuous notice of the material change as well as information about
how to cancel ``in a manner that is capable of being retained by the
consumer.'' \57\
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\57\ TINA also noted that a bill introduced into the House in
2019, the Unsubscribe Act (H.R. 2683), contains similar
requirements. See also Takano, NCL, and Hoofnagle. For free trials,
NCL argued the Rule should require marketers to obtain express
consent before increasing the price of service for an established
customer.
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Reminders: Commenters also recommended requiring businesses to
provide additional reminders as part of their negative option
offerings.'' \58\ For example, TINA supported imposing a notice
requirement prior to subscription expiration containing cancellation
instructions similar to VISA's new rules. Those rules require an
electronic reminder, sent to consumers a week before the trial period
expires, with a link to an online cancellation page. TINA also argued
for regular, ongoing notice of the agreement terms along with
cancellation instructions. In its view, ``such a requirement is
important to protect consumers from paying for products or services
they do not want or need.'' According to Representative Takano, such
reminders ``will help decrypt the complex nature of negative option
agreements'' and ensure businesses cannot continue to charge consumers
who intended to make only a single purchase.
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\58\ TINA, Takano, and State AGs.
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The State AGs agreed, explaining periodic disclosures ensure
consumers are aware of recurring charges and ``help prevent the
continuation of unknowing or unwanted enrollment in these plans.'' They
recommended notifications at regular intervals for month-to-month
plans, with appropriately worded subject lines (e.g., ``Important
Billing Information''), coupled with a convenient cancellation method.
For services that renew annually, the State AGs contended that, before
charging for renewal, companies should notify consumers within a
specified period
[[Page 24725]]
about the timing, amount, and billing method along with convenient
cancellation procedures. Finally, both the State AGs and Hoofnagle
suggested the FTC consider whether periods of consumer inactivity
(e.g., 24 months) for a subscribed service should trigger
notifications.
Miscellaneous Recommendations: The commenters provided several
other recommendations for new requirements, including provisions
involving refunds, consumer contact information, deletion of consumer
data, and amendments to the TSR. First, the State AGs proposed
requiring businesses to provide full refunds to consumers ``unwittingly
enrolled in a negative option plan.'' Second, they suggested the Rule
require businesses to obtain a consumer's email address at the initial
consent and send a confirmatory email describing the service or
product, the amount and timing of any payments, the payment collection
method, and a toll-free cancellation number. For offers involving
goods, the State AGs stated businesses should include an invoice in
every shipment containing the seller's name and address, the negative
option program terms, return instructions, and a toll-free phone number
or email address for cancellation. Third, Hoofnagle asserted a rule
should require consumer data deletion after ``a reasonable amount of
time'' to provide customers with a ``true exit'' from the transaction.
Fourth, the State AGs urged the Commission to amend and expand the
TSR's negative option provisions to require sellers to record entire
customer transactions and retain such recordings for a specified
period. In addition, they recommended the TSR require marketers to
provide full refunds in response to complaints unless the company can
provide a phone call recording ``establishing the consumer's
affirmative consent.''
Banning Certain Enrollment Methods: The State AGs suggested the
Commission limit, or prohibit, certain types of negative option
marketing that are, in their opinion, ``inherently unreliable.'' First,
they suggested a ban on ``free-to-pay conversion programs'' (e.g., free
trial magazine subscriptions) to consumers at retail checkout in brick-
and-mortar stores. According to the State AGs, cashiers fail to
disclose the material terms and conditions of these offers, including
the fact that consumers will receive a monthly bill after the trial
ends. Retailers use the consumer's signature authorizing the entire
purchase (e.g., groceries, etc.) as consent for the negative option
program, and then rely on ``inconspicuous'' terms on the sale receipt
as evidence of consent. The State AGs identified this practice as an
``inherently unreliable means of obtaining consumers' informed consent
and should be prohibited.''
Second, the State AGs urged the Commission to ban the use of
consumers' check endorsements to obtain consent to be periodically
billed for goods or services. They asserted this practice has led to
widespread fraud. Specifically, some businesses send consumers checks
for small dollar amounts that appear to come from a familiar company.
Small print disclosures near the endorsement line on the reverse of the
check indicate that, by cashing the check, consumers are enrolling in a
recurring payment program. According to the State AGs, this practice,
which has generated many complaints, ``is inherently unreliable and
should be prohibited'' because consumers do not scrutinize the small
print on the back of these checks and thus have no reason to expect
their signature is consent for a recurring payment program.
Finally, the State AGs argued, without further explanation, the FTC
Rule should either ban or place restrictions on ``upsell offers that
the consumer must respond to before being able to cancel.''
X. Prevalence of Deceptive or Unfair Practices Involving Negative
Option Marketing and the Need for the Proposed Amendments
Consistent with the Commission's past conclusions, the recent
comments confirm that deceptive practices involving negative option
marketing remain prevalent and that additional requirements are needed
to protect consumers. In 2014, the Commission found ``that unfair,
deceptive, and otherwise problematic negative option marketing
practices continue[d] to cause substantial consumer injury, despite
determined enforcement efforts by the Commission and other law
enforcement agencies.'' \59\ The evidence since indicates matters have
not improved, and, in fact, may be worse. As detailed in Section IX,
the commenters provided substantial evidence--in the form of complaint
data, studies, survey results, and law enforcement actions--
demonstrating deceptive negative option marketing practices remain
prevalent. The FTC, the states, and consumer organizations continue to
receive thousands of complaints from consumers who unwittingly enrolled
in programs and then find it difficult or impossible to cancel.
Additionally, studies cited by commenters confirm a pattern of consumer
ensnarement in unwanted recurring payments. Commenters also highlighted
the many recent federal and state enforcement actions related to
negative options, as well as nearly 100 class action cases filed in the
last six years.
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\59\ 79 FR 44271, 44275 (July 31, 2014).
---------------------------------------------------------------------------
The Commission and the states continue to regularly bring cases
challenging negative option practices. These matters involve a range of
deceptive or unfair practices, including inadequate information
regarding free trials and other products or programs, enrollment
without consumer consent, and inadequate or overly burdensome
cancellation and refund procedures.\60\ The existence of these cases
and complaints demonstrates that some commenters' contention that all
the problems are being addressed is simply not true. In fact, given the
considerable limitations of FTC and state enforcement resources, these
law enforcement actions likely represent only the tip of the iceberg--a
conclusion corroborated by the complaint and survey evidence in the
record.
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\60\ Examples of these matters include: FTC v. Triangle Media
Corp., No. 3:18-cv-01388-LAB-LL (S.D. Cal. 2019); FTC v. Credit
Bureau Ctr., LLC, No. 17-cv-00194 (N.D. Ill. 2018); FTC v. JDI
Dating, Ltd., No. 1:14-cv-08400 (N.D. Ill. 2018); FTC v. One Techs.,
LP, No. 3:14-cv-05066 (N.D. Cal. 2014); FTC v. Health Formulas, LLC,
No. 2:14-cv-01649-RFB-GWF (D. Nev. 2016); FTC v. Nutraclick LLC, No.
2:16-cv-06819-DMG (C.D. Cal. 2016); FTC v. XXL Impressions, No.
1:17-cv-00067-NT (D. Me. 2018); FTC v. AAFE Products Corp., No.
3:17-cv-00575 (S.D. Cal. 2017); FTC v. Pact Inc., No. 2:17-cv-1429
(W.D. Wash. 2017); FTC v. Tarr, No. 3:17-cv-02024-LAB-KSC (S.D. Cal.
2017); FTC v. AdoreMe, Inc., No. 1:17-cv-09083 (S.D.N.Y. 2017); FTC
v. DOTAuthority.com, Inc., No. 0:16-cv-62186-WJZ (S.D. Fla. 2018);
FTC v. Bunzai Media Group, Inc., No. CV15-04527-GW(PLAx) (C.D. Cal.
2018); and FTC v. RevMountain, LLC, No. 2:17-cv-02000-APG-GWF (D.
Nev. 2018).
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In the ANPR, the Commission explained it receives thousands of
complaints a year related to negative option marketing. In addition,
State AGs and other commenters detailed ongoing problems with
inadequate disclosures, the failure to obtain consent, poor or
nonexistent cancellation procedures, and the refusal to honor
cancellation requests and refund demands. They further explained
deceptive free trial offers are ``rampant online and throughout social
media,'' and often lure consumers into recurring payments without
clearly and conspicuously disclosing future payment obligations.\61\
The evidence offered by commenters also demonstrates many sellers do
not provide consumers with simple cancellation methods and, instead,
create obstacles, such as long telephone hold times or multiple
upsells, to impede consumers from terminating
[[Page 24726]]
their contracts. These practices are further reflected in the
Commission's recent cases.\62\
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\61\ State AGs.
\62\ See, e.g., FTC v. Triangle Media Corp., No. 3:18-cv-01388-
LAB-LL (S.D. Cal. 2019); FTC v. AdoreMe, Inc., No. 1:17-cv-09083
(S.D.N.Y. 2017); and FTC v. One Techs., LP, No. 3:14-cv-05066 (N.D.
Cal. 2014).
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XI. Proposed Amendments--Objectives and Content
To address these ongoing problems, the Commission proposes to amend
the current Negative Option Rule with the objective of setting clear,
enforceable performance-based requirements for all negative option
features in all media. The proposed amendments are designed to ensure
consumers understand what they are purchasing and allow them to cancel
their participation without undue burden or complication. As discussed
below, the proposed Rule (retitled ``Rule Concerning Recurring
Subscriptions and Other Negative Option Plans'') addresses the most
important issues related to negative option marketing, including
misrepresentations, disclosures, consent, and cancellation. These
proposed changes, which replace existing provisions in the Rule,
enhance and clarify existing requirements currently dispersed in other
rules and statutes. They also consolidate all requirements, such as
those in the TSR, specifically applicable to negative option marketing.
Further, the proposed Rule would allow the Commission to seek civil
penalties and consumer redress in contexts where such remedies are
currently unavailable, such as deceptive or unfair practices involving
negative options in traditional print materials and face-to-face
transactions (i.e., in media not covered by ROSCA or the TSR) and
misrepresentations (which are not expressly covered by ROSCA, even when
on the internet).
In developing this proposal, and consistent with concerns raised in
the comments, the Commission sought to enhance consumer protections
while avoiding detailed, prescriptive requirements that would impede
innovation. By generally proposing flexible standards, the Commission
seeks to establish rules that will not impede advances or become
irrelevant as the market changes, while protecting consumers from
widespread deceptive or unfair practices.
Coverage: The Commission proposes eliminating the current Rule's
prescriptive requirements applicable to prenotification plans and
replacing them with the flexible, but enforceable, standards detailed
below. The proposed requirements would apply to all forms of negative
option marketing, including prenotification and continuity plans,
automatic renewals, and free trial offers.\63\ This expanded coverage
would establish a common set of requirements applicable to all types of
negative option marketing.
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\63\ The proposed Rule would apply to ``negative option
sellers,'' which are defined in the proposal as persons selling,
offering, promoting, charging for, or otherwise marketing a negative
option feature. With certain exceptions, the FTC Act provides the
agency with jurisdiction over nearly every economic sector. Certain
entities or activities are wholly or partially exempt from FTC
jurisdiction under the FTC Act, including most depository
institutions, non-profits, transportation and communications common
carriage, and the business of insurance. For instance, under
Sections 4 and 5 of the FTC Act, the Commission's jurisdiction does
not apply to non-profit organizations generally, but it does extend
to non-profits that provide economic benefits to their for-profit
members, e.g., trade and professional associations. See California
Dental Ass'n v. FTC, 526 U.S. 756 (1999).
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The proposed Rule defines ``negative option feature'' to mean a
contract provision under which the consumer's silence or failure to
take affirmative action to reject a good or service or to cancel the
agreement is interpreted by the negative option seller as acceptance or
continuing acceptance of the offer. This definition is consistent with
the TSR and ROSCA (which references the TSR's definition of negative
option). The proposed term includes, but is not limited to, automatic
renewals, continuity plans, free-to-pay conversion or fee-to-pay
conversions, and pre-notification negative option plans.\64\
Additionally, the proposed Rule covers offers made in all media,
including internet, telephone, in-person, and printed material. The
Commission's experience, confirmed by many commenters, demonstrates
that negative option features pose the same risks across media and
sales methods. The amendments would establish a comprehensive scheme
for regulation of negative option marketing in a single rule, thus
consolidating existing negative option-specific provisions in one
location. This change will facilitate compliance by providing one-stop
regulatory shopping, as noted by the State AGs and PDMI.
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\64\ Section II of this Notice contains descriptions of these
various plans.
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Misrepresentations: Section 425.3 of the proposed Rule prohibits
any person from misrepresenting, expressly or by implication, any
material fact regarding the entire agreement--not just facts related to
a negative option feature. FTC enforcement experience demonstrates
misrepresentations in negative option marketing cases continue to be
prevalent and often involve deceptive representations not only related
to the negative option feature but to the underlying product (or
service) or other aspects of the transaction as well. Such deceptive
practices may involve misrepresentations related to costs, product
efficacy, free trial claims, processing or shipping fees, billing
information use, deadlines, consumer authorization, refunds,
cancellation, or any other material representation.\65\
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\65\ See e.g., FTC v. Tarr, No. 3:17-cv-02024-LAB-KSC (S.D. Cal.
2017); FTC v. First American Payment Systems, Case 4:22-cv-00654
(E.D. Tex. 2022); FTC v. XXL Impressions, No. 1:17-cv-00067-NT (D.
Me. 2018); US v. MyLife.com, Inc., No. 2:20-CV-6692-JFW-PDx (C.D.
Cal. 2021); FTC and State of Maine v. Health Research Labs., LLC,
No. 2:17-cv-00467-JDL (D. Me. 2018); FTC and State of Connecticut v.
Leanspa, LLC, No. 3:11-cv-01715-JCH (D. Conn. 2013); FTC v.
WealthPress, Inc. et al., No. 3:23-cv-00046 (M. D. Fla. 2023); FTC
v. BunZai Media Group, Inc., No. CV15-04527-GW(PLAx) (C.D. Cal.
2018); FTC v. Willms, No 2:11-cv-00828 (W.D. Wash. 2011); FTC v.
Universal Premium Services, No. CV06-0849 (C.D. Cal. 2006); FTC v.
Remote Response, No. 06-20168 (S.D. Fla. 2006); and FTC v. Jeremy
Johnson, et al., No. 2:10-cv-02203 (D. Nev. 2016).
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This provision falls within the Commission's Section 5 authority
and its separate authority under ROSCA. The proposed provision provides
the FTC with the ability to seek civil penalties and consumer redress
for material misrepresentations in media other than telemarketing or
the internet. The record demonstrates this type of provision is
necessary. Specifically, despite the Commission's current authority to
obtain redress and injunctions under ROSCA and injunctive relief under
Section 5 of the FTC Act, the Commission's many enforcement actions
over the past several years have failed to stem the tide of deceptive
negative option practices online and in person. Ensuring great relief
against those who deceive consumers will benefit both consumers and
honest sellers who must compete with those who engage in deception.
Important Information: Section 425.4 of the proposed Rule requires
sellers to provide the following important information prior to
obtaining the consumer's billing information: (1) that consumers'
payments will be recurring, if applicable, (2) the deadline by which
consumers must act to stop charges, (3) the amount or ranges of costs
consumers may incur, (4) the date the charge will be submitted for
payment, and (5) information about the mechanism consumers may use to
cancel the recurring payments.
The failure to provide this information is a deceptive or unfair
practice. As detailed in the comments (e.g., TINA and State AGs), many
sellers fail to provide adequate disclosures, thereby luring consumers
into
[[Page 24727]]
purchasing goods or services they do not want. Moreover, the proposal
is consistent with ROSCA, which requires sellers to clearly and
conspicuously disclose ``all material terms of the transaction before
obtaining the consumer's billing information.'' Specifically, the
proposed Rule, like ROSCA, would require sellers to disclose any
material conditions related to the underlying product or service that
is necessary to prevent deception, regardless of whether that term
directly relates to the terms of the negative option offer.\66\
Complementing ROSCA, the proposal also specifies the types of
information sellers must provide so that they have more certainty and
consumers receive the information they need to understand the terms of
their enrollment. This provision is consistent with Commission orders
in this area, requiring no more than any advertisement would need to be
non-deceptive.
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\66\ See In re: MoviePass, Inc., No. C-4751 (Oct. 5, 2021).
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The proposal does not mandate a long list of prescriptive
disclosures, such as renewal dates or business contact information, as
some commenters suggested. There is an inherent tradeoff between
providing consumers with additional information and ensuring they see
and understand the information they need (i.e., consumers may miss
important information if the important points are surrounded by useful
but less critical information).
Further, to help ensure consumers actually see and understand this
important information, the proposed Rule contains general requirements
for the location and form of the necessary information in written,
telephone, and in-person offers. The FTC's law enforcement experience
and consumer complaints are replete with examples of hidden
disclosures, including those in fine print, buried in paragraphs of
legalese and sales pitches, and accessible only through hyperlinks.\67\
Making the rules of the road clear prevents deception by businesses
trying to take advantage of the gray areas in current statutes and
regulations; the possibility of civil penalties deters those who are
engaging in fraudulent practices. Moreover, these clearer guidelines
should level the playing field for legitimate businesses, freeing them
from having to compete against those employing deception.
---------------------------------------------------------------------------
\67\ See, e.g., FTC v. Triangle Media Corp., No. 3:18-cv-01388-
LAB-LL (S.D. Cal. 2019); FTC v. Tarr, No. 3:17-cv-02024-LAB-KSC
(S.D. Cal. 2017); FTC v. One Techns., LP, No. 3:14-cv-05066 (N.D.
Cal. 2014).
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Specifically, consistent with the Commission's Policy Statement,
the proposed amendments require marketers to present this information
``clearly and conspicuously,'' a term defined in the proposed
amendments. Under the proposal, this information should be difficult to
miss (i.e., easily noticeable) or unavoidable and easily understandable
by ordinary consumers. In addition, all required information,
regardless of media, should not contain any other information that
interferes with, detracts from, contradicts, or otherwise undermines
the ability of consumers to read, hear, see, or otherwise understand
the required information, including any information not directly
related to the material terms and conditions of any negative option
feature. The proposed amendments also contain requirements related to
visual, audible, and written disclosures consistent with the principles
enunciated in the Policy Statement. For example, in any communication
that is solely visual or solely audible, the disclosure should be made
through the same means through which the communication is presented.
Additionally, written disclosures should appear immediately adjacent to
the means of recording the consumer's consent for the negative option
feature. Again, the Commission's law enforcement experience as well as
the comments demonstrate the need for this direction, which should
benefit businesses who are trying to make non-deceptive claims by
leveling the playing field.
Finally, the FTC's comprehensive definition of ``clear and
conspicuous,'' developed through years of enforcement experience,
covers all the concepts provided in California and DC laws' ``clear and
conspicuous'' definitions with one exception. That exception, the fact
that the DC definition requires that disclosures be visually proximate
to any request for consumer consent, is incorporated by the proposed
Rule in a separate consent section.\68\
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\68\ Cal. Bus. & Prof. Code section 17601 and DC Code section
28A-202.
---------------------------------------------------------------------------
Consent: Section 425.5 of the proposed Rule also requires negative
option sellers to obtain consumers' express informed consent before
charging them. The failure to obtain such consent is a deceptive or
unfair practice, and the record demonstrates how pervasive this problem
has become.\69\ Thus, the proposed consent requirements are necessary
given how easily marketers can enroll consumers in negative option
programs without actual consent.
---------------------------------------------------------------------------
\69\ See, e.g., State AGs comments; FTC v. Bunzai Media Group,
Inc., No. CV15-04527-GW(PLAx) (C.D. Cal. 2018); FTC v. Health
Formulas, LLC, No. 2:14-cv-01649-RFB-GWF (D. Nev. 2016); FTC v. JDI
Dating, Ltd., No. 1:14-cv-08400 (N.D. Ill. 2018); FTC and State of
Maine v. Health Research Laboratories, LLC, No. 2:17-cv-00467-JDL
(D. Me. 2018) (Section 5); FTC v. XXL Impressions, No. 1:17-cv-
00067-NT (D. Me. 2018) (Section 5).
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Proposed Section 425.5 is consistent with ROSCA's basic ``express
informed consent'' requirement while providing more guidance on how to
comply. This more detailed guidance removes ambiguity for marketers,
while leveling the playing field and providing deterrence. Moreover,
the provision provides flexibility to allow for innovation and change
over time. The proposed Rule achieves these goals by requiring
marketers to: (1) obtain the consumer's unambiguously affirmative
consent to the negative option feature separately from any other
portion of the offer; (2) refrain from including any information that
``interferes with, detracts from, contradicts, or otherwise
undermines'' the consumer's ability to provide express informed
consent; (3) obtain the consumer's unambiguously affirmative consent to
the entire transaction; and (4) obtain and maintain (for three years or
a year after cancellation, whichever is longer) verification of the
consumer's consent.\70\
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\70\ The Commission seeks comment on whether the proposed Rule
should contain a different recordkeeping period.
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These requirements address commenters' (e.g., TINA, Rep. Takano,
and State AGs) concerns that many sellers employ inadequate consent
procedures to increase enrollment in negative option programs. By
providing more specificity regarding the steps sellers must take to
ensure they obtain consumer consent, these provisions will also help
address the deceptive use of so-called ``dark patterns,'' sophisticated
design practices that manipulate users into making choices they would
not otherwise have made.\71\ Indeed, consumer agreement to any free-to-
pay conversion or negative option feature or any other automatic
renewal provision obtained through the use of deceptive or unfair dark
patterns does not constitute express informed consent.
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\71\ The FTC recently released a report describing these
practices, which include disguising ads to look like independent
content, making it difficult for consumers to cancel subscriptions
or charges, burying key terms or junk fees, and tricking consumers
into sharing their data. See Bringing Dark Patterns to Light, FTC
Staff Report (Sept. 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/P214800%20Dark%20Patterns%20Report%209.14.2022%20-%20FINAL.pdf.
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The provisions also address the unique challenges presented by
negative option offers, even for marketers trying to comply with the
law. Specifically,
[[Page 24728]]
consumers can easily focus solely on the aspects of an offer that
mirror the offers they regularly encounter (e.g., the quality,
functionality, one-time price of the item, and the availability of a
free trial offer). Thus, many consumers think they are consenting to
these core attributes but miss the other unusual price term--the
negative option feature. The proposal addresses these issues by
requiring marketers to obtain consent for the negative option feature
separately from the rest of the offer and other parts of the
transaction, thereby ensuring the consent is informed.\72\ For
instance, according to the comments, sellers offering negative option
features through in-person transactions frequently use consumers'
signatures on the entire purchase as consent for the negative option.
Further, in effect, the requirement for a separate negative option
consent prohibits certain negative option enrollment methods, such as
the use of retail sales receipts or check endorsements, in which the
customer's signature serves a dual purpose (e.g., negative option
enrollment and promotional check cashing). As commenters noted, such
practices appear to be particularly attractive to those committing
fraud. Finally, the Rule requires sellers to obtain consent for the
entire transaction to ensure consumers also agree to elements of the
agreement not specifically related to the negative option feature.\73\
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\72\ See, e.g., FTC v. Jason Cardiff (Redwood Scientific), No.
ED 18-cv-02104 SJO (PLAx) (C.D. Cal. 2018); FTC v. DOTAuthority.com,
Inc., No. 0:16-cv-62186-WJZ (S.D. Fla. 2018); FTC v. JDI Dating,
Ltd., No. 1:14-cv-08400 (N.D. Ill. 2014).
\73\ The Commission recently alleged that failure to disclose a
material term of the underlying service that was necessary to
prevent deception violated this provision of ROSCA. In re:
MoviePass, Inc., No. C-4751 (Oct. 5, 2021).
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To maintain consistency with the TSR, the proposed consent
provision also contains a cross-reference to 16 CFR part 310 to inform
sellers of that regulation and includes specific mention of TSR
requirements for consent in transactions involving preacquired account
information and a free-to-pay conversion.\74\ However, beyond the basic
steps discussed above and these current TSR requirements, the proposed
consent requirements contain no prescriptive provisions requiring
sellers to implement specific practices.
---------------------------------------------------------------------------
\74\ 16 CFR 310(a)(7).
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Instead, the proposed Rule provides guidance for sellers making
written offers (including those on the internet) to assure they have
obtained the consumer's unambiguously affirmative consent.
Specifically, for all written offers (including over the internet),
sellers may obtain express informed consent through a check box,
signature, or other substantially similar method, which the consumer
must affirmatively select or sign to accept the negative option
feature, and no other portion of the offer.\75\ This approach should
protect consumers and marketers alike. Consumers are assured they pay
for only the goods and services they choose, and marketers can opt for
the certainty of avoiding liability by adhering to the Commission's
proposed means of compliance. Alternatively, marketers are free to
innovate as long as they meet the express informed consent standard.
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\75\ To avoid potential conflicts with EFTA, this proposed
provision does not apply to transactions covered by the
preauthorized transfer provisions of that Act, 15 U.S.C. 1693e, and
Regulation E, 12 CFR 1005.10. Those EFTA provisions, which apply to
a range of preauthorized transfers including some used for negative
options, contain various prescriptive requirements (e.g., written
consumer signatures that comply with E-Sign, 15 U.S.C. 7001-7006,
evidence of consumer identity and assent, the inclusion of terms in
the consumer authorization, and the provision of a copy of the
authorization to the consumer) beyond the measures identified in the
proposed Rule. Consequently, compliance with the proposed Rule would
not necessarily ensure compliance with Regulation E. For example,
use of a check box for consent without additional measures may not
comply with Regulation E's more specific authorization requirements.
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In the free trial context, while marketers must obtain consumers'
express informed consent prior to being charged, the proposal does not
require sellers to obtain an additional (or alternative) round of
consent after the trial's completion. Although such additional consent
would remind many consumers of their ongoing purchases, the failure to
provide this second round of consent does not necessarily constitute an
unfair or deceptive practice.\76\ For example, if sellers follow the
proposed Rule's disclosure and consent requirements, consumers should
understand they are enrolled in, and will be charged for, the negative
option feature once the free trial ends. Nonetheless, the Commission
invites comment on whether additional (or alternative) measures are
necessary to prevent unfairness or deception and ensure consumers have
adequate notice concerning the initiation of recurring purchases or
payments following the completion of a free trial. For example, the
Commission seeks comment on whether sellers offering free trials should
be required to obtain an additional round of consent before charging a
consumer at the completion of the free trial.
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\76\ 15 U.S.C. 57a(a)(1)(B).
---------------------------------------------------------------------------
Simple Cancellation Mechanism (``Click to Cancel''): Easy
cancellation is an essential feature of a fair and non-deceptive
negative option program. If consumers cannot easily leave the program
when they wish, the negative option feature is little more than a means
of charging consumers for goods or services they no longer want.
Unfortunately, the record demonstrates easy cancellation is all too
often illusory.\77\ To address this persistent unfair and deceptive
practice, the proposed Rule, consistent with ROSCA and California
requirements, directs sellers to provide a simple cancellation
mechanism to immediately halt any recurring charges.\78\ However, while
ROSCA's cancellation provision is laudable, it has failed to eliminate
the barriers many marketers have erected to keep consumers from
canceling. Specifically, many marketers take advantage of the ambiguity
of the term simply to thwart or delay consumers' attempts to cancel.
The Commission's cases, as well as the State AGs' and TINA's comments,
demonstrate the need for clearer guardrails in this area. To construct
these guardrails, the proposed Rule requires the mechanism to be at
least as simple as the one used to initiate the charge or series of
charges. Because sellers have huge incentives to create a frictionless
purchasing process, ensuring cancellation is equally simple should
remove barriers, such as unreasonable hold times or verification
requirements. The lack of detailed requirements affords businesses
flexibility in meeting the proposed Rule's simple cancellation
standard.
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\77\ See, e.g., NCL and State AGs.
\78\ The TSR requires disclosure of the material terms of a
seller's cancellation policy (if one exists) and prohibits
misrepresentations about cancellation policies. 16 CFR 310.3.
However, it does not contain specific cancellation mechanism
requirements.
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The proposal also requires sellers to provide a simple cancellation
mechanism through the same medium used to initiate the agreement,
whether, for instance, through the internet, telephone, mail, or in-
person. On the internet, this ``Click to Cancel'' provision requires
sellers, at a minimum, to provide an accessible cancellation mechanism
on the same website or web-based application used for sign-up. If the
seller allows users to sign up using a phone, it must provide, at a
minimum, a telephone number and ensure all calls to that number are
answered during normal business hours. Further, to meet the requirement
that the mechanism be at least as simple as the one used to initiate
the recurring charge, any telephone call used for cancellation cannot
be more expensive than the call used to enroll (e.g., if the
[[Page 24729]]
sign-up call is toll free, the cancellation call must also be toll
free). For a recurring charge initiated through an in-person
transaction, the seller must offer the simple cancellation mechanism
through the internet or by telephone in addition to, where practical,
the in-person method used to initiate the transaction.
The proposed Rule provides for this flexible approach in lieu of,
as some commenters suggested, prohibitions against a list of specific
practices (e.g., additional security requirements, third-party
scripting, etc.) that may impair cancellation. Specific prohibitions
may be counterproductive, solving today's issues only to inadvertently
provide a road map to tomorrow's deception. Unscrupulous sellers, for
example, can simply circumvent detailed prohibitions and employ new
infinitely clever means to thwart consumers. The proposed performance
standard avoids this eventuality. Additionally, such restrictions may
prohibit legitimate measures used by sellers for security reasons or
other purposes. The proposed provision, therefore, mandates results and
provides the flexibility to meet them.
The proposed Rule does not contain a separate provision requiring
refunds for consumers ``unwittingly enrolled in a negative option
plan,'' as some commenters suggested. Such a provision is not needed to
prevent deception because enrolling consumers without their express
informed consent would already violate the proposed Rule's consent
requirements (proposed Section 425.5).
Finally, the proposed Rule does not adopt a commenter
recommendation to augment cancellation provisions by requiring sellers
to completely delete consumer data following cancellation to provide
consumers with a ``true exit.'' Although such a procedure may be
desirable for many consumers, the record does not support an assertion
that the practice of retaining consumer data after cancellation is
inherently unfair or deceptive, nor would a requirement related to data
deletion prevent other unfair or deceptive practices related to
negative options.\79\ Instead, this issue involves questions of relief
related to broader privacy issues, and thus falls outside the scope of
this proceeding.
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\79\ 15 U.S.C. 57a(a)(1)(B).
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Additional Offers Before Cancellation (``Saves''): The proposed
Rule also contains a provision for sellers who seek to pitch additional
offers or modifications (i.e., defined as a ``Save'' in the proposed
Rule) during a consumer's cancellation attempt. Under the proposal,
before making such pitches, the seller must first ask consumers whether
they would like to consider such offers or modifications (e.g., ``Would
you like to consider a different price or plan that could save you
money?''). If consumers decline this invitation, the seller must desist
from presenting such offers and cancel the negative option arrangement
immediately. If they accept, the seller can pitch the alternative
offers. To prevent consumers from entering a protracted series of such
offers, the proposed Rule also clarifies that a consumer's consent to
receive additional offers or modifications applies only to the
cancellation attempt in question and not to subsequent attempts. Thus,
consumers could disengage during the ``save'' attempt (e.g., by hanging
up, closing the browser, or disconnecting the chat) and avail
themselves of the easy cancellation during a separate, subsequent
attempt. As noted in the comments (e.g., NCL and State AGs), evidence
demonstrates many businesses have created unnecessary and burdensome
obstacles in the cancellation process, including forcing uninterested
consumers to listen to multiple upsells before allowing cancellation,
that are not outweighed by countervailing benefits to consumers or
competition. This is an unfair and deceptive practice. The proposed
provision would effectively prohibit such practices by giving consumers
the ability to avoid them, while allowing sellers to pitch new offers
to those consumers who find these additional offers desirable. In
addition, this provision should not create any significant burden for
sellers.
Reminders and Confirmations: For contracts involving the automatic
delivery of physical goods (e.g., pet food), the proposed Rule does
not, as some commenters recommended, mandate confirmatory emails or
periodic reminders. In situations where the seller has otherwise
clearly disclosed the terms of the deal, obtained consent, and provided
a simple cancellation mechanism, the record does not support an
assertion that the absence of these reminders is inherently unfair or
deceptive, given the requirement that sellers must provide all material
information upfront. Moreover, while the lack of a reminder may result
in some consumers paying for goods they do not want based simply on the
lack of diligence, any injury is reasonably avoidable by consumers
themselves. Specifically, each delivery serves as a reminder of the
contract, allowing consumers to reasonably avoid further payments by
contacting the company and cancelling the arrangement. Thus, the record
does not support an assertion that such an agreement is inherently
unfair.
Subscriptions and other negative option arrangements that do not
involve physical goods, however, present a different issue. As some
commenters explained, because these services may have no regular,
tangible presence for consumers (e.g., data security monitoring or
subscriptions for online services), many consumers may reasonably
forget they enrolled in such plans and, as a result, incur perpetual
charges for services they do not want or use. Thus, the failure to
provide reminders for such contracts meet all three elements of
unfairness.\80\
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\80\ FTC Policy Statement on Unfairness, appended to
International Harvester Co., 104 F.T.C. 949 (1984). ``To justify a
finding of unfairness the injury must satisfy three tests. It must
be substantial; it must not be outweighed by any countervailing
benefits to consumers or competition that the practice produces; and
it must be an injury that consumers themselves could not reasonably
have avoided.'' Id.
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Accordingly, the Commission proposes to require sellers to provide
an annual reminder to consumers enrolled in negative option plans
involving anything other than physical goods. Under the proposal, such
reminders must identify the product or service, the frequency and
amount of charges, and the means to cancel (see proposed Section
425.7). As a matter of good business practice, many sellers already
provide such reminders to consumers enrolled in these programs.
However, even for those who do not, the proposal should impose little
additional burden (e.g., a short, generic email). The Commission seeks
comment on this proposal, including, for example, whether the
Commission should narrow the coverage of the proposed language by types
of covered services or time duration between reminders.
Material Changes: The proposed Rule does not contain a provision
addressing the need for notices when sellers make material changes to a
negative option contract. Because these contracts can last years, and
even decades, the original agreement often allows the seller to change
material terms of the agreement such as price, services, and product
quantity. As commenters noted, some states have requirements addressing
this issue. However, whether such a practice is unfair or deceptive
depends heavily on the facts presented in each case (e.g., consumers
may reasonably expect a small annual increase in price for some
products or
[[Page 24730]]
services, but not massive increases or even small increases for
different products). Because consumer interpretation of these claims is
so fact dependent, it is not practical to draw a universal line between
legal and violative behavior. Thus, the Commission can best address
issues in this area on a case-by-case basis through law enforcement
actions. Given the importance of this issue, however, the Commission
seeks further comment on whether and how the Rule can address this
issue consistent with FTC's authority to combat unfair or deceptive
practices.
Penalties: Under the proposal, the civil penalties for the Rule
would continue to reflect the amounts set out in 16 CFR 1.98(d).
State Requirements: The Federal Trade Commission Act does not
explicitly preempt state law, and the legislative history of the FTC
Act indicates that Congress did not intend the FTC to occupy the field
of consumer protection regulation.\81\ Accordingly, any preemptive
effect of a Rule would be limited to instances where it is not possible
for a private party to comply with both state and the Commission
regulations, or where application of state regulations would frustrate
the purposes of the Rule.\82\
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\81\ See, e.g., Am. Fin. Servs. Ass'n v. FTC, 767 F.2d 957, 989
(D.C. Cir. 1985).
\82\ Preemption would occur where there is an ``actual conflict
between the two schemes of regulation [such] that both cannot stand
in the same area.'' Fla. Lime & Avocado Growers, Inc., v. Paul, 373
U.S. 132, 141 (1963). See also Am. Fin. Servs., 767 F.2d 957 (Credit
Practices Rule); Harry and Bryant Co. v. FTC, 726 F.2d 993 (4th Cir.
1984) (Funeral Rule); Am. Optometric Assoc. v. FTC, 626 F.2d 896
(D.C. Cir. 1980) (Ophthalmic Practices Rule).
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Therefore, Section 425.7 of the proposed Rule specifies that the
Rule would not supersede, alter, or affect state statutes or
regulations relating to negative option marketing, except to the extent
that a state statute, regulation, order, or interpretation is
inconsistent with the proposed Rule. The proposal also indicates state
requirements are not inconsistent with the Rule to the extent they
afford greater protection to consumers. The Commission invites comment
on whether the proposed Rule conflicts with any existing state
requirements.
Consumer Education: The Commission plans to continue its efforts to
provide information to help consumers with their purchasing decisions
and avoid ensnarement in unwanted recurring payment programs. However,
consumer education does not provide a substitute for improving existing
regulatory provisions. Consumer education is likely to have a limited
benefit where sellers lure consumers into an agreement without
consumers' knowledge, particularly with the use of dark patterns.
Exempted Activities: The Commission seeks comment on whether the
Rule should exempt any entities or activities that are otherwise
subject to the Commission's authority under the FTC Act. In the
comments, various interests, such as energy sellers and service
contract providers, urged the Commission to exempt their industries.
They argued existing state licensing and other requirements that
already apply to their activities adequately address the problems noted
above and further rules would only interfere with the existing
regulatory structure. They note that some state laws (e.g., California)
contain exemptions for activities such as service contract sellers and
administrators, as well as state public utility commission licensees.
Those commenting on this issue should detail which, if any,
industries should be exempt, or not exempt, and why, including whether
the proposed Rule would impose requirements that conflict with state
regulations targeted to a specific industry sector, or are antithetical
to the goals of such state laws.
XII. The Rulemaking Process
As explained in Section XIII of this document, the Commission
invites interested parties to submit data, views, and arguments on the
proposed amendments to the Negative Option Rule and the issues and
questions raised in this document. The comment period will remain open
until June 23, 2023.\83\ To the extent practicable, all comments will
be available on the public record and posted at the docket for this
rulemaking on https://www.regulations.gov. The Commission will provide
an opportunity for an informal hearing if an interested person requests
to present their position orally. See 15 U.S.C. 57a(c). Any person
interested in making a presentation at an informal hearing must submit
a comment requesting to make an oral submission, and the request must
identify the person's interests in the proceeding and indicate whether
there are any disputed issues of material fact that need to be resolved
during the hearing. See 16 CFR 1.11(e). The comment should also include
a statement explaining why an informal hearing is warranted and a
summary of any anticipated testimony. If the Commission schedules an
informal hearing, either on its own initiative or in response to
request by an interested party, a separate notice will issue. See id.
1.12(a).
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\83\ The Commission elects not to provide a separate, second
comment period for rebuttal comments. See 16 CFR 1.11(e) (``The
Commission may in its discretion provide for a separate rebuttal
period following the comment period.'').
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The Commission can decide to finalize the proposed rule if the
rulemaking record, including the public comments in response to this
NPRM, supports such a conclusion. The Commission may, either on its own
initiative or in response to a commenter's request, engage in
additional processes, which are described in 16 CFR 1.12, 1.13. Based
on the comment record and existing prohibitions against deceptive or
unfair negative option marketing under Section 5 of the FTC Act and
other rules and statutes, the Commission does not here identify any
disputed issues of material fact that need to be resolved at an
informal hearing. The Commission may still do so later, on its own
initiative or in response to a persuasive showing from a commenter.
XIII. Request for Comments
The Commission seeks comments on all aspects of the proposed
requirements, including the likely effectiveness of the proposed Rule
in helping the Commission combat unfair or deceptive practices in
negative option marketing. The Commission also seeks comment on various
alternatives to the proposed regulation, to further address
disclosures, consumer consent, and cancellation. It also seeks comment
on other approaches, such as the publication of additional consumer and
business education. The Commission seeks any suggestions or alternative
methods for improving current requirements. In their replies,
commenters should provide any available evidence and data that supports
their position, such as empirical data, consumer perception studies,
and consumer complaints.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before June 23, 2023.
Write ``Negative Option Rule; Project No. P064202'' on your comment.
Your comment--including your name and your state--will be placed on the
public record of this proceeding, including, to the extent practicable,
on the website https://www.regulations.gov.
Because of the agency's heightened security screening, postal mail
addressed to the Commission will be subject to delay. We strongly
encourage you to submit your comments online through the https://www.regulations.gov
[[Page 24731]]
website. To ensure that the Commission considers your online comment,
please follow the instructions on the web-based form.
If you file your comment on paper, write ``Negative Option Rule;
Project No. P064202'' on your comment and on the envelope, and mail
your comment to the following address: Federal Trade Commission, Office
of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 (Annex N),
Washington, DC 20580. If possible, please submit your paper comment to
the Commission by overnight service.
Because your comment will be placed on the public record, you are
solely responsible for making sure that your comment does not include
any sensitive or confidential information. In particular, your comment
should not contain sensitive personal information, such as your or
anyone else's Social Security number; date of birth; driver's license
number or other state identification number or foreign country
equivalent; passport number; financial account number; or credit or
debit card number. You are also solely responsible for making sure your
comment does not include any sensitive health information, such as
medical records or other individually identifiable health information.
In addition, your comment should not include any ``[t]rade secret or
any commercial or financial information which . . . is privileged or
confidential''--as provided in Section 6(f) of the FTC Act, 15 U.S.C.
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2)--including, in
particular, competitively sensitive information such as costs, sales
statistics, inventories, formulas, patterns, devices, manufacturing
processes, or customer names.
Comments containing material for which confidential treatment is
requested must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with FTC Rule 4.9(c), 16 CFR 4.9(c).
In particular, the written request for confidential treatment that
accompanies the comment must include the factual and legal basis for
the request and must identify the specific portions of the comment to
be withheld from the public record. See FTC Rule 4.9(c). Your comment
will be kept confidential only if the General Counsel grants your
request in accordance with the law and the public interest. Once your
comment has been posted publicly at https://www.regulations.gov--as
legally required by FTC Rule 4.9(b), 16 CFR 4.9(b)--we cannot redact or
remove your comment, unless you submit a confidentiality request that
meets the requirements for such treatment under FTC Rule 4.9(c), and
the General Counsel grants that request.
Visit the FTC website to read this document and the news release
describing it. The FTC Act and other laws that the Commission
administers permit the collection of public comments to consider and
use in this proceeding as appropriate. The Commission will consider all
timely and responsive public comments it receives on or before June 23,
2023. For information on the Commission's privacy policy, including
routine uses permitted by the Privacy Act, see https://www.ftc.gov/policy-notices/privacy-policy.
XIV. Preliminary Regulatory Analysis and Regulatory Flexibility Act
Requirements
Under Section 22(a) of the FTC Act, 15 U.S.C. 57b-3(a), the
Commission must issue a preliminary regulatory analysis for a
proceeding to amend a rule if the Commission: (1) estimates that the
amendment will have an annual effect on the national economy of $100
million or more; (2) estimates that the amendment will cause a
substantial change in the cost or price of certain categories of goods
or services; or (3) otherwise determines that the amendment will have a
significant effect upon covered entities or upon consumers. The
Commission has preliminarily determined that the proposed amendments to
the Rule will not have such effects on the national economy; on the
cost of goods and services offered for sale by mail, telephone, or over
the internet; or on covered parties or consumers. The proposed
amendments contain requirements related to consumer disclosures,
consumer consent, and cancellation. In developing these proposals, the
Commission has sought to minimize prescriptive requirements and provide
flexibility to sellers in meeting the Rule's objectives. In addition,
most sellers provide some sort of disclosures, follow consent
procedures, and offer cancellation mechanisms in the normal course of
business. Thus, compliance with the proposed requirements should not
create any substantial added burden. The Commission, however, requests
comment on the economic effects of the proposed amendments.
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-612,
requires that the Commission conduct an Initial Regulatory Flexibility
Analysis (``IRFA'') with a proposed rule and a Final Regulatory
Flexibility Analysis (``FRFA''), if any, with the final rule, unless
the Commission certifies that the rule will not have a significant
economic impact on a substantial number of small entities. See 5 U.S.C.
603-605. The RFA requires an agency to provide an IRFA with the
proposed Rule and a FRFA with the final rule, if any. The Commission is
not required to make such analyses if a rule would not have such an
economic effect, or if the rule is exempt from notice-and-comment
requirements.
The Commission does not have sufficient empirical data at this time
regarding the affected industries to determine whether the proposed
amendments to the Rule may affect a substantial number of small
entities as defined in the RFA. However, a preliminary analysis
suggests the proposed amendments to the Rule would not have a
significant economic impact on small entities. The proposed amended
rule would apply to all businesses using Negative Option Features in
the course of selling goods or services. Small entities in potentially
any industry could incorporate a negative option feature into a sales
transaction. The Commission is unaware, however, of any source of data
identifying across every industry the number of small entities that
routinely utilize negative option features. Based on the comments
received in response to the ANPR, and on the Commission's own
experience and expertise, the Commission believes the use of negative
option features may be more prevalent in some industries than others,
for example, computer security services, online streaming services, and
service contract providers. The Commission lacks sufficient data to
determine the portion of total estimated affected companies (see
estimate in the Paperwork Reduction Act analysis in section XV) that
qualify as small businesses across each industry. Therefore, the
Commission seeks comments on the percentage of affected companies that
qualify as small businesses.
In addition, it is also unclear whether the proposed amendments to
the Rule would have a significant economic impact on small entities.
However, as noted in Section XV, the impact of the proposed
requirements on all firms, whether small businesses or not, may not be
substantial. As discussed in that section, the FTC estimates the
majority of firms subject to the proposed recordkeeping requirements
already retain these types of records in the normal course of business.
The FTC anticipates many transactions subject to the Rule are conducted
via the internet, minimizing burdens associated with compliance.
Additionally, most entities
[[Page 24732]]
subject to the Rule are likely to store data though automated means,
which reduces compliance burdens associated with record retention.
Furthermore, regarding the proposed disclosure requirements, it is
likely the substantial majority of sellers routinely provide these
disclosures in the ordinary course as a matter of good business
practice. Moreover, many state laws already require the same or similar
disclosures as the Rule would mandate. Finally, some negative option
sellers are already covered by the Telemarketing Sales Rule and thus
subject to its disclosure requirements. The Commission therefore
anticipates that the Rule will not have a significant economic impact
on small entities. Nevertheless, because the precise costs to small
entities of updating their systems and disclosures are difficult to
predict, the Commission has decided to publish the following IRFA
pursuant to the RFA and to request public comment on the impact on
small businesses of the proposed amendments.
A. Description of the Reasons Why Action by the Agency Is Being
Considered
As described in this document, the proposed amendments address
unfair or deceptive practices in negative option marketing. The FTC,
other federal agencies, and state attorneys general have brought
multiple actions to stop and remedy the harms caused by negative option
marketing. The record demonstrates, however, that existing authorities
fall short because there is no uniform legal framework, which leaves
entire sectors of the economy under-regulated and constrain the relief
that the Commission may obtain for law violations. In the ANPR, the
Commission explained it receives thousands of complaints a year related
to negative option marketing. As discussed above in Sections VI, VII,
and IX, the proposed changes, which replace existing provisions in the
Rule, enhance and clarify existing requirements currently dispersed in
other rules and statutes. They also consolidate all requirements, such
as those in the TSR, specifically applicable to negative option
marketing. Further, the proposed Rule would allow the Commission to
seek civil penalties and consumer redress in contexts where such
remedies are currently unavailable, such as deceptive or unfair
practices involving negative options in traditional print materials and
face-to-face transactions (i.e., in media not covered by ROSCA or the
TSR) and misrepresentations (which are not expressly covered by ROSCA,
even when on the internet).
B. Succinct Statement of the Objectives of, and Legal Basis for, the
Proposed Amendments
The objective of the proposed amendments is to curb deceptive or
unfair practices occurring in negative option marketing. The legal
basis for the proposed amendments is Section 18(b)(3) of the FTC Act,
15 U.S.C. 57a(b)(3), which provides the Commission with authority to
issue a notice of proposed rulemaking where it has reason to believe
that the unfair or deceptive acts or practices which are the subject of
the proposed rulemaking are prevalent.
C. Description and Estimate of the Number of Small Entities to Which
the Proposed Amendments Will Apply
The proposed amendments affect sellers, regardless of industry,
engaged in making negative option offers, defined by the Rule to mean
any person ``selling, offering, promoting, charging for, or otherwise
marketing goods or services with a Negative Option Feature.'' As
discussed in the introduction to this section, determining a precise
estimate of how many of these are small entities, or describing those
entities further, is not readily feasible because the staff is not
aware of published, comprehensive revenue and/or employment data for
all possible affected entities, which come from a variety of different
industries and which may or may not sell goods or services with
negative options. The Commission invites comment and information on
this issue.
D. Description of the Projected Reporting, Recordkeeping and Other
Compliance Requirements
The proposed rule amendments would require negative option sellers
to disclose certain information about negative option features, obtain
a consumer's express informed consent and maintain records of consumer
consent for three years after the initial transaction or one year after
cancellation (whichever is longer), and provide consumers a simple
mechanism for cancellation. The estimates for the proposed
recordkeeping and disclosure requirements are set out within the
Paperwork Reduction Act analysis in Section XV. As mentioned in the
earlier introductory section of the IFRA, the impact of these proposed
requirements on small entities is most likely not significant. The
small entities potentially covered by these amendments will include all
such entities subject to the Rule (e.g., for purposes of the proposed
amendment, entities selling goods or services through negative option
offerings). The professional skills necessary for compliance with the
proposed amendments would include sales and clerical personnel. The
Commission invites comment on these issues.
E. Duplicative, Overlapping, or Conflicting Federal Rules
As discussed in this document, the proposed amendments contain
certain provisions that are similar to or expand on requirements in the
TSR as well as ROSCA. The proposed amendments would establish a common
set of requirements applicable to all types of negative option
marketing. The Commission anticipates these changes will facilitate
compliance and reduce potential confusion among sellers and consumers
regarding their compliance obligations for sales involving negative
option offers. The FTC has not identified any other federal statutes,
rules, or policies currently in effect that may duplicate or conflict
with the proposed rule. As explained above, the proposed amendments
have been specifically drafted to avoid any conflict with EFTA and
Regulation E. The proposed amendments are also consistent with the
existing requirements of the TSR, see supra Section XI, while filling a
regulatory gap by extending protections to other, non-telemarketing
transactions. The Commission invites comment and information regarding
any potentially duplicative, overlapping, or conflicting federal
statutes, rules, or policies.
F. Description of Any Significant Alternatives to the Proposed
Amendments
In formulating the proposed amendments, the Commission has made
every effort to avoid imposing unduly burdensome requirements on
sellers. To that end, the Commission has avoided, where possible,
proposing specific, prescriptive requirements that could stifle
marketing innovation or otherwise limit seller options in using new
technologies. In addition, the Commission has sought comments as
detailed in Section XI of this document on several alternatives,
including provisions related to consent requirements (additional
consent for free trials) and reminder requirements (narrowing the scope
of product types requiring reminders). The former would likely increase
burdens on sellers but, at the same time, may benefit consumers by
helping to ensure they do not become enrolled in negative option
arrangements they do not want. The latter alternative would likely
decrease
[[Page 24733]]
burden but may fail to help consumers cancel programs they are unaware
of. The Commission seeks comments on the ways in which the proposed
amendments could be modified to reduce costs or burdens for small
entities. If the comments filed in response to this document identify
small entities that would be affected by the proposed Rule, as well as
alternative methods of compliance that would reduce the economic impact
of the proposed Rule on such entities, the Commission will consider the
feasibility of such alternatives and determine whether they should be
incorporated into the final Rule.
XV. Paperwork Reduction Act
The current Rule contains various provisions that constitute
information collection requirements as defined by 5 CFR 1320.3(c), the
definitional provision within the Office of Management and Budget
(``OMB'') regulations implementing the Paperwork Reduction Act
(``PRA''). OMB has approved the Rule's existing information collection
requirements through January 31, 2024 (OMB Control No. 3084-0104). The
proposed amendments make changes in the Rule's recordkeeping and
disclosure requirements that will increase the PRA burden as detailed
below. Accordingly, FTC staff will submit this notice of proposed
rulemaking and associated Supporting Statement to OMB for review under
the PRA.\84\
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\84\ The PRA analysis for this rulemaking focuses strictly on
the information collection requirements created by and/or otherwise
affected by the amendments.
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Estimated Annual Hours Burden: 265,000 hours.
The estimated burden for recordkeeping compliance is 53,000 hours
and the estimated burden for the requisite disclosures is 212,000
hours. Thus, the total PRA burden is 265,000 hours. These estimates are
explained below.
Number of Respondents
FTC staff estimates there are 106,000 entities currently offering
negative option features to consumers. This estimate is based primarily
on data from the U.S. Census North American Industry Classification
System (NAICS) for firms and establishments in industry categories
wherein some sellers offer free trials, automatic renewal,
prenotification plans, and continuity plans. Based on NAICS information
as well as its own research and industry knowledge, FTC staff
identified an estimated total of 530,000 firms involved in such
industries.\85\ However, FTC staff estimates that only a fraction of
the total firms in these industry categories offer negative option
features to consumers. For example, few grocery stores and clothing
retailers, which account for approximately a third of the of the total
estimate from all industry categories, are likely to regularly offer
negative option features. In addition, some entities included in the
total may qualify as common carriers, exempt from the Commission's
authority under the FTC Act. Accordingly, the Commission estimates that
approximately 106,000 business entities (20%) offer negative option
features to consumers.
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\85\ Examples of these industries include sellers of software,
streaming media, social media services, financial monitoring,
computer security, fitness services, groceries and meal kits,
dietary supplements, sporting goods, home service contracts, home
security systems, office supplies, pet food, computer supplies,
cleaning supplies, home/lawn maintenance services, personal care
products, clothing sales, energy providers, newspapers, magazines,
and books. The NAICS does not provide estimates for all of these
categories. Where such data is unavailable, the staff has used its
own estimates based on its knowledge of these industry categories.
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Recordkeeping Hours
The proposed Rule would require negative option sellers to retain
records sufficient to verify consumer consent related to a negative
option feature and consideration of further offers prior to
cancellation for at least 3 years, or until one year after the consumer
cancels the contract or the contract is otherwise terminated, whichever
period is longer. FTC staff estimates the majority of firms subject to
the Rule already retain these types of records in the normal course of
business. Under such conditions, the time and financial resources
needed to comply with disclosure requirements do not constitute
``burden'' under the PRA.\86\ Moreover, staff anticipates that many
transactions subject to the Rule are conducted via the internet and
most entities subject to the Rule are likely to store data though
automated means, which reduces compliance burdens associated with
record retention. Accordingly, staff estimates that 53,000 entities
subject to the Rule will require approximately one hour per year to
comply with the Rule's recordkeeping requirements, for an annual total
of 53,000 burden hours.
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\86\ Under the PRA, the time, effort, and financial resources
necessary to comply with a collection of information that would be
incurred by persons in the normal course of their activities (e.g.,
in compiling and maintaining business records) does not constitute
burden from the Rule where the associated recordkeeping is a usual
and customary part of business activities. 5 CFR 1320.3(b)(2).
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Disclosure Hours
The proposed Rule would require negative option sellers to provide
several disclosures to consumers including the amount to be charged,
the deadline the consumer must act to avoid charges, the date charges
will be submitted for payment, the cancellation mechanism the consumer
can use to end the agreement, reminders for recurring payments
involving non-physical goods, and requests related to further offers
prior to cancellation.\87\ Staff anticipates that the substantial
majority of sellers routinely provide these disclosures in the ordinary
course as a matter of good business practice. For these sellers, the
time and financial resources associated with making these disclosures
do not constitute a ``burden'' under the PRA because they are a usual
and customary part of regular business practice. 5 CFR 1320.3(b)(2).
Moreover, many state laws require the same or similar disclosures as
the Rule mandates. In addition, approximately 2,000 negative option
sellers are already covered by the Telemarketing Sales Rule and subject
to its disclosure requirements. Accordingly, to reflect these various
considerations, FTC estimates the disclosure burden required by the
Rule will be, on average, two hours each year for each seller subject
estimated to be subject the Rule, for a total estimated annual burden
of 212,000 hours.
---------------------------------------------------------------------------
\87\ Because all legitimate sellers offer consumers some sort of
cancellation mechanism in the normal course of business, the
proposed Rule's requirement for a simple cancellation mechanism is
unlikely to create additional burdens.
---------------------------------------------------------------------------
Estimated Annual Labor Cost: $5,689,550.
As indicated above, staff estimates existing covered entities will
require approximately 53,000 hours to comply with the proposed rule's
recordkeeping provisions. Applying a clerical wage rate of $18.75/
hour,\88\ recordkeeping maintenance for existing telemarketing entities
would amount to an annual cost of approximately $993,750.
---------------------------------------------------------------------------
\88\ This figure is derived from the mean hourly wage shown for
Information and Record Clerks. See Occupational Employment and
Wages--May 2021, Bureau of Labor Statistics, U.S. Department of
Labor (March 31, 2022), Table 1 (``National employment and wage data
from the Occupational Employment Statistics survey by occupation,
May 2021''), available at https://www.bls.gov/news.release/pdf/ocwage.pdf.
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The estimated annual labor cost for disclosures for all entities is
$4,695,800. This total is the product of applying an estimated hourly
wage rate for sales personnel of $22.15 \89\ to the estimate of
[[Page 24734]]
212,000 hours for compliance with the Rule's disclosure requirements.
---------------------------------------------------------------------------
\89\ This figure is derived from the mean hourly wage shown for
Sales and related occupations. See Occupational Employment and
Wages, supra.
---------------------------------------------------------------------------
Thus, the estimated annual labor costs are $5,689,550 [($993,750
recordkeeping) + ($4,695,800 disclosure)].
Estimated Annual Non-Labor Cost
The capital and start-up costs associated with the Rule's
recordkeeping provisions are de minimis. Any disclosure or
recordkeeping capital costs involved with the Rule, such as equipment
and office supplies, would be costs borne by sellers in the normal
course of business.
Pursuant to Section 3506(c)(2)(A) of the PRA, the FTC invites
comments on: (1) whether the disclosure, recordkeeping, and reporting
requirements are necessary, including whether the resulting information
will be practically useful; (2) the accuracy of our burden estimates,
including whether the methodology and assumptions used are valid; (3)
how to improve the quality, utility, and clarity of the disclosure
requirements; and (4) how to minimize the burden of providing the
required information to consumers.
XVI. Communications by Outside Parties to the Commissioners or Their
Advisors
Pursuant to Commission Rule 1.18(c)(1), the Commission has
determined that communications with respect to the merits of this
proceeding from any outside party to any Commissioner or Commissioner
advisor shall be subject to the following treatment. Written
communications and summaries or transcripts of oral communications
shall be placed on the rulemaking record if the communication is
received before the end of the comment period. They shall be placed on
the public record if the communication is received later. Unless the
outside party making an oral communication is a member of Congress,
such communications are permitted only if advance notice is published
in the Weekly Calendar and Notice of ``Sunshine'' Meetings.\90\
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\90\ See 15 U.S.C. 57a(i)(2)(A); 16 CFR 1.18(c).
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List of Subjects in 16 CFR Part 425
Advertising, Trade practices.
For the reasons set out in this document, the Commission proposes
to amend part 425 of title 16 of the Code of Federal Regulations as
follows:
0
1. Revise part 425 to read as follows:
PART 425--RULE CONCERNING RECURRING SUBSCRIPTIONS AND OTHER
NEGATIVE OPTION PLANS
Sec.
425.1 Scope.
425.2 Definitions.
425.3 Misrepresentations.
425.4 Important information.
425.5 Consent.
425.6 Simple cancellation (``Click to Cancel'').
425.7 Annual reminders for negative option features not involving
physical goods.
425.8 Relation to State laws.
Authority: 15 U.S.C. 41-58.
Sec. 425.1 Scope.
This Rule contains requirements related to any form of negative
option plan in any media, including, but not limited to, the internet,
telephone, in-print, and in-person transactions.
Sec. 425.2 Definitions.
(a) Billing information means any data that enables any person to
access a customer's account, such as a credit card, checking, savings,
share or similar account, utility bill, mortgage loan account, or debit
card.
(b) Charge, charged, or charging means any attempt to collect money
or other consideration from a consumer, including but not limited to
causing Billing Information to be submitted for payment, including
against the consumer's credit card, debit card, bank account, telephone
bill, or other account.
(c) Clear and conspicuous means that a required disclosure is
easily noticeable (i.e., difficult to miss) and easily understandable
by ordinary consumers, including in all of the following ways:
(1) In any communication that is solely visual or solely audible,
the disclosure must be made through the same means through which the
communication is presented. In any communication made through both
visual and audible means, such as a television advertisement, the
disclosure must be presented simultaneously in both the visual and
audible portions of the communication even if the representation
requiring the disclosure is made in only one means.
(2) A visual disclosure, by its size, contrast, location, the
length of time it appears, and other characteristics, must stand out
from any accompanying text or other visual elements so that it is
easily noticed, read, and understood.
(3) An audible disclosure, including by telephone or streaming
video, must be delivered in a volume, speed, and cadence sufficient for
ordinary consumers to easily hear and understand it.
(4) In any communication using an interactive electronic medium,
such as the internet, phone app, or software, the disclosure must be
unavoidable. A disclosure is not clear and conspicuous if a consumer
must take any action, such as clicking on a hyperlink or hovering over
an icon, to see it.
(5) The disclosure must use diction and syntax understandable to
ordinary consumers and must appear in each language in which the
representation that requires the disclosure appears.
(6) The disclosure must comply with these requirements in each
medium through which it is received, including all electronic devices
and face-to-face communications.
(7) The disclosure must not be contradicted or mitigated by, or
inconsistent with, anything else in the communication.
(8) When the representation or sales practice targets a specific
audience, such as children, the elderly, or the terminally ill,
``ordinary consumers'' includes members of that group.
(d) Negative option feature is a provision of a contract under
which the consumer's silence or failure to take affirmative action to
reject a good or service or to cancel the agreement is interpreted by
the negative option seller as acceptance or continuing acceptance of
the offer, including, but not limited to:
(1) an automatic renewal;
(2) a continuity plan;
(3) a free-to-pay conversion or fee-to-pay conversion; or
(4) a pre-notification negative option plan.
(e) Negative option seller means the person selling, offering,
promoting, charging for, or otherwise marketing goods or services with
a negative option feature.
(f) Save means an attempt by a seller to present any additional
offers, modifications to the existing agreement, reasons to retain the
existing offer, or similar information when a consumer attempts to
cancel a negative option feature.
Sec. 425.3 Misrepresentations.
In connection with promoting or offering for sale any good or
service with a negative option feature, it is a violation of this Rule
and an unfair or deceptive act or practice in violation of Section 5 of
the Federal Trade Commission Act (``FTC Act'') for any negative option
seller to misrepresent, expressly or by implication, any material fact
related to the transaction, such as the negative option feature, or any
material fact related to the underlying good or service.
[[Page 24735]]
Sec. 425.4 Important information.
(a) Disclosures. In connection with promoting or offering for sale
any good or service with a negative option feature, it is a violation
of this Rule and an unfair or deceptive act or practice in violation of
Section 5 of the FTC Act for a negative option seller to fail to
disclose to a consumer, prior to obtaining the consumer's billing
information, any material term related to the underlying good or
service that is necessary to prevent deception, regardless of whether
that term directly relates to the negative option feature, and
including but not limited to:
(1) That consumers will be charged for the good or service, or that
those charges will increase after any applicable trial period ends,
and, if applicable, that the charges will be on a recurring basis,
unless the consumer timely takes steps to prevent or stop such charges;
(2) The deadline (by date or frequency) by which the consumer must
act in order to stop all charges;
(3) The amount (or range of costs) the consumer will be charged
and, if applicable, the frequency of such charges a consumer will incur
unless the consumer takes timely steps to prevent or stop those
charges;
(4) The date (or dates) each charge will be submitted for payment;
and
(5) The information necessary for the consumer to cancel the
negative option feature.
(b) Form and content of required information.
(1) Clear and conspicuous: Each disclosure required by paragraph
(a) of this section must be clear and conspicuous.
(2) Placement:
(i) If directly related to the negative option feature, the
disclosures must appear immediately adjacent to the means of recording
the consumer's consent for the negative option feature; or
(ii) If not directly related to the negative option feature, the
disclosures must appear before consumers make a decision to buy (e.g.,
before they ``add to shopping cart'').
(3) Other information: All communications, regardless of media,
must not contain any other information that interferes with, detracts
from, contradicts, or otherwise undermines the ability of consumers to
read, hear, see, or otherwise understand the disclosures, including any
information not directly related to the material terms and conditions
of any negative option feature.
Sec. 425.5 Consent.
(a) Express informed consent. In connection with promoting or
offering for sale any good or service with a negative option feature,
it is a violation of this Rule and an unfair or deceptive act or
practice in violation of Section 5 of the FTC Act for a negative option
seller to fail to obtain the consumer's express informed consent before
charging the consumer. In obtaining such expressed informed consent,
the negative option seller must:
(1) Obtain the consumer's unambiguously affirmative consent to the
negative option feature offer separately from any other portion of the
transaction;
(2) Not include any information that interferes with, detracts
from, contradicts, or otherwise undermines the ability of consumers to
provide their express informed consent to the negative option feature;
(3) Obtain the consumer's unambiguously affirmative consent to the
rest of the transaction; and
(4) Keep or maintain verification of the consumer's consent for at
least three years, or one year after the contract is otherwise
terminated, whichever period is longer.
(b) Requirements for negative option features covered in the
Telemarketing Sales Rule. Negative option sellers covered by the
Telemarketing Sales Rule must comply with all applicable requirements
provided in part 310 of this title, including, for transactions
involving preacquired account information and a free-pay-conversion,
obtaining from the customer, at a minimum, the last four (4) digits of
the account number to be charged and making and maintaining an audio
recording of the entire telemarketing transaction as required by part
310.
(c) Documentation of unambiguously affirmative consent for written
offers. Except for transactions covered by the preauthorized transfer
provisions of the Electronic Fund Transfer Act (15 U.S.C. 1693e) and
Regulation E (12 CFR 1005.10), a negative option seller will be deemed
in compliance with the requirements of paragraph (a)(3) of this section
for all written offers (including over the internet or phone
applications), if that seller obtains the required consent through a
check box, signature, or other substantially similar method, which the
consumer must affirmatively select or sign to accept the negative
option feature and no other portion of the transaction. The consent
request must be presented in a manner and format that is clear,
unambiguous, non-deceptive, and free of any information not directly
related to the consumer's acceptance of the negative option feature.
Sec. 425.6 Simple cancellation (``Click to Cancel'').
(a) Simple mechanism required for cancellation. In connection with
promoting or offering for sale any good or service with a negative
option feature, it is a violation of this Rule and an unfair or
deceptive act or practice in violation of Section 5 of the FTC Act for
the negative option seller to fail to provide a simple mechanism for a
consumer to cancel the negative option feature and avoid being charged
for the good or service and immediately stop any recurring charges.
(b) Simple mechanism at least as simple as initiation. The simple
mechanism required by paragraph (a) of this section must be at least as
easy to use as the method the consumer used to initiate the negative
option feature.
(c) Minimum requirements for simple mechanism. At a minimum, the
negative option seller must provide the simple mechanism required by
paragraph (a) of this section through the same medium (such as
internet, telephone, mail, or in-person) the consumer used to consent
to the negative option feature, and:
(1) For internet cancellation, in addition to the requirements of
paragraphs (a) and (b) of this section, the negative option seller must
provide, at a minimum, the simple mechanism over the same website or
web-based application the consumer used to purchase the negative option
feature.
(2) For telephone cancellation, in addition to the requirements of
paragraphs (a) and (b) of this section, the negative option seller
must, at a minimum, provide a telephone number, and assure that all
calls to this number are answered promptly during normal business hours
and are not more costly than the telephone call the consumer used to
consent to the negative option feature.
(3) For in-person sales, in addition to the requirements of
paragraphs (a) and (b) of this section, the negative option seller must
offer the simple mechanism through the internet or by telephone in
addition to, where practical, an in-person method similar to that the
consumer used to consent to the negative option feature. If the simple
mechanism is offered through the telephone, all calls must be answered
during normal business hours and, if applicable, must not be more
costly than the telephone call the consumer used to consent to the
negative option feature.
(d) Saves: The seller must immediately cancel the negative option
[[Page 24736]]
feature upon request from a consumer, unless the seller obtains the
consumer's unambiguously affirmative consent to receive a Save prior to
cancellation. Such consent must apply only to the cancellation attempt
in question and not to subsequent attempts. The negative option seller
must keep or maintain verification of the consumer's consent to
receiving a Save prior to cancellation for at least three years, or one
year after the contract is otherwise terminated, whichever period is
longer.
Sec. 425.7 Annual reminders for negative option features not
involving physical goods.
In connection with sales with a negative option feature that do not
involve the automatic delivery of physical goods, it is a violation of
this Rule and an unfair act or practice in violation of Section 5 of
the FTC Act for a negative option seller to fail to provide consumers
reminders, at least annually, identifying the product or service, the
frequency and amount of charges, and the means to cancel. At a minimum,
such reminders must be provided through the same medium (such as
internet, telephone, or mail) the consumer used to consent to the
negative option feature. For in-person sales, the negative option
seller must provide the reminder through the internet or by telephone
in addition to, where practical, an in-person method similar to that
the consumer used to consent to the negative option feature.
Sec. 425.8 Relation to State laws.
(a) In general. This part shall not be construed as superseding,
altering, or affecting any other State statute, regulation, order, or
interpretation relating to negative option requirements, except to the
extent that such statute, regulation, order, or interpretation is
inconsistent with the provisions of this part, and then only to the
extent of the inconsistency.
(b) Greater protection under State law. For purposes of this
section, a State statute, regulation, order, or interpretation is not
inconsistent with the provisions of this part if the protection such
statute, regulation, order, or interpretation affords any consumer is
greater than the protection provided under this part.
By direction of the Commission, Commissioner Wilson dissenting.
April J. Tabor,
Secretary.
Note: the following statements will not appear in the Code of
Federal Regulations:
Statement of Chair Lina M. Khan Joined by Commissioner Rebecca Kelly
Slaughter and Commissioner Alvaro M. Bedoya
Today the Commission has voted out a proposal for a much-needed
update to the FTC's nearly 50-year-old Negative Option Rule. As the
Commission knew when the rule was passed in 1973, companies too often
manipulate consumers into paying for subscriptions for goods and
services that they don't want. The problem has only gotten worse.
Today, we are proposing to not only lay out clear rules of the road for
marketing negative option plans, but also to mandate that companies
make it as easy to cancel as they make it to sign up in the first
place.
Negative option plans refer to any situation where the customer is
presumed to continue to accept an agreement or offer unless they
affirmatively decline it. This structure can be harmless, and can even
benefit consumers, when properly disclosed. Problems arise when
businesses manipulate consumers away from taking that affirmative step,
which can result in customers paying for things they don't want or
need. Where consumer protection laws are inadequate, or inadequately
enforced, dishonest companies will keep developing ways to make it
easier to inadvertently subscribe, and ever harder to cancel, harming
consumers and honest competitors along the way.
The original Negative Option Rule addressed what we call
``prenotification plans.'' These are where sellers provide consumers
with notice of the product, send the product, and then charge for it
unless the consumer affirmatively declines. Since then, the Commission
has gained other authorities to help address deceptive negative
options, including the Telemarketing Sales Rule and the Restore Online
Shoppers' Confidence Act. The Commission has actively enforced these
rules and laws, including in over 30 cases from just the past few
years.\1\ In 2021, we issued a policy statement articulating the
Commission's various existing authorities.\2\
---------------------------------------------------------------------------
\1\ Examples of these matters include: FTC v. Triangle Media
Corp., 3:18-cv-01388-LAB-LL (S.D. Cal. 2019); FTC v. Credit Bureau
Ctr., LLC, No. 17-cv-00194 (N.D. Ill. 2018); FTC v. JDI Dating,
Ltd., No. 1:14-cv-08400 (N.D. Ill. 2018); FTC, Illinois, and Ohio v.
One Techs., LP, No. 3:14-cv-05066 (N.D. Cal. 2014); FTC v. Health
Formulas, LLC, No. 2:14-cv-01649-RFB-GWF (D. Nev. 2016); FTC v.
Nutraclick LLC, No. 2:16-cv-06819-DMG (C.D. Cal. 2016); FTC v. XXL
Impressions, No. 1:17-cv-00067-NT (D. Me. 2018); FTC v. AAFE
Products Corp., No. 3:17-cv-00575 (S.D. Cal. 2017); FTC v. Pact
Inc., No. 2:17-cv-1429 (W.D. Wash. 2017); FTC v. Tarr, No. 3:17-cv-
02024-LAB-KSC (S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 1:17-cv-
09083 (S.D.N.Y. 2017); FTC v. DOTAuthority.com, Inc., No. 0:16-cv-
62186-WJZ (S.D. Fla. 2018); FTC v. Bunzai Media Group, Inc., No.
CV15-04527-GW(PLAx) (C.D. Cal. 2018); and FTC v. RevMountain, LLC,
No. 2:17-cv-02000-APG-GWF (D. Nev. 2018).
\2\ Fed. Trade Comm'n, Enforcement Policy Statement Regarding
Negative Option Marketing (2021), https://www.ftc.gov/system/files/documents/public_statements/1598063/negative_option_policy_statement-10-22-2021-tobureau.pdf.
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But these authorities have left major gaps. TSR applies only to
telemarketing, ROSCA only to online shopping, and the existing Negative
Option Rule only to prenotification plans. Meanwhile, even as we've
been busy enforcing these laws, negative option marketing has only
increased, along with abuses. Some companies are using ever more
sophisticated dark patterns to thwart consumer efforts to cancel a
product or service. Some consumers report thinking they've successfully
canceled, only to find out later that they didn't notice a nearly
invisible button that they needed to click in order to finalize their
decision.
Accordingly, today's proposed rulemaking draws on Section 5's
prohibition against unfair or deceptive practices. Specifically, it
proposes to amplify ROSCA's simple-cancellation mandate and applies it
across the full universe of negative option marketing. As the
Commission has found in case after case, companies can make it easy to
sign up--sometimes inadvertently--for an ongoing good or service and
make it difficult to leave. Many gyms reportedly require members to
cancel in person or via certified or notarized mail.\3\
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\3\ See, e.g., Jeremy Glass, I Tried to Quit Three Gyms in 1 Day
and Ended Up a Stronger Man, Men's Health (Apr. 14, 2020) https://www.menshealth.com/fitness/a32085243/how-i-canceled-gym-memberships/.
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You might sign up for a cell phone plan online, but to cancel, you
have to call an 800 number, wait on hold for a customer service
representative, and then speak to that representative, who will keep
you on the line to try to convince you to stay. These companies are
betting that customers will be too impatient, busy, or confused to jump
through every hoop.
Canceling a subscription should be easy. That's why the proposed
update to the Negative Option Rule sets forth clear standards on what
we call ``click-to-cancel'': the obligation to make cancellation simple
and easy. For example, the proposed rule requires any cancellation to
be offered through the same medium as the subscription. Most
importantly, it ``must be at least as easy to use as the method the
consumer used to initiate the negative option feature.''
[[Page 24737]]
To take a simple example, this would put an end to companies requiring
you to call customer service to cancel an account that you opened on
their website.
The proposed rule contains other proposed consumer protections, as
well. Businesses marketing negative option products and services must
clearly and conspicuously disclose key material terms--including when
any trial period ends, the deadline to cancel, the frequency of
charges, the date of payments, and cancellation information--before
collecting any billing information from the customer. The Commission
also proposes a requirement that businesses get the consumer's
unambiguously affirmative consent to the negative option feature of the
transaction, separate from any other agreement. The proposal would
still allow a business to try to persuade customers to stay, such as by
offering perks or discounts. But it would have to get the customer's
express consent before doing so.
These are some of the key components of today's Notice of Proposed
Rulemaking, which seeks comment on the proposal to update and modernize
the Commission's existing authority around negative option plans. If
adopted, this rule would enable more efficient enforcement. It would
create a more powerful deterrent by introducing the risk of civil
penalties. And it would allow the Commission to return money to wronged
consumers. The proposed rule would also provide clarity across
industries about sellers' obligations when engaging in negative option
marketing. The click-to-cancel section of the proposed rule would give
companies clear and specific instructions around making it at least as
easy to cancel their products and services as it is to register for
them.
We invite members of the public to weigh in on these proposed
amendments to the Negative Option Rule. As we move forward with the
rulemaking process, we will carefully review public comments when
deciding whether and how to craft a rule that would protect consumers
from these potentially unfair or deceptive practices.
This proposed rulemaking is part of a broader effort at the
Commission to examine how we can deploy our scarce resources to achieve
maximum impact. Using our rulemaking tools to clarify the law for
market participants across the board and activate civil penalties and
redress is a key part of this effort. We thank the FTC team for their
terrific work in this area. Whether it's unwanted subscription or
hidden junk fees, ending exploitative business practices will continue
to be a focus of this Commission.
Dissenting Statement of Commissioner Christine S. Wilson
Today the Commission announces a notice of proposed rulemaking
(NPRM) suggesting modifications to the Commission's Rule Concerning the
Use of Prenotification Negative Option Plans (Negative Option Rule or
Rule). The Commission first sought comment on amendments to this Rule
in an advance notice of proposed rulemaking (ANPR) published in October
2019.\1\ At that time, the Commission explained that abuses in negative
option marketing persisted despite the Commission's active enforcement.
The existing Negative Option Rule covers a narrow category of negative
option marketing, prenotification negative option plans. Other types of
negative option features are covered by other statutes or rules \2\
enforced by the Commission, and deceptive practices in connection with
negative option plans have been challenged under Section 5 of the FTC
Act. The Commission noted in the ANPR that differing requirements in
the Commission's varied statutes, rules and Section 5 enforcement
actions did not provide a consistent, cohesive framework for
enforcement and business guidance. The Commission proposed expanding
the Negative Option Rule to synthesize the legal requirements within
one rule. I supported seeking comment on this proposal because clarity
with respect to regulatory requirements benefits consumers and
businesses.\3\
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\1\ 85 FR 52393 (Oct. 2, 2019).
\2\ Specifically, the FTC enforces several statutes and rules
that address negative option marketing, including the Restore Online
Shoppers' Confidence Act (ROSCA), 15 U.S.C. 8401-8405; the
Telemarketing Sales Rule (TSR), 16 CFR part 310; the Postal
Reorganization Act (also known as the Unordered Merchandise Rule),
39 U.S.C. 3009; and the Electronic Funds Transfer Act, 15 U.S.C.
1693-1693r.
\3\ In 2020, rather than take the next step in the rulemaking
process and issue an NPRM, the Commission chose to issue a Policy
Statement on Negative Option Marketing, from which I dissented. This
Commission repeatedly has issued Policy Statements in the midst of
ongoing rulemakings addressing precisely the same issues. Publishing
guidance during the pendency of a related rulemaking short-circuits
the receipt of public input, conveys disdain for our stakeholders,
and does not constitute good government. See Christine S. Wilson,
Dissenting Statement of Commissioner Christine S. Wilson,
Enforcement Policy Statement Regarding Negative Option Marketing
(Oct. 2021), https://www.ftc.gov/system/files/documents/public_statements/1598067/negative_option_policy_statement_csw_dissent.pdf.
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The proposed Rule the Commission announces today may achieve the
goal of synthesizing the various requirements in one rule--but it also
sweeps in far more conduct than previously anticipated. The broadened
scope of the Rule would extend far beyond the negative option abuses
cited in the ANPR, and far beyond practices for which the rulemaking
record supports a prevalence of unfair or deceptive practices. In fact,
the Rule would capture misrepresentations regarding the underlying
product or service wholly unrelated to the negative option feature. For
these reasons, I dissent.
The comments received in response to the ANPR, consumer complaints,
and the Commission's enforcement actions demonstrate that abuses in
negative option marketing persist despite our active enforcement in
this area. As the NPRM explains, some marketers misrepresent or fail to
disclose clearly and conspicuously the terms, or even the existence, of
negative option features; fail to obtain consumers' express, informed
consent to the recurring charges; fail to provide a simple mechanism to
cancel; and/or engage in activities designed to frustrate consumers'
ability to cancel. I agree that these issues are prevalent in the
market.
The scope of the proposed Rule is not confined to negative option
marketing. It also covers any misrepresentation made about the
underlying good or service sold with a negative option feature.
Notably, as drafted, the Rule would allow the Commission to obtain
civil penalties, or consumer redress under Section 19 of the FTC Act,
if a marketer using a negative option feature made misrepresentations
regarding product efficacy or any other material fact. The proposed
text is as follows:
425.3 Misrepresentations
In connection with promoting or offering for sale any good or
service with a negative option feature, it is a violation of this
Rule and an unfair or deceptive act or practice in violation of
Section 5 of the Federal Trade Commission Act (``FTC Act'') for any
negative option seller to misrepresent, expressly or by implication,
any material fact related to the transaction, such as the negative
option feature, or any material fact related to the underlying good
or service. (Emphasis added).
The NPRM confirms that the scope of this provision is intended to
extend beyond the terms of the negative option feature. Specifically,
the NPRM explains that ``the proposed Rule prohibits any person from
misrepresenting, expressly or by implication, any material fact
regarding the entire agreement--not just facts related to a negative
option feature.'' It further explains that ``[s]uch deceptive practices
may involve misrepresentations related to costs, product efficacy, free
trial claims,
[[Page 24738]]
processing or shipping fees, billing information use, deadlines,
consumer authorization, refunds, cancellation, or any other material
representation.''
Consequently, marketers using negative option features in
conjunction with the sale of a good or service could be liable for
civil penalties or redress under this Rule for product efficacy claims
or any other material representation even if the negative option terms
are clearly described, informed consent is obtained, and cancellation
is simple. Consider a dietary supplement marketed with a continuity
plan that is advertised to relieve joint pain. The Commission alleges
the joint pain claims are deceptive and unsubstantiated. The Rule could
apply. A grocery delivery service offered via subscription asserts that
the consumer's shopping lists will not be shared, but in fact the
service does share the information for advertising purposes--a privacy
misrepresentation. The Rule could apply. Cosmetics purchased through a
monthly subscription service are marketed as Made in USA but in fact
are made elsewhere. The Rule could apply.
The Commission does not have authority to seek civil penalties in
de novo Section 5 cases. And the Commission's ability to seek consumer
redress was gravely curtailed by the Supreme Court's decision in AMG
that found the Commission does not have authority to seek consumer
redress under Section 13(b) of the FTC Act.\4\ This proposed Rule would
fill that vacuum when marketers use a negative option feature.
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\4\ AMG Capital Mgmt., LLC v. FTC, 141 S. Ct. 1341 (2021).
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The NPRM explains that the inclusion of non-negative option related
misrepresentations is needed because ``FTC enforcement experience
demonstrates misrepresentations in negative option marketing cases
continue to be prevalent and often involve deceptive representations
not only related to the negative option feature but to the underlying
product (or service) or other aspects of the transaction as well.''
(Emphasis added). The NPRM cites ten cases as representative of these
prevalent deceptive representations. Thus, the NPRM asserts that our
law enforcement experience demonstrates that marketers that
misrepresent negative option features typically do so in conjunction
with other deception.
The Commission is authorized to issue a notice of proposed
rulemaking when it ``has reason to believe that the unfair or deceptive
acts or practices which are the subject of the proposed rulemaking are
prevalent.'' \5\ Importantly, we did not seek comment in the ANPR about
whether an expanded negative option rule should address general
misrepresentations; no comments are cited in the NPRM to support the
inclusion of these provisions. Absent the above-quoted brief
explanation with the accompanying case cites, the NPRM does not offer
evidence that negative option marketing writ large is permeated by
deception. If that were the case, it might be appropriate to fold in
representations about any material fact.
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\5\ 15 U.S.C. 57a(b)(3).
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In addition, we know that negative option marketing is used
lawfully and non-deceptively in a broad array of common transactions--
newspaper subscriptions, video streaming services, delivery services,
etc. Will the expansion of the Rule as proposed discourage companies
from using negative option features, that consumers prefer and enjoy,
because of potential liability? Does the inclusion of product efficacy
and any other material information in this proposed Rule over-deter the
negative option abuses that the Rule purportedly was primarily designed
to prevent? The NPRM does not discuss these issues. I encourage the
public to address these issues in their comments in response to this
NPRM.
It is possible the Commission would exercise prosecutorial
discretion and not allege violations of the Rule for all advertising
claims, privacy or data security issues, or claims regarding secondary
characteristics (e.g., Made in USA or environmental claims). But the
NPRM does not indicate a limiting principle to this proposed provision.
This Commission, in many areas, has demonstrated a zeal and willingness
to push beyond the boundaries of our authority.
In the wake of AMG, this Commission has proposed broad, sweeping
rules for privacy and data security (the Commercial Surveillance and
Data Security ANPR), as well as pricing and fees (the ``junk fees'' or
Unfair or Deceptive Fees ANPR). As I noted in my dissents, the scope of
those proposals extended far beyond practices for which Commission law
enforcement and other evidence have established a prevalence of
deceptive or unfair practices.\6\ In July 2021, this Commission
promulgated a final Made in USA labeling rule that include a definition
of ``labeling'' that, in my view, went beyond our Congressional
authority to regulate labels.\7\ The Commission also has employed or
announced novel applications of our existing rules that I believe
similarly extend beyond our regulatory authority. For example, in
September 2021, the Commission issued a Policy Statement on Breaches by
Health Apps and Other Connected Devices that included a novel
interpretation of the Health Breach Notification Rule that expanded
both the covered universe of entities and the circumstances under which
the Commission will initiate enforcement.\8\
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\6\ See Christine S. Wilson, Dissenting Statement of
Commissioner Christine S. Wilson, Advance Notice of Proposed
Rulemaking--Junk Fees (Oct. 2022) (explaining that the proposal
could launch rules that regulate the way prices are conveyed to
consumers across nearly every sector of the economy and is
untethered from a solid foundation of FTC enforcement), https://www.ftc.gov/system/files/ftc_gov/pdf/commissioner-wilson-dissenting-statement-junk-fees-anpr.pdf; Christine S. Wilson, Dissenting
Statement of Commissioner Christine S. Wilson, Trade Regulation Rule
on Commercial Surveillance and Data Security (Aug. 2022) (noting
that many practices discussed in the ANPR are presented as clearly
deceptive or unfair despite the fact that they stretch far beyond
practices with which we are familiar, given our extensive law
enforcement experience, and wander far afield of areas for which we
have clear evidence of a widespread pattern of unfair or deceptive
practices), https://www.ftc.gov/system/files/ftc_gov/pdf/Commissioner%20Wilson%20Dissent%20ANPRM%20FINAL%2008112022.pdf.
\7\ See Christine S. Wilson, Dissenting Statement of
Commissioner Christine S. Wilson, Final Rule related to Made in
U.S.A. Claims (July 2021), https://www.ftc.gov/system/files/documents/public_statements/1591494/2021-07-01_commissioner_wilson_statement_musa_final_rule.pdf. The dissent
explained that the Rule was not supported by the plain language of
Section 45a of the FTC Act that provided authority for the
Commission to promulgate a rule addressing ``labels'' or ``the
equivalent thereof.'' The language of the Rule described labels to
include stylized marks in online advertising or paper catalogs and
potentially other advertising marks, such as hashtags, that contain
MUSA claims.
\8\ See Christine S. Wilson, Dissenting Statement of
Commissioner Christine S. Wilson, Policy Statement on Breaches by
Health Apps and Other Connected Devices (Sept. 2021), https://www.ftc.gov/system/files/documents/public_statements/1596356/wilson_health_apps_policy_statement_dissent_combined_final.pdf; see
also Separate Statement of Commissioner Christine S. Wilson
Concurring in Part, Dissenting in Part, FTC v. Avant, LLC (Apr. 15,
2019) (dissenting with respect to the maiden use of the
Telemarketing Sales Rule (TSR) provision related to novel payments
(specifically remotely created checks) in a non-fraud case), https://www.ftc.gov/system/files/documents/public_statements/1514073/avant_inc_1623090_separate_statement_of_christine_s_wilson_4-15-19.pdf. In the Avant matter, the Commission sought to impose
liability under the TSR against a legitimate company, selling
legitimate products, in circumstances not contemplated when the Rule
was promulgated to address fraudulent businesses abusing these types
of payments. Id.
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With respect to negative options, this NPRM states that the
proposed rule is consistent with the Commission's ROSCA cases. I
disagree. ROSCA Section 8403 states that for goods or services sold
through a negative option feature, the seller must ``clearly and
[[Page 24739]]
conspicuously disclose all material terms of the transaction before
obtaining the consumer's billing information.'' The requirement in
ROSCA to disclose ``all material terms of the transaction'' cannot
reasonably be interpreted to include all product efficacy claims or any
material fact about the underlying good or service. A term of the
transaction is distinct from an advertising claim or other potentially
material information.
The cases in which I supported alleging violations of ROSCA under
this Section clearly involved material terms of the transaction. In
MoviePass, consumers purchased a movie subscription and the term at
issue was whether the subscription was unlimited.\9\ In WealthPress,
another recent matter alleging violations of ROSCA under this Section,
the terms at issue were included by the marketer in the ``terms and
conditions'' section of the website and consumers were required
affirmatively to agree to accept the terms to complete the
transaction.\10\ The facts in these cases do not support a reading of
the ROSCA ``material term of the transaction'' language to include any
advertising claim.
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\9\ See Concurring Statement of Commissioner Christine S.
Wilson, In re Moviepass, Inc. (June 7, 2021), https://www.ftc.gov/system/files/documents/public_statements/1590708/commissioner_wilson_concur_moviepass_final.pdf.
\10\ See Christine S. Wilson, Concurring Statement of
Commissioner Christine S. Wilson, WealthPress Holdings, LLC (Jan.
2023), https://www.ftc.gov/system/files/ftc_gov/pdf/2123002wealthpresswilsonconcurstmt.pdf.
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It is useful also to recall the genesis of ROSCA and the specific
grant of authority Congress provided the Commission. As noted in the
findings, ROSCA was promulgated to address a specific abuse in negative
option marketing prevalent at that time--third-party upsells of
products or services made during check-out for an initial purchase that
included negative option features.\11\ The terms of the third-party
offer that included the negative option feature were not adequately
disclosed and consumers were not given an opportunity to consent to a
transfer of their billing information to a third-party. They were then
locked into recurring charges to which they had not consented and often
had difficulty cancelling. The provisions in Section 8403 were
ancillary to the intent of the statute and there is no indication in
the statute or the legislative history that they were intended to
confer on the Commission authority to seek civil penalties or redress
for representations wholly unrelated to the terms of the negative
option feature. In other words, this proposed Negative Option Rule is
inconsistent with the FTC's prior ROSCA cases.
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\11\ See 15 U.S.C. 8401.
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The proposed Rule also will treat marketers differently for
purposes of potential monetary liability for Section 5 violations,
depending on whether they sell products or services with or without
negative option features.
The careful reader may observe that the Commission's Telemarketing
Sales Rule (TSR) also includes a prohibition on general
misrepresentations.\12\ But the TSR was promulgated pursuant to
Congressional authorization.\13\ The legislative history and Statement
of Basis and Purpose of the TSR also provide a substantial evidentiary
basis establishing that outbound telemarketing routinely was used as a
vehicle for fraud and deception--marketers disturbed consumers in the
solitude of their homes, and subjected them to deception and aggressive
sales tactics that caused significant consumer injury.\14\
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\12\ 16 CFR 310.3(a)(2)(iii) (prohibiting misrepresentations
regarding ``[a]ny material aspect of the performance, efficacy,
nature, or central characteristic of the goods or services that are
the subject of a sales offer'').
\13\ Telemarketing and Consumer Fraud and Abuse Prevention Act.
15 U.S.C. 6101 et seq.
\14\ See, e.g., 60 FR 43842 (Aug. 23, 1995) (Statement of Basis
and Purpose for the Commission's Rule).
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I appreciate staff's steadfast efforts to protect consumers from
deceptive negative option practices. I might have supported a tailored
rule to address the negative option marketing abuses prevalent in our
law enforcement experience that consolidated various legal
requirements. This proposal instead attempts an end-run around the
Supreme Court's decision in AMG to confer de novo redress and civil
penalty authority on the Commission for Section 5 violations unrelated
to deceptive or unfair negative option practices.
For these reasons, I dissent.
[FR Doc. 2023-07035 Filed 4-21-23; 8:45 am]
BILLING CODE 6750-01-P