[co-author: Stephanie Kozol]*

The New York and Pennsylvania state attorneys general recently led a bipartisan coalition of 26 state AGs in a letter, supporting the Federal Trade Commission (FTC)’s proposed rule amending the Negative Option Rule.

Currently, some companies utilize negative option marketing to sign up consumers for subscriptions, automatic renewals, continuity plans and programs, and other charges that occur repeatedly. These plans and programs do not necessitate obtaining separate consent for every recurring charge. At present, FTC’s Negative Option Rule only covers prenotification plans — the rule does not address continuity plans, automatic renewals, and free trial conversions. For prenotification plans, sellers must clearly and conspicuously disclose seven key terms before allowing customers to subscribe, including cancellation rights, minimum purchase obligations, credit and return policies, and frequency of announcements and forms. The FTC’s proposed rule suggests similar requirements applicable to all types of negative option marketing, “including prenotification and continuity plans, automatic renewals, and free trial offers.”

The proposed rule would also:

• Cover all offers made in all media, “including, but not limited to the internet, telephone, in-print, and in-person transactions”;
• Prohibit misrepresentation of “any material fact regarding the entire agreement, not just facts related to the negative-option feature”;
• Require sellers to obtain the consumer’s express informed consent before charging the consumer, and provide a simple cancellation mechanism.

In their letter, the state AGs expressed support and urged the FTC to, among other things, further require businesses offering free trials to obtain an additional round of consent before charging a customer after completing the free trial period and to provide negative-option reminders in additional forms.

Why It Matters

The FTC’s proposed rule would continue preserving state AGs’ authority to regulate negative-option marketing and enact greater protections. At least 17 states and the District of Columbia have enacted laws concerning negative options. But the proposed rule “provides more guidance and specificity on how negative option sellers can comply with the existing legal framework,” setting clear and enforceable requirements for all negative-option practices throughout the nation.

*Senior Government Relations Manager