The Federal Trade Commission (FTC), state attorneys general, and class action plaintiffs continue to scrutinize negative option and continuity offers. Negative option marketing can include pre-notification negative option plans, continuity programs, automatic renewals, and free-to-pay (or discounted price-to-pay) conversions.
The key to success in avoiding investigations and liability can be as simple as making clear and complete disclosures (prominent, clearly explained, and placed where they will be read and where consumers’ attention is focused); obtaining consumers’ express, informed affirmative consent to the negative option offer; providing a simple cancellation mechanism; sending post-order confirmations and renewal reminders; and ensuring that refunds and cancellations are processed in accordance with disclosed policies.
Marketers selling products or services on a negative option or continuity basis should consider these key questions:
- Are the material terms of the offer disclosed in an understandable manner, including existence of the offer, the price, frequency of charges, how to cancel, and the cancellation deadline?
- Are the disclosures clear and conspicuous, especially on mobile devices?
- Are the disclosures made before the consumer agrees to buy and enroll?
- Has the consumer indicated in a meaningful way that he or she understands and affirmatively consents to the negative option offer, not just to the trial offer?
- Are you sending post‑transaction confirmations?
- Are you complying with laws requiring notice and separate consent to the trial or free-to-pay conversion, if they apply to your offer?
- Is there a convenient and effective way to cancel that does not subject customers to excessive retention efforts?
- Do you provide a web-based cancellation mechanism for customers who enroll online?
- Is the company honoring its cancellation and refund policies?
- Is the company sending renewal reminders to customers enrolled in annual memberships?
- Are your customer service representatives complying with your procedures for providing clear and conspicuous disclosures, obtaining affirmative consent to the offer, and honoring the company’s cancellation and refund policies?
- Is the company receiving complaints from consumers, the BBB, or state AGs that consumers do not understand that they are enrolling in the program, do not understand the amount or frequency of recurring charges, or are having a difficult time canceling? If so, you need to look at your practices.
We are spotlighting select chapters of Venable’s popular Advertising Law Tool Kit, which helps marketing teams navigate their organization’s legal risk. Click here to download the entire Tool Kit, and tune in to the Ad Law Tool Kit Show podcast, to hear the authors of this chapter dive deeper into the issue of negative option and continuity marketing in this week’s episode.
