After a multi-year process that was initiated in 2019, the U.S. Federal Trade Commission (FTC) has officially brought the 1973 Negative Option Rule into the 21st century, but not without opposition.
The FTC has announced a final click-to-cancel rule that will require sellers to make it as easy for consumers to cancel enrollment in recurring subscriptions as it was to sign up.
The 230-page final rule retains most but not all of the March 2023 proposed expansion of the original 1973 Negative Option Rule. Negative option offers come in a variety of forms, but they generally 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. Negative option programs generally fall into four categories: prenotification plans, continuity plans, automatic renewals, and free trials (e.g., free-to-pay or nominal-fee-to-pay) conversion offers. While the final rule is already facing judicial challenges, if sustained, it will provide significant changes to almost all negative option programs in any media and provide the FTC with the authority to seek redress and civil penalties for violations.
Key Requirements of the Final Rule
The final rule applies to any person who sells, offers, charges, or otherwise markets a good or service with a negative option feature. It applies to both business-to-consumer and business-to-business transactions. It does not require consumers to actually avail themselves of a negative option to be applicable – only that the good or service be marketed or sold with a negative option feature. The final rule includes the following requirements:
- Misrepresentations: Companies are prohibited from misrepresenting any material fact made while marketing goods or services with a negative option feature, even if that fact is unrelated to the negative option feature. “Material” is defined as “likely to affect a person’s choice of, or conduct regarding, goods or services.” Examples of such “material facts” include, but are not limited to, the existence of the negative option feature or any of its terms; the cost of the underlying good or service; the purpose or efficacy of the underlying good or service; and health or safety.
- The FTC noted when discussing this requirement that misrepresentation of a privacy policy could be covered under this provision if the seller misrepresents its privacy policy in a way that is likely to affect consumer choice or conduct.
- Disclosures: Companies must clearly, conspicuously, and unavoidably disclose material terms prior to obtaining a consumer’s billing information in connection with a negative option feature. The rule outlines a non-exhaustive list of terms that must be disclosed:
- The fact that consumers will be charged for the good or service, that the charges will increase, if that is the case, or that the charges occur on a recurring basis;
- Each deadline by which consumers must act to stop recurring charges;
- The amount the consumer will be charged and the frequency of those charges; and
- The information necessary for the consumer to find the cancellation mechanism.
These four terms must appear immediately adjacent to the means of recording the consumer’s consent to the negative option feature.
- Consent: Companies must obtain a consumer’s express informed consent to the negative option feature before charging the consumer. The consent must be separate from any other portion of the transaction; cannot include any information that interferes with or undermines the ability of the consumer to consent; and must occur before the consumer is charged.
- Sellers must maintain verification of the consumer’s consent three years from the date of consent; however, if a seller demonstrates by a preponderance of the evidence that it uses processes ensuring no consumer can technologically complete the transaction without consent, this recordkeeping requirement does not apply.
- Cancellation: Companies must provide a simple mechanism to cancel the negative option feature and immediately halt charges.
- For online cancellations, the cancellation method must be as easy as the mechanism used to obtain consent, easy to find, and cannot require the consumer to interact with a live or virtual representative if the consumer did not have to do so when consenting to the negative option feature.
- For phone cancellations, the seller must effectuate the cancellation request using a telephone number that is answered or through a recorded message that is provided during normal business hours.
- For in-person cancellations, the seller must offer, where practicable, an in-person method of cancellation similar to the process the consumer used to sign up, as well as the ability to cancel online or by phone.
Following more than 16,000 comments from consumers, federal and state agencies, consumer groups, and trade associations, the FTC made certain revisions to the proposed rule. Notably, the FTC dropped the requirement that sellers provide annual reminders to consumers of the negative option feature of their subscription, as well as the prohibition on sellers telling consumers seeking to cancel their subscription about plan modifications or reasons to keep their existing agreement (known as “saves”) without first asking if they want to hear about them. Instead, the FTC will seek additional comments on the annual reminder and save provisions in a supplemental Notice of Proposed Rulemaking.
Most of the rule’s provisions will go into effect 180 days after it is published in the Federal Register, although sellers must comply with the prohibition against misrepresentations within 60 days after publication in the Federal Register.
Failure to comply with the final rule will be both a violation of the rule, and an unfair or deceptive act or practice in violation of Section 5 of the FTC Act, with penalties up to $51,744 per violation (with multiple violations potentially occurring in one transaction). And lastly, the rule includes a severability provision as well as a provision allowing requests for exemptions from the final rule, consistent with the FTC’s Rules of Practice.
Practical Takeaways
In practice, the final rule applies to a wide range of industries. Businesses from gym memberships to internet platforms, gift box services to spa memberships, must now audit their cancellation flows to ensure compliance with the new requirements. In order to comply with the requirement that cancelling a subscription must be as easy as signing up, the cancellation process cannot be buried behind multiple pages or require speaking to a customer service representative. Additionally, the rule requires that consumers must be able to cancel using the same method they used to sign up. For instance, if a consumer signed up online, they should be able to cancel online without being forced to call a customer service number.
While the rule does not prohibit saves (e.g., making additional offers when a customer attempts to cancel a negative option feature), businesses utilizing saves must not contravene the final rule’s mandate to provide a simple, easy to use cancellation mechanism. Additionally, companies should be aware of the recently passed California subscription law (effective on July 1, 2025), which includes restrictions on saves. The California law allows sellers to present save offers during the cancellation process, but only if the company first informs the consumer that they may complete the cancellation process at any time. Once a consumer indicates a request to cancel, the seller must promptly process the cancellation. If the consumer attempts to cancel online, the seller must simultaneously and prominently display a direct cancellation link or button.
Notably, the FTC’s prohibition against misrepresentation of any material fact provides a new right of action against companies for making allegedly false, unsubstantiated, or misleading claims about their products or services. While companies must sell on a negative option basis to be subject to these claims, the right of action extends beyond statements associated with the negative option offer, providing a broad new avenue for the FTC and private plaintiffs to challenge advertising claims. The new California subscription law also includes a similar ban on misrepresentation of material facts affecting the underlying good or service. Companies using negative option offers should therefore review not only their enrollment and cancellation programs, but also their advertising claims more broadly.
Businesses should evaluate whether their current practices align with the new requirements in the rule, along with additional state requirements that may overlap with, and at times go farther than, the new rule.
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