What is a “negative option feature”?
A “negative option feature” refers to transactions (such as automatic renewals, continuity plans, and free-to-pay or fee-to-pay conversion offers) where a customer’s silence or failure to take action to either reject a good or service or to cancel the transaction is interpreted as acceptance, or continuing acceptance, of the plan or offer.. In other words, if a customer maintains the status quo and takes no action to cancel, they will continue to be periodically charged for the goods or services.
Does the Rule apply to me?
If you utilize any kind of negative option feature in your transactions, the short answer is probably yes. The Rule applies to all “sellers” (i.e., persons selling, offering, charging for, or otherwise marketing a good or service, including those utilizing a third party and B2B transactions). Jurisdictionally speaking, there are some industry members who are exempt from the Rule because they are not subject to the FTC Act, but most will be covered by the Rule.
Does the Rule cover all transactions?
If it has any kind of negative option feature, yes. The Rule is very broad and designed to cover all transaction mediums (including over the internet, by telephone, and in person).
What is the “click-to-cancel” rule?
The “click-to-cancel” rule essentially means “easy in, easy out.” Customers must be able to cancel the negative option feature as simply and easily as whatever method they used to sign up for the program in the first place. If a customer clicks a button to sign up for the negative option feature, they need to be able to click a button to cancel it. The FTC does recognize that there cannot be perfect symmetry in all instances. For example, you can put steps into place to verify the identity of the customer prior to cancelling. However, the cancellation process needs to be similar in terms of time, burden, expense, and ease of use.
The Rule outlines cancellation method requirements for three types of consent mediums:
(1) Electronic consent:
- The cancellation mechanism must be easy to find (such as through an easy-to-find link on your website).
- The mechanism may take the form of a cancellation button in a customer’s account or user settings, although you cannot then make the account or user settings difficult to find.
- Customers cannot be required to interact with a live or virtual representative if they did not do so when they provided consent.
(2) Telephone consent:
- You must provide a telephone number that is answered or records messages during normal business hours.
- Cancellation must be promptly effectuated, and the call cannot cost the customer more than the original call.
(3) In-person consent:
- Where practical, there must be an equally easy in-person cancellation method.
- There must also be either an electronic or telephone means of cancellation that meets the above requirements.
- If telephone cancellation is the method offered, you cannot impose unnecessary or unreasonable costs for the cancellation call.
The simple cancellation requirement is limited to cancelling the negative option feature itself as opposed to the entire contract.
What do I need to disclose before collecting payment information?
You will need to disclose all material terms of the offer or transaction prior to obtaining billing information from a customer. While this has generally been an existing requirement, the Rule explicitly states that negative option features and their associated terms are considered material terms that must be disclosed. Consistent with existing practices, all material terms must be clear and conspicuous. To drive the point home, the Rule also separately and explicitly states that there cannot be any other information present that undermines the ability of customers to see, hear, or understand the disclosures.
What if I already have a customer’s payment information?
In cases where a customer has previously elected to save their payment information with you, you must disclose the material terms of the transaction (including those related to the negative option feature) prior to obtaining consent to use the stored information. This requirement applies to all transaction mediums.
Is there anything else I need to do prior to charging a customer?
Yes. The customer must give express informed consent to the negative option feature itself. The consent mechanism could be in the form of a check box, signature, or another substantially similar method. Consent to the negative option feature must be separate from the rest of the transaction. However, there does not need to be a separate check box for consent to the rest of the transaction, as the FTC believes that consent to the negative option feature implicitly includes consent to the overall transaction.
The Rule also requires four specific disclosures to be immediately adjacent to the consent mechanism for the negative option feature:
(1) that the customer will be charged for the goods or services, whether the charge will increase after a trial period, and whether the charges will be on a recurring basis unless the customer takes timely steps to cancel;
(2) each deadline by which the customer must act to avoid being charged (by date or by frequency);
(3) the amount (or range of costs, such as including “plus tax”) and frequency (if applicable) of charges the customer will incur unless they take steps to cancel; and
(4) where a customer can find a simple cancellation mechanism to cancel the negative option feature.
While these four mechanisms are the only ones required to be immediately adjacent to the consent button, all material terms of the transaction need to be presented clearly and conspicuously both before billing information is obtained and before the customer is charged.
What kind of records do I need to keep?
You must keep records of each customer consent for a period of three years unless you can show that it is technologically impossible to complete the transaction without a customer consenting to the negative option feature. Whatever documentation method you use must prove by a preponderance of the evidence (i.e., that it is more likely than not) that you received the customer’s express informed consent to the negative option feature. For instance, for telephone calls this means you need a recording of the conversation – a script used by telephone representatives that includes the required disclosures is not enough to prove a customer was informed and consented to them.
How much time do I have to bring my advertising and billing processes into compliance?
It depends. The Rule will go into effect 60 days after it is published in the Federal Register, except that the new disclosure, consent, and documentation provisions do not go into effect until 180 days after publication to give affected parties additional time to comply with the new requirements.
Does the Rule override existing state laws?
If there is state law that conflicts with the Rule, the Rule will supersede that law as it relates to the inconsistency. However, a state law is not inconsistent with the Rule if it provides consumers with more protections
Are there any exemptions to the Rule?
The Rule includes a method of requesting an exemption from the FTC, which the FTC may consider if there is a unique situation where there is a negative option feature that does not impact consumers in a manner that the Rule is meant to protect against.
The FTC is concerned about marketers using “dark patterns” to influence the consumer transaction process to their benefit and to the detriment of consumers. The Rule includes provisions aimed at adjusting the balance between marketers and consumers. This is just the latest example of the broader approach the FTC is taking to expand its enforcement capabilities (and consequent ability to impose monetary penalties) to combat these perceived “dark pattern” marketing practices by ensuring consumers are fully informed about a transaction’s recurring charges and have an easy cancellation process.
Client Alert 2024-224