Reed Smith Client Alerts

Key takeaways

  • Consumers must give express informed consent to the negative option feature separate from the rest of the transaction.
  • There are four required disclosures about the negative option feature that must be immediately adjacent to the consent mechanism: (1) whether the consumer will be charged for the goods, if the charge will be recurring, and any increases in charged costs after a trial period; (2) each deadline by which a consumer must act to avoid being charged; (3) the amount and frequency of charges the consumer will incur unless they take steps to cancel; and (4) how a consumer can find the simple cancellation mechanism.
  • Sellers utilizing negative option features must include a simple cancellation mechanism for the negative option feature that uses the same medium and is at least as easy to use as the original method of obtaining consent (i.e., “click-to-cancel”).

Authors: John P. Feldman Keri S. Bruce Kayleigh J. Ristuben

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.