Subscribe to This: FTC Relaunches Negative Option Rulemaking

Don’t click to cancel your subscription to the Federal Register! Despite the Administration’s push for deregulation, we continue to see the Federal Trade Commission (FTC) move forward with targeted rulemaking efforts. 

Earlier this month, the agency announced new COPPA rulemaking efforts on the horizon. This week’s announcement: a new effort to modernize the Rule Concerning the Use of Prenotification Negative Option Plans, commonly known as the Negative Option Rule. 

The outcome of this process will likely be a final rule that gives the FTC broad authority to seek monetary relief for violations. If a subscription, automatic renewal, or other negative option program is part of your marketing plan, now is the time to work with counsel to draft your public comment and help shape the Rule.

Background – the rise and fall of Click to Cancel 

FTC watchers are very familiar with the saga to crack down on deceptive practices associated with automatically renewing subscriptions and other negative option programs. Although complaints about failure to disclose material terms and other issues are pervasive when it comes to negative option programs, addressing those concerns poses some challenges for the agency. 

As currently configured, the FTC’s existing Negative Option Rule, 16 CFR Part 425, is narrow. It only covers a very specific type of negative option program rarely used in today's marketplace, the prenotification program. Think those old CD-of-the-month clubs where you get a notice in the mail that your disc is on the way and then it arrives if you don’t take any action. Did we just date ourselves? Some of us remember records! In any event, the Rule doesn’t cover the wide range of subscription and automatic renewal programs pervasive in today’s marketplace.

The FTC has some tools to address modern negative options, like the Restore Online Shoppers’ Confidence Act (ROSCA) and the Telemarketing Sales Rule (TSR). However, those tools only apply in specific contexts to specific forms of marketing.

Accordingly, in the waning days of the Biden administration, the FTC took action to streamline enforcement by finalizing the much-touted “Click to Cancel” Rule. That revision to the Negative Option Rule would have comprehensively overhauled the Rule. First, it would have broadened it to cover a wider range of negative option programs. Second, it would have addressed problematic practices like failure to obtain consent for recurring charges and failure to provide a simple cancellation process. And, most controversially, it would have given the agency broad authority to seek civil penalties to address misleading claims made in conjunction with a negative option program.

In the FTC’s haste to push out the Rule, some steps in the rulemaking process were apparently missed, and the effort stalled out this past summer when the Eighth Circuit vacated the Rule on procedural grounds. 

Since then, the FTC has continued pursuing enforcement actions against companies engaging in allegedly unfair or deceptive business practices in conjunction with negative option or subscription programs under alternative authority, and we’ve been waiting to see what happened next. 

As we commented over the summer, and again when the FTC published a petition to reopen the Rule earlier this year, there were hints that the Commission may return to the drawing board and restart the rulemaking process. Now it has. 

This week’s announcement

This week, the FTC’s taking another whack at streamlining the Negative Option Rule. Once again, the agency is primarily focused on expanding the Rule beyond prenotification plans to reach more modern forms of negative option marketing, “provid[ing] industry and consumers with a consistent legal framework.” The Advance Notice of Proposed Rulemaking (ANPRM) doesn’t propose specific text, but notes the Commission may consider reviving certain provisions from Click to Cancel, like the requirement that sellers separately obtain consumers’ consent to a negative option feature or the requirement of a simple mechanism to cancel a negative option feature.

Considering what happened with Click to Cancel, we can expect a long, careful rulemaking process ahead, including several rounds of public comments and opportunities for public hearings. For now, the Commission has posed a number of questions on a variety of topics. 

Comments will open to the public for 30 days once the ANPRM has been published in the Federal Register. We can tell you from our own experience, the FTC reads and takes seriously the comments you submit, so take the request for input seriously. The ANPRM asks standard questions, like whether there’s a continuing need for the Rule, but also seeks input on some more interesting, specific questions.

What the FTC wants to know:

• Is there a continuing need for the current Rule? Is there a need for new provisions?
• Should the Commission consider alternatives to rulemaking, like publishing additional consumer and business education?
• Is it unfair or deceptive to offer discounts or other incentives to remain enrolled in a negative option program (“saves”) instead of promptly honoring a consumer’s request to cancel?
• How many, or what proportion of, businesses that sell negative option programs do not engage in any unfair or deceptive negative option practices?
• What requirements, if any, from the Click to Cancel proposal are needed to address unlawful negative option practices prevalent in the marketplace?
  • What costs would the proposed requirement impose on businesses?
  • Would the proposed requirement interfere with legitimate business practices?
• What procedure, criteria, or evidence should the Commission use to decide requests for exemptions from the Rule?

We’re ready to help you think through these issues and submit a comment. If you have any questions or need assistance, please reach out.