FTC Continues Review of Negative Option, “Click to Cancel,” Rulemaking

The Federal Trade Commission (“FTC”) will host a virtual hearing on January 16, 2024 to discuss the proposed amendments to the Rule Concerning the Use of Prenotification Negative Options Plans. One such amendment will retitle the rule to the Rule Concerning Subscriptions and Other Negative Option Plans, often called the Negative Option Rule. One likely focus of the virtual hearing is the “Click to Cancel” update. The virtual hearing will include six nongovernmental organizations, each of which will provide oral statements addressing issues raised in their comment submissions regarding the notice of proposed rulemaking. The virtual hearing is open to the public and Crowell & Moring attorneys will attend.

Almost nine months ago, the FTC announced the rulemaking proposing multiple, material amendments and additions to the Negative Option Rule. As stated by the FTC, the “proposed changes are calculated to combat unfair or deceptive business practices, including recurring charges for products or services consumers do not want and cannot cancel without undue difficulty." The notice of proposed rulemaking was announced on March 23, 2023 and filed on the Federal Register a month later, on April 24, 2023. 88 Federal Register 24716. 

During the two months available for public comment this past summer, the FTC received 1,163 comments on the proposed rulemaking. Six of the commenters requested permission to present their positions at a hearing as allowed by the FTC Act (pursuant to 15 U.S.C. 57a(c)(2)(A)). And, the FTC is granting those requests via the virtual hearing. The commenters include Internal Franchise Association, TechFreedom, the Performance Driven Marketing Institute, The Internet & Television Association (NCTA), FrontDoor, and the Interactive Advertising Bureau. The Securities and Exchange Commission Administrative Law Judge Carol Fox Foelak will preside.

Two commenters proposed that the FTC consider potential issues of disputed material fact. For example, whether substantial evidence exists that service providers have 1) failed to provide or misrepresented material information to consumers, 2) imposed unwanted services due to deception, or 3) imposed difficult cancellation processes, and whether any of these types of practices or issues are prevalent. However, the FTC has determined that the disputed issues of material fact are not genuinely disputed or material based on the FTC’s ample record evidence. Although the FTC is providing the commenters their requested hearing, the FTC’s statements give short shrift to the validity of the commenters’ concerns. 

For background, one of the material updates to the FTC’s rule was a proposed “click to cancel” provision requiring brands to make cancellation as easy for consumers as enrollment or sign up was for consumers to obtain the brand’s services. The update in Section 425.6 is titled “Simple Cancellation (‘Click to Cancel’) and reads in part:

“(a) Simple mechanism required for cancellation. In connection with promoting or offering for sale any good or service with a negative option feature, it is a violation . . . for the negative option seller to fail to provide a simple mechanism for a consumer to cancel the negative option feature and avoid being charged for the good or service and immediately stop any recurring charges.” And

“(b) Simple mechanism at least as simple as initiation. The simple mechanism required by paragraph (a) of this section must be at least as easy to use as the method the consumer used to initiate the negative option feature.”

Simply put, the FTC will require brands to implement and use cancellation mechanisms that are as simple as enrollment mechanisms. For example, brands will be required to offer consumers consistent mediums for both enrollment and cancellation, such as internet, telephone, mail, or in-person mediums. The FTC states “[t]he new click to cancel provision . . . would go a long way to rescuing consumers from seemingly never-ending struggles to cancel unwanted subscription payment[s.]” 

Brands need to keep the Negative Option Rule amendments front of mind and begin business preparations for the implementation of the updated rule. In fact, one of the disputed issues of material fact provided by the commenters was whether such a “click to cancel” mechanism will impose increased costs on businesses resulting in higher costs for consumers. The FTC did not comment on any proposed disputed issue specifically. 

The FTC is focused on the prevalence and rise of the subscription services economy and is swiftly moving to provide further enforcement mechanisms to hold brands accountable for alleged deceptive negative option practices. As a reminder, a rulemaking is the FTC’s formal step allowing the agency to seek civil penalties against violators (up to $50,120 per violation) as well as seek other monetary relief. Again, brands should now begin reviewing their subscription and negative option processes to ensure compliance with the FTC’s amended rule.