On October 16, 2024, the Federal Trade Commission (FTC) announced its final “Click to Cancel” Rule (the Rule) as a part of its ongoing review of its 1973 Negative Option Rule.
The FTC revised the Rule to provide additional protection against deceptive or unfair business practices in offering subscriptions, memberships, free trials, and recurring payment programs. In today’s fast-evolving digital landscape, such services can be offered quickly, leading to greater concerns over companies concealing or misrepresenting information from customers, charging customers without approval, or creating barriers that make cancellation difficult.
The Rule applies to all companies selling, offering, charging for, or otherwise marketing a good or service with a Negative Option Feature (Negative Option Sellers). Under the Rule, a “Negative Option Feature” is defined as a contractual obligation in which silence or the failure to take an affirmative action to reject a good or service or to cancel the agreement constitutes an acceptance or continuing acceptance of the Negative Option Seller’s offer (in other words recurring subscription-based services or charges). Examples include (1) automatic renewals, (2) continuity plans, (3) free-to-pay conversions or fee-to-pay conversions, or (4) pre-notification negative option plans. The Rule applies to Negative Option Features offered by Negative Option Sellers via any form of media, including but not limited to the Internet, mobile applications, texts, chats, email, telephone, print, and even in-person transactions.
The FTC also clarified that the Rule applies both to business-to-business and business-to-consumer transactions, rejecting arguments that the Rule should be restricted to individual consumer transactions due to varying levels of sophistication or the absence of documented harm in the business-to-business context. Further, the Rule does not preempt or override any state laws. As such, laws offering consumers additional protections remain in effect, and Negative Option Sellers must also continue complying with such laws (e.g., state laws related to auto-renewal requirements).
Rule Requirements:
The Rule provides for the following four requirements. A Negative Option Seller that fails to comply with the following acts and practices is determined to be “unfair or deceptive” under the Rule.
- Allow for “simple cancellation” and make it as easy to cancel enrollment as it was to sign up (and “immediately stop any recurring charges”). This means ensuring that the mechanism for terminating a contract with a Negative Option Feature must be at least as easy as it was to agree to the contract in the first place. The Rule further provides that the simple cancellation mechanism must be “easy to find.”
a) Electronic Means—If a Negative Option Seller provides the option to subscribe and enroll for its goods and/or services online or via electronic communication, then it should also have a simple “click-to-cancel” opt-out option online or via such a platform. Lastly, in no event shall the customer, often a consumer, be required to interact with a live or virtual representative (such as a chatbot) to cancel if the customer did not do so to consent to the Negative Option Feature.
b) Telephone Means— If a Negative Option Seller allows for enrollment by telephone, then it should have cancellation options via a telephone number that is answered or records messages, made available during normal business hours, and should not be more costly to use than the telephone call used to consent to the Negative Option Feature. Any telephone cancellation (whether answered or recorded) should be promptly addressed. Further, it is recommended that the cancellation option be made available online as well.
c) In-Person Means—If a Negative Option Seller allows for enrollment in-person, in addition to offering cancellation, where practical, via an in-person method similar to what was used to consent to the Negative Option Feature, it must also provide the simple cancellation mechanism through an electronic medium (text, online, email, etc.) or by providing a telephone number (which should not have a cost-barrier to cancellation in connection with the cancellation call). - Prohibit misrepresenting any “Material” facts while offering or promoting a Negative Option Feature. The Rule defines “Material” facts as information likely to affect a person’s choice of, or conduct regarding, the goods or services. While the Rule does not provide a hard and fast definition of what facts constitute “Material” facts, it does give a non-exhaustive list of examples, including the existence of the Negative Option Feature in general and any consent requirements, any deadline to prevent or stop a recurring charge, the cancellation requirements, the cost, the purpose of the underlying good or service, and any applicable health and safety concerns. Further, note that this prohibition is broader than misrepresentations relating solely to the elements of the Negative Option Feature (such as an autorenewal or recurring opt-ins) and refers to misrepresentations of any Material facts by the Negative Option Seller.
- Provide all necessary information before obtaining and charging billing method. The Rule requires that Negative Option Sellers clearly and conspicuously disclose all “Material” terms (as defined in #2 above) before receiving billing information in connection with offering or promoting a Negative Option Feature. Such information is required to be disclosed whether or not it relates to the Negative Option Feature directly and must (1) be placed immediately adjacent to where consent will be provided for enrollment (as described in #4 below) and (2) appear before obtaining such consent. While again, no hard and fast definitions of what information qualifies as “Material” is provided, the FTC provided a non-exhaustive list of examples, including:
a) That there is a charge for the good or service, or if applicable, that charges will be added or increase after any applicable trial period ends;
b) That the charges will be on a recurring basis unless the identified timely steps are taken to prevent or stop such charges;
c) The deadline (by date or frequency) by which the customer must act to prevent or stop any charges;
d) The amount or range of costs that will be charged;
e) The frequency of the charges that will be incurred unless timely steps are taken to prevent or stop those charges and
f) The information necessary to find the simple cancellation mechanism. - Receive informed consent to the Negative Option Feature before charging. Negative Option Sellers must obtain express informed consent to opt-in to the Negative Option Feature and must be able to show that people knew what they agreed to before they signed up. To do so, the Rule requires the following:
a) Obtain unambiguously affirmative consent to the Negative Option Feature offered separately from any other portion of the transaction;
b) Not include any information that interferes with, detracts from, contradicts, or otherwise undermines the ability to provide their express informed consent to the Negative Option Feature; and
c) Keep or maintain verification of consent for at least three years (including after cancellation). However, a Negative Option Seller is relieved of this obligation if it can demonstrate by a preponderance of the evidence that it uses processes ensuring no customer can technologically complete the transaction without consent.
Generally, a Negative Option Seller will be deemed in compliance with these requirements if consent is obtained through a check box, signature, or other substantially similar method, which the customer must affirmatively select or sign to accept the Negative Option Feature and no other portion of the transaction. The consent request must be presented in a manner and format that is clear, unambiguous, non-deceptive, and free of any information not directly related to the acceptance of the Negative Option Feature.
Considerations Going Forward and Consequences for Non-Compliance:
The Rule was officially posted in the Federal Register on November 15, 2024, and will take effect in two phases. The provisions relating to the above prongs (1), (3) and (4) (regarding cancellation mechanisms, disclosures, and consent requirement, respectively) will go into effect within 180 days of publication in the Federal Register (May 14, 2025). The provisions relating to the above prong (2) (regarding prohibiting misrepresentations), will go into effect within 60 days of publication in the Federal Register (January 14, 2025). The Rule does currently face legal challenges that may ultimately delay or prevent it from going into effect.
The Rule is silent as to whether it has any retroactive effect requiring collecting consent from then-existing customers with agreements with a Negative Option Feature.
If and once the Rule goes into effect, the Rule allows the FTC to impose civil penalties on violating companies, or compensation to affected customers, even for first-time violators. To prepare, Negative Option Sellers should carefully evaluate their current contracting practices for compliance with the Rule.
For questions or additional information, contact Matt San Roman or Alexandra Landgraf.
