FTC Issues Enforcement Policy Regarding Deceptive Practices Related to Negative Option Marketing
The policy covers three areas commonly pursued in enforcement of negative option cases: disclosures, consent, and cancellation.
The Federal Trade Commission ("FTC") recently issued an enforcement policy cautioning companies engaged in "negative option marketing" of potential legal action if the sign-up process for subscription services fails to provide clear up-front information, consumers do not provide informed consent, and cancellation is unduly burdensome. The FTC defines "negative option marketing" broadly—referring to commercial transactions in which an underlying condition or term will continue or auto-renew unless the consumer takes affirmative action to cancel the agreement or refuses the good or service. While negative options are commonplace in the market and can be beneficial for consumers, the FTC maintains that unfair or deceptive negative option practices are a prevalent source of consumer harm. As a result of the heightened awareness surrounding negative option marketing, companies should expect increased enforcement by governmental agencies as well as lawsuits brought by individual consumers.
The enforcement policy covers three areas the FTC commonly pursues in its enforcement of negative option cases: disclosures, consent, and cancellation. The FTC provides the following guidance on those areas to assist companies in their compliance efforts.
Disclosures: Material terms of negative options "must be clear and conspicuous." At a minimum, companies must relay "that consumers will be charged for the good or service [and the amount]," whether "those charges will increase after any applicable trial period ends," whether "the charges will be on a recurring basis," the "deadline (by date or frequency) by which the consumer must act in order to stop the charges," and "[a]ll information necessary to cancel the contract." Such information should be provided in a manner that is "unavoidable and easily understandable by ordinary consumers."
Consent: To attain express informed consent, companies should "obtain [and verify] the consumer's unambiguously affirmative consent" to the negative option as well as the entire transaction.
Cancellation: Companies should provide cancellation mechanisms that are "simple," "reasonable," and "through the same medium (such as a website or mobile application) the consumer used to consent to the negative option." "Companies should not impede the effective operation of promised cancellation procedures, and should honor cancellation requests that comply with such procedures."
Implications: The FTC reportedly receives thousands of complaints each year related to negative option marketing. While the FTC has sought to address ongoing problems with online negative option marketing under the Restore Online Shoppers' Confidence Act, which gives the FTC extensive powers, the recent enforcement policy will undoubtedly result in increased FTC enforcement actions, state attorneys general investigations, and other federal and state regulatory activity. With increased governmental enforcement, companies are likely to see follow on consumer actions asserting similar claims under state consumer protection laws. If a company currently utilizes negative option marketing, or intends to acquire a company that utilizes such marketing, it is prudent to revisit negative option practices in light of the recent FTC guidance. For further information or to discuss the implications of this enforcement policy, please contact one of the lawyers listed below.
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