On October 16, the Federal Trade Commission (FTC) released the final version of its Rule Concerning Recurring Subscriptions and Other Negative Option Programs (Rule), which requires sellers of products and services to receive informed consent before locking consumers into an automatically renewing contract, among other transparency and easy cancel requirements.
The Rule, also called the “Click-to-Cancel” rule, governs both business-to-consumer and business-to-business transactions, and the Rule applies to any person or entity that sells, offers, or provides goods or services with a “negative option feature.” Negative option features are contract terms under which a consumer’s silence or failure to take an affirmative action is interpreted as acceptance or continuing acceptance of the offer. The Rule targets contract provisions that establish an automatic renewal, a continuity plan, or a free-to-pay or reduced fee-to-pay conversion (such as a free-trial period that then converts into a full subscription).
In addition to regulating subscription cancellation mechanisms, the Rule also:
- Prohibits misrepresentations of fact related to the negative option features.
- Requires sellers to provide certain information prior to charging consumers a recurring fee.
- Requires sellers to obtain a consumer’s informed consent to the negative option feature itself.
Disclosures and Express Informed Consent
Immediately next to the seller’s means of recording consumers’ consent to a negative option feature, sellers must disclose the following:
- The amount and frequency of recurring charges.
- The date by which a consumer must cancel to prevent recurring charges.
- The location of the simple cancellation mechanism.
The Rule requires sellers to receive express informed consent from consumers in connection with offering a good or service with a negative option feature. Sellers must meet the following requirements in order to obtain express informed consent:
- Obtain the consumer’s consent to the negative feature option separately from any other part of the agreement (i.e., a separate check box, signature, or substantially similar method).
- Avoid including information that contradicts or detracts from consumers’ ability to provide informed consent (i.e., avoiding burying details at the end of a document or including ambiguous details that could confuse consumer understanding of the negative feature option).
- Record and maintain verification of the consumer’s consent for at least three years.
Consent to the negative option feature must be presented in a clear and unambiguous way that is free from any additional information that is not related to the negative option feature.
The recordkeeping requirement does not apply if the seller can show that the transaction cannot be processed without the consumer’s consent. This recordkeeping exemption may be available if, for example, access cannot be granted to the subscription service unless all boxes have been checked, including the box for the negative feature option. Of note, a seller would necessarily have the responsibility of proving that access cannot occur without boxes being checked, so to ensure compliance with the Rule, sellers should consider whether it is more advantageous to maintain records instead of relying on the recordkeeping exemption.
For telemarketing sales, sellers must comply with all applicable requirements in the Telemarketing Sales Rule and maintain an audio recording of the entire telemarketing transaction.
Cancellation Mechanisms
The Rule requires negative option sellers to “provide a simple mechanism” for customers to cancel any negative option feature, which “must be at least as easy to use as the mechanism the consumer used to consent” to the feature. Essentially, if the customer signed up online, they must also be able to cancel online.
For those online cancellations, the Rule requires the mechanism to be “easy to find.” According to the FTC, a clearly labeled cancellation button provided on a consumer’s account or user settings would satisfy this obligation. The Rule also states that a consumer cannot be required to interact with a live or virtual representative to cancel their subscription if the consumer did not have such live interaction when initially signing up for the subscription.
For sign-ups that happen over the phone, cancellation must also be possible via a telephone call. For those consents to a negative option feature granted in-person, cancellations can be processed through an online mechanism or over the phone, where in-person cancellations are impractical.
FTC Authority Under the Rule: Exemptions and Enforcement
Notably, the Rule does not include any entity-level exemptions to the FTC’s requirements. Those subject to the Rule may only seek an exception by petitioning the FTC directly for a partial or full exemption.
However, the FTC’s published analysis accompanying the Rule clarifies that the Rule generally does not impact individually negotiated negative option features. Thus, if a business consents to a negative option feature during a negotiation process for an agreement, the FTC explicitly recognizes that the parties can also resolve termination by negotiating the cancellation mechanism (as this would be a symmetrical process for consenting to and canceling the negative option feature).
The FTC may enforce the Rule by seeking civil penalties and consumer redress under the FTC Act by asserting deceptive or unfair practices.
Legal Challenges
On October 23, three industry trade associations (the Electronic Security Association, Interactive Advertising Bureau, and NCTA – The Internet & Television Association) sued the FTC seeking to invalidate the Rule and to prevent the FTC from enforcing it. As of publication, the Rule is still scheduled to take effect in December 2024 and April 2025, but we will continue to monitor this challenge to the Rule.
Next Steps
The Rule has a staggered compliance timeline, with the Rule’s prohibition of certain misrepresentations effective 60 days after the publication of the Rule, and all other Rule obligations taking effect 180 days after the Rule’s publication.
In preparation for the Rule, we recommend considering whether your standard customer terms include a negative option feature and if so, how your business can operationalize compliance with the Rule. This may include adding a separate checkbox in agreements for consumers opting into auto-renewal, updating disclosures to consumers regarding negative option features, and establishing a streamlined cancellation mechanism.
If you have any questions about the Rule and how it could affect your business, please contact the authors.