Federal ‘Unsubscribe Act’ Introduced to Regulate Negative Option Agreements

Under the Unsubscribe Act, which would apply to contracts entered into one year after the date of its enactment, sellers must provide consumers with a mechanism to cancel negative option agreements in the same manner, and by the same means, into which the agreement was entered.

With respect to free-to-pay conversion contracts, a seller may not charge a consumer’s credit card or account unless the seller has obtained the consumer’s express informed consent to enter into the contract after notification of its terms.  Free-to-pay conversion contracts are those under which the consumer receives a good or service at no charge or for a nominal charge for an introductory period, after which time the consumer is charged or charged an increased amount.  Moreover, before the initial charge or initial increase after the introductory period, the consumer must perform an additional affirmative action, such as clicking on a confirmation button or checking a box, which indicates the consumer’s consent to be charged the amount disclosed.

The proposed legislation also includes mandatory notification provisions, including in connection with material changes in the terms of negative option agreements. 

The Unsubscribe Act provides the FTC and state attorneys general with power to enforce it, and persons who violate its provisions shall be subject to the same penalties provided in the Federal Trade Commission Act.

Takeaway: Legislators on both state and federal levels continue to press for statutory restrictions on auto-renewal programs.  This proposed federal law adopts portions of the California auto-renewal law, in terms of facilitating cancellation by the same means of the enrollment, as well as the recently enacted Vermont legislation regarding additional consent for certain types of auto-renewal programs.  Regardless of whether the federal legislation is enacted, it is clear that subscription programs must be carefully structured and take into account the evolving legislative and regulatory landscape.

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