FTC Invites Public Comment on Improvement of Existing Negative Option Rule

The FTC first promulgated the Negative Option Rule in 1973 pursuant to the FTC Act to address negative option marketing, described by the FTC as “a common form of marketing whereby the absence of affirmative consumer action constitutes consent to be charged for goods or services.”  While such marketing practices are common and can provide benefits to both sellers and consumers, the FTC warns that “consumer benefits may be lost when marketers fail to make adequate disclosures, bill consumers without their consent, or make cancellation difficult or impossible.”  The FTC completed its last regulatory review of the Rule in 2014.  Since that time, however, evidence suggests that problems persist, and consumers continue to submit thousands of complaints to the FTC each year about negative option marketing practices.

While broadly named the “Negative Option Rule”, the federal rule is actually quite narrow.  One key issue is that the FTC’s current Rule applies only to pre-notification plans, those in which sellers offer goods or services to consumers and then send (and charge for) those goods or services only if the consumer takes no action to decline the offer—e.g., book-of-the-month clubs.  The Rule does not reach other, more modern forms of negative option marketing, including continuity plans, automatic renewals and free-to-pay or nominal-fee-to-pay conversion offers.

Another concern is the existing patchwork of laws and regulations, in addition to the Negative Option Rule, that seeks to address harmful negative option practices—among them, Section 5 of the FTC Act, the Restore Online Shoppers’ Confidence Act, the Telemarketing Sales Rule, the Postal Reorganization Act and the Electronic Fund Transfer Act.  As is, they do not provide consistent guidance across different types of media or negative option practices.

The FTC seeks comments on the current Rule as well as new possible regulatory measures to address deceptive or unfair negative option marketing practices.  Among other things, the FTC seeks input on various alternatives, including amendments to the Rule; ways in which the Commission should exercise its authority under the FTC Act; and other approaches like additional consumer and business education.   Comments must be received on or before December 2, 2019.  

Read the FTC’s entire notice announcing the rule review here.

Takeaway: Marketers seeking to utilize negative option/continuity billing practices must contend with continually evolving state and federal requirements.  Now the FTC is looking at expanding, and possibly modernizing, its relatively narrow rule.

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