On March 23, 2023, the Federal Trade Commission (FTC or the Commission) issued an 83-page Notice of Proposed Rulemaking (Notice) proposing dramatic changes to current cancellation requirements for companies selling products or services under a "negative option feature," i.e., a subscription, membership, a free or partially free trial that converts to a paid subscription, or other recurring-payment program that indefinitely renews unless a consumer affirmatively cancels or returns the goods or services.1
The Commission's proposed Rule would: (i) expand the types of negative option transactions covered by the Rule; (ii) increase the disclosure, consent, notification, and cancellation requirements for businesses; and (iii) expose sellers offering a negative option feature to potentially stiff financial penalties for alleged misrepresentations – even when those misrepresentations are unrelated to the negative option feature itself. These changes—and the open questions left were they to go into effect—are examined in more detail here.
Yesterday, the FTC published its proposed Rule in the Federal Register. Public comment is open until June 23, 2023. The comment period is an important opportunity for businesses to express their views on the proposed Rule and the issues and complications with it, as well as to present information and data that could help shape the Rule. The Steptoe team can assist with participation in this public comment period and the anticipated rulemaking process. Please do not hesitate to contact the authors of this alert for help with any issues concerning negative option rules or advertising counseling and compliance more generally.
Footnotes
1. The Commission's Telemarking Sales Rule defines a negative option feature as a provision in an offer or agreement to sell or provide any goods or services "under which the customer's silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer." 16 CFR § 310.2(w).
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