Negative option marketing is a common form of marketing whereby the absence of affirmative consumer action constitutes consent to be charged for goods or services. Such marketing is widely used and can provide benefits to both sellers and consumers. However, the Federal Trade Commission (FTC) believes consumers are harmed when marketers fail to make adequate disclosures, bill consumers without their consent, or make cancellation difficult or impossible.
Over the years, the FTC has sought to address these concerns through investigations, cases and various regulatory requirements, including the FTC’s current Negative Option Rule, which addresses prenotification plans (e.g., book-of-the-month clubs) but does not reach other common forms of modern negative option marketing (e.g., automatic renewals).
How might the FTC change its existing regulations for negative option marketing?
The FTC has requested public comment on the issue in an Advance Notice of Proposed Rulemaking (ANPR), asking for public input on ways to strengthen existing regulatory requirements, including whether the FTC should use its rulemaking authority under the FTC Act to expand the scope and coverage of the existing Negative Option Rule.
The FTC continues to express concern about marketers who fail to make adequate disclosures and who bill consumers without their consent or make cancellation difficult or impossible—actions that result in “thousands” of complaints to the agency each year.
The FTC currently relies on its Negative Option Rule, Section 5 of the FTC Act, the Restore Online Shoppers’ Confidence Act (ROSCA), the Telemarketing Sales Rule, the Postal Reorganization Act and the Electronic Funds Transfer Act to prevent harmful practices with regard to negative option marketing. But the rule and statutes address various aspects of negative marketing and do not provide consumers with a consistent legal framework across different media and types of plans, the agency said. Other harmful practices fall outside their coverage.
“Therefore, under the current framework, different rules apply depending on whether a negative option offer is made online, over the phone or in some other medium (e.g., in print, through the mail, etc.),” the FTC explained in its ANPR.
The agency completed its last regulatory review of the Negative Option Rule in 2014, not long after the Restore Online Shoppers’ Confidence Act (ROSCA) was enacted. Despite findings that problematic negative option marketing practices were causing “substantial consumer injury,” the FTC declined to undertake additional regulatory efforts, electing to see ROSCA’s impact on the problems.
Although the agency has enforced ROSCA over the intervening years, “evidence strongly suggests that negative option marketing continues to harm consumers,” the FTC wrote. “The Commission and the states continue to regularly bring cases challenging negative option practices, including more than 20 recent FTC cases.”
The agency, therefore, issued an ANPR for feedback on negative option marketing, including options such as amendments to the existing rule to further address disclosures, consumer consent and cancellation, or whether it should exercise its authority under the FTC Act to expand the Negative Option Rule to address prevalent unfair or deceptive practices involving negative option marketing. Other alternatives such as the publication of additional consumer and business education were also proposed in the ANPR.
To read the Federal Register notice, click here.
Why it matters: Currently, the FTC relies on a variety of laws and regulations to discourage potentially deceptive negative option practices. The FTC’s Negative Option Rule addresses only a small subset of negative option plans called “prenotification plans,” in which consumers are given advance notice of the contents of their next shipment and have a limited time to decline the delivery. Monthly subscription boxes and book-of-the-month clubs are typical prenotification negative option plans. A different law, ROSCA, applies more generally to automatic renewal offers, while the Telemarketing Sales Rule governs negative option offers by telemarketers. While all the laws and regulations emphasize proper disclosure of material terms, the FTC is concerned that they do not provide industry with a consistent legal framework and that they lack specificity.