Major News for Subscriptions and Auto-Renewing Contracts: The Federal Trade Commission (“FTC”) issued its Amendments to the existing Negative Option Rule on October 16, 2024. The Amendments significantly expand the scope of the existing Rule and incorporate a series of obligations, many of which arguably exceed or match the most onerous obligations under state auto renewal laws. The Final Rule (the “Rule Concerning Recurring Subscriptions and Other Negative Option Plans”) covers all auto-renewing subscriptions, memberships, and similar offers in which a consumer’s silence or inaction is interpreted as acceptance of the offer, renewal, or conversion from free trial to paid subscription (each a “Negative Option Feature”).
Notably, in addition to business-to-consumer (“B2C”) offerings, business-to-business (“B2B”) contracts that include auto-renewing features are equally covered. Because most state auto-renewal laws apply only in the B2C context, the Final Rule marks a significant shift in the B2B subscription landscape.
The Final Rule sets a heightened federal “floor”—well beyond the Restore Online Shoppers’ Confidence Act (“ROSCA”)—that state laws can continue to build on top of, and gives the FTC a new tool in the toolbox (one that allows for civil penalties) for regulating negative options.
For the most part, the Final Rule will take effect 180 days after it is published in the Federal Register. Procedural provisions, as well as the prohibition on misrepresenting material terms, will take effect just 60 days after publication.
Summary
As described in more detail below, the Final Rule will:
- Require separate, affirmative consent to Negative Option Features–e.g., checking an unchecked checkbox or something similar.
- Require disclosure of key terms at the point of sale.
- Prohibit misrepresenting material terms (even if the misrepresentation is unrelated to the auto-renewal component of the offering).
- Require online cancellation that is easy to find and use.
- Require cancellation via telephone or mail for any subscriber who signed up by telephone or mail.
The Final Rule also adds an “Exemptions” provision that allows businesses to petition for an exemption from obligations under the Rule.
Notably, the Final Rule does not include two requirements that the FTC previously proposed when it issued its Notice of Proposed Rulemaking in March 2023:
- Restrictions on presenting “Saves” during cancellation
- An annual reminder requirement for subscriptions without physical goods
Detailed Requirements
Consent
Businesses must obtain unambiguously affirmative consent to the Negative Option Feature that is separate from the consumer’s consent to the rest of the transaction (i.e., a consent distinct from consent to the broader terms of sale). The FTC’s commentary suggests that solely requiring the consumer to select a button that is tied to a disclosure is insufficient.
Additionally, businesses must not provide information that would undermine a consumer’s ability to provide informed consent to the Negative Option Feature.
Businesses must also retain proof of the consumer’s consent for at least three years unless they can demonstrate that they use processes to ensure that no consumer can technologically complete the transaction without consenting.
Disclosures
Businesses must “clearly and conspicuously” (as described below) disclose the following key terms of the Negative Option Feature immediately adjacent to the consent feature:
- The price to be charged, and, as applicable, the price after a free trial or promotional period;
- That the charges will recur unless the consumer cancels;
- The frequency of renewal;
- The deadline to cancel to prevent future renewal charges; and
- Information necessary for the consumer to find the cancellation mechanism.
Moreover, before obtaining a consumer’s billing information and obtaining consent to the Negative Option Feature, businesses must disclose all material terms related to the underlying product or service (i.e., terms likely to affect a consumer’s choice of, or conduct regarding, the offering) even if not related to the Negative Option Feature. These too must be “clear and conspicuous.”
The FTC defines “clear and conspicuous” as “difficult to miss,” “easily noticeable,” and “easily understandable by ordinary consumers.” According to the FTC, this means that:
- Disclosures must be made through the same means as the rest of the offer (e.g., visual, audio, or both).
- Visual disclosures must be “unavoidable” and stand out on the page or screen—e.g., high contrast and legible.
- Audio disclosures must not be so quiet or fast that a consumer cannot understand them.
- Disclosures must use language an ordinary consumer can understand. If a product or service is aimed at a specific group of consumers, such as children, the disclosure language must be tailored to that specific group.
Misrepresentations*
*Takes effect 60 days after Final Rule is published in the Federal Register.
The Final Rule explicitly prohibits making misrepresentations about any material term of the transaction or service. This could be construed to apply to all statements or omissions related to the underlying offering, including those statements made outside of the typical auto-renewal touchpoints.
The Disclosures and Misrepresentations provisions will significantly expand the FTC’s ability to leverage the Negative Option Rule as an enforcement tool, particularly in light of the opportunity for civil penalties.
Cancellation
Cancelling a Negative Option Feature cannot be too difficult, time-consuming, or complicated:
- Cancellation methods must be at least as easy-to-use as subscribing, and a consumer must be able to cancel through the same medium (e.g., internet, telephone, mail, or in-person) that they subscribed.
- Consumers must not be forced to interact with a live or virtual representative (such as a chatbot) to cancel unless they made their purchase that way.
- If a business also allows for telephone cancellation, the line must be made available during regular business hours. Telephone cancellation may either involve live conversations or allow consumers to leave a message requesting cancellation; either way, cancellations must be effectuated promptly.
Although the FTC is touting the Final Rule as its “Click-to-Cancel” Rule, it does not, in fact, require businesses to allow for cancellation in a single click. The FTC’s commentary suggests that certain save attempts that require consumers to navigate through upsells, jump through unreasonable hoops, or wait unreasonable amounts of time to cancel are neither simple nor easy.
Proposed amendments removed from Final Rule
Two key obligations that the FTC considered in the Proposed Rule did not make it into the Final Rule. The removed provisions include:
- Prohibition on presenting “Saves”—an additional offer, modification to the existing agreement/subscription, or reasons to not cancel—unless the consumer unambiguously affirmatively consents to receive a Save.
- Requirement to send annual reminders for subscriptions without physical goods.
The FTC indicated that it may engage in supplemental rulemaking on these issues.
The Final Rule does not preempt state laws that impose additional protections for consumers related to auto-renewing subscriptions unless a state law requirement directly conflicts with the federal rule. Accordingly, in addition to the requirements of the Final Rule, companies must also continue to navigate the obligations imposed by the patchwork of over two dozen existing state auto-renewal laws, some of which require companies to take on additional compliance efforts—e.g., post-enrollment acknowledgments, notices in advance of the end of free trials and discount periods, and material change notices.
