Yesterday, the Federal Trade Commission said “no more” with a proposal that will make subscription cancellation easier through a Notice of Proposed Rulemaking, Negative Option Rule. The FTC hopes to curb the “dark patterns” some marketers use to keep consumers subscribed. The proposed rule changes include providing an easy subscription cancellation mechanism, new requirements for making additional offers, and additional requirements for reminders and confirmations.

The “click-to-cancel” proposal is part of a larger update to the Negative Option Rule to stop companies from using sneaky tactics. The rule was adopted in 1973 and how we shop and do business has changed dramatically since then. The FTC is reviewing it to see how it should be modernized to provide clear guidance to businesses and to protect consumers.

“Some businesses too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place,” said FTC Chair Lina M. Khan in a March 23, 2023 news release. “The proposed rule would require that companies make it as easy to cancel a subscription as it is to sign up for one. The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties.”

The FTC said that negative option marketing programs cross the line when:

• Marketers fail to make adequate disclosures.
• Companies bill consumers without their consent.
• Companies make it difficult or impossible to cancel.

For example, a large national newspaper will not allow consumers to cancel their subscriptions online or via email. They must call a customer service agent to request the cancellation, and the agent’s role is to try to preserve the business. In other examples from other companies, customers were charged without their consent, and when they requested refunds, they were put on hold with exceedingly long wait times, often never reaching a company representative. With the proposed rule change, subscribers would be able to cancel online.

The proposed changes include three specific requirements, according to yesterday’s news release:

• Provide a simple subscription cancellation mechanism: If consumers are unable to easily leave any program when they want to, the negative option feature becomes nothing more than a way to continue charging them for products they no longer want. To address this issue, the proposed rule would require businesses to make it at least as easy to cancel a subscription as it was to start it. For example, if you can sign up online, you must be able to cancel on the same website, in the same number of steps.
• New requirements before making additional offers: The proposed rule would allow sellers to pitch additional offers or modifications when a consumer tries to cancel their enrollment. But before making such pitches, sellers must first ask consumers whether they want to hear them. In other words, a seller must take “no” for an answer and upon hearing “no” must immediately implement the cancellation process. This will allow subscription companies to try to preserve the business but in a limited way.
• New requirements regarding reminders and confirmations: The proposed rule would require sellers to provide an annual reminder to consumers enrolled in negative option programs involving anything other than physical goods, before they are automatically renewed.

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The FTC vote was 3 to 1 with Commissioner Christine S. Wilson voting against the proposal. According to her dissenting statement, she feels the expanded scope of the proposed rule changes are too broad and go too far. Wilson also said the FTC does not have the authority to seek civil penalties in de nova Section 5 cases. Chairman Khan and the other commissioners issued their own statement.

“Today the Commission has voted out a proposal for a much-needed update to the FTC’s nearly 50-year-old Negative Option Rule. As the Commission knew when the rule was passed in 1973, companies too often manipulate consumers into paying for subscriptions for goods and services that they don’t want. The problem has only gotten worse. Today, we are proposing to not only lay out clear rules of the road for marketing negative option plans, but also to mandate that companies make it as easy to cancel as they make it to sign up in the first place,” said Chair Khan, Commissioner Rebecca Kelly Slaughter, and Commissioner Alvaro M. Bedoya in a March 22, 2023 statement.

Another proposed change is to change the name of the Negative Option Rule to the Rule Concerning Recurring Subscriptions and Other Negative Option Plans. Currently, the proposal is just a proposal. It will be published in the Federal Register and the public will have an opportunity to comment online. A draft of the proposal is available at FTC.gov. To help educate the public, the FTC prepared a Fact Sheet about the Proposed Changes to the Negative Option Rule that lays out the changes more succinctly. It can also be accessed at FTC.gov.

Insider Take

The FTC has been working on updating the 50-year-old Negative Option Rule for years. It has advanced to the point where they are seeking public comment on the proposed changes, including strengthening subscription cancellation policies. Consumers will likely support it, while subscription companies that use negative option marketing tactics may push back. We think some rule changes are needed and will pass eventually; it is a question of what the final version looks like and when it will be implemented. In the meantime, we recommend that membership and subscription companies look at their current practices to ensure they aren’t using dark patterns and that they are in compliance with current laws, and they are prepared to make changes, if needed.

For more information on how to comply with subscription rules and regulations, take our three-hour Master Class taught by two legal subscription experts.