On October 16, 2024, the Federal Trade Commission (“FTC”) issued finalized amendments to its Negative Option Rule significantly expanding its scope (and likewise expanding its name, retitled as the “Rule Concerning Recurring Subscriptions and Other Negative Option Programs”; the “Amended Rule”). The Amended Rule clarifies that any business offering a negative option feature (any contract under which the consumer’s silence or failure to take affirmative action to reject a good or service, or to cancel the agreement, is interpreted by the seller as acceptance or continuing acceptance of the offer) must comply with its requirements. Notably, the Amended Rule extends beyond consumer-facing companies (“B2C” companies) to also include those operating exclusively in a business-to-business capacity (“B2B” companies). The Amended Rule may consequently have significant impact for businesses relying on subscription-based revenue models across industries, from software-as-a-service providers to other e-commerce and internet goods and service providers.

The Amended Rule aligns with heightened conditions generally established by a variety of states to establish a baseline federal framework while still allowing states to maintain stricter protections. As a result, all companies with auto-renewing subscriptions and other negative option programs or products must promptly assess and address any compliance deficiencies. 

FTC Authority and Rule Making 

The FTC has broad authority to enforce unfair and deceptive trade practices under Section 5 of the Federal Trade Commission Act. Furthermore, under its rulemaking authority, it has the ability to establish rules that define with specificity acts or practices that are unfair or deceptive—in this case, negative option features like auto-renewing subscriptions for any type of product or service. Defining such acts requires published notice of the proposed rule and time for public comment prior to the final rule’s release. Those comments are taken into consideration and the final rule is then published.

Following the proposed Amended Rule’s release for public comment, a number of commenters raised concerns across various fronts, including the proposed application to B2B companies and proposed requirements like separate individualized acceptance steps. Ultimately, the FTC released the Amended Rule with select updates based on public feedback, but retaining the majority of its original proposals (including with respect to its B2B application).

The Amended Rule

The Amended Rule governs all goods and services that are marketed or sold with a negative option feature (such as prenotification plans, continuity plans, automatic renewals, and “free trial” conversion offers with no-fee or nominal-fee trial periods), both in B2B and B2C contexts, and includes several express requirements, non-compliance with which constitutes an unfair or deceptive trade practice. These requirements fall into three main categories:

• Necessary disclosures: Sellers must provide the following important information prior to obtaining a consumer’s billing information: (1) that consumers’ payments will be recurring, if applicable; (2) the deadline by which consumers must act to stop charges; (3) the amount or ranges of costs consumers may incur; (4) the date the charge will be submitted for payment; and (5) information about the mechanism consumers may use to cancel the recurring payments.
• Requisite consent: Sellers must obtain consumers’ express informed consent before charging the consumer (and must keep or maintain verification of the consumer’s consent for at least three years).
• Simple cancellation: Sellers must offer a fast and easy cancellation mechanism that, at a minimum, allows the consumer to cancel as easily as they enrolled in the program (popularized as the “click to cancel” requirement from the sentiment of many public comments received by the FTC that “If you signed up online, you should be able to cancel online. If it took one click to join, it should take one click to cancel”).

Other material components of the Amended Rule to highlight:

• The Amended Rule is not limited to online transactions, but instead covers all media. This includes, but is not limited to, online, telephone, in-person and printed offerings.
• Prior to purchase (or online “checkout”), there must be clear and conspicuous disclosures that clearly set forth information including, but not limited to, trial periods, frequency of charges, instructions for cancellation and price.
• Companies that engage with customers through telephone or in person must think carefully about the mechanics of cancellation, including the use of toll-free phone numbers and in-person cancellation considerations.
• The FTC declined to adopt rules related to required reminders or campaign “saves” at this time, but indicated its intent to seek further public comment on these issues in the future.
• While use of an unchecked checkbox is identified as an acceptable means of express informed consent, the FTC also said other methods may be used and it will assess each method on a case-by-case basis to determine if such consent is clear, unambiguous, and affirmative.
• “Clear and conspicuous” is specifically defined with a multifactor test, including visual components, placement requirements, and syntax considerations.
• The Amended Rule includes a minimum three-year record keeping requirement for any provider of a negative option program.

Enforcement and Penalties

The Amended Rule empowers the FTC to pursue increased penalties for violations, which may include injunctive relief as well as civil penalties and other forms of monetary relief in amounts as high as $51,744 per violation.

Key Takeaways

The provisions of the Amended Rule relating to disclosures, consent, and cancellation go into effect 180 days following its publication in the Federal Register.

The provisions of the Amended Rule prohibiting misrepresentations of any material fact while marketing goods or services with a negative option feature—even if that fact is not related to the negative option feature—will take effect within 60 days of publication in the Federal Register.

Accordingly, companies who offer negative option programs or products are urged to evaluate their current practices against the updated standards of the Amended Rule, as well as relevant state laws that may impose stricter requirements or offer additional consumer protections.

Dentons regularly advises clients nationwide regarding compliance and protections, including with respect to consumer disclosures, consent procedures, terms and conditions, and record keeping requirements. For further details or assistance with compliance or a lawsuit, please contact us.