[Federal Register Volume 88, Number 78 (Monday, April 24, 2023)]
[Proposed Rules]
[Pages 24716-24739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-07035]


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FEDERAL TRADE COMMISSION

16 CFR Part 425

RIN 3084-AB60


Negative Option Rule

AGENCY: Federal Trade Commission.

ACTION: Proposed rule.

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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') seeks 
public comment on proposed amendments to the Commission's Negative 
Option Rule (or ``Rule'') to combat unfair or deceptive practices that 
include recurring charges for products or services consumers do not 
want and cannot cancel without undue difficulty.

DATES: Written comments must be received on or before June 23, 2023. 
Parties interested in presenting views orally should submit a request 
to do so as explained below, and such requests must be received on or 
before June 23, 2023.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``Negative Option Rule; 
Project No. P064202'' on your comment and file your comment online 
through https://www.regulations.gov. If you prefer to file your comment 
on paper, mail your comment to the following address: Federal Trade 
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite 
CC-5610 (Annex N), Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Hampton Newsome, Attorney, (202) 326-
2889, Division of Enforcement, Bureau of Consumer Protection, Federal 
Trade Commission, 600 Pennsylvania Avenue NW, Washington, DC 20580.

SUPPLEMENTARY INFORMATION: 

I. Overview

    The Commission seeks comment on a proposal to improve its existing 
regulations for negative option programs. These programs are widespread 
in the marketplace and can provide substantial benefits for sellers and 
consumers. However, consumers cannot reap these benefits when marketers 
fail to make adequate disclosures, bill consumers without their 
consent, or make cancellation difficult or impossible. Problematic 
negative option practices have remained a persistent source of consumer 
harm for decades, saddling shoppers with recurring payments for 
products and services they never intended to purchase or did not want 
to continue buying. In the past, the Commission sought to address these 
practices through individual law enforcement cases and a patchwork of 
laws and regulations. Nevertheless, problems persist, and consumers 
continue to submit thousands of complaints to the FTC each year.
    To solicit input about these issues, the Commission published an 
advance notice of proposed rulemaking (ANPR) on October 2, 2019 (84 FR 
52393). After reviewing the comments received in response and issuing 
an ``Enforcement Policy Statement Regarding Negative Option Marketing'' 
on November 4, 2021 (86 FR 60822), the Commission, as detailed in this 
document, now proposes to amend the existing Rule to implement new 
requirements to provide important information to consumers, obtain 
consumers' express informed consent, and ensure consumers can easily 
cancel these programs when they choose. All these proposed changes 
would be applicable to all forms of negative option marketing in all 
media (e.g., telephone, internet, traditional print media, and in-
person transactions).\1\
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    \1\ The Commission proposes to issue such amendments pursuant to 
Section 18 of the FTC Act, which authorizes the Commission to 
promulgate rules specifying acts or practices in or affecting 
commerce which are unfair or deceptive. 15 U.S.C. 57a(a)(2).
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II. Negative Option Marketing

    Negative option offers come in a variety of forms, but all share a 
central feature: each contain a term or condition that allows a seller 
to interpret a customer's silence, or failure to take an affirmative 
action, as acceptance of an offer.\2\ Before describing the proposed 
amendments, it is helpful to review the various forms such an offer can 
take. Negative option marketing generally falls into four categories: 
prenotification plans, continuity plans, automatic renewals, and free 
trial (i.e., free-to-pay or nominal-fee-to-pay) conversion offers.
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    \2\ 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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    Prenotification plans are the only negative option practice 
currently covered by the Commission's Negative Option Rule. Under such 
plans (e.g., product-of-the-month clubs), sellers provide periodic 
notices offering goods to participating consumers and then send--and 
charge for--those goods only if the consumers take no action to decline 
the offer. The periodic announcements and shipments can continue 
indefinitely. In continuity plans, consumers agree in advance to 
receive periodic shipments of goods or provision of services (e.g., 
bottled water

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delivery), which they continue to receive until they cancel the 
agreement. In automatic renewals, sellers (e.g., a magazine publisher, 
credit monitoring service provider, etc.) automatically renew 
consumers' subscriptions when they expire, unless consumers 
affirmatively cancel the subscriptions. Finally, with free trial 
marketing, consumers receive goods or services for free (or at a 
nominal fee) for a trial period. After the trial period, sellers 
automatically begin charging a fee (or higher fee) unless consumers 
affirmatively cancel or return the goods or services.
    Some negative option offers include upsell or bundled offers, where 
sellers use consumers' billing data to sell additional products from 
the same seller or pass consumers' billing data to a third party for 
their sales. An upsell occurs when a consumer completes a first 
transaction and then receives a second solicitation for an additional 
product or service. A bundled offer occurs when a seller packages two 
or more products or services together so they cannot be purchased 
separately.

III. FTC's Current Negative Option Rule

    The Commission first promulgated the Rule in 1973 pursuant to the 
FTC Act, 15 U.S.C. 41 et seq., finding some negative option marketers 
committed unfair and deceptive practices that violated Section 5 of the 
Act, 15 U.S.C. 45. The Rule applies only to prenotification plans for 
the sale of goods, and therefore, does not reach most modern negative 
option marketing.\3\
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    \3\ The Rule defines ``negative option plan'' narrowly to apply 
only to prenotification plans. 16 CFR 425.1(c)(1). In 1998, the 
Commission clarified the Rule's application to such plans in all 
media, stating that it ``covers all promotional materials that 
contain a means for consumers to subscribe to prenotification 
negative option plans, including those that are disseminated through 
newer technologies.'' 63 FR 44555, 44561 (Aug. 20, 1998).
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    The current Rule requires prenotification plan sellers to disclose 
their plan's material terms clearly and conspicuously before consumers 
subscribe. It enumerates seven material terms sellers must disclose: 
(1) how subscribers must notify the seller if they do not wish to 
purchase the selection; (2) any minimum purchase obligations; (3) the 
subscribers' right to cancel; (4) whether billing charges include 
postage and handling; (5) that subscribers have at least ten days to 
reject a selection; (6) that if any subscriber is not given ten days to 
reject a selection, the seller will credit the return of the selection 
and postage to return the selection, along with shipping and handling; 
and (7) the frequency with which announcements and forms will be 
sent.\4\ In addition, sellers must provide particular periods during 
which they will send introductory merchandise, give consumers a 
specified period to respond to announcements, provide instructions for 
rejecting merchandise in announcements, and promptly honor written 
cancellation requests.\5\
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    \4\ 16 CFR 425.1(a)(1)(i)-(vii).
    \5\ 16 CFR 425.1(a)(2) and (3); 425.1(b).
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IV. Other Current Regulatory Requirements

    Several other statutes and regulations also address harmful 
negative option practices. First, Section 5 of the FTC Act, which 
prohibits unfair or deceptive acts or practices, has traditionally 
served as the Commission's primary mechanism for addressing deceptive 
negative option claims. Additionally, the Restore Online Shoppers' 
Confidence Act (``ROSCA''), 15 U.S.C. 8401-8405, the Telemarketing 
Sales Rule, 16 CFR part 310, the Postal Reorganization Act (i.e., the 
Unordered Merchandise Statute), 39 U.S.C. 3009, and the Electronic Fund 
Transfer Act (``EFTA''), 15 U.S.C. 1693-1693r, all address various 
aspects of negative option marketing. ROSCA, however, is the only law 
primarily designed to do so.

A. Section 5 of the FTC Act

    Section 5(a) of the FTC Act, 15 U.S.C. 45(a), is the core consumer 
protection statute enforced by the Commission. That section broadly 
addresses ``unfair or deceptive acts or practices'' but has no 
provisions that specifically address negative option marketing.\6\ 
Therefore, in guidance and cases, the FTC has highlighted five basic 
Section 5 requirements that negative option marketing must follow to 
avoid deception.\7\ First, marketers must disclose the material terms 
of a negative option offer including, at a minimum: the existence of 
the negative option offer; the offer's total cost; the transfer of a 
consumer's billing information to a third party, if applicable; and how 
to cancel the offer. Second, Section 5 requires that these disclosures 
be clear and conspicuous. Third, sellers must disclose the material 
terms of the negative option offer before consumers agree to the 
purchase. Fourth, marketers must obtain consumers' consent to such 
offers. Finally, marketers must not impede the effective operation of 
promised cancellation procedures and must honor cancellation requests 
that comply with such procedures.
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    \6\ Under the FTC Act, ``unfair or deceptive acts or practices'' 
include acts or practices involving foreign commerce that cause or 
are likely to cause reasonably foreseeable injury within the United 
States or involve material conduct occurring within the United 
States. 15 U.S.C. 45(a)(4)(A). Section 5(n) of the FTC Act provides 
that ``unfair'' practices are those that cause or are likely ``to 
cause substantial injury to consumers which is not reasonably 
avoidable by consumers themselves and not outweighed by 
countervailing benefits to consumers or to competition.'' 15 U.S.C. 
45(n).
    \7\ See Negative Options: A Report by the Staff of the FTC's 
Division of Enforcement, 26-29 (Jan. 2009), https://www.ftc.gov/sites/default/files/documents/reports/negative-options-federal-trade-commission-workshop-analyzing-negative-option-marketing-report-staff/p064202negativeoptionreport.pdf. In discussing the five 
principal Section 5 requirements related to negative options, the 
report cites to the following pre-ROSCA cases, FTC v. JAB Ventures, 
No. CV08-04648 (C.D. Cal. 2008); FTC v. Complete Weightloss Center, 
No. 1:08cv00053 (D.N.D. 2008); FTC v. Berkeley Premium 
Nutraceuticals, No. 1:06cv00051 (S.D. Ohio 2006); FTC v. Think All 
Publ'g, No. 4:07cv11 (E.D. Tex. 2006); FTC v. Hispanexo, No. 
1:06cv424 (E.D. Va. 2006); FTC v. Consumerinfo.com, No. SACV05-801 
(C.D. Cal. 2005); FTC v. Conversion Mktg., No. SACV04-1264 (C.D. 
Cal. 2004); FTC v. Mantra Films, No. CV03-9184 (C.D. Cal. 2003); FTC 
v. Preferred Alliance, No. 103-CV0405 (N.D. Ga. 2003); United States 
v. Prochnow, No. 102-CV-917 (N.D. Ga. 2002); FTC v. Ultralife 
Fitness, Inc., No. 2:08-cv-07655-DSF-PJW (C.D. Cal. 2008); In the 
Matter of America Isuzu Motors, FTC Docket No. C-3712 (1996); FTC v. 
Universal Premium Services, No. CV06-0849 (C.D. Cal. 2006); FTC v. 
Remote Response, No. 06-20168 (S.D. Fla. 2006). The report also 
cited the FTC's previously issued guidance, Dot Com Disclosures 
(2002), archived at https://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-staff-issues-guidelines-internet-advertising/0005dotcomstaffreport.pdf.
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    Although these basic guidelines are useful, the legality of a 
particular negative option depends on an individualized assessment of 
the advertisement's net impression and the marketer's business 
practices. In addition to these deception-based requirements, the 
Commission has repeatedly stated billing consumers without consumers' 
express informed consent is an unfair act under the FTC Act.\8\
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    \8\ Courts have found unauthorized billing to be unfair under 
the FTC Act. See, e.g., FTC. v. Neovi, Inc., 604 F.3d 1150, 1157-59 
(9th Cir. 2010), amended by 2010 WL 2365956 (9th Cir. June 15, 
2010); FTC v. Amazon.com, Inc., No. C14-1038-JCC, 2016 WL 10654030, 
at *8 (W.D. Wash. Apr. 26, 2016); FTC v. Ideal Fin. Sols., Inc., No. 
2:13-CV-00143-JAD, 2015 WL 4032103, at *8 (D. Nev. June 30, 2015).
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B. ROSCA

    Enacted by Congress in 2010 to address ongoing problems with online 
negative option marketing, ROSCA contains general provisions related to 
disclosures, consent, and cancellation.\9\ ROSCA prohibits charging or 
attempting to charge consumers for goods or services sold on the 
internet through any negative option feature unless the marketer: (1) 
clearly and conspicuously discloses all material terms of the

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transaction before obtaining the consumer's billing information, 
regardless of whether a material term directly relates to the terms of 
the negative option offer; \10\ (2) obtains a consumer's express 
informed consent before charging the consumer's account; and (3) 
provides simple mechanisms for the consumer to stop recurring 
charges.\11\ ROSCA, however, does not prescribe specific steps 
marketers must follow to comply with these provisions.
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    \9\ 15 U.S.C. 8401-8405.
    \10\ See In re: MoviePass, Inc., No. C-4751 (Oct. 5, 2021).
    \11\ 15 U.S.C. 8403. ROSCA incorporates the definition of 
``negative option feature'' from the Commission's Telemarketing 
Sales Rule, 16 CFR 310.2(w).
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    ROSCA also addresses offers made by, or on behalf of, third-party 
sellers during, or immediately following, a transaction with an initial 
merchant.\12\ In connection with these offers, ROSCA prohibits post-
transaction, third-party sellers from charging or attempting to charge 
consumers unless the seller: (1) before obtaining billing information, 
clearly and conspicuously discloses the offer's material terms; and (2) 
receives the consumer's express informed consent by obtaining the 
consumer's name, address, contact information, as well as the full 
account number to be charged, and requiring the consumer to perform an 
additional affirmative action indicating consent.\13\ ROSCA also 
prohibits initial merchants from disclosing billing information to any 
post-transaction third-party seller for use in any internet-based sale 
of goods or services.\14\
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    \12\ ROSCA defines ``post-transaction third-party seller'' as a 
person other than the initial merchant who sells any good or service 
on the internet and solicits the purchase on the internet through an 
initial merchant after the consumer has initiated a transaction with 
the initial merchant. 15 U.S.C. 8402(d)(2).
    \13\ 15 U.S.C. 8402(a).
    \14\ 15 U.S.C. 8402(b).
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    Furthermore, a violation of ROSCA is a violation of a Commission 
trade regulation rule under Section 18 of the FTC Act.\15\ Thus, the 
Commission may seek a variety of remedies for violations of ROSCA, 
including civil penalties under Section 5(m)(1)(A) of the FTC Act; \16\ 
injunctive relief under Section 13(b) of the FTC Act; \17\ and consumer 
redress, damages, and other relief under Section 19 of the FTC Act.\18\ 
Although Congress charged the Commission with enforcing ROSCA, it did 
not direct the FTC to promulgate implementing regulations.
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    \15\ 15 U.S.C. 8404 (citing Section 18 of the FTC Act, 15 U.S.C. 
57a).
    \16\ 15 U.S.C. 45(m)(1)(A).
    \17\ 15 U.S.C. 53(b).
    \18\ 15 U.S.C. 57b(a)(1), (b).
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C. Telemarketing Sales Rule

    The Telemarketing Sales Rule (``TSR''), 16 CFR part 310, prohibits 
deceptive telemarketing acts or practices, including those involving 
negative option offers, and certain types of payment methods common in 
deceptive negative option marketing. The TSR only applies to negative 
option offers made over the telephone. Specifically, the TSR requires 
telemarketers to disclose all material terms and conditions of the 
negative option feature, including the need for affirmative consumer 
action to avoid the charges, the date (or dates) the charges will be 
submitted for payment, and the specific steps the customer must take to 
avoid the charges. It also prohibits telemarketers from misrepresenting 
such information and contains specific requirements related to payment 
authorization.\19\
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    \19\ 16 CFR 310.3(a).
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D. Other Relevant Requirements

    EFTA \20\ and the Unordered Merchandise Statute also contain 
provisions relevant to negative option marketing.\21\ EFTA prohibits 
sellers from imposing recurring charges on a consumer's debit cards or 
bank accounts without written authorization.\22\ The Unordered 
Merchandise Statute provides that mailing unordered merchandise, or a 
bill for such merchandise, constitutes an unfair method of competition 
and an unfair trade practice in violation of Section 5 of the FTC 
Act.\23\
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    \20\ 15 U.S.C. 1693-1693r.
    \21\ 39 U.S.C. 3009.
    \22\ EFTA provides that the Commission shall enforce its 
requirements, except to the extent that enforcement is specifically 
committed to some other federal government agency, and that a 
violation of any of its requirements shall be deemed a violation of 
the FTC Act. Accordingly, the Commission has authority to seek 
injunctive relief for EFTA violations, just as it can seek 
injunctive relief for other Section 5 violations.
    \23\ The Commission has authority to seek the same remedies for 
violations of the Unordered Merchandise Statute that it can seek for 
other Section 5 violations. The Commission can seek civil penalties 
pursuant to Section 5(m)(1)(B) of the FTC Act from violators who 
have actual knowledge that the Commission has found mailing 
unordered merchandise unfair. 15 U.S.C. 45(m)(1)(B).
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V. Limitations of Existing Regulatory Requirements

    The existing patchwork of laws and regulations does not provide 
industry and consumers with a consistent legal framework across media 
and offers. For instance, as discussed above, the current Rule does not 
cover common practices such as continuity plans, automatic renewals, 
and trial conversions.\24\ In addition, ROSCA and the TSR do not 
address negative option plans in all media--ROSCA's general statutory 
prohibitions against deceptive negative option marketing only apply to 
internet sales, and the TSR's more specific provisions only apply to 
telemarketing. Yet, harmful negative option practices that fall outside 
of ROSCA and the TSR's coverage still occur.\25\
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    \24\ Indeed, the prenotification plans covered by the Rule 
represent only a small fraction of negative option marketing. In 
2017, for instance, the Commission estimated that fewer than 100 
sellers (``clubs'') were subject to the current Rule's requirements. 
82 FR 38907, 38908 (Aug. 16, 2017).
    \25\ For instance, the Commission recently brought two cases 
under Section 5 involving negative option plans that did not involve 
either internet sales or telemarketing. FTC and State of Maine v. 
Health Research Labs., LLC, No. 2:17-cv-00467-JDL (D. Me. 2018); and 
FTC and State of Maine v. Mktg. Architects, No. 2:18-cv-00050 (D. 
Me. 2018).
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    Additionally, the current framework does not provide clarity about 
how to avoid deceptive negative option disclosures and procedures. For 
example, ROSCA lacks specificity about cancellation procedures and the 
placement, content, and timing of cancellation-related disclosures. 
Instead, the statute requires marketers to provide ``simple 
mechanisms'' for the consumer to stop recurring charges without 
guidance about what is simple.

VI. Past Rulemaking and Enforcement Efforts

    The Commission initiated its last regulatory review of the Negative 
Option Rule in 2009,\26\ following a 2007 FTC workshop and subsequent 
Staff Report.\27\ The Commission completed the review in 2014.\28\ At 
the time, the Commission found the comments supporting the Rule's 
expansion ``argue convincingly that unfair, deceptive, and otherwise 
problematic negative option marketing practices continue to cause 
substantial consumer injury, despite determined enforcement efforts by 
the Commission and other law enforcement agencies.'' \29\ It also noted 
practices not covered by the Rule (e.g., trial

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conversions and continuity plans) accounted for most of its enforcement 
activity in this area. Nevertheless, the Commission declined to expand 
or enhance the Rule, concluding that amendments were not warranted at 
that time because the enforcement tools provided by the TSR and, 
especially, ROSCA, which had only recently become effective, might 
prove adequate to address the problems generated by deceptive or unfair 
negative option marketing. However, the Commission emphasized that, if 
ROSCA and its other enforcement tools failed to adequately protect 
consumers, the Commission would consider whether and how to amend the 
Rule.\30\
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    \26\ 74 FR 22720 (May 14, 2009).
    \27\ See Negative Options, supra note 7, at 26-29.
    \28\ 79 FR 44271 (July 31, 2014).
    \29\ The Commission cited a number of its law enforcement 
actions challenging negative option marketing practices, including, 
for example, FTC v. Process Am., Inc., No. 14-0386-PSG-VBKx (C.D. 
Cal. 2014) (processing of unauthorized charges relating to negative 
option marketing); FTC v. Willms, No 2:11-cv-00828 (W.D. Wash. 2011) 
(internet free trials and continuity plans); FTC v. Moneymaker, No. 
2:11-cv-00461-JCM-RJJ (D. Nev. 2012) (internet trial offers and 
continuity programs); FTC v. Johnson, No. 2:10-cv-02203-RLH-GWF (D. 
Nev. 2010), (internet trial offers); and FTC v. John Beck Amazing 
Profits, LLC, No. 2:09-cv-04719 (C.D. Cal. 2009) (infomercial and 
telemarketing trial offers and continuity programs).
    \30\ 79 FR at 44275-76.
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    Since that review, the problems with negative options have 
persisted. The Commission and states continue to bring cases regularly 
that challenge negative option practices, including more than 30 recent 
FTC cases. These matters involved a range of deceptive or unfair 
practices, including inadequate disclosures for ``free'' offers and 
other products or services, enrollment without consumer consent, and 
inadequate or overly burdensome cancellation and refund procedures.\31\ 
In addition, the Commission continues to receive thousands of 
complaints each year related to negative option marketing. These cases 
and the high volume of ongoing complaints suggests there is prevalent, 
unabated consumer harm in the marketplace.
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    \31\ Examples of these matters include: FTC v. Triangle Media 
Corp., 3:18-cv-01388-LAB-LL (S.D. Cal. 2019); FTC v. Credit Bureau 
Ctr., LLC, No. 17-cv-00194 (N.D. Ill. 2018); FTC v. JDI Dating, 
Ltd., No. 1:14-cv-08400 (N.D. Ill. 2018); FTC, Illinois, and Ohio v. 
One Techs., LP, No. 3:14-cv-05066 (N.D. Cal. 2014); FTC v. Health 
Formulas, LLC, No. 2:14-cv-01649-RFB-GWF (D. Nev. 2016); FTC v. 
Nutraclick LLC, No. 2:16-cv-06819-DMG (C.D. Cal. 2016); FTC v. XXL 
Impressions, No. 1:17-cv-00067-NT (D. Me. 2018); FTC v. AAFE 
Products Corp., No. 3:17-cv-00575 (S.D. Cal. 2017); FTC v. Pact 
Inc., No. 2:17-cv-1429 (W.D. Wash. 2017); FTC v. Tarr, No. 3:17-cv-
02024-LAB-KSC (S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 1:17-cv-
09083 (S.D.N.Y. 2017); FTC v. DOTAuthority.com, Inc., No. 0:16-cv-
62186-WJZ (S.D. Fla. 2018); FTC v. Bunzai Media Group, Inc., No. 
CV15-04527-GW(PLAx) (C.D. Cal. 2018); and FTC v. RevMountain, LLC, 
No. 2:17-cv-02000-APG-GWF (D. Nev. 2018).
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VII. 2019 Advance Notice of Proposed Rulemaking

    Given these continued concerns, the Commission published its 2019 
ANPR seeking comments on the current Rule, as well as possible 
regulatory measures to reduce consumer harm created by deceptive or 
unfair negative option marketing.\32\ Specifically, the Commission 
sought comment on various alternatives, including amendments to 
existing rules to further address disclosures, consumer consent, and 
cancellation. The Commission also requested input on whether and how it 
should use its authority under Section 18 of the FTC Act to expand the 
Negative Option Rule to address prevalent, unfair, or deceptive 
practices involving negative option marketing.\33\ In response, the 
Commission received 17 comments, which we discuss in Section IX.\34\
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    \32\ 84 FR 52393 (Oct. 2, 2019).
    \33\ Section 18 of the FTC Act authorizes the Commission to 
promulgate rules that define with specificity acts or practices in 
or affecting commerce which are unfair or deceptive. 15 U.S.C. 
57a(a)(1)(B). The Commission may issue regulations ``where it has 
reason to believe that the unfair or deceptive acts or practices 
which are the subject of the proposed rulemaking are prevalent.'' 15 
U.S.C. 57a(b)(3). The Commission may make such a prevalence finding 
if it has issued cease and desist orders regarding such acts or 
practices, or any other available information indicates a widespread 
pattern of unfair or deceptive acts or practices. Rules under 
Section 18 ``may include requirements prescribed for the purpose of 
preventing such acts or practices.''
    \34\ The comments, which are at www.regulations.gov, include: 
Association of National Advertisers (ANA) (#0082-0008); Performance-
Driven Marketing Institute (PDMI) (#0082-0018); Retail Energy Supply 
Association (RESA) (#0082-0016); The Association of Magazine Media 
(MPA) (#0082-0019); National Consumers League (NCL) (#0082-0013); 
ACT--The App Association (#0082-0017); Association for Postal 
Commerce (``PostCom'') (#0082-0009); Retail Industry Leaders 
Association (RILA) (#0082-0005); Ralph Oakley (#0082-0004); Chris 
Hoofnagle (#0082-0002); Pennsylvania Office of Attorney General (on 
behalf of The Attorneys General of the States of Colorado, Delaware, 
District of Columbia, Illinois, Iowa, Kentucky, Maine, Maryland, 
Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, 
New York, North Dakota, Oregon, Pennsylvania, Rhode Island, Vermont, 
Virginia, Washington, and Wisconsin) (``State AGs'') (#0082-0012); 
Service Contract Industry Council (SCIC) (#0082-0007); Truth in 
Advertising (TINA) (#0082-0014); Rep. Mark Takano (#0082-0003); 
Digital Media Association (DiMA) (#0082-0015); The Entertainment 
Software Association and Internet Association (ESA) (#0082-0011); 
News Media Alliance (``the Alliance'') (#0082-0006).
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VIII. 2021 Enforcement Policy Statement

    On November 4, 2021, the Commission published an ``Enforcement 
Policy Statement Regarding Negative Option Marketing'' to provide 
guidance regarding its enforcement of various statutes and FTC 
regulations.\35\ The Statement enunciates various principles rooted in 
FTC case law and previous guidance related to the provision of 
information to consumers, consent, and cancellations. Among these 
principles, the Statement emphasized ROSCA's requirement that sellers 
disclose all material terms related to the underlying product or 
service that are necessary to prevent deception, regardless of whether 
that term relates directly to the terms of the negative option 
offer.\36\ In addition, consistent with ROSCA, judicial decisions 
applying Section 5, and cases brought by the Commission, the seller 
should obtain the consumer's acceptance of the negative option feature 
offer separately from any other portion of the entire transaction. 
Finally, regarding cancellation, the Statement explained negative 
option sellers should provide cancellation mechanisms at least as easy 
to use as the method the consumer used to initiate the negative option 
feature.
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    \35\ 86 FR 60822.
    \36\ The Commission recently alleged a negative option seller's 
failure to disclose it was impeding access to its movie subscription 
service violates ROSCA. In the Matter of MoviePass, Inc. No. C-4751 
(Oct. 5, 2021).
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IX. Comments Received in Response to the ANPR

    Commenters generally supported the current FTC Negative Option 
Rule. However, as detailed below, they split on whether the Commission 
should amend the Rule to include new requirements. Some argued existing 
provisions are adequate, and any additional regulations could harm 
businesses and consumers by creating unnecessary, overly prescriptive 
directives that discourage innovation. Others contended that the 
Commission should expand or consolidate existing requirements into a 
single rule applicable to all types of negative option marketing in all 
types of media in order to adequately protect consumers.

A. General Views on Negative Option Marketing

    Benefits: Several commenters emphasized the benefits of negative 
option marketing to both consumers and businesses and warned new 
regulations may limit consumer options.\37\ They discussed the ease and 
simplicity such plans offer consumers by allowing them to avoid time-
consuming and inefficient transactions. The Service Contract Industry 
Council (SCIC) and the News Media Alliance explained such arrangements 
greatly reduce ``the disruption to a consumer's daily life'' by 
allowing them to maintain their service without going through the 
enrollment process ``month after month, or year after year.'' They also 
help customers avoid problems such as breaks in service when they 
forget to renew.
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    \37\ SCIC, ESA, MPA, and RESA.
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    The Entertainment Software Association (ESA), which represents 
video and computer game companies, added subscriptions allow 
``consumers to replenish commodity items (such as personal care 
products), enjoy new

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items or personalized items at designated intervals (such as clothing 
and food), and obtain access to products or services at discounts or 
with members-only benefits (such as entertainment and content 
services).'' The Association of Magazine Media (MPA), an association of 
magazine publishers, noted that current automatic renewal subscriptions 
feature high transparency, offer ease of use, facilitate long-term 
customer relationships, provide a ``frictionless customer service 
experience,'' save costs, and allow consumers to receive continuous 
delivery for as long as they wish. According to MPA, free trials also 
allow consumers to sample magazine titles before committing to a 
subscription purchase.
    Additionally, commenters detailed the benefits such renewals 
provide businesses. MPA stated they help companies avoid the 
substantial costs of processing invoices and checks each month. For 
publishers, automatic renewals reduce costs by eliminating multiple 
notices, forestalling fraudulent mailings, and preventing costly 
interruptions in service. Retail Energy Supply Association (RESA) also 
noted automatic renewal plans are critical in the competitive energy 
supply industry because they promote competition in states with 
restructured energy markets.
    Negative Aspects: However, not all commenters saw inherent benefit 
in the growing negative option market. Commenter Hoofnagle, a law 
professor, cautioned the shift to subscription services has caused 
businesses to become ``laser-focused'' on enrollment and retention at 
the expense of the underlying product or consumer value.\38\ In his 
view, the new focus on subscriptions ``corrupts innovation'' because it 
motivates companies to ``invest in psychological tricks to maintain 
continuous charging'' instead of creating the ``best, most compelling 
products.'' According to Hoofnagle, large, dominant platforms devote 
resources to developing manipulative subscription systems (i.e., ``dark 
patterns'') that induce consumers to sign up for products and services 
they would not otherwise pay for. Hoofnagle asserted that, ultimately, 
subscription maintenance becomes the firm's ``terminal goal.''
---------------------------------------------------------------------------

    \38\ NCL also asserted ``[t]here is abundant evidence that 
consumers are harmed by negative option clauses.''
---------------------------------------------------------------------------

B. Information on Current Practices and Deception in the Market

    Various commenters submitted information about the scope, volume, 
and types of negative option marketing, indicating negative options 
involving free trials, continuity, and auto-renewal programs are 
pervasive and growing in number. Additionally, many commenters asserted 
deceptive negative option practices continue to be prevalent, with some 
describing particular issues with free trials. Finally, commenters 
discussed ongoing state enforcement efforts related to these problems.
    Expansion of Negative Option Marketing: Several commenters 
indicated negative option marketing continues to grow dramatically. For 
instance, according to a 2018 McKinsey & Company study, the 
subscription e-commerce market increased more than 100% over a five-
year period prior to the study's publication.\39\ The largest retailers 
in that market generated $2.6 billion in sales in 2016. A consumer 
survey prepared for the same study showed nearly half of the 
respondents had enrolled in at least one negative option subscription, 
while 35% enrolled in three or more.\40\ PDMI also noted the study 
demonstrates consumers' familiarity with these programs and their 
embrace of ``the benefits such plans provide including convenience, 
lower cost and the ability to try something for free before 
purchasing.'' PDMI suggested the number of such programs has likely 
increased since the study's completion. It also observed that negative 
option sales via mobile devices have increased in recent years, 
including the display of ``shoppable ads'' on most social media 
platforms. However, it cautioned against projecting the results. Given 
rapid changes in technology and advertising models in the digital space 
media, PDMI emphasized the difficulty of predicting ``how consumers may 
choose to purchase goods and services even just a few years from now.'' 
Finally, PDMI explained most negative options appear online, offering a 
wide array of products and services from major brands including ``media 
services, meal preparation kits, shaving and beauty products, beer and 
wine, contacts and ordinary household consumables.''
---------------------------------------------------------------------------

    \39\ See ESA.
    \40\ See Tony Chen, et al., Thinking inside the subscription 
box: New research on e-commerce consumers (Feb. 9, 2018), https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers.
---------------------------------------------------------------------------

    Prevalence of Deceptive Practices Generally: In addition to the 
sheer volume of negative option marketing, commenters identified 
evidence of ongoing, widespread deceptive practices. No commenter 
argued otherwise. TINA, for example, explained negative options are one 
of its top complaint categories. These complaints usually involve 
consumers who unwittingly enroll in programs and then find it difficult 
or impossible to cancel. In addition, NCL cited a 2017 national 
telephone survey commissioned by CreditCards.com finding 35% of U.S. 
consumers have enrolled in at least one automatically renewing contract 
without realizing it. Referring to another survey conducted in 2016, 
TINA noted that unwanted fees associated with trial offers and 
automatically renewing subscriptions ranked as ``the biggest financial 
complaint of consumers.'' \41\
---------------------------------------------------------------------------

    \41\ See Rebecca Lake, Report: Hidden Fees Are #1 Consumer 
Complaint, mybanktracker.com (updated Oct. 16, 2018), https://www.mybanktracker.com/money-tips/money/hidden-fees-consumercomplaint-253387.
---------------------------------------------------------------------------

    The State AGs also detailed specific deceptive or unfair practices 
they see regularly, including the ``lack of informed consumer consent, 
lack of clear and conspicuous disclosures, failure to honor 
cancellation requests and/or refusal to provide refunds to consumers 
who unknowingly enrolled in plans.'' They further explained the nature 
of the underlying products often fails to alert consumers of their 
enrollment in a negative option program. For instance, many offers 
involve credit monitoring or anti-virus computer programs costing less 
than $20 a month and have no tangible presence for consumers. The State 
AGs explained that consumers are often unaware of having ordered these 
products, never use them, and never notice them on their bills. The 
State AGs further explained these transactions often pull consumers 
into a stream of recurring payments by obtaining credit card 
information to ostensibly pay for a small shipping charge. As a result, 
many ``consumers have been billed for such services for years before 
discovering the unauthorized charges.''
    Commenters also noted the ongoing enforcement efforts and 
litigation in recent years involving negative option marketing. In 
addition to FTC cases, TINA stated that more than 100 federal class 
actions involving various negative option terms and conditions have 
been filed since 2014. Notwithstanding these actions, according to 
TINA, ``the incidence of deceptive negative option offers continues to 
rise.'' Citing the increase in consumer complaints and consumer harm in 
recent years, Representative Takano stated, ``deceptive online 
marketing and

[[Page 24721]]

unclear recurring payment plans are leaving too many consumers on the 
hook for products they may not want or even know they purchased.'' \42\
---------------------------------------------------------------------------

    \42\ Congressman Mark Takano represents California's 41st 
District in the United States House of Representatives.
---------------------------------------------------------------------------

    In addition to inadequate disclosures and consent procedures, 
commenters stated some businesses continue to thwart consumers' efforts 
to cancel recurring payments. NCL cited the 2017 CreditCards.com survey 
finding nearly half of all respondents (42%) complained about ``the 
level of difficulty companies have created for the contract/service 
cancellation process.'' \43\ Further, consistent with the Commission's 
enforcement history, the State AGs explained many harmful unfair or 
deceptive practices involve the failure to provide ``consumers with a 
simple cancellation method.'' NCL added some companies hide behind 
complex procedures ``to prevent cancellation while others surprise 
consumers with price increases or contract renewals.'' The State AGs 
stated the sellers often deny consumers refunds and force them ``to pay 
to return the unordered goods.'' Finally, Hoofnagle concluded 
businesses make cancellation difficult in order to raise consumer 
transaction costs and deter them from ending the contract. ``To put 
this in another perspective,'' he wrote, ``companies would never put 
such transaction costs in the way of a purchase option.'' Noting 
numerous complaints from consumers stymied in their efforts ``through 
long telephone hold times and otherwise,'' the State AGs also explained 
that current practices often require consumers to cancel using a 
different method than the one used to sign up for the program. Further, 
they often force consumers to listen to multiple upsells before 
allowing cancellation.
---------------------------------------------------------------------------

    \43\ Brady Porche, Poll: Recurring charges are easy to start, 
hard to get out of, Creditcards.com (Aug. 22, 2017), https://www.creditcards.com/credit-card-news/autopay-poll.php.
---------------------------------------------------------------------------

    Specific Problems with Free Trials: Several commenters noted 
particular problems with free trials or trial conversions. According to 
the State AGs, advertisements for free-to-pay conversion offers often 
lure consumers by promising a ``free'' benefit while failing to clearly 
and conspicuously disclose future payment obligations. These offers 
sometimes include information to distract consumers from reading the 
actual purchase terms. The State AGs report these deceptive practices 
are ``rampant online and throughout social media.'' These agencies 
further state, ``trial conversions are rife with the potential for 
abuse and deception,'' as companies induce consumers with offers that 
imply no obligation.
    Despite current requirements such as ROSCA, the State AGs observed 
sellers still often fail to clearly and conspicuously disclose 
recurring payment obligations incurred by consumers who sign up for 
these trials. In addition, to gain access to consumer accounts, sellers 
often charge a small shipping fee for the ``free trial'' and obtain 
credit card information in the process. Consumers confronting these 
sellers often face fees to return the unordered goods and have 
difficulty obtaining refunds and cancelling their subscriptions.
    Additionally, as commenters correctly noted, FTC complaint data 
indicates substantial problems with free trial marketing. According to 
NCL and TINA, a Better Business Bureau study of FTC data titled 
``Subscription Traps and Deceptive Free Trials Scam Millions with 
Misleading Ads and Fake Celebrity Endorsements'' demonstrated 
complaints about free trials doubled between 2015 and 2017, with 
complaints during the period reaching nearly 37,000 and losses totaling 
more than $15 million. The BBB study, which the State AGs also cited, 
shows losses in FTC ``free trial offer'' cases exceeded $1.3 billion 
(over the ten years covered by the study). NCL stated that, according 
to the BBB, the average consumer loss for a free trial is $186.\44\
---------------------------------------------------------------------------

    \44\ Steve Baker, Subscription traps and deceptive free trials 
scam millions with misleading ads and fake celebrity endorsements, 
Better Business Bureau (Dec. 2018), https://www.bbb.org/globalassets/local-bbbs/council-113/media/bbb-study-free-trial-offers-and-subscription-traps.pdf.
---------------------------------------------------------------------------

    Other studies reveal similar trends. TINA noted the FBI's internet 
Crime Complaint Center recorded a rise in complaints about free trial 
offers, growing from 1,738 in 2015 to 2,486 in 2017, with losses 
totaling more than $15 million. Similarly, a 2019 Bankrate.com survey 
cited by NCL found that 59% of consumers have signed up for ``free 
trials'' that automatically converted into a recurring payment 
obligation ``against their will.'' In NCL's view, these data point to 
``a troubling, and costly problem for American consumers.''
    Ongoing Law Enforcement Efforts: The State AGs detailed dozens of 
enforcement actions taken in recent years to address the proliferation 
of deceptive negative option claims. According to these agencies, their 
actions ``demonstrate that problems persist in this area and that 
additional regulatory action is needed.'' For example, over the last 
decade, New York alone has reached 23 negative option settlements 
involving a variety of products and services such as membership 
programs, credit monitoring, dietary supplements, and apparel. These 
cases have garnered over $10 million in consumer restitution and $14 
million in penalties, costs, and fees. The State AGs also described 
several of the larger settlements reached through multistate 
investigations, as well as from individual states, involving negative 
option offers for products and services such as satellite radio, social 
networking services, language learning programs, security monitoring, 
and dietary supplements. They also recounted representative stories of 
consumers who ordered what they thought were free, no-obligation 
samples but found themselves enrolled in costly programs. The 
Commission's recent cases in this area address many, if not all, of the 
same concerns.

C. Opposition to New Requirements

    No commenter opposed the existing Rule, which applies only to 
prenotification plans. ANA, for example, noted it provides consumers 
with transparency regarding material terms of marketed advance consent 
plans and choices regarding which products or services they want to 
receive. The Rule also provides ``businesses flexibility to engage in 
marketing that benefits consumers.'' In addition, ANA stated it enables 
consumers to purchase goods and services over time and gain exposure to 
``new, exciting, and useful products and services to which they likely 
would not have been exposed in the absence of advanced consent 
arrangements.''
    Industry members generally opposed any new regulatory provisions 
for negative option marketing, arguing existing laws are adequate.\45\ 
According to these commenters, current requirements provide adequate 
consumer protections, and enforcement agencies possess ample tools to 
address deceptive practices. The current framework furnishes, in MPA's 
words, ``a sweeping landscape of federal and state laws that govern 
such programs, including ROSCA, the TSR, EFTA, and the [Unordered 
Merchandise Statute].'' SCIC added that new credit card rules from 
MasterCard and Visa contain compliance requirements for auto renewal 
programs and thus augment the existing regulatory framework. As ESA 
explained, existing laws ``are thorough and allow businesses the 
flexibility to craft messages and operational

[[Page 24722]]

procedures'' based on their customers, the message's medium, available 
technologies for consent, and cost-effective cancellation methods. In 
ANA's view, since ``violations of the various standards are heavily 
enforced,'' additional requirements would fail to ``prevent bad and 
dishonest actors from behaving unfairly or deceptively in the 
marketplace.'' Finally, some commenters suggested the number of actions 
the FTC has brought in recent years demonstrates the agency already has 
adequate law enforcement tools to combat deceptive negative option 
marketing.\46\
---------------------------------------------------------------------------

    \45\ See ANA, RESA, MPA, PostCom, RI, SCIC, DiMA, ESA, and the 
Alliance.
    \46\ See ESA, ANA, MPA.
---------------------------------------------------------------------------

    Industry members also cautioned that new regulations might diminish 
the benefits provided by negative option offers and hamper 
innovation.\47\ For example, ESA argued current law enforcement 
requirements adequately address ``deceptive or abusive negative option 
practices'' without overly burdensome new regulation. Others, like DIMA 
and MPA, warned new regulations using a restrictive ``one-size-fits-all 
model'' would ultimately harm consumers because, for example, they 
would restrict marketers' ability to tailor their offers to consumers' 
wishes. MPA also noted an expanded Rule might over-burden legitimate 
businesses to consumers' detriment while failing to halt specific 
problems already subject to existing federal statutes, FTC rules, and 
state laws.\48\
---------------------------------------------------------------------------

    \47\ Two commenters specifically argued any new rule should 
avoid creating duplicative requirements for their members. First, 
SCIE, which represents service contract companies, argued State 
agencies typically regulate their members, and any new FTC rule 
should avoid any duplicative or potentially conflicting 
requirements. Similarly, the App Association urged the Commission to 
consider ``excluding software apps and digital platforms'' from 
expanded requirements ``until there is an adequate evidence base 
demonstrating that its extension to the app economy is appropriate, 
as part of its scaled, flexible approach to implementing ROSCA.''
    \48\ See also ANA.
---------------------------------------------------------------------------

    These commenters also cautioned against adding regulations absent 
sufficient information about problematic practices. Specifically, the 
Alliance recommended the FTC refrain from imposing new requirements 
without ``clear evidence of a significant problem justifying such 
measures.'' Similarly, ANA asked FTC to identify a ``clear record'' of 
perceived harms so that businesses can provide meaningful comments and 
clearly identify any gaps in the regulations.

D. Concerns About Existing State Requirements

    Many industry commenters also stated a growing number of state laws 
address many forms of negative option marketing. According to PDMI, for 
example, there are currently at least 18 state laws, and many more are 
sure to follow.\49\ Notable among these is California's negative option 
statute, which addresses disclosures, consent, and accessible and cost-
effective cancellation. Virginia has a similar law that provides civil 
penalties of $5,000 per violation, as well as a private right of 
action. ESA complained many of these state laws ``have imposed unique 
and inconsistent requirements'' on marketers. PDMI noted, for instance, 
Florida, Hawaii, and New Mexico laws reference inconsistent renewal 
periods (six, one, and two months, respectively). Other states have 
differing requirements for notifications prior to the renewal period 
(e.g., Florida (30-60 days); New York (15-30 days); North Carolina (15 
to 45 days)).\50\
---------------------------------------------------------------------------

    \49\ See, ANA, ESA, PDMI, SCIC, MPA, TINA. Examples of State 
laws include: California (Cal. Bus. & Prof. Code secs. 17600-17606), 
Vermont (9 V.S.A. sec. 2454a); District of Columbia (D.C. Code secs. 
28A-201 to 28A-204); Florida (Fla. Stat 501.165); Hawaii (Haw. Rev. 
Stat. sec. 481-9.5); North Carolina (N.C. Gen. Stat. sec. 75-41); 
and New York (N.Y. Gen. Oblig. Law sec. 5-903(2)).
    \50\ RESA also asked the Commission to exclude from its rule any 
activities ``already regulated by state public service commissions'' 
such as competitive retail electricity and natural gas suppliers. 
ACIC explained that many of these state laws exempt contracts that 
renew for a period of a month or less and instead focus on longer 
term renewing contracts. Additionally, many states have elected to 
exempt contracts that consumers may cancel at any time with a pro 
rata refund required to be provided to the consumer upon 
cancellation.
---------------------------------------------------------------------------

    Several industry commenters emphasized these inconsistent state 
requirements create problems. PDMI, for example, explained they impose 
``a considerable burden on companies that utilize negative option 
marketing, particularly small businesses.'' The lack of uniformity 
requires some companies to create ``multiple different order pathways 
and disclosures'' for consumers in different states. For example, many 
marketers must fashion a single ``order experience'' and set of 
disclosures that comply with the most restrictive law. According to 
PDMI, the continued proliferation of differing state requirements has 
made an onerous and burdensome compliance process even worse. For 
example, while California's automatic renewal law appears most 
burdensome to many, Vermont's recent statute is more restrictive in 
certain aspects (e.g., consent requires consumers to check a box). In 
addition, the District of Columbia now requires a seller to obtain 
separate affirmative consent before a free trial converts to a paid 
subscription. PDMI explained compliance issues could lead to contract 
voidance and potential exposure in class action litigation.
    PDMI argued these various state laws have not helped consumers. Its 
members' anecdotal observations suggest little difference in results, 
such as cancellation rates, between states with differing degrees of 
restrictive requirements. In its view, these observations may indicate 
consumers have become generally familiar with negative option programs. 
At the same time, it contended the more restrictive state laws have 
imposed significant compliance costs while offering little actual 
consumer benefit. Thus, PDMI believes consumers and businesses would 
benefit from a single FTC Rule that preempts state regulation in this 
area. ESA agreed, explaining that if ``FTC regulations in the negative 
option space could have a preemptive effect,'' it would be interested 
in ``exploring a uniform regime that allows for growth and flexibility 
in the industry, much as the current framework permits.''
    In contrast, MPA argued that an expanded FTC Rule would layer on 
top of the existing ``patchwork'' and fail to provide a consistent 
legal framework for industry and consumers. In its view, ``publishers 
should be afforded the flexibility to tailor their subscription offers 
to their readers within the bounds of existing laws.''
    Finally, TINA argued the proliferation of state requirements, as 
well as MasterCard and Visa's new rules, reflect ``an attempt to fill 
the gap in federal enforcement.'' \51\ According to TINA, the resulting 
collection of state rules and credit card policies leaves consumers 
with different levels of protection depending on where they live or 
what credit card they use. Thus, in TINA's opinion, ``the uniform 
protection'' an updated FTC Rule ``can offer is much needed.''
---------------------------------------------------------------------------

    \51\ See, e.g., MasterCard, ``Transaction Processing Rules,'' at 
https://www.mastercard.us/content/dam/public/mastercardcom/na/global-site/documents/transaction-processing-rules.pdf.
---------------------------------------------------------------------------

E. Need for Additional Consumer Education

    Several commenters suggested the Commission focus on improving 
existing consumer education efforts.\52\ ESA recommended updated 
industry guidance and additional consumer education in lieu of issuing 
new regulatory requirements. However, other commenters argued the 
Commission should not rely on consumer education alone. Hoofnagle, for 
example, described consumer and business education as ``an 
uneconomical'' tool for addressing problems associated with

[[Page 24723]]

negative options. He explained that such education must compete ``with 
hundreds of'' other consumer priorities, from ``organic food labeling 
to energy efficiency ratings,'' and creates direct and indirect costs, 
including consumer time, potential consumer confusion, and even 
misapprehension. The State AGs, who supported education initiatives, 
similarly warned, ``such efforts will likely reach only a small 
fraction of the consuming public.'' Thus, they recommended the 
Commission use its authority to issue ``clear-cut rules'' to help 
companies avoid deceptive marketing practices that ``have caused, and 
continue to cause, substantial consumer harm.''
---------------------------------------------------------------------------

    \52\ See DiMA, ESA.
---------------------------------------------------------------------------

F. Limitations of Existing Requirements

    Several commenters discussed the limitations of existing 
requirements. For example, the State AGs discussed ROSCA's 
shortcomings, arguing while the statute has helped combat abuses over 
the internet, it ``lacks specificity as to how informed consent should 
be obtained or how clear and conspicuous disclosures should be made.'' 
They also noted ROSCA does not provide ``any concrete, bright line 
requirements that allow enforcement agencies to readily identify 
violations.'' Given existing limitations, the State AGs concluded new 
regulatory provisions are necessary to establish specific, clear rules 
to help businesses' compliance efforts and to allow states to easily 
identify nonconforming practices. TINA also asserted ROSCA and FTC 
requirements lack needed specificity regarding cancellation 
requirements, noting ROSCA only directs marketers to provide ``simple 
mechanisms for a consumer to stop recurring charges.'' In contrast, 
PDMI said the concept of simple cancellation is well understood by 
sellers in the marketplace.

G. Support for New Regulations

    Several commenters supported additional FTC regulations to address 
negative option marketing.\53\ The State AGs, for example, strongly 
urged the Commission to expand the existing Rule or issue new 
regulations ``to combat deceptive and unfair marketing . . . in all 
forms of negative option marketing, with additional provisions to 
address issues that arise with respect to trial conversion offers.'' 
Similarly, commenter Oakley recommended ``very strong regulations to 
stop companies from signing people up for unwanted products/services.'' 
PDMI, an industry group, favored amending the Rule to broaden its 
``scope to apply to all forms of negative option marketing.'' In its 
view, such a rule ``would provide greater protection to consumers, 
would enhance business compliance and would lower overall compliance 
costs.'' PDMI also opined that ``consumers and business would benefit 
from federal preemption of state law regulation in this area.'' 
Representative Takano concluded, ``it is time we update the tools and 
policies designed to ensure companies no longer profiteer through these 
deceptive practices.'' TINA added the Rule needs updates to ensure both 
consumers and businesses obtain the full benefits of negative options. 
It further argued the current requirements leave consumers vulnerable 
and provide incentives for businesses to ``silently hope consumers 
forget about them.'' It predicted that, without changes to the Rule, 
the trend of deceptive trial offers and subscriptions will continue to 
grow. In TINA's opinion, updates would ``be minimally burdensome to 
companies'' because they would merely require businesses to be 
``forthcoming and straightforward'' with their customers.
---------------------------------------------------------------------------

    \53\ NCL, Oakley, TINA, State AGs, PDMI, Takano, and Hoofnagle.
---------------------------------------------------------------------------

    Scope: Commenters supporting new provisions generally recommended 
the Commission expand the Rule's existing regulatory scope to cover all 
negative option marketing methods in all media, and consolidate 
requirements.\54\ The State AGs identified unfair or deceptive 
practices, such as those associated with free trials, which occur in 
the marketplace but are not covered by the current Negative Option 
Rule. They also suggested free-to-pay solicitations deserve closer 
scrutiny than other negative option features due to the longstanding 
evidence of deceptive tactics, prevalence of consumer complaints about 
unauthorized charges, and consumer risks associated with these offers.
---------------------------------------------------------------------------

    \54\ See, e.g., State AGs, PDMI, and TINA.
---------------------------------------------------------------------------

    PDMI agreed a consolidated Negative Option Rule would provide a 
significant benefit. It explained having requirements in ``five 
different places'' imposes burdens on both consumers and businesses and 
heightens the risk of inadvertent non-compliance. Scattered 
requirements also create a ``trap for the unwary for businesses who do 
not realize that they must ferret out'' applicable mandates across ``a 
wide swath of the federal regulatory landscape.'' According to PDMI, 
consolidation of negative option marketing into a single rule would 
minimize burdens on marketers, reduce consumer confusion, and enhance 
compliance. Therefore, PDMI recommended the FTC revise its Rule to 
include all negative option types and to include ROSCA's three core 
provisions regarding notice, consent, and cancellation. In its view, 
``this would provide a solid foundation for protecting consumers and 
providing businesses with one uniform set of requirements that can be 
easily and consistently implemented across all channels and markets.''
    Need for Flexibility: Several commenters urged the Commission to 
employ a flexible approach that accounts for technological changes. 
They cautioned overly prescriptive rules would jeopardize the consumer 
benefits of negative options and harm the businesses that provide 
them.\55\ MPA, for example, stated the FTC should not micromanage 
``lawful business conduct'' because such an approach would neither 
enhance business compliance nor benefit consumers. Several commenters 
raised concerns about overly prescriptive regulatory requirements 
because a ``one size fits all'' approach reduces flexibility and 
hampers innovation. For example, according to ESA, new regulations 
would likely create standardization that ``is unworkable across all 
industries, media, and technology.'' It added an effort to account for 
all the various iterations of a subscription offer or sales medium 
would be impractical or unreasonable. Finally, SCIC noted that FTC 
staff has emphasized the need for marketers to be ``free to use their 
many tools of creativity to figure out the best way to convey that 
information.''
---------------------------------------------------------------------------

    \55\ See, e.g., App Association, ESA, and ANA.
---------------------------------------------------------------------------

    According to PDMI, rules ``need to be sufficiently fluid to permit 
marketers to adapt their offerings'' to current and future media 
channels. It explained that market changes occur too quickly for any 
Commission rule to stay apace. Therefore, PDMI strongly urged the 
Commission to follow its historical ``performance'' standard approach 
and ``avoid dictating precisely how disclosure must be made, consent 
must be obtained, or cancellation methods must be implemented.'' For 
instance, it recommended leaving terms such as ``clear and 
conspicuous'' and ``express informed'' consent undefined to ``preserve 
flexibility in the face of rapidly changing technology'' and ensure 
meeting the FTC's goals without rigid restrictions.
    Important Information: Beyond the need for flexibility, the 
commenters provided specific disclosure recommendations. NCL, for 
example, suggested the Rule require businesses ``to clearly and 
conspicuously disclose their renewal terms prior to the entry of

[[Page 24724]]

payment information.'' It also recommended the Commission incorporate 
the ``clear and conspicuous'' definition from both California's and the 
District of Columbia's automatic renewal statutes. In NCL's view, these 
disclosures should specifically include cancellation instructions and 
deadlines, renewal dates, contract length, amendment notifications, 
renewal costs, contract changes at renewal, and business contact 
information. Hoofnagle asserted sellers also should provide a total 
cost disclosure so consumers understand what they will be paying each 
year, as opposed to monthly.
    NCL also argued the Rule should require marketers to send 
notifications electronically, and, for contracts of six months or more, 
by postal mail, with links, phone numbers, and prepaid postcards 
appropriate to the medium. The State AGs urged the Commission to 
require important disclosures (e.g., billing information and requests 
for acceptance) on a separate page free of ``any other information that 
may serve as a distraction.''
    Consent: Commenters offered a variety of suggestions regarding 
possible consent requirements. The State AGs recommended requiring 
``consumers to take a separate, affirmative action'' to consent to 
negative option features, such as ``clicking an `I Agree' button to 
accept the trial product'' accompanied by disclosures about the ``terms 
of the offer, including the amount and frequency of payments.'' The 
State AGs and TINA recommended requirements directing businesses to 
obtain consent after the trial period expires. TINA noted the District 
of Columbia now requires companies offering free trials of a month or 
more to notify consumers between one and seven days before the 
expiration of the free trial and obtain affirmative consent to the 
renewal prior to charging consumers.
    As described above, the App Association suggested the Commission 
provide flexibility in any new regulations, but particularly those 
involving consent. It advocated for a ``flexible and outcome-driven 
regulatory environment'' that would allow small businesses to create 
``the best way for their company to implement this specific 
requirement'' and ``encourage new innovative approaches in consumer 
transparency.'' Given the likelihood of future technological changes 
(e.g., faster devices that consumers will want to use quickly), the App 
Association suggested any new FTC provisions include ``flexible yet 
stable requirements that protect the consumer's right to choose but at 
the same time do not stifle innovation.''
    Cancellation: Several commenters provided specific recommendations 
for new cancellation rules, including, for example, that the FTC 
require businesses to provide a cancellation mechanism that mirrors the 
customer's method of enrollment.\56\ TINA explained consumers should be 
able to cancel their negative options in ``an easy and specific 
manner'' using procedures that are ``at least as easy as the 
subscription process.'' In its view, at a minimum, if a consumer 
subscribed online, they should be able to cancel online. The lack of 
such specific requirements leaves consumers vulnerable to a company's 
interpretation of what ``simple'' might mean under ROSCA. It also urged 
the Commission to consider Visa's new rules requiring businesses to 
provide an ``easy way to cancel the subscription'' online, similar to 
unsubscribing from an email distribution list. TINA additionally noted 
California's new rule mandating an easy-to-use cancellation mechanism 
online, such as a termination email. The State AGs similarly 
recommended the FTC require ``that consumers be allowed to cancel their 
memberships by the same method as their enrollment (as well as by other 
methods, at the business's option).'' The App Association, however, 
urged flexibility in any new cancellation requirements and cautioned 
against ``overly-prescriptive approaches.'' Instead, it recommended FTC 
allow ``marketers to decide how to implement their own notification 
system to stop reoccurring charges,'' and to efficiently scale 
approaches based on consumer expectations and needs.
---------------------------------------------------------------------------

    \56\ Takona and TINA.
---------------------------------------------------------------------------

    Hoofnagle, who discussed the negative impacts of abusive 
cancellation procedures, suggested the Commission prohibit certain 
specific ``transaction costs'' imposed on some consumers. Such 
practices include requiring users to repeatedly request cancelling, to 
sign in with additional security (e.g., requiring a CAPTCHA 
completion), to accept third-party scripting, and to re-enter 
information such as a credit card number. Hoofnagle agreed with other 
commenters that ``cancellation should never be more transactionally 
burdensome than enrollment'' and there should be ``symmetry between 
purchase and cancel.'' He also recommended the FTC consider a ``one-
time `no' rule'' to require marketers to accept a consumer's first 
``cancel'' request and end the transaction without trying to convince 
the consumer to change their minds or pitching further offers.
    Material Changes: Commenters also recommended requirements to 
address material changes to contract conditions after the consumer 
enrolls, including changes to price, service, goods, and other material 
terms. According to TINA, for example, the FTC should require 
businesses to notify consumers of such changes and provide them an 
opportunity to cancel before the terms take effect. TINA stated current 
FTC requirements, as well as ROSCA, do not address ``instances in which 
the terms may change.'' Several states, including Virginia, California, 
and Oregon, require businesses to provide consumers with a clear and 
conspicuous notice of the material change as well as information about 
how to cancel ``in a manner that is capable of being retained by the 
consumer.'' \57\
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    \57\ TINA also noted that a bill introduced into the House in 
2019, the Unsubscribe Act (H.R. 2683), contains similar 
requirements. See also Takano, NCL, and Hoofnagle. For free trials, 
NCL argued the Rule should require marketers to obtain express 
consent before increasing the price of service for an established 
customer.
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    Reminders: Commenters also recommended requiring businesses to 
provide additional reminders as part of their negative option 
offerings.'' \58\ For example, TINA supported imposing a notice 
requirement prior to subscription expiration containing cancellation 
instructions similar to VISA's new rules. Those rules require an 
electronic reminder, sent to consumers a week before the trial period 
expires, with a link to an online cancellation page. TINA also argued 
for regular, ongoing notice of the agreement terms along with 
cancellation instructions. In its view, ``such a requirement is 
important to protect consumers from paying for products or services 
they do not want or need.'' According to Representative Takano, such 
reminders ``will help decrypt the complex nature of negative option 
agreements'' and ensure businesses cannot continue to charge consumers 
who intended to make only a single purchase.
---------------------------------------------------------------------------

    \58\ TINA, Takano, and State AGs.
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    The State AGs agreed, explaining periodic disclosures ensure 
consumers are aware of recurring charges and ``help prevent the 
continuation of unknowing or unwanted enrollment in these plans.'' They 
recommended notifications at regular intervals for month-to-month 
plans, with appropriately worded subject lines (e.g., ``Important 
Billing Information''), coupled with a convenient cancellation method. 
For services that renew annually, the State AGs contended that, before 
charging for renewal, companies should notify consumers within a 
specified period

[[Page 24725]]

about the timing, amount, and billing method along with convenient 
cancellation procedures. Finally, both the State AGs and Hoofnagle 
suggested the FTC consider whether periods of consumer inactivity 
(e.g., 24 months) for a subscribed service should trigger 
notifications.
    Miscellaneous Recommendations: The commenters provided several 
other recommendations for new requirements, including provisions 
involving refunds, consumer contact information, deletion of consumer 
data, and amendments to the TSR. First, the State AGs proposed 
requiring businesses to provide full refunds to consumers ``unwittingly 
enrolled in a negative option plan.'' Second, they suggested the Rule 
require businesses to obtain a consumer's email address at the initial 
consent and send a confirmatory email describing the service or 
product, the amount and timing of any payments, the payment collection 
method, and a toll-free cancellation number. For offers involving 
goods, the State AGs stated businesses should include an invoice in 
every shipment containing the seller's name and address, the negative 
option program terms, return instructions, and a toll-free phone number 
or email address for cancellation. Third, Hoofnagle asserted a rule 
should require consumer data deletion after ``a reasonable amount of 
time'' to provide customers with a ``true exit'' from the transaction. 
Fourth, the State AGs urged the Commission to amend and expand the 
TSR's negative option provisions to require sellers to record entire 
customer transactions and retain such recordings for a specified 
period. In addition, they recommended the TSR require marketers to 
provide full refunds in response to complaints unless the company can 
provide a phone call recording ``establishing the consumer's 
affirmative consent.''
    Banning Certain Enrollment Methods: The State AGs suggested the 
Commission limit, or prohibit, certain types of negative option 
marketing that are, in their opinion, ``inherently unreliable.'' First, 
they suggested a ban on ``free-to-pay conversion programs'' (e.g., free 
trial magazine subscriptions) to consumers at retail checkout in brick-
and-mortar stores. According to the State AGs, cashiers fail to 
disclose the material terms and conditions of these offers, including 
the fact that consumers will receive a monthly bill after the trial 
ends. Retailers use the consumer's signature authorizing the entire 
purchase (e.g., groceries, etc.) as consent for the negative option 
program, and then rely on ``inconspicuous'' terms on the sale receipt 
as evidence of consent. The State AGs identified this practice as an 
``inherently unreliable means of obtaining consumers' informed consent 
and should be prohibited.''
    Second, the State AGs urged the Commission to ban the use of 
consumers' check endorsements to obtain consent to be periodically 
billed for goods or services. They asserted this practice has led to 
widespread fraud. Specifically, some businesses send consumers checks 
for small dollar amounts that appear to come from a familiar company. 
Small print disclosures near the endorsement line on the reverse of the 
check indicate that, by cashing the check, consumers are enrolling in a 
recurring payment program. According to the State AGs, this practice, 
which has generated many complaints, ``is inherently unreliable and 
should be prohibited'' because consumers do not scrutinize the small 
print on the back of these checks and thus have no reason to expect 
their signature is consent for a recurring payment program.
    Finally, the State AGs argued, without further explanation, the FTC 
Rule should either ban or place restrictions on ``upsell offers that 
the consumer must respond to before being able to cancel.''

X. Prevalence of Deceptive or Unfair Practices Involving Negative 
Option Marketing and the Need for the Proposed Amendments

    Consistent with the Commission's past conclusions, the recent 
comments confirm that deceptive practices involving negative option 
marketing remain prevalent and that additional requirements are needed 
to protect consumers. In 2014, the Commission found ``that unfair, 
deceptive, and otherwise problematic negative option marketing 
practices continue[d] to cause substantial consumer injury, despite 
determined enforcement efforts by the Commission and other law 
enforcement agencies.'' \59\ The evidence since indicates matters have 
not improved, and, in fact, may be worse. As detailed in Section IX, 
the commenters provided substantial evidence--in the form of complaint 
data, studies, survey results, and law enforcement actions--
demonstrating deceptive negative option marketing practices remain 
prevalent. The FTC, the states, and consumer organizations continue to 
receive thousands of complaints from consumers who unwittingly enrolled 
in programs and then find it difficult or impossible to cancel. 
Additionally, studies cited by commenters confirm a pattern of consumer 
ensnarement in unwanted recurring payments. Commenters also highlighted 
the many recent federal and state enforcement actions related to 
negative options, as well as nearly 100 class action cases filed in the 
last six years.
---------------------------------------------------------------------------

    \59\ 79 FR 44271, 44275 (July 31, 2014).
---------------------------------------------------------------------------

    The Commission and the states continue to regularly bring cases 
challenging negative option practices. These matters involve a range of 
deceptive or unfair practices, including inadequate information 
regarding free trials and other products or programs, enrollment 
without consumer consent, and inadequate or overly burdensome 
cancellation and refund procedures.\60\ The existence of these cases 
and complaints demonstrates that some commenters' contention that all 
the problems are being addressed is simply not true. In fact, given the 
considerable limitations of FTC and state enforcement resources, these 
law enforcement actions likely represent only the tip of the iceberg--a 
conclusion corroborated by the complaint and survey evidence in the 
record.
---------------------------------------------------------------------------

    \60\ Examples of these matters include: FTC v. Triangle Media 
Corp., No. 3:18-cv-01388-LAB-LL (S.D. Cal. 2019); FTC v. Credit 
Bureau Ctr., LLC, No. 17-cv-00194 (N.D. Ill. 2018); FTC v. JDI 
Dating, Ltd., No. 1:14-cv-08400 (N.D. Ill. 2018); FTC v. One Techs., 
LP, No. 3:14-cv-05066 (N.D. Cal. 2014); FTC v. Health Formulas, LLC, 
No. 2:14-cv-01649-RFB-GWF (D. Nev. 2016); FTC v. Nutraclick LLC, No. 
2:16-cv-06819-DMG (C.D. Cal. 2016); FTC v. XXL Impressions, No. 
1:17-cv-00067-NT (D. Me. 2018); FTC v. AAFE Products Corp., No. 
3:17-cv-00575 (S.D. Cal. 2017); FTC v. Pact Inc., No. 2:17-cv-1429 
(W.D. Wash. 2017); FTC v. Tarr, No. 3:17-cv-02024-LAB-KSC (S.D. Cal. 
2017); FTC v. AdoreMe, Inc., No. 1:17-cv-09083 (S.D.N.Y. 2017); FTC 
v. DOTAuthority.com, Inc., No. 0:16-cv-62186-WJZ (S.D. Fla. 2018); 
FTC v. Bunzai Media Group, Inc., No. CV15-04527-GW(PLAx) (C.D. Cal. 
2018); and FTC v. RevMountain, LLC, No. 2:17-cv-02000-APG-GWF (D. 
Nev. 2018).
---------------------------------------------------------------------------

    In the ANPR, the Commission explained it receives thousands of 
complaints a year related to negative option marketing. In addition, 
State AGs and other commenters detailed ongoing problems with 
inadequate disclosures, the failure to obtain consent, poor or 
nonexistent cancellation procedures, and the refusal to honor 
cancellation requests and refund demands. They further explained 
deceptive free trial offers are ``rampant online and throughout social 
media,'' and often lure consumers into recurring payments without 
clearly and conspicuously disclosing future payment obligations.\61\ 
The evidence offered by commenters also demonstrates many sellers do 
not provide consumers with simple cancellation methods and, instead, 
create obstacles, such as long telephone hold times or multiple 
upsells, to impede consumers from terminating

[[Page 24726]]

their contracts. These practices are further reflected in the 
Commission's recent cases.\62\
---------------------------------------------------------------------------

    \61\ State AGs.
    \62\ See, e.g., FTC v. Triangle Media Corp., No. 3:18-cv-01388-
LAB-LL (S.D. Cal. 2019); FTC v. AdoreMe, Inc., No. 1:17-cv-09083 
(S.D.N.Y. 2017); and FTC v. One Techs., LP, No. 3:14-cv-05066 (N.D. 
Cal. 2014).
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XI. Proposed Amendments--Objectives and Content

    To address these ongoing problems, the Commission proposes to amend 
the current Negative Option Rule with the objective of setting clear, 
enforceable performance-based requirements for all negative option 
features in all media. The proposed amendments are designed to ensure 
consumers understand what they are purchasing and allow them to cancel 
their participation without undue burden or complication. As discussed 
below, the proposed Rule (retitled ``Rule Concerning Recurring 
Subscriptions and Other Negative Option Plans'') addresses the most 
important issues related to negative option marketing, including 
misrepresentations, disclosures, consent, and cancellation. These 
proposed changes, which replace existing provisions in the Rule, 
enhance and clarify existing requirements currently dispersed in other 
rules and statutes. They also consolidate all requirements, such as 
those in the TSR, specifically applicable to negative option marketing. 
Further, the proposed Rule would allow the Commission to seek civil 
penalties and consumer redress in contexts where such remedies are 
currently unavailable, such as deceptive or unfair practices involving 
negative options in traditional print materials and face-to-face 
transactions (i.e., in media not covered by ROSCA or the TSR) and 
misrepresentations (which are not expressly covered by ROSCA, even when 
on the internet).
    In developing this proposal, and consistent with concerns raised in 
the comments, the Commission sought to enhance consumer protections 
while avoiding detailed, prescriptive requirements that would impede 
innovation. By generally proposing flexible standards, the Commission 
seeks to establish rules that will not impede advances or become 
irrelevant as the market changes, while protecting consumers from 
widespread deceptive or unfair practices.
    Coverage: The Commission proposes eliminating the current Rule's 
prescriptive requirements applicable to prenotification plans and 
replacing them with the flexible, but enforceable, standards detailed 
below. The proposed requirements would apply to all forms of negative 
option marketing, including prenotification and continuity plans, 
automatic renewals, and free trial offers.\63\ This expanded coverage 
would establish a common set of requirements applicable to all types of 
negative option marketing.
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    \63\ The proposed Rule would apply to ``negative option 
sellers,'' which are defined in the proposal as persons selling, 
offering, promoting, charging for, or otherwise marketing a negative 
option feature. With certain exceptions, the FTC Act provides the 
agency with jurisdiction over nearly every economic sector. Certain 
entities or activities are wholly or partially exempt from FTC 
jurisdiction under the FTC Act, including most depository 
institutions, non-profits, transportation and communications common 
carriage, and the business of insurance. For instance, under 
Sections 4 and 5 of the FTC Act, the Commission's jurisdiction does 
not apply to non-profit organizations generally, but it does extend 
to non-profits that provide economic benefits to their for-profit 
members, e.g., trade and professional associations. See California 
Dental Ass'n v. FTC, 526 U.S. 756 (1999).
---------------------------------------------------------------------------

    The proposed Rule defines ``negative option feature'' to mean a 
contract provision 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 negative option seller as acceptance or 
continuing acceptance of the offer. This definition is consistent with 
the TSR and ROSCA (which references the TSR's definition of negative 
option). The proposed term includes, but is not limited to, automatic 
renewals, continuity plans, free-to-pay conversion or fee-to-pay 
conversions, and pre-notification negative option plans.\64\ 
Additionally, the proposed Rule covers offers made in all media, 
including internet, telephone, in-person, and printed material. The 
Commission's experience, confirmed by many commenters, demonstrates 
that negative option features pose the same risks across media and 
sales methods. The amendments would establish a comprehensive scheme 
for regulation of negative option marketing in a single rule, thus 
consolidating existing negative option-specific provisions in one 
location. This change will facilitate compliance by providing one-stop 
regulatory shopping, as noted by the State AGs and PDMI.
---------------------------------------------------------------------------

    \64\ Section II of this Notice contains descriptions of these 
various plans.
---------------------------------------------------------------------------

    Misrepresentations: Section 425.3 of the proposed Rule prohibits 
any person from misrepresenting, expressly or by implication, any 
material fact regarding the entire agreement--not just facts related to 
a negative option feature. FTC enforcement experience demonstrates 
misrepresentations in negative option marketing cases continue to be 
prevalent and often involve deceptive representations not only related 
to the negative option feature but to the underlying product (or 
service) or other aspects of the transaction as well. Such deceptive 
practices may involve misrepresentations related to costs, product 
efficacy, free trial claims, processing or shipping fees, billing 
information use, deadlines, consumer authorization, refunds, 
cancellation, or any other material representation.\65\
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    \65\ See e.g., FTC v. Tarr, No. 3:17-cv-02024-LAB-KSC (S.D. Cal. 
2017); FTC v. First American Payment Systems, Case 4:22-cv-00654 
(E.D. Tex. 2022); FTC v. XXL Impressions, No. 1:17-cv-00067-NT (D. 
Me. 2018); US v. MyLife.com, Inc., No. 2:20-CV-6692-JFW-PDx (C.D. 
Cal. 2021); FTC and State of Maine v. Health Research Labs., LLC, 
No. 2:17-cv-00467-JDL (D. Me. 2018); FTC and State of Connecticut v. 
Leanspa, LLC, No. 3:11-cv-01715-JCH (D. Conn. 2013); FTC v. 
WealthPress, Inc. et al., No. 3:23-cv-00046 (M. D. Fla. 2023); FTC 
v. BunZai Media Group, Inc., No. CV15-04527-GW(PLAx) (C.D. Cal. 
2018); FTC v. Willms, No 2:11-cv-00828 (W.D. Wash. 2011); FTC v. 
Universal Premium Services, No. CV06-0849 (C.D. Cal. 2006); FTC v. 
Remote Response, No. 06-20168 (S.D. Fla. 2006); and FTC v. Jeremy 
Johnson, et al., No. 2:10-cv-02203 (D. Nev. 2016).
---------------------------------------------------------------------------

    This provision falls within the Commission's Section 5 authority 
and its separate authority under ROSCA. The proposed provision provides 
the FTC with the ability to seek civil penalties and consumer redress 
for material misrepresentations in media other than telemarketing or 
the internet. The record demonstrates this type of provision is 
necessary. Specifically, despite the Commission's current authority to 
obtain redress and injunctions under ROSCA and injunctive relief under 
Section 5 of the FTC Act, the Commission's many enforcement actions 
over the past several years have failed to stem the tide of deceptive 
negative option practices online and in person. Ensuring great relief 
against those who deceive consumers will benefit both consumers and 
honest sellers who must compete with those who engage in deception.
    Important Information: Section 425.4 of the proposed Rule requires 
sellers to provide the following important information prior to 
obtaining the 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.
    The failure to provide this information is a deceptive or unfair 
practice. As detailed in the comments (e.g., TINA and State AGs), many 
sellers fail to provide adequate disclosures, thereby luring consumers 
into

[[Page 24727]]

purchasing goods or services they do not want. Moreover, the proposal 
is consistent with ROSCA, which requires sellers to clearly and 
conspicuously disclose ``all material terms of the transaction before 
obtaining the consumer's billing information.'' Specifically, the 
proposed Rule, like ROSCA, would require sellers to disclose any 
material conditions related to the underlying product or service that 
is necessary to prevent deception, regardless of whether that term 
directly relates to the terms of the negative option offer.\66\ 
Complementing ROSCA, the proposal also specifies the types of 
information sellers must provide so that they have more certainty and 
consumers receive the information they need to understand the terms of 
their enrollment. This provision is consistent with Commission orders 
in this area, requiring no more than any advertisement would need to be 
non-deceptive.
---------------------------------------------------------------------------

    \66\ See In re: MoviePass, Inc., No. C-4751 (Oct. 5, 2021).
---------------------------------------------------------------------------

    The proposal does not mandate a long list of prescriptive 
disclosures, such as renewal dates or business contact information, as 
some commenters suggested. There is an inherent tradeoff between 
providing consumers with additional information and ensuring they see 
and understand the information they need (i.e., consumers may miss 
important information if the important points are surrounded by useful 
but less critical information).
    Further, to help ensure consumers actually see and understand this 
important information, the proposed Rule contains general requirements 
for the location and form of the necessary information in written, 
telephone, and in-person offers. The FTC's law enforcement experience 
and consumer complaints are replete with examples of hidden 
disclosures, including those in fine print, buried in paragraphs of 
legalese and sales pitches, and accessible only through hyperlinks.\67\ 
Making the rules of the road clear prevents deception by businesses 
trying to take advantage of the gray areas in current statutes and 
regulations; the possibility of civil penalties deters those who are 
engaging in fraudulent practices. Moreover, these clearer guidelines 
should level the playing field for legitimate businesses, freeing them 
from having to compete against those employing deception.
---------------------------------------------------------------------------

    \67\ See, e.g., FTC v. Triangle Media Corp., No. 3:18-cv-01388-
LAB-LL (S.D. Cal. 2019); FTC v. Tarr, No. 3:17-cv-02024-LAB-KSC 
(S.D. Cal. 2017); FTC v. One Techns., LP, No. 3:14-cv-05066 (N.D. 
Cal. 2014).
---------------------------------------------------------------------------

    Specifically, consistent with the Commission's Policy Statement, 
the proposed amendments require marketers to present this information 
``clearly and conspicuously,'' a term defined in the proposed 
amendments. Under the proposal, this information should be difficult to 
miss (i.e., easily noticeable) or unavoidable and easily understandable 
by ordinary consumers. In addition, all required information, 
regardless of media, should not contain any other information that 
interferes with, detracts from, contradicts, or otherwise undermines 
the ability of consumers to read, hear, see, or otherwise understand 
the required information, including any information not directly 
related to the material terms and conditions of any negative option 
feature. The proposed amendments also contain requirements related to 
visual, audible, and written disclosures consistent with the principles 
enunciated in the Policy Statement. For example, in any communication 
that is solely visual or solely audible, the disclosure should be made 
through the same means through which the communication is presented. 
Additionally, written disclosures should appear immediately adjacent to 
the means of recording the consumer's consent for the negative option 
feature. Again, the Commission's law enforcement experience as well as 
the comments demonstrate the need for this direction, which should 
benefit businesses who are trying to make non-deceptive claims by 
leveling the playing field.
    Finally, the FTC's comprehensive definition of ``clear and 
conspicuous,'' developed through years of enforcement experience, 
covers all the concepts provided in California and DC laws' ``clear and 
conspicuous'' definitions with one exception. That exception, the fact 
that the DC definition requires that disclosures be visually proximate 
to any request for consumer consent, is incorporated by the proposed 
Rule in a separate consent section.\68\
---------------------------------------------------------------------------

    \68\ Cal. Bus. & Prof. Code section 17601 and DC Code section 
28A-202.
---------------------------------------------------------------------------

    Consent: Section 425.5 of the proposed Rule also requires negative 
option sellers to obtain consumers' express informed consent before 
charging them. The failure to obtain such consent is a deceptive or 
unfair practice, and the record demonstrates how pervasive this problem 
has become.\69\ Thus, the proposed consent requirements are necessary 
given how easily marketers can enroll consumers in negative option 
programs without actual consent.
---------------------------------------------------------------------------

    \69\ See, e.g., State AGs comments; FTC v. Bunzai Media Group, 
Inc., No. CV15-04527-GW(PLAx) (C.D. Cal. 2018); FTC v. Health 
Formulas, LLC, No. 2:14-cv-01649-RFB-GWF (D. Nev. 2016); FTC v. JDI 
Dating, Ltd., No. 1:14-cv-08400 (N.D. Ill. 2018); FTC and State of 
Maine v. Health Research Laboratories, LLC, No. 2:17-cv-00467-JDL 
(D. Me. 2018) (Section 5); FTC v. XXL Impressions, No. 1:17-cv-
00067-NT (D. Me. 2018) (Section 5).
---------------------------------------------------------------------------

    Proposed Section 425.5 is consistent with ROSCA's basic ``express 
informed consent'' requirement while providing more guidance on how to 
comply. This more detailed guidance removes ambiguity for marketers, 
while leveling the playing field and providing deterrence. Moreover, 
the provision provides flexibility to allow for innovation and change 
over time. The proposed Rule achieves these goals by requiring 
marketers to: (1) obtain the consumer's unambiguously affirmative 
consent to the negative option feature separately from any other 
portion of the offer; (2) refrain from including any information that 
``interferes with, detracts from, contradicts, or otherwise 
undermines'' the consumer's ability to provide express informed 
consent; (3) obtain the consumer's unambiguously affirmative consent to 
the entire transaction; and (4) obtain and maintain (for three years or 
a year after cancellation, whichever is longer) verification of the 
consumer's consent.\70\
---------------------------------------------------------------------------

    \70\ The Commission seeks comment on whether the proposed Rule 
should contain a different recordkeeping period.
---------------------------------------------------------------------------

    These requirements address commenters' (e.g., TINA, Rep. Takano, 
and State AGs) concerns that many sellers employ inadequate consent 
procedures to increase enrollment in negative option programs. By 
providing more specificity regarding the steps sellers must take to 
ensure they obtain consumer consent, these provisions will also help 
address the deceptive use of so-called ``dark patterns,'' sophisticated 
design practices that manipulate users into making choices they would 
not otherwise have made.\71\ Indeed, consumer agreement to any free-to-
pay conversion or negative option feature or any other automatic 
renewal provision obtained through the use of deceptive or unfair dark 
patterns does not constitute express informed consent.
---------------------------------------------------------------------------

    \71\ The FTC recently released a report describing these 
practices, which include disguising ads to look like independent 
content, making it difficult for consumers to cancel subscriptions 
or charges, burying key terms or junk fees, and tricking consumers 
into sharing their data. See Bringing Dark Patterns to Light, FTC 
Staff Report (Sept. 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/P214800%20Dark%20Patterns%20Report%209.14.2022%20-%20FINAL.pdf.
---------------------------------------------------------------------------

    The provisions also address the unique challenges presented by 
negative option offers, even for marketers trying to comply with the 
law. Specifically,

[[Page 24728]]

consumers can easily focus solely on the aspects of an offer that 
mirror the offers they regularly encounter (e.g., the quality, 
functionality, one-time price of the item, and the availability of a 
free trial offer). Thus, many consumers think they are consenting to 
these core attributes but miss the other unusual price term--the 
negative option feature. The proposal addresses these issues by 
requiring marketers to obtain consent for the negative option feature 
separately from the rest of the offer and other parts of the 
transaction, thereby ensuring the consent is informed.\72\ For 
instance, according to the comments, sellers offering negative option 
features through in-person transactions frequently use consumers' 
signatures on the entire purchase as consent for the negative option. 
Further, in effect, the requirement for a separate negative option 
consent prohibits certain negative option enrollment methods, such as 
the use of retail sales receipts or check endorsements, in which the 
customer's signature serves a dual purpose (e.g., negative option 
enrollment and promotional check cashing). As commenters noted, such 
practices appear to be particularly attractive to those committing 
fraud. Finally, the Rule requires sellers to obtain consent for the 
entire transaction to ensure consumers also agree to elements of the 
agreement not specifically related to the negative option feature.\73\
---------------------------------------------------------------------------

    \72\ See, e.g., FTC v. Jason Cardiff (Redwood Scientific), No. 
ED 18-cv-02104 SJO (PLAx) (C.D. Cal. 2018); FTC v. DOTAuthority.com, 
Inc., No. 0:16-cv-62186-WJZ (S.D. Fla. 2018); FTC v. JDI Dating, 
Ltd., No. 1:14-cv-08400 (N.D. Ill. 2014).
    \73\ The Commission recently alleged that failure to disclose a 
material term of the underlying service that was necessary to 
prevent deception violated this provision of ROSCA. In re: 
MoviePass, Inc., No. C-4751 (Oct. 5, 2021).
---------------------------------------------------------------------------

    To maintain consistency with the TSR, the proposed consent 
provision also contains a cross-reference to 16 CFR part 310 to inform 
sellers of that regulation and includes specific mention of TSR 
requirements for consent in transactions involving preacquired account 
information and a free-to-pay conversion.\74\ However, beyond the basic 
steps discussed above and these current TSR requirements, the proposed 
consent requirements contain no prescriptive provisions requiring 
sellers to implement specific practices.
---------------------------------------------------------------------------

    \74\ 16 CFR 310(a)(7).
---------------------------------------------------------------------------

    Instead, the proposed Rule provides guidance for sellers making 
written offers (including those on the internet) to assure they have 
obtained the consumer's unambiguously affirmative consent. 
Specifically, for all written offers (including over the internet), 
sellers may obtain express informed consent through a check box, 
signature, or other substantially similar method, which the consumer 
must affirmatively select or sign to accept the negative option 
feature, and no other portion of the offer.\75\ This approach should 
protect consumers and marketers alike. Consumers are assured they pay 
for only the goods and services they choose, and marketers can opt for 
the certainty of avoiding liability by adhering to the Commission's 
proposed means of compliance. Alternatively, marketers are free to 
innovate as long as they meet the express informed consent standard.
---------------------------------------------------------------------------

    \75\ To avoid potential conflicts with EFTA, this proposed 
provision does not apply to transactions covered by the 
preauthorized transfer provisions of that Act, 15 U.S.C. 1693e, and 
Regulation E, 12 CFR 1005.10. Those EFTA provisions, which apply to 
a range of preauthorized transfers including some used for negative 
options, contain various prescriptive requirements (e.g., written 
consumer signatures that comply with E-Sign, 15 U.S.C. 7001-7006, 
evidence of consumer identity and assent, the inclusion of terms in 
the consumer authorization, and the provision of a copy of the 
authorization to the consumer) beyond the measures identified in the 
proposed Rule. Consequently, compliance with the proposed Rule would 
not necessarily ensure compliance with Regulation E. For example, 
use of a check box for consent without additional measures may not 
comply with Regulation E's more specific authorization requirements.
---------------------------------------------------------------------------

    In the free trial context, while marketers must obtain consumers' 
express informed consent prior to being charged, the proposal does not 
require sellers to obtain an additional (or alternative) round of 
consent after the trial's completion. Although such additional consent 
would remind many consumers of their ongoing purchases, the failure to 
provide this second round of consent does not necessarily constitute an 
unfair or deceptive practice.\76\ For example, if sellers follow the 
proposed Rule's disclosure and consent requirements, consumers should 
understand they are enrolled in, and will be charged for, the negative 
option feature once the free trial ends. Nonetheless, the Commission 
invites comment on whether additional (or alternative) measures are 
necessary to prevent unfairness or deception and ensure consumers have 
adequate notice concerning the initiation of recurring purchases or 
payments following the completion of a free trial. For example, the 
Commission seeks comment on whether sellers offering free trials should 
be required to obtain an additional round of consent before charging a 
consumer at the completion of the free trial.
---------------------------------------------------------------------------

    \76\ 15 U.S.C. 57a(a)(1)(B).
---------------------------------------------------------------------------

    Simple Cancellation Mechanism (``Click to Cancel''): Easy 
cancellation is an essential feature of a fair and non-deceptive 
negative option program. If consumers cannot easily leave the program 
when they wish, the negative option feature is little more than a means 
of charging consumers for goods or services they no longer want. 
Unfortunately, the record demonstrates easy cancellation is all too 
often illusory.\77\ To address this persistent unfair and deceptive 
practice, the proposed Rule, consistent with ROSCA and California 
requirements, directs sellers to provide a simple cancellation 
mechanism to immediately halt any recurring charges.\78\ However, while 
ROSCA's cancellation provision is laudable, it has failed to eliminate 
the barriers many marketers have erected to keep consumers from 
canceling. Specifically, many marketers take advantage of the ambiguity 
of the term simply to thwart or delay consumers' attempts to cancel. 
The Commission's cases, as well as the State AGs' and TINA's comments, 
demonstrate the need for clearer guardrails in this area. To construct 
these guardrails, the proposed Rule requires the mechanism to be at 
least as simple as the one used to initiate the charge or series of 
charges. Because sellers have huge incentives to create a frictionless 
purchasing process, ensuring cancellation is equally simple should 
remove barriers, such as unreasonable hold times or verification 
requirements. The lack of detailed requirements affords businesses 
flexibility in meeting the proposed Rule's simple cancellation 
standard.
---------------------------------------------------------------------------

    \77\ See, e.g., NCL and State AGs.
    \78\ The TSR requires disclosure of the material terms of a 
seller's cancellation policy (if one exists) and prohibits 
misrepresentations about cancellation policies. 16 CFR 310.3. 
However, it does not contain specific cancellation mechanism 
requirements.
---------------------------------------------------------------------------

    The proposal also requires sellers to provide a simple cancellation 
mechanism through the same medium used to initiate the agreement, 
whether, for instance, through the internet, telephone, mail, or in-
person. On the internet, this ``Click to Cancel'' provision requires 
sellers, at a minimum, to provide an accessible cancellation mechanism 
on the same website or web-based application used for sign-up. If the 
seller allows users to sign up using a phone, it must provide, at a 
minimum, a telephone number and ensure all calls to that number are 
answered during normal business hours. Further, to meet the requirement 
that the mechanism be at least as simple as the one used to initiate 
the recurring charge, any telephone call used for cancellation cannot 
be more expensive than the call used to enroll (e.g., if the

[[Page 24729]]

sign-up call is toll free, the cancellation call must also be toll 
free). For a recurring charge initiated through an in-person 
transaction, the seller must offer the simple cancellation mechanism 
through the internet or by telephone in addition to, where practical, 
the in-person method used to initiate the transaction.
    The proposed Rule provides for this flexible approach in lieu of, 
as some commenters suggested, prohibitions against a list of specific 
practices (e.g., additional security requirements, third-party 
scripting, etc.) that may impair cancellation. Specific prohibitions 
may be counterproductive, solving today's issues only to inadvertently 
provide a road map to tomorrow's deception. Unscrupulous sellers, for 
example, can simply circumvent detailed prohibitions and employ new 
infinitely clever means to thwart consumers. The proposed performance 
standard avoids this eventuality. Additionally, such restrictions may 
prohibit legitimate measures used by sellers for security reasons or 
other purposes. The proposed provision, therefore, mandates results and 
provides the flexibility to meet them.
    The proposed Rule does not contain a separate provision requiring 
refunds for consumers ``unwittingly enrolled in a negative option 
plan,'' as some commenters suggested. Such a provision is not needed to 
prevent deception because enrolling consumers without their express 
informed consent would already violate the proposed Rule's consent 
requirements (proposed Section 425.5).
    Finally, the proposed Rule does not adopt a commenter 
recommendation to augment cancellation provisions by requiring sellers 
to completely delete consumer data following cancellation to provide 
consumers with a ``true exit.'' Although such a procedure may be 
desirable for many consumers, the record does not support an assertion 
that the practice of retaining consumer data after cancellation is 
inherently unfair or deceptive, nor would a requirement related to data 
deletion prevent other unfair or deceptive practices related to 
negative options.\79\ Instead, this issue involves questions of relief 
related to broader privacy issues, and thus falls outside the scope of 
this proceeding.
---------------------------------------------------------------------------

    \79\ 15 U.S.C. 57a(a)(1)(B).
---------------------------------------------------------------------------

    Additional Offers Before Cancellation (``Saves''): The proposed 
Rule also contains a provision for sellers who seek to pitch additional 
offers or modifications (i.e., defined as a ``Save'' in the proposed 
Rule) during a consumer's cancellation attempt. Under the proposal, 
before making such pitches, the seller must first ask consumers whether 
they would like to consider such offers or modifications (e.g., ``Would 
you like to consider a different price or plan that could save you 
money?''). If consumers decline this invitation, the seller must desist 
from presenting such offers and cancel the negative option arrangement 
immediately. If they accept, the seller can pitch the alternative 
offers. To prevent consumers from entering a protracted series of such 
offers, the proposed Rule also clarifies that a consumer's consent to 
receive additional offers or modifications applies only to the 
cancellation attempt in question and not to subsequent attempts. Thus, 
consumers could disengage during the ``save'' attempt (e.g., by hanging 
up, closing the browser, or disconnecting the chat) and avail 
themselves of the easy cancellation during a separate, subsequent 
attempt. As noted in the comments (e.g., NCL and State AGs), evidence 
demonstrates many businesses have created unnecessary and burdensome 
obstacles in the cancellation process, including forcing uninterested 
consumers to listen to multiple upsells before allowing cancellation, 
that are not outweighed by countervailing benefits to consumers or 
competition. This is an unfair and deceptive practice. The proposed 
provision would effectively prohibit such practices by giving consumers 
the ability to avoid them, while allowing sellers to pitch new offers 
to those consumers who find these additional offers desirable. In 
addition, this provision should not create any significant burden for 
sellers.
    Reminders and Confirmations: For contracts involving the automatic 
delivery of physical goods (e.g., pet food), the proposed Rule does 
not, as some commenters recommended, mandate confirmatory emails or 
periodic reminders. In situations where the seller has otherwise 
clearly disclosed the terms of the deal, obtained consent, and provided 
a simple cancellation mechanism, the record does not support an 
assertion that the absence of these reminders is inherently unfair or 
deceptive, given the requirement that sellers must provide all material 
information upfront. Moreover, while the lack of a reminder may result 
in some consumers paying for goods they do not want based simply on the 
lack of diligence, any injury is reasonably avoidable by consumers 
themselves. Specifically, each delivery serves as a reminder of the 
contract, allowing consumers to reasonably avoid further payments by 
contacting the company and cancelling the arrangement. Thus, the record 
does not support an assertion that such an agreement is inherently 
unfair.
    Subscriptions and other negative option arrangements that do not 
involve physical goods, however, present a different issue. As some 
commenters explained, because these services may have no regular, 
tangible presence for consumers (e.g., data security monitoring or 
subscriptions for online services), many consumers may reasonably 
forget they enrolled in such plans and, as a result, incur perpetual 
charges for services they do not want or use. Thus, the failure to 
provide reminders for such contracts meet all three elements of 
unfairness.\80\
---------------------------------------------------------------------------

    \80\ FTC Policy Statement on Unfairness, appended to 
International Harvester Co., 104 F.T.C. 949 (1984). ``To justify a 
finding of unfairness the injury must satisfy three tests. It must 
be substantial; it must not be outweighed by any countervailing 
benefits to consumers or competition that the practice produces; and 
it must be an injury that consumers themselves could not reasonably 
have avoided.'' Id.
---------------------------------------------------------------------------

    Accordingly, the Commission proposes to require sellers to provide 
an annual reminder to consumers enrolled in negative option plans 
involving anything other than physical goods. Under the proposal, such 
reminders must identify the product or service, the frequency and 
amount of charges, and the means to cancel (see proposed Section 
425.7). As a matter of good business practice, many sellers already 
provide such reminders to consumers enrolled in these programs. 
However, even for those who do not, the proposal should impose little 
additional burden (e.g., a short, generic email). The Commission seeks 
comment on this proposal, including, for example, whether the 
Commission should narrow the coverage of the proposed language by types 
of covered services or time duration between reminders.
    Material Changes: The proposed Rule does not contain a provision 
addressing the need for notices when sellers make material changes to a 
negative option contract. Because these contracts can last years, and 
even decades, the original agreement often allows the seller to change 
material terms of the agreement such as price, services, and product 
quantity. As commenters noted, some states have requirements addressing 
this issue. However, whether such a practice is unfair or deceptive 
depends heavily on the facts presented in each case (e.g., consumers 
may reasonably expect a small annual increase in price for some 
products or

[[Page 24730]]

services, but not massive increases or even small increases for 
different products). Because consumer interpretation of these claims is 
so fact dependent, it is not practical to draw a universal line between 
legal and violative behavior. Thus, the Commission can best address 
issues in this area on a case-by-case basis through law enforcement 
actions. Given the importance of this issue, however, the Commission 
seeks further comment on whether and how the Rule can address this 
issue consistent with FTC's authority to combat unfair or deceptive 
practices.
    Penalties: Under the proposal, the civil penalties for the Rule 
would continue to reflect the amounts set out in 16 CFR 1.98(d).
    State Requirements: The Federal Trade Commission Act does not 
explicitly preempt state law, and the legislative history of the FTC 
Act indicates that Congress did not intend the FTC to occupy the field 
of consumer protection regulation.\81\ Accordingly, any preemptive 
effect of a Rule would be limited to instances where it is not possible 
for a private party to comply with both state and the Commission 
regulations, or where application of state regulations would frustrate 
the purposes of the Rule.\82\
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    \81\ See, e.g., Am. Fin. Servs. Ass'n v. FTC, 767 F.2d 957, 989 
(D.C. Cir. 1985).
    \82\ Preemption would occur where there is an ``actual conflict 
between the two schemes of regulation [such] that both cannot stand 
in the same area.'' Fla. Lime & Avocado Growers, Inc., v. Paul, 373 
U.S. 132, 141 (1963). See also Am. Fin. Servs., 767 F.2d 957 (Credit 
Practices Rule); Harry and Bryant Co. v. FTC, 726 F.2d 993 (4th Cir. 
1984) (Funeral Rule); Am. Optometric Assoc. v. FTC, 626 F.2d 896 
(D.C. Cir. 1980) (Ophthalmic Practices Rule).
---------------------------------------------------------------------------

    Therefore, Section 425.7 of the proposed Rule specifies that the 
Rule would not supersede, alter, or affect state statutes or 
regulations relating to negative option marketing, except to the extent 
that a state statute, regulation, order, or interpretation is 
inconsistent with the proposed Rule. The proposal also indicates state 
requirements are not inconsistent with the Rule to the extent they 
afford greater protection to consumers. The Commission invites comment 
on whether the proposed Rule conflicts with any existing state 
requirements.
    Consumer Education: The Commission plans to continue its efforts to 
provide information to help consumers with their purchasing decisions 
and avoid ensnarement in unwanted recurring payment programs. However, 
consumer education does not provide a substitute for improving existing 
regulatory provisions. Consumer education is likely to have a limited 
benefit where sellers lure consumers into an agreement without 
consumers' knowledge, particularly with the use of dark patterns.
    Exempted Activities: The Commission seeks comment on whether the 
Rule should exempt any entities or activities that are otherwise 
subject to the Commission's authority under the FTC Act. In the 
comments, various interests, such as energy sellers and service 
contract providers, urged the Commission to exempt their industries. 
They argued existing state licensing and other requirements that 
already apply to their activities adequately address the problems noted 
above and further rules would only interfere with the existing 
regulatory structure. They note that some state laws (e.g., California) 
contain exemptions for activities such as service contract sellers and 
administrators, as well as state public utility commission licensees.
    Those commenting on this issue should detail which, if any, 
industries should be exempt, or not exempt, and why, including whether 
the proposed Rule would impose requirements that conflict with state 
regulations targeted to a specific industry sector, or are antithetical 
to the goals of such state laws.

XII. The Rulemaking Process

    As explained in Section XIII of this document, the Commission 
invites interested parties to submit data, views, and arguments on the 
proposed amendments to the Negative Option Rule and the issues and 
questions raised in this document. The comment period will remain open 
until June 23, 2023.\83\ To the extent practicable, all comments will 
be available on the public record and posted at the docket for this 
rulemaking on https://www.regulations.gov. The Commission will provide 
an opportunity for an informal hearing if an interested person requests 
to present their position orally. See 15 U.S.C. 57a(c). Any person 
interested in making a presentation at an informal hearing must submit 
a comment requesting to make an oral submission, and the request must 
identify the person's interests in the proceeding and indicate whether 
there are any disputed issues of material fact that need to be resolved 
during the hearing. See 16 CFR 1.11(e). The comment should also include 
a statement explaining why an informal hearing is warranted and a 
summary of any anticipated testimony. If the Commission schedules an 
informal hearing, either on its own initiative or in response to 
request by an interested party, a separate notice will issue. See id. 
1.12(a).
---------------------------------------------------------------------------

    \83\ The Commission elects not to provide a separate, second 
comment period for rebuttal comments. See 16 CFR 1.11(e) (``The 
Commission may in its discretion provide for a separate rebuttal 
period following the comment period.'').
---------------------------------------------------------------------------

    The Commission can decide to finalize the proposed rule if the 
rulemaking record, including the public comments in response to this 
NPRM, supports such a conclusion. The Commission may, either on its own 
initiative or in response to a commenter's request, engage in 
additional processes, which are described in 16 CFR 1.12, 1.13. Based 
on the comment record and existing prohibitions against deceptive or 
unfair negative option marketing under Section 5 of the FTC Act and 
other rules and statutes, the Commission does not here identify any 
disputed issues of material fact that need to be resolved at an 
informal hearing. The Commission may still do so later, on its own 
initiative or in response to a persuasive showing from a commenter.

XIII. Request for Comments

    The Commission seeks comments on all aspects of the proposed 
requirements, including the likely effectiveness of the proposed Rule 
in helping the Commission combat unfair or deceptive practices in 
negative option marketing. The Commission also seeks comment on various 
alternatives to the proposed regulation, to further address 
disclosures, consumer consent, and cancellation. It also seeks comment 
on other approaches, such as the publication of additional consumer and 
business education. The Commission seeks any suggestions or alternative 
methods for improving current requirements. In their replies, 
commenters should provide any available evidence and data that supports 
their position, such as empirical data, consumer perception studies, 
and consumer complaints.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before June 23, 2023. 
Write ``Negative Option Rule; Project No. P064202'' on your comment. 
Your comment--including your name and your state--will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the website https://www.regulations.gov.
    Because of the agency's heightened security screening, postal mail 
addressed to the Commission will be subject to delay. We strongly 
encourage you to submit your comments online through the https://www.regulations.gov

[[Page 24731]]

website. To ensure that the Commission considers your online comment, 
please follow the instructions on the web-based form.
    If you file your comment on paper, write ``Negative Option Rule; 
Project No. P064202'' on your comment and on the envelope, and mail 
your comment to the following address: Federal Trade Commission, Office 
of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 (Annex N), 
Washington, DC 20580. If possible, please submit your paper comment to 
the Commission by overnight service.
    Because your comment will be placed on the public record, you are 
solely responsible for making sure that your comment does not include 
any sensitive or confidential information. In particular, your comment 
should not contain sensitive personal information, such as your or 
anyone else's Social Security number; date of birth; driver's license 
number or other state identification number or foreign country 
equivalent; passport number; financial account number; or credit or 
debit card number. You are also solely responsible for making sure your 
comment does not include any sensitive health information, such as 
medical records or other individually identifiable health information. 
In addition, your comment should not include any ``[t]rade secret or 
any commercial or financial information which . . . is privileged or 
confidential''--as provided in Section 6(f) of the FTC Act, 15 U.S.C. 
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2)--including, in 
particular, competitively sensitive information such as costs, sales 
statistics, inventories, formulas, patterns, devices, manufacturing 
processes, or customer names.
    Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule 4.9(c), 16 CFR 4.9(c). 
In particular, the written request for confidential treatment that 
accompanies the comment must include the factual and legal basis for 
the request and must identify the specific portions of the comment to 
be withheld from the public record. See FTC Rule 4.9(c). Your comment 
will be kept confidential only if the General Counsel grants your 
request in accordance with the law and the public interest. Once your 
comment has been posted publicly at https://www.regulations.gov--as 
legally required by FTC Rule 4.9(b), 16 CFR 4.9(b)--we cannot redact or 
remove your comment, unless you submit a confidentiality request that 
meets the requirements for such treatment under FTC Rule 4.9(c), and 
the General Counsel grants that request.
    Visit the FTC website to read this document and the news release 
describing it. The FTC Act and other laws that the Commission 
administers permit the collection of public comments to consider and 
use in this proceeding as appropriate. The Commission will consider all 
timely and responsive public comments it receives on or before June 23, 
2023. For information on the Commission's privacy policy, including 
routine uses permitted by the Privacy Act, see https://www.ftc.gov/policy-notices/privacy-policy.

XIV. Preliminary Regulatory Analysis and Regulatory Flexibility Act 
Requirements

    Under Section 22(a) of the FTC Act, 15 U.S.C. 57b-3(a), the 
Commission must issue a preliminary regulatory analysis for a 
proceeding to amend a rule if the Commission: (1) estimates that the 
amendment will have an annual effect on the national economy of $100 
million or more; (2) estimates that the amendment will cause a 
substantial change in the cost or price of certain categories of goods 
or services; or (3) otherwise determines that the amendment will have a 
significant effect upon covered entities or upon consumers. The 
Commission has preliminarily determined that the proposed amendments to 
the Rule will not have such effects on the national economy; on the 
cost of goods and services offered for sale by mail, telephone, or over 
the internet; or on covered parties or consumers. The proposed 
amendments contain requirements related to consumer disclosures, 
consumer consent, and cancellation. In developing these proposals, the 
Commission has sought to minimize prescriptive requirements and provide 
flexibility to sellers in meeting the Rule's objectives. In addition, 
most sellers provide some sort of disclosures, follow consent 
procedures, and offer cancellation mechanisms in the normal course of 
business. Thus, compliance with the proposed requirements should not 
create any substantial added burden. The Commission, however, requests 
comment on the economic effects of the proposed amendments.
    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-612, 
requires that the Commission conduct an Initial Regulatory Flexibility 
Analysis (``IRFA'') with a proposed rule and a Final Regulatory 
Flexibility Analysis (``FRFA''), if any, with the final rule, unless 
the Commission certifies that the rule will not have a significant 
economic impact on a substantial number of small entities. See 5 U.S.C. 
603-605. The RFA requires an agency to provide an IRFA with the 
proposed Rule and a FRFA with the final rule, if any. The Commission is 
not required to make such analyses if a rule would not have such an 
economic effect, or if the rule is exempt from notice-and-comment 
requirements.
    The Commission does not have sufficient empirical data at this time 
regarding the affected industries to determine whether the proposed 
amendments to the Rule may affect a substantial number of small 
entities as defined in the RFA. However, a preliminary analysis 
suggests the proposed amendments to the Rule would not have a 
significant economic impact on small entities. The proposed amended 
rule would apply to all businesses using Negative Option Features in 
the course of selling goods or services. Small entities in potentially 
any industry could incorporate a negative option feature into a sales 
transaction. The Commission is unaware, however, of any source of data 
identifying across every industry the number of small entities that 
routinely utilize negative option features. Based on the comments 
received in response to the ANPR, and on the Commission's own 
experience and expertise, the Commission believes the use of negative 
option features may be more prevalent in some industries than others, 
for example, computer security services, online streaming services, and 
service contract providers. The Commission lacks sufficient data to 
determine the portion of total estimated affected companies (see 
estimate in the Paperwork Reduction Act analysis in section XV) that 
qualify as small businesses across each industry. Therefore, the 
Commission seeks comments on the percentage of affected companies that 
qualify as small businesses.
    In addition, it is also unclear whether the proposed amendments to 
the Rule would have a significant economic impact on small entities. 
However, as noted in Section XV, the impact of the proposed 
requirements on all firms, whether small businesses or not, may not be 
substantial. As discussed in that section, the FTC estimates the 
majority of firms subject to the proposed recordkeeping requirements 
already retain these types of records in the normal course of business. 
The FTC anticipates many transactions subject to the Rule are conducted 
via the internet, minimizing burdens associated with compliance. 
Additionally, most entities

[[Page 24732]]

subject to the Rule are likely to store data though automated means, 
which reduces compliance burdens associated with record retention. 
Furthermore, regarding the proposed disclosure requirements, it is 
likely the substantial majority of sellers routinely provide these 
disclosures in the ordinary course as a matter of good business 
practice. Moreover, many state laws already require the same or similar 
disclosures as the Rule would mandate. Finally, some negative option 
sellers are already covered by the Telemarketing Sales Rule and thus 
subject to its disclosure requirements. The Commission therefore 
anticipates that the Rule will not have a significant economic impact 
on small entities. Nevertheless, because the precise costs to small 
entities of updating their systems and disclosures are difficult to 
predict, the Commission has decided to publish the following IRFA 
pursuant to the RFA and to request public comment on the impact on 
small businesses of the proposed amendments.

A. Description of the Reasons Why Action by the Agency Is Being 
Considered

    As described in this document, the proposed amendments address 
unfair or deceptive practices in negative option marketing. The FTC, 
other federal agencies, and state attorneys general have brought 
multiple actions to stop and remedy the harms caused by negative option 
marketing. The record demonstrates, however, that existing authorities 
fall short because there is no uniform legal framework, which leaves 
entire sectors of the economy under-regulated and constrain the relief 
that the Commission may obtain for law violations. In the ANPR, the 
Commission explained it receives thousands of complaints a year related 
to negative option marketing. As discussed above in Sections VI, VII, 
and IX, the proposed changes, which replace existing provisions in the 
Rule, enhance and clarify existing requirements currently dispersed in 
other rules and statutes. They also consolidate all requirements, such 
as those in the TSR, specifically applicable to negative option 
marketing. Further, the proposed Rule would allow the Commission to 
seek civil penalties and consumer redress in contexts where such 
remedies are currently unavailable, such as deceptive or unfair 
practices involving negative options in traditional print materials and 
face-to-face transactions (i.e., in media not covered by ROSCA or the 
TSR) and misrepresentations (which are not expressly covered by ROSCA, 
even when on the internet).

B. Succinct Statement of the Objectives of, and Legal Basis for, the 
Proposed Amendments

    The objective of the proposed amendments is to curb deceptive or 
unfair practices occurring in negative option marketing. The legal 
basis for the proposed amendments is Section 18(b)(3) of the FTC Act, 
15 U.S.C. 57a(b)(3), which provides the Commission with authority to 
issue a notice of proposed rulemaking where it has reason to believe 
that the unfair or deceptive acts or practices which are the subject of 
the proposed rulemaking are prevalent.

C. Description and Estimate of the Number of Small Entities to Which 
the Proposed Amendments Will Apply

    The proposed amendments affect sellers, regardless of industry, 
engaged in making negative option offers, defined by the Rule to mean 
any person ``selling, offering, promoting, charging for, or otherwise 
marketing goods or services with a Negative Option Feature.'' As 
discussed in the introduction to this section, determining a precise 
estimate of how many of these are small entities, or describing those 
entities further, is not readily feasible because the staff is not 
aware of published, comprehensive revenue and/or employment data for 
all possible affected entities, which come from a variety of different 
industries and which may or may not sell goods or services with 
negative options. The Commission invites comment and information on 
this issue.

D. Description of the Projected Reporting, Recordkeeping and Other 
Compliance Requirements

    The proposed rule amendments would require negative option sellers 
to disclose certain information about negative option features, obtain 
a consumer's express informed consent and maintain records of consumer 
consent for three years after the initial transaction or one year after 
cancellation (whichever is longer), and provide consumers a simple 
mechanism for cancellation. The estimates for the proposed 
recordkeeping and disclosure requirements are set out within the 
Paperwork Reduction Act analysis in Section XV. As mentioned in the 
earlier introductory section of the IFRA, the impact of these proposed 
requirements on small entities is most likely not significant. The 
small entities potentially covered by these amendments will include all 
such entities subject to the Rule (e.g., for purposes of the proposed 
amendment, entities selling goods or services through negative option 
offerings). The professional skills necessary for compliance with the 
proposed amendments would include sales and clerical personnel. The 
Commission invites comment on these issues.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    As discussed in this document, the proposed amendments contain 
certain provisions that are similar to or expand on requirements in the 
TSR as well as ROSCA. The proposed amendments would establish a common 
set of requirements applicable to all types of negative option 
marketing. The Commission anticipates these changes will facilitate 
compliance and reduce potential confusion among sellers and consumers 
regarding their compliance obligations for sales involving negative 
option offers. The FTC has not identified any other federal statutes, 
rules, or policies currently in effect that may duplicate or conflict 
with the proposed rule. As explained above, the proposed amendments 
have been specifically drafted to avoid any conflict with EFTA and 
Regulation E. The proposed amendments are also consistent with the 
existing requirements of the TSR, see supra Section XI, while filling a 
regulatory gap by extending protections to other, non-telemarketing 
transactions. The Commission invites comment and information regarding 
any potentially duplicative, overlapping, or conflicting federal 
statutes, rules, or policies.

F. Description of Any Significant Alternatives to the Proposed 
Amendments

    In formulating the proposed amendments, the Commission has made 
every effort to avoid imposing unduly burdensome requirements on 
sellers. To that end, the Commission has avoided, where possible, 
proposing specific, prescriptive requirements that could stifle 
marketing innovation or otherwise limit seller options in using new 
technologies. In addition, the Commission has sought comments as 
detailed in Section XI of this document on several alternatives, 
including provisions related to consent requirements (additional 
consent for free trials) and reminder requirements (narrowing the scope 
of product types requiring reminders). The former would likely increase 
burdens on sellers but, at the same time, may benefit consumers by 
helping to ensure they do not become enrolled in negative option 
arrangements they do not want. The latter alternative would likely 
decrease

[[Page 24733]]

burden but may fail to help consumers cancel programs they are unaware 
of. The Commission seeks comments on the ways in which the proposed 
amendments could be modified to reduce costs or burdens for small 
entities. If the comments filed in response to this document identify 
small entities that would be affected by the proposed Rule, as well as 
alternative methods of compliance that would reduce the economic impact 
of the proposed Rule on such entities, the Commission will consider the 
feasibility of such alternatives and determine whether they should be 
incorporated into the final Rule.

XV. Paperwork Reduction Act

    The current Rule contains various provisions that constitute 
information collection requirements as defined by 5 CFR 1320.3(c), the 
definitional provision within the Office of Management and Budget 
(``OMB'') regulations implementing the Paperwork Reduction Act 
(``PRA''). OMB has approved the Rule's existing information collection 
requirements through January 31, 2024 (OMB Control No. 3084-0104). The 
proposed amendments make changes in the Rule's recordkeeping and 
disclosure requirements that will increase the PRA burden as detailed 
below. Accordingly, FTC staff will submit this notice of proposed 
rulemaking and associated Supporting Statement to OMB for review under 
the PRA.\84\
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    \84\ The PRA analysis for this rulemaking focuses strictly on 
the information collection requirements created by and/or otherwise 
affected by the amendments.
---------------------------------------------------------------------------

    Estimated Annual Hours Burden: 265,000 hours.
    The estimated burden for recordkeeping compliance is 53,000 hours 
and the estimated burden for the requisite disclosures is 212,000 
hours. Thus, the total PRA burden is 265,000 hours. These estimates are 
explained below.

Number of Respondents

    FTC staff estimates there are 106,000 entities currently offering 
negative option features to consumers. This estimate is based primarily 
on data from the U.S. Census North American Industry Classification 
System (NAICS) for firms and establishments in industry categories 
wherein some sellers offer free trials, automatic renewal, 
prenotification plans, and continuity plans. Based on NAICS information 
as well as its own research and industry knowledge, FTC staff 
identified an estimated total of 530,000 firms involved in such 
industries.\85\ However, FTC staff estimates that only a fraction of 
the total firms in these industry categories offer negative option 
features to consumers. For example, few grocery stores and clothing 
retailers, which account for approximately a third of the of the total 
estimate from all industry categories, are likely to regularly offer 
negative option features. In addition, some entities included in the 
total may qualify as common carriers, exempt from the Commission's 
authority under the FTC Act. Accordingly, the Commission estimates that 
approximately 106,000 business entities (20%) offer negative option 
features to consumers.
---------------------------------------------------------------------------

    \85\ Examples of these industries include sellers of software, 
streaming media, social media services, financial monitoring, 
computer security, fitness services, groceries and meal kits, 
dietary supplements, sporting goods, home service contracts, home 
security systems, office supplies, pet food, computer supplies, 
cleaning supplies, home/lawn maintenance services, personal care 
products, clothing sales, energy providers, newspapers, magazines, 
and books. The NAICS does not provide estimates for all of these 
categories. Where such data is unavailable, the staff has used its 
own estimates based on its knowledge of these industry categories.
---------------------------------------------------------------------------

Recordkeeping Hours

    The proposed Rule would require negative option sellers to retain 
records sufficient to verify consumer consent related to a negative 
option feature and consideration of further offers prior to 
cancellation for at least 3 years, or until one year after the consumer 
cancels the contract or the contract is otherwise terminated, whichever 
period is longer. FTC staff estimates the majority of firms subject to 
the Rule already retain these types of records in the normal course of 
business. Under such conditions, the time and financial resources 
needed to comply with disclosure requirements do not constitute 
``burden'' under the PRA.\86\ Moreover, staff anticipates that many 
transactions subject to the Rule are conducted via the internet and 
most entities subject to the Rule are likely to store data though 
automated means, which reduces compliance burdens associated with 
record retention. Accordingly, staff estimates that 53,000 entities 
subject to the Rule will require approximately one hour per year to 
comply with the Rule's recordkeeping requirements, for an annual total 
of 53,000 burden hours.
---------------------------------------------------------------------------

    \86\ Under the PRA, the time, effort, and financial resources 
necessary to comply with a collection of information that would be 
incurred by persons in the normal course of their activities (e.g., 
in compiling and maintaining business records) does not constitute 
burden from the Rule where the associated recordkeeping is a usual 
and customary part of business activities. 5 CFR 1320.3(b)(2).
---------------------------------------------------------------------------

Disclosure Hours

    The proposed Rule would require negative option sellers to provide 
several disclosures to consumers including the amount to be charged, 
the deadline the consumer must act to avoid charges, the date charges 
will be submitted for payment, the cancellation mechanism the consumer 
can use to end the agreement, reminders for recurring payments 
involving non-physical goods, and requests related to further offers 
prior to cancellation.\87\ Staff anticipates that the substantial 
majority of sellers routinely provide these disclosures in the ordinary 
course as a matter of good business practice. For these sellers, the 
time and financial resources associated with making these disclosures 
do not constitute a ``burden'' under the PRA because they are a usual 
and customary part of regular business practice. 5 CFR 1320.3(b)(2). 
Moreover, many state laws require the same or similar disclosures as 
the Rule mandates. In addition, approximately 2,000 negative option 
sellers are already covered by the Telemarketing Sales Rule and subject 
to its disclosure requirements. Accordingly, to reflect these various 
considerations, FTC estimates the disclosure burden required by the 
Rule will be, on average, two hours each year for each seller subject 
estimated to be subject the Rule, for a total estimated annual burden 
of 212,000 hours.
---------------------------------------------------------------------------

    \87\ Because all legitimate sellers offer consumers some sort of 
cancellation mechanism in the normal course of business, the 
proposed Rule's requirement for a simple cancellation mechanism is 
unlikely to create additional burdens.
---------------------------------------------------------------------------

    Estimated Annual Labor Cost: $5,689,550.
    As indicated above, staff estimates existing covered entities will 
require approximately 53,000 hours to comply with the proposed rule's 
recordkeeping provisions. Applying a clerical wage rate of $18.75/
hour,\88\ recordkeeping maintenance for existing telemarketing entities 
would amount to an annual cost of approximately $993,750.
---------------------------------------------------------------------------

    \88\ This figure is derived from the mean hourly wage shown for 
Information and Record Clerks. See Occupational Employment and 
Wages--May 2021, Bureau of Labor Statistics, U.S. Department of 
Labor (March 31, 2022), Table 1 (``National employment and wage data 
from the Occupational Employment Statistics survey by occupation, 
May 2021''), available at https://www.bls.gov/news.release/pdf/ocwage.pdf.
---------------------------------------------------------------------------

    The estimated annual labor cost for disclosures for all entities is 
$4,695,800. This total is the product of applying an estimated hourly 
wage rate for sales personnel of $22.15 \89\ to the estimate of

[[Page 24734]]

212,000 hours for compliance with the Rule's disclosure requirements.
---------------------------------------------------------------------------

    \89\ This figure is derived from the mean hourly wage shown for 
Sales and related occupations. See Occupational Employment and 
Wages, supra.
---------------------------------------------------------------------------

    Thus, the estimated annual labor costs are $5,689,550 [($993,750 
recordkeeping) + ($4,695,800 disclosure)].

Estimated Annual Non-Labor Cost

    The capital and start-up costs associated with the Rule's 
recordkeeping provisions are de minimis. Any disclosure or 
recordkeeping capital costs involved with the Rule, such as equipment 
and office supplies, would be costs borne by sellers in the normal 
course of business.
    Pursuant to Section 3506(c)(2)(A) of the PRA, the FTC invites 
comments on: (1) whether the disclosure, recordkeeping, and reporting 
requirements are necessary, including whether the resulting information 
will be practically useful; (2) the accuracy of our burden estimates, 
including whether the methodology and assumptions used are valid; (3) 
how to improve the quality, utility, and clarity of the disclosure 
requirements; and (4) how to minimize the burden of providing the 
required information to consumers.

XVI. Communications by Outside Parties to the Commissioners or Their 
Advisors

    Pursuant to Commission Rule 1.18(c)(1), the Commission has 
determined that communications with respect to the merits of this 
proceeding from any outside party to any Commissioner or Commissioner 
advisor shall be subject to the following treatment. Written 
communications and summaries or transcripts of oral communications 
shall be placed on the rulemaking record if the communication is 
received before the end of the comment period. They shall be placed on 
the public record if the communication is received later. Unless the 
outside party making an oral communication is a member of Congress, 
such communications are permitted only if advance notice is published 
in the Weekly Calendar and Notice of ``Sunshine'' Meetings.\90\
---------------------------------------------------------------------------

    \90\ See 15 U.S.C. 57a(i)(2)(A); 16 CFR 1.18(c).
---------------------------------------------------------------------------

List of Subjects in 16 CFR Part 425

    Advertising, Trade practices.

    For the reasons set out in this document, the Commission proposes 
to amend part 425 of title 16 of the Code of Federal Regulations as 
follows:

0
1. Revise part 425 to read as follows:

PART 425--RULE CONCERNING RECURRING SUBSCRIPTIONS AND OTHER 
NEGATIVE OPTION PLANS

Sec.
425.1 Scope.
425.2 Definitions.
425.3 Misrepresentations.
425.4 Important information.
425.5 Consent.
425.6 Simple cancellation (``Click to Cancel'').
425.7 Annual reminders for negative option features not involving 
physical goods.
425.8 Relation to State laws.

    Authority:  15 U.S.C. 41-58.


Sec.  425.1  Scope.

    This Rule contains requirements related to any form of negative 
option plan in any media, including, but not limited to, the internet, 
telephone, in-print, and in-person transactions.


Sec.  425.2  Definitions.

    (a) Billing information means any data that enables any person to 
access a customer's account, such as a credit card, checking, savings, 
share or similar account, utility bill, mortgage loan account, or debit 
card.
    (b) Charge, charged, or charging means any attempt to collect money 
or other consideration from a consumer, including but not limited to 
causing Billing Information to be submitted for payment, including 
against the consumer's credit card, debit card, bank account, telephone 
bill, or other account.
    (c) Clear and conspicuous means that a required disclosure is 
easily noticeable (i.e., difficult to miss) and easily understandable 
by ordinary consumers, including in all of the following ways:
    (1) In any communication that is solely visual or solely audible, 
the disclosure must be made through the same means through which the 
communication is presented. In any communication made through both 
visual and audible means, such as a television advertisement, the 
disclosure must be presented simultaneously in both the visual and 
audible portions of the communication even if the representation 
requiring the disclosure is made in only one means.
    (2) A visual disclosure, by its size, contrast, location, the 
length of time it appears, and other characteristics, must stand out 
from any accompanying text or other visual elements so that it is 
easily noticed, read, and understood.
    (3) An audible disclosure, including by telephone or streaming 
video, must be delivered in a volume, speed, and cadence sufficient for 
ordinary consumers to easily hear and understand it.
    (4) In any communication using an interactive electronic medium, 
such as the internet, phone app, or software, the disclosure must be 
unavoidable. A disclosure is not clear and conspicuous if a consumer 
must take any action, such as clicking on a hyperlink or hovering over 
an icon, to see it.
    (5) The disclosure must use diction and syntax understandable to 
ordinary consumers and must appear in each language in which the 
representation that requires the disclosure appears.
    (6) The disclosure must comply with these requirements in each 
medium through which it is received, including all electronic devices 
and face-to-face communications.
    (7) The disclosure must not be contradicted or mitigated by, or 
inconsistent with, anything else in the communication.
    (8) When the representation or sales practice targets a specific 
audience, such as children, the elderly, or the terminally ill, 
``ordinary consumers'' includes members of that group.
    (d) Negative option feature is a provision of a 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 negative option seller as acceptance or continuing acceptance of 
the offer, including, but not limited to:
    (1) an automatic renewal;
    (2) a continuity plan;
    (3) a free-to-pay conversion or fee-to-pay conversion; or
    (4) a pre-notification negative option plan.
    (e) Negative option seller means the person selling, offering, 
promoting, charging for, or otherwise marketing goods or services with 
a negative option feature.
    (f) Save means an attempt by a seller to present any additional 
offers, modifications to the existing agreement, reasons to retain the 
existing offer, or similar information when a consumer attempts to 
cancel a negative option feature.


Sec.  425.3  Misrepresentations.

    In connection with promoting or offering for sale any good or 
service with a negative option feature, it is a violation of this Rule 
and an unfair or deceptive act or practice in violation of Section 5 of 
the Federal Trade Commission Act (``FTC Act'') for any negative option 
seller to misrepresent, expressly or by implication, any material fact 
related to the transaction, such as the negative option feature, or any 
material fact related to the underlying good or service.

[[Page 24735]]

Sec.  425.4  Important information.

    (a) Disclosures. In connection with promoting or offering for sale 
any good or service with a negative option feature, it is a violation 
of this Rule and an unfair or deceptive act or practice in violation of 
Section 5 of the FTC Act for a negative option seller to fail to 
disclose to a consumer, prior to obtaining the consumer's billing 
information, any material term related to the underlying good or 
service that is necessary to prevent deception, regardless of whether 
that term directly relates to the negative option feature, and 
including but not limited to:
    (1) That consumers will be charged for the good or service, or that 
those charges will increase after any applicable trial period ends, 
and, if applicable, that the charges will be on a recurring basis, 
unless the consumer timely takes steps to prevent or stop such charges;
    (2) The deadline (by date or frequency) by which the consumer must 
act in order to stop all charges;
    (3) The amount (or range of costs) the consumer will be charged 
and, if applicable, the frequency of such charges a consumer will incur 
unless the consumer takes timely steps to prevent or stop those 
charges;
    (4) The date (or dates) each charge will be submitted for payment; 
and
    (5) The information necessary for the consumer to cancel the 
negative option feature.
    (b) Form and content of required information.
    (1) Clear and conspicuous: Each disclosure required by paragraph 
(a) of this section must be clear and conspicuous.
    (2) Placement:
    (i) If directly related to the negative option feature, the 
disclosures must appear immediately adjacent to the means of recording 
the consumer's consent for the negative option feature; or
    (ii) If not directly related to the negative option feature, the 
disclosures must appear before consumers make a decision to buy (e.g., 
before they ``add to shopping cart'').
    (3) Other information: All communications, regardless of media, 
must not contain any other information that interferes with, detracts 
from, contradicts, or otherwise undermines the ability of consumers to 
read, hear, see, or otherwise understand the disclosures, including any 
information not directly related to the material terms and conditions 
of any negative option feature.


Sec.  425.5  Consent.

    (a) Express informed consent. In connection with promoting or 
offering for sale any good or service with a negative option feature, 
it is a violation of this Rule and an unfair or deceptive act or 
practice in violation of Section 5 of the FTC Act for a negative option 
seller to fail to obtain the consumer's express informed consent before 
charging the consumer. In obtaining such expressed informed consent, 
the negative option seller must:
    (1) Obtain the consumer's unambiguously affirmative consent to the 
negative option feature offer separately from any other portion of the 
transaction;
    (2) Not include any information that interferes with, detracts 
from, contradicts, or otherwise undermines the ability of consumers to 
provide their express informed consent to the negative option feature;
    (3) Obtain the consumer's unambiguously affirmative consent to the 
rest of the transaction; and
    (4) Keep or maintain verification of the consumer's consent for at 
least three years, or one year after the contract is otherwise 
terminated, whichever period is longer.
    (b) Requirements for negative option features covered in the 
Telemarketing Sales Rule. Negative option sellers covered by the 
Telemarketing Sales Rule must comply with all applicable requirements 
provided in part 310 of this title, including, for transactions 
involving preacquired account information and a free-pay-conversion, 
obtaining from the customer, at a minimum, the last four (4) digits of 
the account number to be charged and making and maintaining an audio 
recording of the entire telemarketing transaction as required by part 
310.
    (c) Documentation of unambiguously affirmative consent for written 
offers. Except for transactions covered by the preauthorized transfer 
provisions of the Electronic Fund Transfer Act (15 U.S.C. 1693e) and 
Regulation E (12 CFR 1005.10), a negative option seller will be deemed 
in compliance with the requirements of paragraph (a)(3) of this section 
for all written offers (including over the internet or phone 
applications), if that seller obtains the required consent through a 
check box, signature, or other substantially similar method, which the 
consumer must affirmatively select or sign to accept the negative 
option feature and no other portion of the transaction. The consent 
request must be presented in a manner and format that is clear, 
unambiguous, non-deceptive, and free of any information not directly 
related to the consumer's acceptance of the negative option feature.


Sec.  425.6  Simple cancellation (``Click to Cancel'').

    (a) Simple mechanism required for cancellation. In connection with 
promoting or offering for sale any good or service with a negative 
option feature, it is a violation of this Rule and an unfair or 
deceptive act or practice in violation of Section 5 of the FTC Act for 
the negative option seller to fail to provide a simple mechanism for a 
consumer to cancel the negative option feature and avoid being charged 
for the good or service and immediately stop any recurring charges.
    (b) Simple mechanism at least as simple as initiation. The simple 
mechanism required by paragraph (a) of this section must be at least as 
easy to use as the method the consumer used to initiate the negative 
option feature.
    (c) Minimum requirements for simple mechanism. At a minimum, the 
negative option seller must provide the simple mechanism required by 
paragraph (a) of this section through the same medium (such as 
internet, telephone, mail, or in-person) the consumer used to consent 
to the negative option feature, and:
    (1) For internet cancellation, in addition to the requirements of 
paragraphs (a) and (b) of this section, the negative option seller must 
provide, at a minimum, the simple mechanism over the same website or 
web-based application the consumer used to purchase the negative option 
feature.
    (2) For telephone cancellation, in addition to the requirements of 
paragraphs (a) and (b) of this section, the negative option seller 
must, at a minimum, provide a telephone number, and assure that all 
calls to this number are answered promptly during normal business hours 
and are not more costly than the telephone call the consumer used to 
consent to the negative option feature.
    (3) For in-person sales, in addition to the requirements of 
paragraphs (a) and (b) of this section, the negative option seller must 
offer the simple mechanism through the internet or by telephone in 
addition to, where practical, an in-person method similar to that the 
consumer used to consent to the negative option feature. If the simple 
mechanism is offered through the telephone, all calls must be answered 
during normal business hours and, if applicable, must not be more 
costly than the telephone call the consumer used to consent to the 
negative option feature.
    (d) Saves: The seller must immediately cancel the negative option

[[Page 24736]]

feature upon request from a consumer, unless the seller obtains the 
consumer's unambiguously affirmative consent to receive a Save prior to 
cancellation. Such consent must apply only to the cancellation attempt 
in question and not to subsequent attempts. The negative option seller 
must keep or maintain verification of the consumer's consent to 
receiving a Save prior to cancellation for at least three years, or one 
year after the contract is otherwise terminated, whichever period is 
longer.


Sec.  425.7  Annual reminders for negative option features not 
involving physical goods.

    In connection with sales with a negative option feature that do not 
involve the automatic delivery of physical goods, it is a violation of 
this Rule and an unfair act or practice in violation of Section 5 of 
the FTC Act for a negative option seller to fail to provide consumers 
reminders, at least annually, identifying the product or service, the 
frequency and amount of charges, and the means to cancel. At a minimum, 
such reminders must be provided through the same medium (such as 
internet, telephone, or mail) the consumer used to consent to the 
negative option feature. For in-person sales, the negative option 
seller must provide the reminder through the internet or by telephone 
in addition to, where practical, an in-person method similar to that 
the consumer used to consent to the negative option feature.


Sec.  425.8  Relation to State laws.

    (a) In general. This part shall not be construed as superseding, 
altering, or affecting any other State statute, regulation, order, or 
interpretation relating to negative option requirements, except to the 
extent that such statute, regulation, order, or interpretation is 
inconsistent with the provisions of this part, and then only to the 
extent of the inconsistency.
    (b) Greater protection under State law. For purposes of this 
section, a State statute, regulation, order, or interpretation is not 
inconsistent with the provisions of this part if the protection such 
statute, regulation, order, or interpretation affords any consumer is 
greater than the protection provided under this part.

    By direction of the Commission, Commissioner Wilson dissenting.
April J. Tabor,
Secretary.

    Note:  the following statements will not appear in the Code of 
Federal Regulations:

Statement of Chair Lina M. Khan Joined by Commissioner Rebecca Kelly 
Slaughter and Commissioner Alvaro M. Bedoya

    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.
    Negative option plans refer to any situation where the customer is 
presumed to continue to accept an agreement or offer unless they 
affirmatively decline it. This structure can be harmless, and can even 
benefit consumers, when properly disclosed. Problems arise when 
businesses manipulate consumers away from taking that affirmative step, 
which can result in customers paying for things they don't want or 
need. Where consumer protection laws are inadequate, or inadequately 
enforced, dishonest companies will keep developing ways to make it 
easier to inadvertently subscribe, and ever harder to cancel, harming 
consumers and honest competitors along the way.
    The original Negative Option Rule addressed what we call 
``prenotification plans.'' These are where sellers provide consumers 
with notice of the product, send the product, and then charge for it 
unless the consumer affirmatively declines. Since then, the Commission 
has gained other authorities to help address deceptive negative 
options, including the Telemarketing Sales Rule and the Restore Online 
Shoppers' Confidence Act. The Commission has actively enforced these 
rules and laws, including in over 30 cases from just the past few 
years.\1\ In 2021, we issued a policy statement articulating the 
Commission's various existing authorities.\2\
---------------------------------------------------------------------------

    \1\ Examples of these matters include: FTC v. Triangle Media 
Corp., 3:18-cv-01388-LAB-LL (S.D. Cal. 2019); FTC v. Credit Bureau 
Ctr., LLC, No. 17-cv-00194 (N.D. Ill. 2018); FTC v. JDI Dating, 
Ltd., No. 1:14-cv-08400 (N.D. Ill. 2018); FTC, Illinois, and Ohio v. 
One Techs., LP, No. 3:14-cv-05066 (N.D. Cal. 2014); FTC v. Health 
Formulas, LLC, No. 2:14-cv-01649-RFB-GWF (D. Nev. 2016); FTC v. 
Nutraclick LLC, No. 2:16-cv-06819-DMG (C.D. Cal. 2016); FTC v. XXL 
Impressions, No. 1:17-cv-00067-NT (D. Me. 2018); FTC v. AAFE 
Products Corp., No. 3:17-cv-00575 (S.D. Cal. 2017); FTC v. Pact 
Inc., No. 2:17-cv-1429 (W.D. Wash. 2017); FTC v. Tarr, No. 3:17-cv-
02024-LAB-KSC (S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 1:17-cv-
09083 (S.D.N.Y. 2017); FTC v. DOTAuthority.com, Inc., No. 0:16-cv-
62186-WJZ (S.D. Fla. 2018); FTC v. Bunzai Media Group, Inc., No. 
CV15-04527-GW(PLAx) (C.D. Cal. 2018); and FTC v. RevMountain, LLC, 
No. 2:17-cv-02000-APG-GWF (D. Nev. 2018).
    \2\ Fed. Trade Comm'n, Enforcement Policy Statement Regarding 
Negative Option Marketing (2021), https://www.ftc.gov/system/files/documents/public_statements/1598063/negative_option_policy_statement-10-22-2021-tobureau.pdf.
---------------------------------------------------------------------------

    But these authorities have left major gaps. TSR applies only to 
telemarketing, ROSCA only to online shopping, and the existing Negative 
Option Rule only to prenotification plans. Meanwhile, even as we've 
been busy enforcing these laws, negative option marketing has only 
increased, along with abuses. Some companies are using ever more 
sophisticated dark patterns to thwart consumer efforts to cancel a 
product or service. Some consumers report thinking they've successfully 
canceled, only to find out later that they didn't notice a nearly 
invisible button that they needed to click in order to finalize their 
decision.
    Accordingly, today's proposed rulemaking draws on Section 5's 
prohibition against unfair or deceptive practices. Specifically, it 
proposes to amplify ROSCA's simple-cancellation mandate and applies it 
across the full universe of negative option marketing. As the 
Commission has found in case after case, companies can make it easy to 
sign up--sometimes inadvertently--for an ongoing good or service and 
make it difficult to leave. Many gyms reportedly require members to 
cancel in person or via certified or notarized mail.\3\
---------------------------------------------------------------------------

    \3\ See, e.g., Jeremy Glass, I Tried to Quit Three Gyms in 1 Day 
and Ended Up a Stronger Man, Men's Health (Apr. 14, 2020) https://www.menshealth.com/fitness/a32085243/how-i-canceled-gym-memberships/.
---------------------------------------------------------------------------

    You might sign up for a cell phone plan online, but to cancel, you 
have to call an 800 number, wait on hold for a customer service 
representative, and then speak to that representative, who will keep 
you on the line to try to convince you to stay. These companies are 
betting that customers will be too impatient, busy, or confused to jump 
through every hoop.
    Canceling a subscription should be easy. That's why the proposed 
update to the Negative Option Rule sets forth clear standards on what 
we call ``click-to-cancel'': the obligation to make cancellation simple 
and easy. For example, the proposed rule requires any cancellation to 
be offered through the same medium as the subscription. Most 
importantly, it ``must be at least as easy to use as the method the 
consumer used to initiate the negative option feature.''

[[Page 24737]]

To take a simple example, this would put an end to companies requiring 
you to call customer service to cancel an account that you opened on 
their website.
    The proposed rule contains other proposed consumer protections, as 
well. Businesses marketing negative option products and services must 
clearly and conspicuously disclose key material terms--including when 
any trial period ends, the deadline to cancel, the frequency of 
charges, the date of payments, and cancellation information--before 
collecting any billing information from the customer. The Commission 
also proposes a requirement that businesses get the consumer's 
unambiguously affirmative consent to the negative option feature of the 
transaction, separate from any other agreement. The proposal would 
still allow a business to try to persuade customers to stay, such as by 
offering perks or discounts. But it would have to get the customer's 
express consent before doing so.
    These are some of the key components of today's Notice of Proposed 
Rulemaking, which seeks comment on the proposal to update and modernize 
the Commission's existing authority around negative option plans. If 
adopted, this rule would enable more efficient enforcement. It would 
create a more powerful deterrent by introducing the risk of civil 
penalties. And it would allow the Commission to return money to wronged 
consumers. The proposed rule would also provide clarity across 
industries about sellers' obligations when engaging in negative option 
marketing. The click-to-cancel section of the proposed rule would give 
companies clear and specific instructions around making it at least as 
easy to cancel their products and services as it is to register for 
them.
    We invite members of the public to weigh in on these proposed 
amendments to the Negative Option Rule. As we move forward with the 
rulemaking process, we will carefully review public comments when 
deciding whether and how to craft a rule that would protect consumers 
from these potentially unfair or deceptive practices.
    This proposed rulemaking is part of a broader effort at the 
Commission to examine how we can deploy our scarce resources to achieve 
maximum impact. Using our rulemaking tools to clarify the law for 
market participants across the board and activate civil penalties and 
redress is a key part of this effort. We thank the FTC team for their 
terrific work in this area. Whether it's unwanted subscription or 
hidden junk fees, ending exploitative business practices will continue 
to be a focus of this Commission.

Dissenting Statement of Commissioner Christine S. Wilson

    Today the Commission announces a notice of proposed rulemaking 
(NPRM) suggesting modifications to the Commission's Rule Concerning the 
Use of Prenotification Negative Option Plans (Negative Option Rule or 
Rule). The Commission first sought comment on amendments to this Rule 
in an advance notice of proposed rulemaking (ANPR) published in October 
2019.\1\ At that time, the Commission explained that abuses in negative 
option marketing persisted despite the Commission's active enforcement. 
The existing Negative Option Rule covers a narrow category of negative 
option marketing, prenotification negative option plans. Other types of 
negative option features are covered by other statutes or rules \2\ 
enforced by the Commission, and deceptive practices in connection with 
negative option plans have been challenged under Section 5 of the FTC 
Act. The Commission noted in the ANPR that differing requirements in 
the Commission's varied statutes, rules and Section 5 enforcement 
actions did not provide a consistent, cohesive framework for 
enforcement and business guidance. The Commission proposed expanding 
the Negative Option Rule to synthesize the legal requirements within 
one rule. I supported seeking comment on this proposal because clarity 
with respect to regulatory requirements benefits consumers and 
businesses.\3\
---------------------------------------------------------------------------

    \1\ 85 FR 52393 (Oct. 2, 2019).
    \2\ Specifically, the FTC enforces several statutes and rules 
that address negative option marketing, including the Restore Online 
Shoppers' Confidence Act (ROSCA), 15 U.S.C. 8401-8405; the 
Telemarketing Sales Rule (TSR), 16 CFR part 310; the Postal 
Reorganization Act (also known as the Unordered Merchandise Rule), 
39 U.S.C. 3009; and the Electronic Funds Transfer Act, 15 U.S.C. 
1693-1693r.
    \3\ In 2020, rather than take the next step in the rulemaking 
process and issue an NPRM, the Commission chose to issue a Policy 
Statement on Negative Option Marketing, from which I dissented. This 
Commission repeatedly has issued Policy Statements in the midst of 
ongoing rulemakings addressing precisely the same issues. Publishing 
guidance during the pendency of a related rulemaking short-circuits 
the receipt of public input, conveys disdain for our stakeholders, 
and does not constitute good government. See Christine S. Wilson, 
Dissenting Statement of Commissioner Christine S. Wilson, 
Enforcement Policy Statement Regarding Negative Option Marketing 
(Oct. 2021), https://www.ftc.gov/system/files/documents/public_statements/1598067/negative_option_policy_statement_csw_dissent.pdf.
---------------------------------------------------------------------------

    The proposed Rule the Commission announces today may achieve the 
goal of synthesizing the various requirements in one rule--but it also 
sweeps in far more conduct than previously anticipated. The broadened 
scope of the Rule would extend far beyond the negative option abuses 
cited in the ANPR, and far beyond practices for which the rulemaking 
record supports a prevalence of unfair or deceptive practices. In fact, 
the Rule would capture misrepresentations regarding the underlying 
product or service wholly unrelated to the negative option feature. For 
these reasons, I dissent.
    The comments received in response to the ANPR, consumer complaints, 
and the Commission's enforcement actions demonstrate that abuses in 
negative option marketing persist despite our active enforcement in 
this area. As the NPRM explains, some marketers misrepresent or fail to 
disclose clearly and conspicuously the terms, or even the existence, of 
negative option features; fail to obtain consumers' express, informed 
consent to the recurring charges; fail to provide a simple mechanism to 
cancel; and/or engage in activities designed to frustrate consumers' 
ability to cancel. I agree that these issues are prevalent in the 
market.
    The scope of the proposed Rule is not confined to negative option 
marketing. It also covers any misrepresentation made about the 
underlying good or service sold with a negative option feature. 
Notably, as drafted, the Rule would allow the Commission to obtain 
civil penalties, or consumer redress under Section 19 of the FTC Act, 
if a marketer using a negative option feature made misrepresentations 
regarding product efficacy or any other material fact. The proposed 
text is as follows:

425.3 Misrepresentations

    In connection with promoting or offering for sale any good or 
service with a negative option feature, it is a violation of this 
Rule and an unfair or deceptive act or practice in violation of 
Section 5 of the Federal Trade Commission Act (``FTC Act'') for any 
negative option seller to misrepresent, expressly or by implication, 
any material fact related to the transaction, such as the negative 
option feature, or any material fact related to the underlying good 
or service. (Emphasis added).

    The NPRM confirms that the scope of this provision is intended to 
extend beyond the terms of the negative option feature. Specifically, 
the NPRM explains that ``the proposed Rule prohibits any person from 
misrepresenting, expressly or by implication, any material fact 
regarding the entire agreement--not just facts related to a negative 
option feature.'' It further explains that ``[s]uch deceptive practices 
may involve misrepresentations related to costs, product efficacy, free 
trial claims,

[[Page 24738]]

processing or shipping fees, billing information use, deadlines, 
consumer authorization, refunds, cancellation, or any other material 
representation.''
    Consequently, marketers using negative option features in 
conjunction with the sale of a good or service could be liable for 
civil penalties or redress under this Rule for product efficacy claims 
or any other material representation even if the negative option terms 
are clearly described, informed consent is obtained, and cancellation 
is simple. Consider a dietary supplement marketed with a continuity 
plan that is advertised to relieve joint pain. The Commission alleges 
the joint pain claims are deceptive and unsubstantiated. The Rule could 
apply. A grocery delivery service offered via subscription asserts that 
the consumer's shopping lists will not be shared, but in fact the 
service does share the information for advertising purposes--a privacy 
misrepresentation. The Rule could apply. Cosmetics purchased through a 
monthly subscription service are marketed as Made in USA but in fact 
are made elsewhere. The Rule could apply.
    The Commission does not have authority to seek civil penalties in 
de novo Section 5 cases. And the Commission's ability to seek consumer 
redress was gravely curtailed by the Supreme Court's decision in AMG 
that found the Commission does not have authority to seek consumer 
redress under Section 13(b) of the FTC Act.\4\ This proposed Rule would 
fill that vacuum when marketers use a negative option feature.
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    \4\ AMG Capital Mgmt., LLC v. FTC, 141 S. Ct. 1341 (2021).
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    The NPRM explains that the inclusion of non-negative option related 
misrepresentations is needed because ``FTC enforcement experience 
demonstrates misrepresentations in negative option marketing cases 
continue to be prevalent and often involve deceptive representations 
not only related to the negative option feature but to the underlying 
product (or service) or other aspects of the transaction as well.'' 
(Emphasis added). The NPRM cites ten cases as representative of these 
prevalent deceptive representations. Thus, the NPRM asserts that our 
law enforcement experience demonstrates that marketers that 
misrepresent negative option features typically do so in conjunction 
with other deception.
    The Commission is authorized to issue a notice of proposed 
rulemaking when it ``has reason to believe that the unfair or deceptive 
acts or practices which are the subject of the proposed rulemaking are 
prevalent.'' \5\ Importantly, we did not seek comment in the ANPR about 
whether an expanded negative option rule should address general 
misrepresentations; no comments are cited in the NPRM to support the 
inclusion of these provisions. Absent the above-quoted brief 
explanation with the accompanying case cites, the NPRM does not offer 
evidence that negative option marketing writ large is permeated by 
deception. If that were the case, it might be appropriate to fold in 
representations about any material fact.
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    \5\ 15 U.S.C. 57a(b)(3).
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    In addition, we know that negative option marketing is used 
lawfully and non-deceptively in a broad array of common transactions--
newspaper subscriptions, video streaming services, delivery services, 
etc. Will the expansion of the Rule as proposed discourage companies 
from using negative option features, that consumers prefer and enjoy, 
because of potential liability? Does the inclusion of product efficacy 
and any other material information in this proposed Rule over-deter the 
negative option abuses that the Rule purportedly was primarily designed 
to prevent? The NPRM does not discuss these issues. I encourage the 
public to address these issues in their comments in response to this 
NPRM.
    It is possible the Commission would exercise prosecutorial 
discretion and not allege violations of the Rule for all advertising 
claims, privacy or data security issues, or claims regarding secondary 
characteristics (e.g., Made in USA or environmental claims). But the 
NPRM does not indicate a limiting principle to this proposed provision. 
This Commission, in many areas, has demonstrated a zeal and willingness 
to push beyond the boundaries of our authority.
    In the wake of AMG, this Commission has proposed broad, sweeping 
rules for privacy and data security (the Commercial Surveillance and 
Data Security ANPR), as well as pricing and fees (the ``junk fees'' or 
Unfair or Deceptive Fees ANPR). As I noted in my dissents, the scope of 
those proposals extended far beyond practices for which Commission law 
enforcement and other evidence have established a prevalence of 
deceptive or unfair practices.\6\ In July 2021, this Commission 
promulgated a final Made in USA labeling rule that include a definition 
of ``labeling'' that, in my view, went beyond our Congressional 
authority to regulate labels.\7\ The Commission also has employed or 
announced novel applications of our existing rules that I believe 
similarly extend beyond our regulatory authority. For example, in 
September 2021, the Commission issued a Policy Statement on Breaches by 
Health Apps and Other Connected Devices that included a novel 
interpretation of the Health Breach Notification Rule that expanded 
both the covered universe of entities and the circumstances under which 
the Commission will initiate enforcement.\8\
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    \6\ See Christine S. Wilson, Dissenting Statement of 
Commissioner Christine S. Wilson, Advance Notice of Proposed 
Rulemaking--Junk Fees (Oct. 2022) (explaining that the proposal 
could launch rules that regulate the way prices are conveyed to 
consumers across nearly every sector of the economy and is 
untethered from a solid foundation of FTC enforcement), https://www.ftc.gov/system/files/ftc_gov/pdf/commissioner-wilson-dissenting-statement-junk-fees-anpr.pdf; Christine S. Wilson, Dissenting 
Statement of Commissioner Christine S. Wilson, Trade Regulation Rule 
on Commercial Surveillance and Data Security (Aug. 2022) (noting 
that many practices discussed in the ANPR are presented as clearly 
deceptive or unfair despite the fact that they stretch far beyond 
practices with which we are familiar, given our extensive law 
enforcement experience, and wander far afield of areas for which we 
have clear evidence of a widespread pattern of unfair or deceptive 
practices), https://www.ftc.gov/system/files/ftc_gov/pdf/Commissioner%20Wilson%20Dissent%20ANPRM%20FINAL%2008112022.pdf.
    \7\ See Christine S. Wilson, Dissenting Statement of 
Commissioner Christine S. Wilson, Final Rule related to Made in 
U.S.A. Claims (July 2021), https://www.ftc.gov/system/files/documents/public_statements/1591494/2021-07-01_commissioner_wilson_statement_musa_final_rule.pdf. The dissent 
explained that the Rule was not supported by the plain language of 
Section 45a of the FTC Act that provided authority for the 
Commission to promulgate a rule addressing ``labels'' or ``the 
equivalent thereof.'' The language of the Rule described labels to 
include stylized marks in online advertising or paper catalogs and 
potentially other advertising marks, such as hashtags, that contain 
MUSA claims.
    \8\ See Christine S. Wilson, Dissenting Statement of 
Commissioner Christine S. Wilson, Policy Statement on Breaches by 
Health Apps and Other Connected Devices (Sept. 2021), https://www.ftc.gov/system/files/documents/public_statements/1596356/wilson_health_apps_policy_statement_dissent_combined_final.pdf; see 
also Separate Statement of Commissioner Christine S. Wilson 
Concurring in Part, Dissenting in Part, FTC v. Avant, LLC (Apr. 15, 
2019) (dissenting with respect to the maiden use of the 
Telemarketing Sales Rule (TSR) provision related to novel payments 
(specifically remotely created checks) in a non-fraud case), https://www.ftc.gov/system/files/documents/public_statements/1514073/avant_inc_1623090_separate_statement_of_christine_s_wilson_4-15-19.pdf. In the Avant matter, the Commission sought to impose 
liability under the TSR against a legitimate company, selling 
legitimate products, in circumstances not contemplated when the Rule 
was promulgated to address fraudulent businesses abusing these types 
of payments. Id.
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    With respect to negative options, this NPRM states that the 
proposed rule is consistent with the Commission's ROSCA cases. I 
disagree. ROSCA Section 8403 states that for goods or services sold 
through a negative option feature, the seller must ``clearly and

[[Page 24739]]

conspicuously disclose all material terms of the transaction before 
obtaining the consumer's billing information.'' The requirement in 
ROSCA to disclose ``all material terms of the transaction'' cannot 
reasonably be interpreted to include all product efficacy claims or any 
material fact about the underlying good or service. A term of the 
transaction is distinct from an advertising claim or other potentially 
material information.
    The cases in which I supported alleging violations of ROSCA under 
this Section clearly involved material terms of the transaction. In 
MoviePass, consumers purchased a movie subscription and the term at 
issue was whether the subscription was unlimited.\9\ In WealthPress, 
another recent matter alleging violations of ROSCA under this Section, 
the terms at issue were included by the marketer in the ``terms and 
conditions'' section of the website and consumers were required 
affirmatively to agree to accept the terms to complete the 
transaction.\10\ The facts in these cases do not support a reading of 
the ROSCA ``material term of the transaction'' language to include any 
advertising claim.
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    \9\ See Concurring Statement of Commissioner Christine S. 
Wilson, In re Moviepass, Inc. (June 7, 2021), https://www.ftc.gov/system/files/documents/public_statements/1590708/commissioner_wilson_concur_moviepass_final.pdf.
    \10\ See Christine S. Wilson, Concurring Statement of 
Commissioner Christine S. Wilson, WealthPress Holdings, LLC (Jan. 
2023), https://www.ftc.gov/system/files/ftc_gov/pdf/2123002wealthpresswilsonconcurstmt.pdf.
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    It is useful also to recall the genesis of ROSCA and the specific 
grant of authority Congress provided the Commission. As noted in the 
findings, ROSCA was promulgated to address a specific abuse in negative 
option marketing prevalent at that time--third-party upsells of 
products or services made during check-out for an initial purchase that 
included negative option features.\11\ The terms of the third-party 
offer that included the negative option feature were not adequately 
disclosed and consumers were not given an opportunity to consent to a 
transfer of their billing information to a third-party. They were then 
locked into recurring charges to which they had not consented and often 
had difficulty cancelling. The provisions in Section 8403 were 
ancillary to the intent of the statute and there is no indication in 
the statute or the legislative history that they were intended to 
confer on the Commission authority to seek civil penalties or redress 
for representations wholly unrelated to the terms of the negative 
option feature. In other words, this proposed Negative Option Rule is 
inconsistent with the FTC's prior ROSCA cases.
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    \11\ See 15 U.S.C. 8401.
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    The proposed Rule also will treat marketers differently for 
purposes of potential monetary liability for Section 5 violations, 
depending on whether they sell products or services with or without 
negative option features.
    The careful reader may observe that the Commission's Telemarketing 
Sales Rule (TSR) also includes a prohibition on general 
misrepresentations.\12\ But the TSR was promulgated pursuant to 
Congressional authorization.\13\ The legislative history and Statement 
of Basis and Purpose of the TSR also provide a substantial evidentiary 
basis establishing that outbound telemarketing routinely was used as a 
vehicle for fraud and deception--marketers disturbed consumers in the 
solitude of their homes, and subjected them to deception and aggressive 
sales tactics that caused significant consumer injury.\14\
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    \12\ 16 CFR 310.3(a)(2)(iii) (prohibiting misrepresentations 
regarding ``[a]ny material aspect of the performance, efficacy, 
nature, or central characteristic of the goods or services that are 
the subject of a sales offer'').
    \13\ Telemarketing and Consumer Fraud and Abuse Prevention Act. 
15 U.S.C. 6101 et seq.
    \14\ See, e.g., 60 FR 43842 (Aug. 23, 1995) (Statement of Basis 
and Purpose for the Commission's Rule).
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    I appreciate staff's steadfast efforts to protect consumers from 
deceptive negative option practices. I might have supported a tailored 
rule to address the negative option marketing abuses prevalent in our 
law enforcement experience that consolidated various legal 
requirements. This proposal instead attempts an end-run around the 
Supreme Court's decision in AMG to confer de novo redress and civil 
penalty authority on the Commission for Section 5 violations unrelated 
to deceptive or unfair negative option practices.
    For these reasons, I dissent.

[FR Doc. 2023-07035 Filed 4-21-23; 8:45 am]
BILLING CODE 6750-01-P