[Federal Register Volume 89, Number 221 (Friday, November 15, 2024)]
[Rules and Regulations]
[Pages 90476-90545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25534]
[[Page 90475]]
Vol. 89
Friday,
No. 221
November 15, 2024
Part III
Federal Trade Commission
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16 CFR Part 425
Negative Option Rule; Final Rule
Federal Register / Vol. 89 , No. 221 / Friday, November 15, 2024 /
Rules and Regulations
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FEDERAL TRADE COMMISSION
16 CFR Part 425
RIN 3084-AB60
Negative Option Rule
AGENCY: Federal Trade Commission.
ACTION: Final rule.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'')
issues final amendments to the Commission's trade regulation ``Rule
Concerning Use of Prenotification Negative Option Plans,'' retitled the
``Rule Concerning Recurring Subscriptions and Other Negative Option
Programs'' (``Rule,'' ``final Rule'' or ``Negative Option Rule''). The
final Rule now applies to all negative option programs in any media.
This document also contains the text of the final Rule, the Rule's
Statement of Basis and Purpose (``SBP''), and a final regulatory
analysis.
DATES:
Effective date: This rule is effective January 14, 2025.
Compliance date: Regulated entities have until May 14, 2025 to
comply with Sec. Sec. 425.4 through 425.6.
ADDRESSES: Relevant portions of the record of this proceeding,
including this document, are available at https://www.ftc.gov.
FOR FURTHER INFORMATION CONTACT: Katherine Johnson, Attorney, (202)
326-2185, [email protected], Division of Enforcement, Bureau of
Consumer Protection, Federal Trade Commission, 600 Pennsylvania Ave.
NW, Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
I. Overview
The Commission commenced this proceeding because it had reason to
believe unfair and deceptive negative option practices are widespread
in the marketplace. Negative option programs can provide substantial
benefits for sellers and consumers. However, consumers cannot realize
these benefits when sellers make material misrepresentations to induce
consumers to enroll in such programs, fail to provide important
information, bill consumers without their consent, or make cancellation
difficult or impossible. Unfair and deceptive negative option practices
have been a persistent source of consumer harm for decades, saddling
shoppers with recurring payments for products and services they never
intended to purchase nor wanted to continue buying. In the past, the
Commission sought to address these practices through individual law
enforcement actions and a patchwork of laws and regulations.
Nevertheless, problems persist, as demonstrated by both a steady stream
of State and Federal law enforcement actions and thousands of consumer
complaints each year. To address these practices, the Commission
proposed amending the current Negative Option Rule to establish clear,
enforceable performance-based requirements for all negative option
features in all media. The Commission solicited comments first in an
advance notice of proposed rulemaking (``ANPR'') and then on proposed
amendments in a notice of proposed rulemaking (``NPRM''). The
Commission designed these amendments to ensure consumers understand
what they are purchasing and allow them to cancel their participation
without undue burden.
Among other things, this final Rule (1) prohibits
misrepresentations of any material fact made while marketing using
negative option features; (2) requires sellers to provide important
information prior to obtaining consumers' billing information and
charging consumers; (3) requires sellers to obtain consumers'
unambiguously affirmative consent to the negative option feature prior
to charging them; and (4) requires sellers to provide consumers with
simple cancellation mechanisms to immediately halt all recurring
charges.
The Commission now promulgates a final Rule. Pursuant to 15 U.S.C.
57a(a)(1)(B), the Rule, inter alia, defines the following acts and
practices as unfair or deceptive within the meaning of section 5 of the
FTC Act:
to misrepresent any material fact made while marketing
using a negative option feature (Sec. 425.3);
to fail to clearly and conspicuously disclose material
terms prior to obtaining a consumer's billing information in connection
with a negative option feature (Sec. 425.4);
to fail to obtain a consumer's express informed consent to
the negative option feature before charging the consumer (Sec. 425.5);
and
to fail to provide a simple mechanism to cancel the
negative option feature and immediately halt charges (Sec. 425.6).
Further, the Rule, consistent with the final sentence of 15 U.S.C.
57a(a)(1)(B) includes requirements prescribed for the purpose of
preventing such acts or practices.
The final Rule differs from the proposed Rule in two significant
ways. First, the proposed Rule would have required sellers to provide
annual reminders to consumers of the negative option feature. Second,
the proposed Rule would have prohibited sellers from forcing consumers
to receive saves \1\ without first obtaining consumers' unambiguously
affirmative consent. The Commission has considered comments both
supporting and opposing these proposed provisions. As explained in the
section-by-section analysis, the Commission declines to adopt these
provisions of the proposed Rule at this time. Instead, the Commission
plans to seek further comment through a supplemental NPRM (``SNPRM''),
and therefore, keeps the record open on these issues.\2\
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\1\ Save was defined in the proposed Rule to mean 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. Proposed Rule Sec. 425.2(f).
\2\ See 16 CFR 1.11 (``Commission's Rules of Practice'' or
``Commission Rules''); cf. Impersonation Rule, 89 FR 15072 (Feb. 29,
2024).
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Finally, in response to the comments, the Commission adds two
definitions and two provisions to the final Rule for clarity. The final
Rule explicitly defines the terms ``material'' and ``interactive
electronic medium'' consistent with how they were defined and discussed
in the NPRM. Additionally, the final Rule includes a severability
provision and a provision allowing requests for exemptions from the
final Rule consistent with the Commission's Rules of Practice.\3\
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\3\ See 16 CFR 1.16.
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II. Background
A. Statutory Authority
The Commission promulgates the final Negative Option Rule, 16 CFR
part 425 pursuant to section 18 of the FTC Act, 15 U.S.C. 57a, the
Administrative Procedure Act (``APA''), 5 U.S.C. 533; and part 1,
subpart B of the Commission's Rules of Practice, 16 CFR 1.7-1.20.
Section 18 permits the Commission to promulgate, amend, and repeal
trade regulation rules that define with specificity acts or practices
that are unfair or deceptive within the meaning of section 5(a)(1) of
the FTC Act, 15 U.S.C. 45(a)(1); and allows the Commission to prescribe
requirements for the purpose of preventing these unfair or deceptive
acts and practices.
B. Negative Option Marketing
1. Negative Option Programs
Negative option programs 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
[[Page 90477]]
affirmative action, as acceptance of an offer.\4\ Negative option
programs generally fall 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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\4\ 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 current Negative Option Rule,
originally promulgated in 1973. Under such plans (e.g., book-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 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, in free-to-pay plans, 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, e.g., when a consumer completes a first
transaction and then receives a second solicitation for an additional
product or service. A bundled offer occurs, e.g., when a seller
packages two or more products or services together.
Importantly, negative option programs are distinct from other
continuing agreements such as installment contracts. In an installment
contract, consumers are obligated for the entire contractual period for
the entire contract. A prime example of this type of transaction is a
contract for purchasing a vehicle, which outlines terms, such as price,
interest rate, and payment schedule. The contract thus allows the
consumer to pay the purchase price of the vehicle over time. Consumers'
failure to pay amounts due under an installment agreement may bring the
total balance due, and may trigger halting performance, or provide the
seller with other contractual rights.
A negative option, in contrast, merely determines whether a seller
may continue to send, and charge for, goods or provide services without
the consumer's further action. Notably, a contract could have both
installment and negative option features. Take, for instance, a
software license agreement. A consumer may purchase a software license
for a year, in which the consumer is obligated for the entire year,
payable monthly, to renew automatically at the conclusion of the year
unless the consumer cancels the agreement.\5\ Canceling the agreement
during the first year does not void a consumer's obligation to pay for
the whole first year, but it does terminate the consumer's
responsibility for the next year.
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\5\ See, e.g., United States v. Adobe, Inc., No. 5:24-cv-03630
(N.D. Cal. 2024).
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2. Prevalence of Deceptive or Unfair Negative Option Acts and Practices
Negative option programs are widespread in the marketplace and can
provide substantial benefits for sellers and consumers. For businesses,
the benefits of negative option marketing include ``greater revenue
predictability, customer base continuity, and the ability to better
plan in advance.'' \6\ For consumers, such benefits may include
opportunities to explore new products prior to purchase (e.g., free
trials),\7\ broader selections at lower prices and transaction
costs,\8\ and the convenience of uninterrupted products or services.\9\
However, consumers cannot reap these benefits when marketers
misrepresent material facts, fail to make adequate disclosures, bill
consumers without their consent, or make cancellation difficult or
impossible. Over the years, such problematic practices have remained a
persistent source of consumer harm, saddling consumers with recurring
payments for products and services they never intended to purchase nor
wanted to continue buying.
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\6\ News/Media Alliance (``N/MA''), FTC-2023-0033-0873; see also
Association of National Advertisers (``ANA''), FTC-2023-0033-1001;
National Retail Federation (``NRF''), FTC-2023-0033-1005. Citations
herein to comments are cited as the name of commenter and unique
identifier (e.g., FTC-2023-0033-__). Comments are available online
at regulations.gov, Negative Option Rule (NPRM), FTC-2023-0033-0001,
https://www.regulations.gov/document/FTC-2023-0033-0001.
\7\ N/MA, FTC-2023-0033-0873; Sirius XM Radio Inc. (``Sirius
XM''), FTC-2023-0033-0857; NCTA--The Internet & Television
Association (``NCTA''), FTC-2023-0033-0858; Interactive Advertising
Bureau (``IAB''), FTC-2023-0033-1000.
\8\ See IAB, FTC-2023-0033-1000; Sirius XM, FTC-2023-0033-0857;
Joint Comment from Entertainment Software Association, Digital Media
Association, and Motion Picture Association (``ESA''), FTC-2023-
0033-0867.
\9\ N/MA, FTC 2023-0033-0873; NRF, FTC-2023-0033-1005; ANA, FTC-
2023-0033-1001.
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The Commission tried to address these practices through individual
law enforcement cases and a patchwork of regulations (see discussion at
sections III-IV). Nevertheless, problems persist, as demonstrated in
part by the tens of thousands of complaints consumers submit about
these practices to the FTC each year. Moreover, the Commission and
States continue to regularly bring cases challenging harmful negative
option practices, including more than 35 recent FTC cases.\10\ 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.\11\ As discussed further
below, the continuing stream of cases; the high volume of ongoing
complaints; and comments on the record all demonstrate prevalent unfair
and deceptive practices and unabated consumer harm.
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\10\ See, e.g., FTC v. FloatMe Corp., No. 5:24-cv-00001 (W.D.
Tex. 2024); United States v. Adobe, Inc., No. 5:24-cv-03630 (N.D.
Cal. 2024); FTC v. WealthPress, Inc., No. 3:23-cv-00046 (M.D. Fla.
2023); FTC v. Bridge It, Inc., No. 1:23-cv-09651 (S.D.N.Y. 2023);
FTC v. Amazon.com, Inc., No. 2:23-cv-0932 (W.D. Wash. 2023); see
also n.60.
\11\ E.g., FTC v. Triangle Media Corp., No. 3:18-cv-01388 (S.D.
Cal. 2018); FTC v. Credit Bureau Ctr., LLC, No. 1:17-cv-00194 (N.D.
Ill. 2017); FTC v. JDI Dating, Ltd., No. 1:14-cv-08400 (N.D. Ill.
2014); FTC v. One Techs., LP, No. 3:14-cv-05066 (N.D. Cal. 2014);
FTC v. Health Formulas, LLC, No. 2:14-cv-01649 (D. Nev. 2014); FTC
v. NutraClick, LLC, No. 2:16-cv-06819 (C.D. Cal. 2016); FTC v. XXL
Impressions, LLC, No. 1:17-cv-00067 (D. Me. 2017); FTC v. AAFE
Prods. 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
(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 (S.D. Fla.
2016); FTC v. BunZai Media Grp., Inc., No. 2:15-cv-04527 (C.D. Cal.
2015); FTC v. RevMountain, LLC, No. 2:17-cv-02000 (D. Nev. 2017).
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III. The FTC'S Existing Regulatory Scheme
A. The 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
[[Page 90478]]
unfair and deceptive practices that violated section 5 of the Act, 15
U.S.C. 45. Based on practices at the time, however, the Rule only
applied to prenotification plans for the sale of goods, and therefore,
does not reach the vast majority of modern negative option
programs.\12\
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\12\ 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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Specifically, the Rule required prenotification plan sellers to
disclose their plans' material terms clearly and conspicuously before
consumers subscribe. To do so, it required sellers to disclose seven
material terms: (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.\13\ In addition, sellers had to disclose the
specific periods during which they would 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.\14\
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\13\ 16 CFR 425.1(a)(1)(i)-(vii).
\14\ 16 CFR 425.1(a)(2) and (3); id. 425.1(b).
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B. Other Current Regulatory Requirements
Several other statutes and regulations also address harmful
negative option practices. First, section 5 of the FTC Act has 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
(``TSR''), 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, but only for online transactions.
1. 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 statute broadly
prohibits ``unfair or deceptive acts or practices'' but does not
specifically address negative option marketing.\15\ Therefore, in
guidance and cases, the FTC has highlighted six basic requirements
negative option marketing must follow to avoid deceptive and unfair
practices.\16\ 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 these disclosures to 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. Fifth,
marketers must not impede the effective operation of promised
cancellation procedures and must honor cancellation requests that
comply with those procedures. Finally, marketers cannot make any
material misrepresentation regarding any portion of the transaction.
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\15\ 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).
\16\ See Negative Options: A Report by the Staff of the FTC's
Division of Enforcement, 26-29 (Jan. 2009) (``Staff Report''),
https://www.ftc.gov/reports/negative-options-federal-trade-commission-workshop-analyzing-negative-option-marketing-report-staff. In discussing the principal Section 5 requirements related to
negative options, the report cites the following pre-ROSCA cases,
FTC v. JAB Ventures, LLC, No. 2:08-cv-04648 (C.D. Cal. 2008); FTC v.
Complete Weightloss Ctr., No. 1:08-cv-00053 (D.N.D. 2008); FTC v.
Berkeley Premium Nutraceuticals, No. 1:06-cv-00051 (S.D. Ohio 2006);
FTC v. Think All Publ'g, LLC, No. 4:07-cv-00011 (E.D. Tex. 2006);
FTC v. HispaNexo, Inc., No. 1:06-cv-424 (E.D. Va. 2006); FTC v.
Consumerinfo.com, No. 8:05-cv-00801 (C.D. Cal. 2005); FTC v.
Conversion Mktg., No. 8:04-cv-01264 (C.D. Cal. 2004); United States
v. Mantra Films, Inc., No. 2:03-cv-9184 (C.D. Cal. 2003); FTC v.
Preferred Alliance, Inc., No. 1:03-cv-0405 (N.D. Ga. 2003); United
States v. Prochnow, No. 1:02-cv-917 (N.D. Ga. 2002); FTC v.
Ultralife Fitness, Inc., No. 2:08-cv-07655 (C.D. Cal. 2008); In re
America Isuzu Motors, FTC Docket No. C-3712 (1996); FTC v. Universal
Premium Servs., No. 2:06-cv-00849 (C.D. Cal. 2006); FTC v. Remote
Response Corp., No. 1:06-cv-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. See also nn.245-252.
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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.\17\
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\17\ 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. 2:14-cv-1038, 2016 WL 10654030,
at *8 (W.D. Wash. Apr. 26, 2016); FTC v. Ideal Fin. Sols., Inc., No.
2:13-cv-00143, 2015 WL 4032103, at *8 (D. Nev. June 30, 2015).
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2. ROSCA
Enacted by Congress in 2010 to address, in part, ongoing problems
with online negative option marketing, ROSCA contains general
provisions related to disclosures, consent, and cancellation.\18\
Specifically, 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 transaction before
obtaining the consumer's billing information, regardless of whether a
material term directly relates to the terms of the negative option
offer; \19\ (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.\20\ ROSCA, however, does not
prescribe specific steps marketers must follow to comply with these
provisions and is limited to online transactions.
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\18\ 15 U.S.C. 8401-8405.
\19\ ROSCA, 15 U.S.C. 8403(1); see also In re MoviePass, Inc.,
FTC Docket No. C-4751 (2021).
\20\ 15 U.S.C. 8403. ROSCA incorporates the definition of
``negative option feature'' from the TSR, 16 CFR 310.2(w).
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Furthermore, pursuant to the statute, a violation of ROSCA is
treated as a violation of a Commission trade regulation rule under
section 18 of the FTC Act.\21\ 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; \22\ injunctive relief under section
13(b) of the FTC Act; \23\ and consumer redress, damages, and other
relief under section 19 of the FTC Act.\24\
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\21\ 15 U.S.C. 8404 (citing section 18 of the FTC Act, 15 U.S.C.
57a).
\22\ 15 U.S.C. 45(m)(1)(A).
\23\ 15 U.S.C. 53(b).
\24\ 15 U.S.C. 57b(a)(1), (b).
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3. Telemarketing Sales Rule
The TSR prohibits deceptive telemarketing acts or practices,
[[Page 90479]]
including those involving negative option offers, and certain types of
payment methods common in deceptive negative option marketing.
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.\25\ The TSR,
however, only applies to negative option offers made over the
telephone.
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\25\ 16 CFR 310.3(a).
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4. Other Relevant Requirements
EFTA \26\ and the Unordered Merchandise Statute \27\ also contain
provisions relevant to unfair and deceptive negative option marketing.
EFTA prohibits sellers from imposing recurring charges on a consumer's
debit cards or bank accounts without written authorization.\28\ 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.\29\
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\26\ 15 U.S.C. 1693-1693r.
\27\ 39 U.S.C. 3009.
\28\ 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.
\29\ 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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IV. 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 free-to-pay conversions.\30\ In addition, ROSCA and the TSR do not
address negative option programs in all media. Yet, harmful negative
option practices that fall outside of ROSCA and the TSR's coverage
still occur.\31\
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\30\ 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).
\31\ See, e.g., In re Dun & Bradstreet, Inc., FTC Docket No. C-
4761 (2022); FTC v. Nobetes Corp., No. 2:18-cv-10068 (C.D. Cal.
2018); FTC v. Dill, No. 2:16-cv-00023 (D. Me. 2016); FTC v. Shopper
Sys., LLC, No. 1:12-cv-23919 (S.D. Fla. 2012); FTC v. XXL
Impressions, LLC, No. 1:17-cv-00067 (D. Me. 2017); FTC v. Health
Rsch. Labs., LLC, No. 2:17-cv-00467 (D. Me. 2017); FTC v. Mktg.
Architects, No. 2:18-cv-00050 (D. Me. 2018); see also Individual
commenter, FTC-2023-0033-0007 (discussing deceptive and unfair
negative option practices for in-person enrollment); Individual
commenter, FTC-2023-0033-0129 (gym membership in-person enrollment);
Individual commenter, FTC-2023-0033-0299 (same).
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Additionally, 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. While the statute provides more
than adequate specificity to avoid blatant violations, it makes law
enforcement actions much more difficult for closer calls, even when
these practices cause significant harm.
V. Negative Option Rulemaking and Enforcement Efforts
The Commission initiated its last regulatory review of the Negative
Option Rule in 2009,\32\ following a 2007 FTC workshop and subsequent
Staff Report.\33\ The Commission completed the review in 2014.\34\ 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.'' \35\ It also noted
practices not covered by the Rule (e.g., trial conversions and
continuity plans) accounted for most of the Commission's enforcement
activity in this area. Nevertheless, the Commission declined to expand
or modify the Rule because the enforcement tools provided by the TSR
and, especially, ROSCA, which had only recently become effective, might
prove adequate to address the extant problems. The Commission
emphasized, however, if ROSCA and its other enforcement tools failed to
protect consumers, the Commission would consider whether and how to
amend the Rule.\36\ Since that review, the problems with negative
options have persisted.\37\
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\32\ 74 FR 22720 (May 14, 2009).
\33\ See Staff Report, n.16.
\34\ 79 FR 44271 (July 31, 2014).
\35\ 79 FR 44275. The Commission cited a number of its law
enforcement actions challenging negative option marketing practices,
including, for example, FTC v. Process Am., Inc., No. 2:14-cv-00386
(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 (D. Nev. 2011) (internet trial offers
and continuity programs); FTC v. Johnson, No. 2:10-cv-02203 (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).
\36\ 79 FR 44275-76.
\37\ See sections VI-VII of this SBP.
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VI. Rule Review and Request for Comment
A. 2019 Advance Notice of Proposed Rulemaking
Given the persistence of unfair and deceptive practices despite
significant law enforcement attention at both the Federal and State
level, the Commission published its 2019 advance notice of proposed
rulemaking (``ANPR'') seeking comments on the current Rule, as well as
possible new measures to reduce consumer harm created by deceptive or
unfair negative option marketing.\38\ 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.\39\ In response, the Commission
received 17 comments.\40\
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\38\ ANPR, 84 FR 52393 (Oct. 2, 2019).
\39\ 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.''
\40\ The comments are available online. See Regulations.gov,
Negative Option Rule (ANPR), FTC-2019-0082, https://www.regulations.gov/docket/FTC-2019-0082.
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B. 2021 Enforcement Policy Statement
On November 4, 2021, the Commission published an ``Enforcement
Policy Statement Regarding Negative Option Marketing'' (``2021
Enforcement Policy Statement'' or ``EPS'') to provide guidance
regarding its enforcement of
[[Page 90480]]
various statutes and FTC regulations.\41\ The 2021 Enforcement Policy
Statement enunciated various principles rooted in FTC case law and
restated 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.\42\ In addition,
consistent with ROSCA, judicial decisions applying section 5, and cases
brought by the Commission, the 2021 Enforcement Policy Statement
reiterated sellers should obtain consumers' acceptance of the negative
option feature separately from any other portion of the transaction.
Finally, the Statement explained sellers should provide cancellation
mechanisms at least as easy to use as the method the consumer employed
to initiate the negative option feature.
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\41\ EPS, 86 FR 60822 (Nov. 4, 2021).
\42\ The Commission recently alleged a negative option seller's
failure to disclose it was impeding access to its movie subscription
service violates ROSCA. In re MoviePass, Inc., FTC Docket No. C-4751
(2021).
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C. 2023 Notice of Proposed Rulemaking
After reviewing the comments received in response to the ANPR and
issuing the 2021 Enforcement Policy Statement, the Commission issued a
notice of proposed rulemaking (``NPRM'') on April 23, 2023 (88 FR
24716). In the NPRM, the Commission proposed amending the existing Rule
to prohibit material misrepresentations and to require sellers to
provide important information to consumers, obtain consumers' express
informed consent, and ensure consumers can easily cancel negative
option programs if they choose. All these proposed changes would be
applicable to all forms of negative option marketing across all media
(e.g., telephone, internet, traditional print media, and in-person
transactions).\43\
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\43\ The Commission proposed to issue such amendments pursuant
to section 18 of the FTC Act, which authorizes it to promulgate
rules specifying acts or practices in or affecting commerce which
are unfair or deceptive. 15 U.S.C. 57a(a)(1)(B). Several commenters
raised concerns the Commission failed to follow section 18's
procedures for two reasons. First, commenters argued the
Commission's proposed Rule went beyond the scope of the ANPR. See,
e.g., ESA, FTC-2023-0033-0867; USTelecom-The Broadband Association
(``USTelecom''), FTC-2023-0033-0876; Retail Industry Leaders
Association (``RILA''), FTC-2023-0033-0883; U.S. Chamber of Commerce
(``Chamber''), FTC-2023-0033-0885; The Computer & Communications
Industry Association (``CCIA''), FTC-2023-0033-0984; IAB, FTC-2023-
0033-1000; National Retail Federation (``NRF''), FTC-2023-0033-
1005). Second, they argued the Commission's proposed Rule did not
satisfy the specificity and prevalence requirements of section 18.
The Commission addresses these comments in section VII.A.
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The Commission designed the proposed amendments to curb deceptive
or unfair practices occurring in negative option marketing. The
Commission sought public comment on ``all aspects'' of the proposal,
``including the likely effectiveness of the proposed Rule in helping
the Commission combat unfair or deceptive practices in negative option
marketing.'' \44\ The Commission further identified specific questions
and areas where it solicited available data and evidence, including
data and evidence supporting alternatives to the proposed
regulations.\45\ The Commission did not identify any disputed issues of
material fact that needed to be resolved at an informal hearing.\46\
The comment period closed on June 23, 2023.
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\44\ NPRM, 88 FR 24730.
\45\ See NPRM, 88 FR 24728 (inviting comments on free trials);
id. at 24729 (requesting comments on proposed annual reminder
provision); id. at 24730 (inviting comments on conflicts with
existing state requirements; id. (seeking comments on proposed
material changes provision and exempted activities or entities); id.
(inviting submissions of ``data, views, and arguments on the
proposed amendments''); id. at 24732-33 (inviting comments on the
impacts on small businesses, including any modifications to reduce
costs or burdens for small entities); id. at 24734 (inviting
comments on the Paperwork Reduction Act analysis). See also id. at
24730 (NPRM section XIII, Request for Comments).
\46\ See 16 CFR 1.11(e).
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In response, the Commission received more than 16,000 comments, and
published the 1,162 unique comments from stakeholders representing a
wide range of viewpoints.\47\ Although some commenters raised concerns
and recommended specific modifications or additions to the proposed
Rule (some of which the Commission adopts as discussed herein), the
majority generally supported the Rule. The Commission discusses these
comments in section VII below.
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\47\ Unique public comments to the NPRM are available online.
See regulations.gov, Negative Option Rule (NPRM), FTC-2023-0033-
0001, https://www.regulations.gov/document/FTC-2023-0033-0001. The
Commission published 1,162 unique comments. As explained at
regulations.gov, agencies may withhold duplicate/near duplicate
examples of a mass-mail campaign. See Gen. Servs. Admin.,
Regulations.gov Frequently Asked Questions, Find Dockets, Documents,
and Comments FAQs, ``How are comments counted and posted to
Regulations.gov?,'' https://www.regulations.gov/faq. The Commission
cannot quantify the number of individuals or entities represented by
the comments. The number of comments undercounts the number of
individuals or entities represented by the comments because many
comments, including those from different types of organizations,
jointly represent the opinions or interests of many. Overall, the
Commission received 16,612 comments. Of those, 15,449 were not
posted online for various reasons (i.e., 14 unrelated, 23
duplicates, and 15,412 that appear to be non-unique responses to
mass media campaigns) and one comment was withdrawn. The Commission
has considered all timely and responsive public comments it received
in response to its NPRM.
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D. Informal Hearing and Recommended Decision
Section 18 of the Federal Trade Commission Act, 15 U.S.C. 57a, and
the Commission's Rules of Practice, 16 CFR 1.11(e),\48\ provide
interested persons the opportunity to make an oral statement at an
informal hearing upon request.\49\ The Commission received six \50\
such requests. Additionally, although the Commission did not designate
any disputed issues of material fact in the NPRM, two interested
commenters, IAB and NCTA, proposed the Commission consider several
potential disputed issues of material fact.\51\
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\48\ The FTC Act provides that ``an interested person is
entitled to present his position orally or by documentary submission
(or both).'' 15 U.S.C. 57a(c)(2)(A).
\49\ 16 CFR 1.11(e).
\50\ The six requesters were (1) International Franchise
Association; (2) TechFreedom; (3) Performance Driven Marketing
Institute; (4) NCTA--The Internet & Television Association; (5)
Frontdoor; and (6) Interactive Advertising Bureau. All but one--
TechFreedom--identified their interest in the proceeding either as
industry groups or private companies.
\51\ See Notice of Informal Hearing (``Hearing Notice''), 88 FR
85525, 85526 (Dec. 8, 2023).
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On December 8, 2023, the Commission published an Initial Notice of
Informal Hearing (88 FR 85525, ``Hearing Notice''). The Hearing Notice
designated the Honorable Carol Fox Foelak, Administrative Law Judge for
the Securities Exchange Commission, to serve as the presiding officer
of the informal hearing and scheduled the informal hearing for January
16, 2024. In the Hearing Notice, the Commission again did not designate
any disputed issues of material fact, finding the issues raised by IAB
and NCTA did not need to be resolved at the informal hearing through
cross-examination.\52\
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\52\ 88 FR 85526-27.
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On January 16, 2024, Judge Foelak commenced the informal hearing,
at which IAB, NCTA, Performance Driven Marketing Institute (``PDMI''),
TechFreedom, and the International Franchise Association (``IFA'')
appeared and made oral submissions subject to cross-examination.\53\
Included in their oral and written submissions, IAB and
[[Page 90481]]
NCTA renewed their requests to have the presiding officer designate
disputed issues of material fact.\54\ Following the hearing, Judge
Foelak designated two disputed issues: (1) will the proposed rule have
an annual effect on the national economy of $100 million or more?; and
(2) what will the recordkeeping and disclosure costs associated with
the proposed rule be? Judge Foelak held subsequent hearings on January
31, 2024, and February 14, 2024. She allowed post-hearing briefs filed
by February 22, and February 28, 2024, respectively, and issued her
recommended decision on April 12, 2024. Based on the evidence, the
presiding officer found: (1) the proposed Rule will have an annual
effect on the national economy of $100 million or more; and (2) there
is insufficient evidence to make a finding regarding the size of the
recordkeeping and disclosure costs associated with the proposed
Rule.\55\
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\53\ The Hearing Notice also allowed interested persons to make
additional written submissions. The following interested parties
timely filed additional written submissions on December 22, 2023:
(1) BSA--The Software Alliance; (2) PDMI; (3) U.S. Chamber of
Commerce; (4) IAB; (5) NCTA; and two individuals. All filings
related to the Hearing Notice are available online at
regulations.gov at https://www.regulations.gov/document/FTC-2023-0073-0001.
\54\ Subsequently, IFA also asserted there were disputed issues
of material fact regarding the impact to both small businesses and
their consumers. IFA, FTC-2024-0001-0009.
\55\ Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-2024-0001-0042.
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VII. Discussion of Final Rule
A. Legal Standard for Promulgating the Final Rule
As explained above in section II, the Commission promulgates the
final Rule, 16 CFR part 425, pursuant to section 18 of the FTC Act,
also known as Magnuson-Moss rulemaking (``Magnuson-Moss''). Under
section 18 and the Commission Rules,\56\ to promulgate a rule the
Commission must: (1) issue a SBP with statements detailing: (a) the
prevalence of the acts or practices treated by the rule; (b) the manner
and context in which such acts or practices are unfair or deceptive;
and (c) the economic effect of the rule, taking into account the effect
on small business and consumers; and (2) ``define with specificity acts
or practices which are unfair or deceptive.'' The Commission addresses
these requirements in part A.1-2. In part A.3, the Commission addresses
additional legal issues, including the ANPR's scope and the ``major
questions'' doctrine.
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\56\ 15 U.S.C. 57a and 16 CFR 1.14(a)(1).
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1. Statements Required Under Section 18(d) of the FTC Act
(a) Statement Regarding Prevalence of the Acts and Practices Treated by
the Rule
Under the Magnuson-Moss statute, the Commission may promulgate
rules if it ``has reason to believe that the unfair or deceptive acts
or practices which are the subject of the proposed rulemaking are
prevalent.'' \57\ An act or practice is ``prevalent'' if the FTC has
previously issued cease and desist orders regarding the act or
practice, or if ``any other information available to the Commission
indicates a widespread pattern of unfair or deceptive acts or
practices.'' \58\ Based on the rulemaking record, the Commission has
more than sufficient reason to believe unfair or deceptive acts and
practices in the negative option marketplace are prevalent. These
practices include: (1) material misrepresentations made while marketing
using negative option features to induce consumers to enter into
negative option programs; (2) failure to provide important information
about material terms prior to billing consumers; (3) lack of informed
consumer consent; and (4) failure to provide consumers with a simple
cancellation method, including failure to honor cancellation requests,
refusal to provide refunds to consumers who unknowingly enrolled in
programs, denying consumers refunds, forcing them to pay to return the
unordered goods, requiring consumers to cancel using a more difficult
method than the one used to sign up for the program, and forcing
consumers to contend with multiple upsells before allowing
cancellation.\59\ These practices cause consumer harm by luring
consumers into purchasing goods and services they do not want, or
ensnaring consumers into unwanted recurring payments that are difficult
or impossible to cancel.
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\57\ 15 U.S.C. 57a(b)(3).
\58\ 15 U.S.C. 57a(b)(3)(A)-(B); see also Compassion Over
Killing v. FDA, 849 F.3d 849, 855 (9th Cir. 2017).
\59\ NPRM, 88 FR 24725.
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The Commission relies on substantial evidence in the record showing
a widespread pattern of unfair or deceptive conduct in the negative
option marketplace. This evidence generally falls into three
categories: State, private, and Federal actions (including
administrative and Federal court FTC law enforcement actions); consumer
complaints and comments; and studies. The Commission discusses each in
turn below.
Federal, State, and Private Actions. As discussed in the ANPR and
NPRM, the volume of enforcement efforts in recent years seeking to stem
illegal negative option marketing is significant. These matters involve
a range of deceptive and unfair practices, including: failure to
adequately disclose the existence of negative options, including after
the expiration of free trials; enrollment without consumer consent; and
inadequate or unnecessarily burdensome cancellation and refund
procedures. The FTC itself has brought at least 35 such cases in the
years since ROSCA was enacted.\60\ The Consumer Financial Protection
Bureau (``CFPB'') also has brought many of its own negative option
cases.\61\ Truth in Advertising, Inc. (``TINA''),\62\ a consumer
advocacy organization, stated in 2019 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
[[Page 90482]]
offers continues to rise.'' \63\ TINA also reports that deceptive
negative options ``have only continued to grow'' since its 2019
comment.\64\
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\60\ In the NPRM, the Commission cited a number of its law
enforcement actions challenging negative option marketing practices,
including, for example, FTC v. Process Am., Inc., No. 1:14-cv-00386
(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 (D. Nev. 2011) (internet trial offers
and continuity programs); FTC v. Johnson, No. 2:10-cv-02203 (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). Further
examples of these matters include: FTC v. Triangle Media Corp., No.
3:18-cv-01388 (S.D. Cal. 2018); FTC v. Credit Bureau Ctr., LLC, No.
1:17-cv-00194 (N.D. Ill. 2017); FTC v. JDI Dating, Ltd., No. 1:14-
cv-08400 (N.D. Ill. 2014); FTC v. One Techs., LP, No. 3:14-cv-05066
(N.D. Cal. 2014); FTC v. Health Formulas, LLC, No. 2:14-cv-01649 (D.
Nev. 2014); FTC v. NutraClick, LLC, No. 2:16-cv-06819 (C.D. Cal.
2016); FTC v. XXL Impressions, LLC, No. 1:17-cv-00067 (D. Me. 2017);
FTC v. AAFE Prods. 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 (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 (S.D. Fla. 2016); FTC v. BunZai Media Grp., Inc., No. 2:15-cv-
04527 (C.D. Cal. 2015); and FTC v. RevMountain, LLC, No. 2:17-cv-
02000 (D. Nev. 2017); see also FTC v. WealthPress, Inc., No. 3:23-
cv-00046 (M.D. Fla. 2023); FTC v. Bridge It, Inc., No. 1:23-cv-09651
(S.D.N.Y. 2023); FTC v. Amazon.com, Inc., No. 2:23-cv-0932 (W.D.
Wash. 2023); FTC v. FloatMe Corp., No. 5:24-cv-00001 (W.D. Tex.
2024); United States v. Adobe, Inc., No. 5:24-cv-03630 (N.D. Cal.
2024).
\61\ See, e.g., CFPB v. Transunion, No. 1:22-cv-01880 (N.D. Ill.
2022); CFPB v. ACTIVE Network, LLC, No. 4:22-cv-00898 (E.D. Tex.
2022); CFPB v. Sterling Jewelers, Inc., No. 1:19-cv-00448 (S.D.N.Y.
2019); In re Equifax Inc., et al., CFPB No. 2017-CFPB-0001, 2017 WL
1036710 (Jan. 3, 2017) (consent order); CFPB v. Prime Mktg.
Holdings, LLC, No. 2:16-cv-07111 (C.D. Cal. 2016); In re Transunion
Interactive, Inc., et al., CFPB No. 2017-CFPB-0002, 2017 WL 1036711
(Jan. 3, 2017) (consent order); CFPB v. Student Financial Aid
Servs., Inc., No. 2:15-cv-00821 (E.D. Cal. 2015); CFPB v. Affinion
Group Holdings, Inc., No. 5:15-cv-01005 (D. Conn. 2015); CFPB v.
Intersections Inc., No. 1:15-cv-835 (E.D. Va. 2015). Notably, the
CFPB has independent authority to enforce FTC rules, and both
agencies share some overlapping jurisdiction. See 12 U.S.C.
5581(b)(5)(B)(ii).
\62\ TINA, FTC-2019-0082-0014 (cmt. to ANPR, https://www.regulations.gov/comment/FTC-2019-0082-0014) and FTC-2023-0033-
1139 (cmt. to NPRM).
\63\ NPRM, 88 FR 24720.
\64\ TINA, FTC-2023-0033-1139.
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Several state Attorneys General \65\ also referenced dozens of
enforcement actions taken in recent years to address the proliferation
of deceptive negative option practices they regularly encounter,
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.'' \66\ These agencies explained their actions ``demonstrate that
problems persist in this area and that additional regulatory action is
needed.'' \67\ 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.\68\ They also described several multi- and
individual state law enforcement actions involving negative option
offers for products and services such as satellite radio, social
networking services, language learning programs, security monitoring,
and dietary supplements. They further recounted numerous, illustrative
complaints from consumers who ordered what they thought were free, no-
obligation samples but then found themselves enrolled in costly
continuity programs.\69\
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\65\ Several State Attorneys General offered comments to the
ANPR (FTC-2019-0082-0012 (State Attorneys General cmt. to ANPR,
https://www.regulations.gov/comment/FTC-2019-0082-0012)), and
additionally 26 Attorneys General for the States of Alabama,
Arizona, California, Colorado, Connecticut, Delaware, District of
Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts,
Michigan, Minnesota, Nebraska, Nevada, New Jersey, New York, North
Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Vermont,
Washington, and Wisconsin (``State AGs'') filed comments in response
to the NPRM. See State AGs, FTC-2023-0033-0886 (cmt. to NPRM).
\66\ NPRM, 88 FR 24720; State Attorneys General (ANPR), FTC-
2019-0082-0012. 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 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.
Consequently, they commented many consumers have been billed for
such services for years before discovering the unauthorized charges.
Id.
\67\ NPRM, 88 FR 24721.
\68\ State Attorneys General (ANPR), FTC-2019-0082-0012.
\69\ Id.
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Additionally, the State AGs outlined several ongoing investigations
into deceptive or unfair negative option programs since 2019. These
investigations include allegations of misrepresenting offers as free
when they were not; and failure to clearly and conspicuously disclose
negative option features.\70\
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\70\ State AGs, FTC-2023-0033-0886.
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Additionally, consumer advocacy organizations and others explained
that the widespread prevalence of deceptive acts and practices
underscores the ``ongoing need for [S]tate engagement to limit negative
option abuses.'' \71\ Several commenters observed that more than half
of States specifically regulate some aspect of negative option
marketing.\72\ A group of law professors explain this ``ongoing
engagement just shows that unscrupulous negative-option business models
remain such a problem that [S]tates increasingly find themselves
needing to step in.'' \73\
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\71\ See, e.g., Joint comment from Professor Kaitlin Caruso (U.
of Maine School of Law), Professor Jeff Sovern (St. John's U. School
of Law), Professor Dee Pridgen (U. of Wyoming College of Law),
Professor Chrystin Ondersma (Rutgers Law School), Professor Vijay
Raghavan (Brooklyn Law School), Professor David Vladeck (Georgetown
U. Law Center), Professor Edward Janger (Brooklyn Law School), and
Professor Susan Block-Lieb (Fordham U. School of Law) (collectively,
``Law Professors''), FTC-2023-0033-0861.
\72\ See, e.g., PDMI, FTC-2023-0033-0864 (stating over 27 states
regulate negative option marketing); N/MA, FTC-2023-0033-0873
(stating 35 states and the District of Columbia now have automatic
renewal laws, and at least 20 address all forms of automatic
renewals); Service Contract Industry Council (``SCIC''), FTC-2023-
0033-0879 (noting about half of U.S. states enacted auto-renewal
laws); NRF, FTC-2023-0033-1005 (stating at least half of all states
have statutes governing free-trial, negative-option, and/or
automatic-renewal programs); see also Law Professors, FTC-2323-0033-
0861 (stating the ``number of states that have recently adopted
specific laws targeting negative option marketing, on top of their
general prohibitions on unfair and deceptive practices and ability
to enforce ROSCA, is particularly noteworthy.''); IHRSA, The Global
Health & Fitness Association (``IHRSA''), FTC-2023-0033-0863 (noting
many states have laws on negative options). But see The Center for
Consumer Law and Economic Justice at UC Berkeley School of Law
(``Berkeley Consumer Law Center''), FTC-2023-0033-0855 (stating that
``fewer than half the states have a law specifically addressing
negative option marketing'').
\73\ Law Professors, FTC-2023-0033-0861. This group also points
out that private industry, too, has felt the need for more action in
this area, noting that VISA and Mastercard have their own
requirements for businesses that bill using a negative option model.
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Consumer Complaints and Comments. The FTC receives tens of
thousands of complaints about negative options each year through its
Sentinel complaint database, and marketers receive many more as
demonstrated by evidence in FTC cases.\74\ Additionally, TINA explained
that 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.\75\
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\74\ See, e.g., United States v. Adobe, Inc., No. 5:24-cv-03630
(N.D. Cal. 2024) (ECF No. 40, Amd. Compl.); FTC v. Amazon.com, Inc.,
No. 2:23-cv-0932 (W.D. Wash. 2023) (ECF No. 67, Amd. Compl.).
\75\ TINA, FTC-2023-0033-1139.
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Moreover, hundreds of consumer comments detailed specific practices
(discussed more thoroughly in connection with the section-by-section
analysis below) demonstrating the prevalence of unfair or deceptive
negative option practices. Likewise, comments from public interest and
consumer advocacy groups further describe existing deceptive or unfair
practices prevalent in the negative option marketplace. For example,
Berkeley Consumer Law Center explained businesses regularly use dark
patterns \76\ to facilitate enrollment in subscription-based products
and inhibit cancellation, and provided numerous examples of these
activities.\77\ A group of law professors referenced the burgeoning
industry offering to help consumers identify and cancel their unwanted
subscriptions. As they explained: ``One might expect that, if consumers
experienced the marketplace as one in which they are adequately
informed of recurring payments and readily able to cancel them, there
would not be an emerging industry to help them do just that.'' \78\
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\76\ The term ``dark patterns'' has been used to describe design
practices that trick or manipulate users into making choices they
would not otherwise have made and that may cause harm 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.
\77\ Berkeley Consumer Law Center, FTC-2023-0033-0855.
\78\ Law Professors, FTC-2023-0033-0861.
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Members of Congress also detailed ongoing problems in this area.
Citing the increase in consumer complaints and consumer harm in recent
years, Representative Takano stated, ``deceptive online marketing and
unclear recurring payment plans are leaving too many consumers on the
hook for products they may not want or even know they purchased.'' \79\
Representatives Schiff and Norton noted their constituents' desire for
greater protections in the negative option marketplace, stating the
``proposed updates will help put the consumers
[[Page 90483]]
back in control of their purchases and subscriptions.'' \80\
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\79\ NPRM, 88 FR 24720-21.
\80\ Schiff and Norton, FTC-2023-0033-0868.
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Studies. Finally, ``studies cited by commenters confirm a pattern
of consumer ensnarement in unwanted recurring payments.'' \81\ 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.\82\ The BBB study shows consumer losses in FTC
``free trial offer'' cases exceeded $1.3 billion (over the ten years
covered by the study).\83\ A group of consumer and public interest
advocacy organizations, including the National Consumers League \84\
stated that, according to the BBB, the average consumer loss for a free
trial is $186.\85\
---------------------------------------------------------------------------
\81\ NPRM, 88 FR 24725.
\82\ 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/article/investigations/18929-subscription-traps-and-deceptive-free-trials-scammillions-with-misleading-ads-and-fake-celebrity-endorsements.
\83\ Id.; see also Better Business Bureau, BBB Investigation
Update: Free Trial Offer Scams (Apr. 2020), https://www.bbb.org/article/news-releases/22040-bbb-update-free-trial-offerscams
(reporting the total has risen to nearly $1.4 billion since the 2018
BBB study); id. (observing that while celebrities, credit card
companies and government agencies have increased their efforts to
fight deceptive free trial offer scams, victims continue to lose
millions of dollars to fraudsters after the release of a December
2018 BBB study about the shady practices).
\84\ The six public interest and consumer advocacy groups are:
Consumer Action, Consumer Federation of America, Demand Progress
Education Fund, National Association of Consumer Advocates, Nation
Consumer Law Center (on behalf of its low income clients,) and
National Consumers League (``NCL'') (collectively, the ``Public
Interest Groups'').
\85\ Steve Baker, Subscription Traps and Deceptive Free Trials
Scam Millions with Misleading Ads and Fake Celebrity Endorsements,
Better Business Bureau (Dec. 2018).
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Referring to another survey conducted in 2016, TINA noted unwanted
fees associated with trial offers and automatically renewing
subscriptions ranked as ``the biggest financial complaint of
consumers.'' \86\ Similarly, 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.\87\ A 2019 Bankrate.com
survey cited by NCL found that 59% of consumers have been signed up
``against their will'' for ``free trials'' that automatically converted
into a recurring payment.\88\
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\86\ NPRM, 88 FR 24720 (citing 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.)
\87\ NPRM, 88 FR 24721.
\88\ Bankrate, ``Despite safety concerns, 64% of U.S. debit or
credit cardholders save their information online'' (Oct. 24, 2019),
at https://www.bankrate.com/pdfs/pr/20191024-online-shopping-survey.pdf (as cited by Civil Society Organizations, FTC-2023-0033-
0870).
---------------------------------------------------------------------------
NCL and others also 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.\89\ In response to the NPRM, the Public Interest Groups
cited more recent studies confirming the continued prevalence of harms
from deceptive and unfair negative option practices. For instance,
consumer groups referenced a 2022 study, which concluded ``on average,
consumers pay two-and-a-half times what they originally estimated on
monthly subscriptions, likely due to the lack of adequate notice from
sellers.'' \90\ They also noted burdensome cancellation procedures
remain rampant. ``One survey found that more than half of respondents
reported it took an average of three months to cancel unwanted
recurring payments.'' \91\ That same study reported 71% of individuals
lost more than $50 a month in unwanted subscriptions. Another study
concluded consumers underestimate how much they pay to maintain their
subscriptions by an average of $133/month (or $1,596 per year), and 42%
of the consumers had forgotten about a subscription for which they
continued to pay.\92\
---------------------------------------------------------------------------
\89\ NPRM, 88 FR 24720.
\90\ Public Interest Groups, FTC-2023-0033-0880 (citing
``Subscription Service Statistics and Costs,'' C+R Research Blog
(May 18, 2022)).
\91\ Public Interest Groups, FTC-2023-0033-0880 (citing Chase,
``Survey from Chase Reveals That Two-Thirds of Consumers Have
Forgotten About At Least One Recurring Payment In The Last Year''
(Apr. 1, 2021), https://media.chase.com/news/survey-from-chase-reveals).
\92\ State AGs, FTC-2023-0033-00866 (citing Sarah Brady and
Korrena Bailie, ``5 Tools To Help You Cancel Unwanted
Subscriptions,'' Forbes (July 13, 2022), https://www.forbes.com/advisor/personal-finance/manage-subscriptions). See also Einav,
Liran, et al., ``Selling Subscriptions'' (Dec. 1, 2023), https://nmahoney.people.stanford.edu/sites/g/files/sbiybj23976/files/media/file/mahoney_subscriptions.pdf.
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Finally, TINA also noted a consumer survey by the Washington
Attorney General's office finding ``59% of Washingtonians (3.5 million
residents) may have been unintentionally enrolled in a subscription
plan or service when they thought they were making a one-time
purchase.'' \93\ TINA contended this is ``consistent with'' the 2022
Bankrate survey finding more than half of U.S. adults experience
unwanted charges from a subscription or membership.\94\ These findings
are further supported by a Chase Bank study in 2021 finding nearly
three-quarters of Americans waste more than $50 a month on unwanted
subscription fees.\95\
---------------------------------------------------------------------------
\93\ TINA, FTC-2023-0033-1139.
\94\ Id.
\95\ See n.91.
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Despite the robust evidence that unfair or deceptive practices are
exceedingly prevalent, several trade organizations challenged the
Commission's proposed prevalence determination. However, their
arguments, as discussed below, are not persuasive.
First, they argued the Commission must show prevalence in a
specific industry in order to regulate negative option practices in
that industry, but the Commission failed to do so. For instance, NCTA
asserted there is no evidence of widespread deceptive negative option
practices in the broadband, cable, or voice industries warranting
regulation.\96\ Other commenters argued the Commission must identify
the prevalence of a specific deceptive or unfair act to warrant
regulating that specific act or practice under Section 18. For
instance, IAB, NCTA, TechNet, and TechFreedom argued the Commission
failed to show prevalence of misrepresentations about the underlying
product or service in connection with negative option contracts.
Similarly, three commenters argued the Commission should limit the
scope of the Rule to business-to-consumer transactions and exclude
business-to-business (``B2B'') transactions, in part, because the
Commission failed to show ``the prevalence of harms created by
automatically-renewing subscriptions entered into in the business-to-
business context.'' \97\
---------------------------------------------------------------------------
\96\ NCTA, FTC-2023-0033-0858; see also SCIC, FTC-2023-0033-
0879.
\97\ BSA, FTC-2023-0033-1015; see also Anonymous commenter, FTC-
2023-0033-1007; NCTA, FTC-2023-0033-0858.
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As demonstrated above, however, there is ample evidence in the
record demonstrating the prevalence of the specific unfair and
deceptive practices across numerous sectors of the economy, which the
Commission now addresses in an industry-neutral fashion.\98\ Moreover,
nothing in Section 18 requires the Commission to find prevalence
regarding a specific industry or group.\99\ The Commission need only
[[Page 90484]]
find ``some basis or evidence'' demonstrating the practice the
Commission seeks to regulate ``does indeed occur.'' \100\ Such evidence
exists here in abundance. As NCTA itself pointed out, individual
consumers complained of deceptive and unfair practices in its members'
industries.\101\ Further, ``consumer subscription models are rapidly
growing in popularity,'' \102\ and there is evidence of the
proliferation of negative option features in virtually every
industry.\103\ The harms outlined here resulted from the negative
option transaction itself, and many businesses, regardless of industry,
are incentivized to continue to leverage negative options to the
possible detriment of consumers.\104\ The Commission also declines to
limit the scope of the final Rule by excluding business-to-business
transactions. As explained in Section VII.B.1, the Commission has a
long history of protecting businesses, particularly small business, in
their role as consumers; the practices and harms described here impact
these consumers, as well.
---------------------------------------------------------------------------
\98\ See sections VII.A.1.a-b and section II.A.1.b of this SBP.
\99\ See generally 15 U.S.C. 57a.
\100\ Pennsylvania Funeral Dirs. Ass'n, Inc. v. FTC, 41 F.3d 81,
87-88 (3d Cir. 1994) (holding the FTC did not need ``substantial,
rigorous, quantitative studies'' or to show the practice occurs in a
certain percentage of transactions through the country to find
prevalence). ``Further, even where there is a limited record as to
the prevalence of a practice on a nationwide basis or where the data
reviewed only relates to a few states, the practice can be found to
be prevalent enough to warrant a regulation.'' Id. at 87.
\101\ NCTA, FTC-2023-0073-0008.
\102\ CTA, FTC-2023-0033-0997. CTA reports that a 2022 study
found the global subscription e-commerce market is expected to reach
$904.2 billion by 2026, and between 2021 and 2022, existing
subscription brands grew their customer bases by 31 percent.
\103\ 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. Tony Chen, Ken Fenyo,
Sylvia Yang, and Jessica Zhang, ``Thinking Inside the Subscription
Box: New Research on E-Commerce Consumers,'' McKinsey & Company
(February 2018) (as cited by, e.g., TechNet, FTC-2023-0033-0869 and
Individual commenter, FTC-2023-0033-0800). PDMI also observed that
negative options are offered in a wide array of product and services
from major brands including media services, meal preparation kits,
shaving and beauty products, beer and wine, contacts and ordinary
household consumables. FTC-2023-0033-0864. Digital Content Next
(``DCN''), FTC-2023-0033-0983, reports the United States had more
than one billion paid subscriptions in Q1 2023 across the digital
media landscape, indicating almost all online U.S. households
subscribe to one or more digital media subscription services. See
also, e.g., Individual commenter, FTC-2023-0033-0137 (detailing
difficulty cancelling recurring subscriptions for newspaper, mobile,
and other businesses); Individual commenter, FTC-2023-0033-0217
(reported spending hours on the phone and online to cancel mobile
account); Individual commenter, FTC-2023-0033-0465 (reported
difficulty cancelling rewards program subscription); Individual
commenter, FTC-2023-0033-0674 (complaint reporting difficulty
canceling mobile device protection subscription); Individual
commenter, FTC-2023-0033-0965 (trying to cancel mobile phone service
because they bill for different amount every month); Individual
commenter, FTC-2023-0033-0003 (difficulty cancelling ``home
warranty'' subscription); Individual commenter, FTC-2023-0033-0004
(full cost and refund policy for gym contract not clearly
disclosed); Individual commenter, FTC-2023-0033-0006 (``2 attempts
and far too much time'' to cancel radio subscription); Individual
commenter, FTC-2023-0033-0008 (discussing how ``subscription
services in particular pervade the market. Even long-standing `buy-
it-once' products such as certain software suits have moved to
subscription models''); Anonymous commenter, FTC-2023-0033-0013
(difficulty canceling home security monitoring contract, including
hearing unwanted upsells); Anonymous commenter, FTC-2023-0033-0023
(webhosting service); Anonymous commenter, FTC-2023-0033-0024 (cable
service); Individual commenter, FTC-2023-0033-0039 (language
learning app); Anonymous commenter, FTC-2023-0033-0046 (software);
Individual commenter, FTC-2023-0033-0049 (cannot cancel streaming
service); Individual commenter, FTC-2023-0033-0050 (virus protection
software and charity); Individual commenter, FTC-2023-0033-0052 (e-
news service subscription); Individual commenter, FTC-2023-0033-0057
(magazine subscription service); Individual commenter, FTC-2023-
00330061 (newspaper); Individual commenter, FTC-2023-0033-0063 (big
box retailer membership); Individual commenter, FTC-2023-0033-0064
(cosmetics); Anonymous commenter, FTC-2023-0033-0066 (home warranty
service); Individual commenter, FTC-2023-0033-0071 (lawncare
service).
\104\ See Prof. Chris Jay Hoofnagle, UC Berkeley
(``Hoofnagle''), FTC-2023-0033-1137 (discussing the subscription
economy). See also nn.245-252, collecting cases showing deceptive
and unfair negative option practices occur across a wide range of
industries and involve a variety of claims.
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(b) The Manner and Context in Which the Acts or Practices Are Unfair or
Deceptive
Pursuant to Section 18 and the Commission's Rules, the Commission
must also state the manner and context in which the prevalent acts or
practices are unfair or deceptive. The record demonstrates consumers
are often lured into enrolling in negative option programs through
seller misrepresentations about material facts--for instance, when a
seller offers a product for ``free'' when it is not.\105\ Additionally,
sellers misrepresent other aspects of the deal, such as product
features, processing or shipping fees, billing information use,
deadlines, consumer authorization, refunds, cancellations, among other
facts.\106\
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\105\ State AGs, FTC-2023-0033-0886 (consumer paid for shipping
on ``free'' gift only to have it converted to a paid item because
she retained the item); id. (Money Map Press), FTC v. Triangle Media
Corp., No. 3:18-cv-01388 (S.D. Cal. 2018) (consumers who clicked on
ads for risk free trials, paid for shipping and handling fees
unwittingly enrolled in negative option programs).
\106\ See nn.245-252 (collecting cases).
---------------------------------------------------------------------------
Sellers also often fail to disclose important information about the
offer prior to billing the consumer. As detailed in the comments from,
inter alia, State AGs and TINA, sellers fail to disclose in a clear and
conspicuous manner the existence of the negative option feature, refund
and cancellation deadlines, or other material terms of the agreement,
resulting in consumers purchasing goods or services they do not
want.\107\ All of these unfair or deceptive acts are further supported
in dozens of FTC, State AG, and class action cases.\108\
---------------------------------------------------------------------------
\107\ See State Attorneys General (ANPR), FTC-2019-0082-0012 and
State AGs, FTC-2023-0033-0886; TINA, FTC-2019-0082-0014 and FTC-
2023-0033-1139.
\108\ See, e.g., id.; see also FTC v. Pact, Inc., No. 2:17-cv-
1429 (W.D. Wash. 2017); United States v. MyLife.com, Inc., No. 2:20-
cv-6692 (C.D. Cal. 2020); FTC v. NutraClick, LLC, No. 2:20-cv-08612
(C.D. Cal. 2020); In re Dun & Bradstreet, Inc., FTC Docket No. C-
4761 (2022). See generally Staff Report, n.16.
---------------------------------------------------------------------------
The record also demonstrates sellers fail to obtain consumers'
express informed consent to the negative option feature before charging
them. For instance, as detailed in representative consumer complaints
from State AGs and several FTC cases, consumers are often unwittingly
enrolled into recurring subscriptions with promises of no- or low-cost
or discounted rates (not knowing that agreeing will result in
subscription to a costly membership), with consumers not realizing the
deceptive and unfair enrollment until they see unexpected charges,
often after several billing cycles.\109\
---------------------------------------------------------------------------
\109\ See, e.g., State Attorneys General (ANPR), FTC-2019-0082-
0012 and State AGs, FTC-2023-0033-0886; FTC v. FloatMe Corp., No.
5:24-cv-00001 (W.D. Tex. 2024); United States v. Cerebral, Inc., No.
1:24-cv-21376 (S.D. Fla. 2024); FTC v. Bridge It, Inc., No. 1:23-cv-
09651 (S.D.N.Y. 2023); FTC v. Benefytt Techs., Inc., No. 8:22-cv-
01794 (M.D. Fla. 2022); FTC v. First Am. Payment Sys., No. 4:22-cv-
00654 (E.D. Tex. 2022); FTC v. NutraClick, LLC, No. 2:20-cv-08612
(C.D. Cal. 2020); FTC v. F9 Advert., LLC, No. 3:19-cv-01174 (D.P.R.
2019); FTC v. Age of Learning, Inc., No. 2:20-cv-07996 (C.D. Cal.
2020); FTC v. NutraClick, LLC, No. 2:16-cv-06819 (C.D. Cal. 2016);
FTC v. AH Media Grp., LLC, No. 3:19-cv-04022 (N.D. Cal. 2019); In re
Urthbox, Inc., FTC Docket No. C-4676 (2019); FTC v. Health Rsch.
Labs., LLC, No. 2:17-cv-00467 (D. Me. 2017); FTC v HispaNexo, Inc.,
No. 1:06-cv-424 (E.D. Va. 2006).
---------------------------------------------------------------------------
Finally, substantial record evidence shows sellers often fail to
provide a simple cancellation method. If consumers cannot easily leave
a negative option program when they wish, the negative option feature
is merely a means of charging consumers for goods or services they no
longer want. Commission cases, the Sentinel complaint database, and
State Attorneys General's complaints all show sellers often use
difficult and cumbersome cancellation mechanisms to prevent or curtail
cancellations.\110\ This fact is further corroborated by studies
discussed above.\111\
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\110\ See section VII.B.6.
\111\ Section VII.A.1.a.
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[[Page 90485]]
(c) Statement as to the Economic Effect of the Rule
Finally, pursuant to section 18 and the Commission's Rules, the SBP
must include a statement regarding the economic effect of the Rule. As
part of these rulemaking proceedings, the Commission solicited and
received comments on the economic impact of the proposed Rule. In
issuing the final Rule, the Commission has carefully considered the
comments and other information received as well as the costs and
benefits of each provision, as discussed in more detail in section X,
Final Regulatory Analysis. That analysis demonstrates the benefits of
the Rule far exceed the costs. Benefits were evaluated on a per-
cancellation basis; that is, the analysis assumes the primary consumer
benefit of the Rule will come in the form of faster cancellations.
Costs were evaluated primarily to reflect resources spent by businesses
to review and come into compliance with the Rule. The overall net
benefit of the Rule is estimated to exceed $5.3B (and could be as much
as $49.2B) over the first 10 years (in 2023 dollars).
2. Magnuson-Moss Specificity Requirement
Pursuant to Magnuson-Moss, the Commission must also define with
specificity acts or practices which are unfair or deceptive and either
prohibit those activities or establish rules to prevent them. The
Commission has done just that, despite some commenters' arguments to
the contrary. Specifically, IAB and others \112\ argue the provision
prohibiting material misrepresentations fails to define claims that
fall within its scope, and therefore, ``fails to identify covered acts
with the requisite level of specificity.'' \113\
---------------------------------------------------------------------------
\112\ IAB, FTC-2023-0033-1000; Coalition Comments from CCIA,
Direct Selling Association, Information Technology Industry Council,
IAB, Software & Information Industry Association, and Chamber
(``Coalition''), FTC-2023-0033-0884; PDMI, FTC-2023-033-0864;
TechNet, FTC-2023-0033-0869; TechFreedom, FTC-2023-0033-0872; ACT-
The App Association (``ACT App Association''), FTC-2023-0033-0874;
USTelecom, FTC-2023-0033-0876.
\113\ IAB, FTC-2023-0033-1000.
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First, section 18 does not require the Commission to define claims
with specificity, only acts or practices. The practice of
misrepresenting the material facts of a transaction, for instance, is a
deceptive practice, but could vary depending on the transaction's
terms. Requiring the Commission to identify particular claims would
make its rules no better than a leaky sieve, unable to effectively
address consumer harm.
Second, the NPRM and the final Rule do define with the requisite
specificity the unfair or deceptive negative option acts and practices
covered by the Rule.\114\ While those critical of the proposed Rule
cite to Katharine Gibbs School v. FTC, 612 F.2d 658 (2d Cir. 1979),
this case is inapposite. In Katharine Gibbs School, the Second Circuit
held the Commission failed to connect elements of its trade regulation
rule to specifically defined unfair or deceptive acts or practices. The
opinion held the Commission may not merely set requirements and then
define failure to meet those requirements as unfair or deceptive acts
or practices. The Commission must instead identify some underlying
deceptive or unfair conduct and connect the rule requirements to that
conduct.
---------------------------------------------------------------------------
\114\ See Section I; Section VII.A, defining the acts and
practices covered in Sec. Sec. 425.3 through 425.6 as unfair or
deceptive and a violation of the Rule. As acknowledged by USTelecom,
the ``contours of the `specificity' requirement have not been
precisely defined.'' FTC-2023-0033-0876.
---------------------------------------------------------------------------
In contrast here, the Commission specifically identified
misrepresentation of material facts as a deceptive practice, and
defined the term ``material'' with the same meaning it has under
Section 5 of the FTC Act.\115\ Moreover, the misrepresentations
provision goes further, providing categories of potentially material
facts to assist the marketplace in understanding the provision and
supporting those examples with cases.\116\ Thus, the final Rule's
prohibition against material misrepresentations is not only connected
to underlying deceptive or unfair conduct, but in fact prohibits that
very conduct.
---------------------------------------------------------------------------
\115\ See SBP Section VII.B.3 discussing Sec. 425.3.
\116\ Id. As explained in the Katharine Gibbs School dissent,
``Congress required specific definitions of such practices so that a
rule would `reasonably and fairly inform those within its ambit of
the obligation to be met and the activity to be avoided.' '' 612
F.2d 658, 672 (quoting H.R. Rep. No.93-1107, 93d Cong., 2d Sess. 46
(1974), reprinted in (1974) U.S.C.C.A.N., pp. 7702, 7727).
---------------------------------------------------------------------------
3. Other Legal Issues
Several commenters raised additional challenges to the Commission's
ability to promulgate the Rule. These challenges fall into two
categories. First, some commenters argued the Commission failed to give
adequate notice of the scope of the proposed amendments to the Rule in
the ANPR in accordance with Section 57a(b)(2)(A) of the FTC Act.
Second, four commenters argued the Commission exceeded its grant of
Congressional authority under the ``major questions'' doctrine. The
Commission addresses each argument below.
(a) ANPR
Several commenters asserted the ANPR, issued in 2019, failed to
provide adequate notice of the acts and practices to be covered by the
proposed Rule. Specifically, ESA, USTelecom, RILA, a coalition of trade
associations, Chamber, CCIA, IAB, and NRF argued the ANPR failed to
provide notice the proposed Rule would cover misrepresentations of all
material facts; would require express informed consent to opt-in to
receive a save; \117\ and would require an annual reminder.\118\ Thus,
according to these commenters, including these provisions in the final
Rule would violate Section 18(b)(2)(A). They further argued the lack of
these topics' inclusion in the ANPR meant that affected entities had
inadequate opportunity to provide input, leading to an inadequate
rulemaking record.\119\
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\117\ As discussed in Section VII.B.6, the Commission removes
the proposed save provision from the final Rule.
\118\ As discussed in Section VII.B.7, the Commission removes
the proposed annual reminder provision from the final Rule.
\119\ E.g., IAB, FTC-2023-0033-1000.
---------------------------------------------------------------------------
These arguments, however, are unpersuasive. Section 18 imposes no
requirement the ANPR have the level of specificity the commenters
demand. In fact, the statute only says the ANPR must include ``a brief
description of the area of inquiry under consideration, the objectives
which the Commission seeks to achieve, and possible regulatory
alternatives under consideration by the Commission.'' \120\ The
Commission included a discussion of each of these topics in the
ANPR.\121\ Moreover, the affected entities have had the chance to raise
concerns with the Rule in their comments to the NPRM, which the
Commission has considered and responded to in this Statement of Basis
and Purpose.
---------------------------------------------------------------------------
\120\ 15 U.S.C. 57a(b)(2)(A). ``The Advance Notice [of Proposed
Rulemaking] is a formal invitation to participate in shaping the
proposed rule and starts the notice[hyphen]and[hyphen]comment
process in motion.'' Office of the Federal Register, ``A Guide to
the Rulemaking Process,'' https://www.federalregister.gov/uploads/2011/01/the_rulemaking_process.pdf.
\121\ ANPR, 84 FR 52393; see also id. 52396-8 (Request for
Comments); Section VII.B.3.b.1 (discussing ANPR in context of Sec.
425.3).
---------------------------------------------------------------------------
(b) Major Questions Doctrine
Four commenters asserted the Rule implicates the ``major
questions'' doctrine.\122\ According to the Supreme Court, the major
questions doctrine is implicated in ``extraordinary cases . . . in
which the history and the breadth of the authority that the agency has
[[Page 90486]]
asserted, and the economic and political significance of that
assertion, provide a reason to hesitate before concluding that Congress
meant to confer such authority.'' \123\ Citing this authority, the
commenters argue Congress only granted the FTC ``limited and tailored
authorities to regulate certain mediums and types of negative option
marketing, but not all mediums and types as the NPRM encompasses.''
\124\ Further, they assert Congress never intended for the Commission
to create a comprehensive regulatory scheme for negative option
marketing that encompasses the variety of requirements proposed in the
NPRM. Because negative option programs play an ever-increasing role in
the economy, these commenters claim the proposed Rule would
``dramatically alter'' how companies structure their subscription
services.\125\ More specifically, they assert the prohibition against
misrepresentations, together with the ability to seek civil penalties
in Federal court, would expand the FTC's authority beyond that
envisioned by Congress.
---------------------------------------------------------------------------
\122\ PDMI, FTC-2023-0033-0864; ACT App Association, FTC-2023-
0033-0874; Coalition, FTC-2023-0033-0884; Chamber, FTC-2023-0033-
0885.
\123\ West Virginia v. EPA, 597 U.S. 697, 721 (2022) (internal
quotations cleaned up). Accord Biden v. Nebraska, 143 S. Ct. 2355,
2372 (2023).
\124\ Coalition, FTC-2023-0033-0884.
\125\ See, e.g., PDMI, FTC-2023-0033-0864.
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However, far from exceeding Congressional intent, the Rule merely
effectuates that intent in a way wholly consistent with the specific
requirements set forth in Section 18 of the FTC Act. Specifically,
Congress explicitly authorized the Commission to prescribe ``rules
which define with specificity acts or practices which are unfair or
deceptive acts or practices in or affecting commerce (within the
meaning of such section 5(a)(1)),'' which ``may include requirements
prescribed for the purpose of preventing such acts or practices.''
\126\ As demonstrated below, each of the Rule's provisions identifies
specific deceptive or unfair acts or practices that are prevalent
throughout the marketplace and ties each Rule provision tightly to
those findings.
---------------------------------------------------------------------------
\126\ 15 U.S.C. 57a(a)(1)(B).
---------------------------------------------------------------------------
As the Supreme Court explained, courts use the ``major questions
doctrine'' when examining ``extraordinary cases'' where agency action
would ``make a radical or fundamental change'' to a statutory scheme
and assert ``extravagant'' authority over the national economy through
``ambiguous statutory text,'' citing ``modest words,'' ``vague terms,''
``subtle device[s],'' or ``oblique or elliptical language.'' \127\
Here, no such extraordinary circumstance exists. The prohibitions and
disclosures in the Rule do not effect a major change in the economy. In
fact, all the substantive requirements in the Rule are already extant
under section 5 of the FTC Act, ROSCA, or the TSR. Moreover, the Rules'
terms, as explained below, are neither vague, oblique, or elliptical--
in fact, if anything, they are clearer than the legal authority just
cited.
---------------------------------------------------------------------------
\127\ West Virginia v. EPA, 597 U.S. at 723 (cleaned up).
---------------------------------------------------------------------------
B. Discussion of Specific Rule Provisions, Section-by-Section Analysis
Below, for each provision of the proposed Rule, the Commission
reviews the provision, summarizes comments received in response, and
sets forth the final Rule with an analysis of the comments and other
record evidence.
1. Proposed Sec. 425.1 Scope
The Commission proposed eliminating the old Rule's prescriptive
requirements applicable to prenotification plans and replacing them
with flexible, but enforceable, standards. The proposed requirements
would apply to all forms of negative option marketing, including
prenotification and continuity plans, automatic renewals, and free
trial offers.\128\ The expanded coverage would establish a common set
of requirements applicable to all types of negative option marketing.
The proposed Rule would cover offers made in all media, including
internet, telephone, in-person, and printed material, and would apply
to all ``negative option sellers.'' With certain exceptions, not
applicable here, the FTC Act provides the agency with jurisdiction over
nearly every economic sector.\129\
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\128\ The proposed Rule stated it applied to any form of
negative option plan. Because ``negative option plan'' was a defined
term in the old Rule specifically referring to prenotification
plans, the Commission modifies the scope to apply to any form of
``negative option program.''
\129\ Certain entities or activities are wholly or partially
exempt from FTC jurisdiction under the FTC Act, including most
depository institutions, charities, transportation and
communications common carriers, and the business of insurance. Under
Sections 4 and 5 of the FTC Act, however, the Commission's
jurisdiction extends to companies organized to carry on business for
their own profit or that of their members, even if those companies
are organized under state law as a not-for-profit entity. See
California Dental Ass'n v. FTC, 526 U.S. 756 (1999). But see n.151.
---------------------------------------------------------------------------
(a) Negative Option Seller
(1) Comments
The scope of the proposed Rule covered ``negative option seller,''
defined to mean ``the person selling, offering, promoting, charging
for, or otherwise marketing goods or services with a negative option
feature.'' Several commenters raised concerns regarding the scope of
this definition.
The Chamber, for example, suggested the Commission delete the term
``promoting'' from the definition.\130\ It cited a wide variety of
actors who could be swept in by the term, including ``advertising
companies, web designers, [and] entities in the supply chain,'' who
``may not actually play an active role in determining'' what consumers
see and hear about negative option programs.\131\ An individual
business commenter also criticized the term, saying to include
``promoting'' ``would potentially burden our technicians and our
business when we provide service for equipment manufacturers that have
their own service contract programs.'' \132\
---------------------------------------------------------------------------
\130\ Chamber, FTC-2023-0033-0885.
\131\ Id.
\132\ Individual commenter, FTC-2023-0033-1136.
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ETA, representing the payments industry, addressed the words
``charging for'' in the definition.\133\ ETA interpreted those words
not to cover ``intermediaries, such as payment processors, that merely
effect the transfer of funds from the consumer buyer to the merchant
seller resulting from a negative option feature.'' \134\ ETA noted that
payment intermediaries typically ``do not control the terms of the
negative option feature and do not control the interface with the
consumer buyer.'' \135\ ETA therefore suggested the final Rule
``include an express exemption for payment processors and other
intermediaries.'' \136\
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\133\ Electronic Transactions Association (``ETA''), FTC-2023-
0033-1004.
\134\ Id.
\135\ Id.
\136\ Id. IHRSA noted health and fitness membership charges are
typically processed on a monthly basis from the time of agreement,
and in many cases by a third-party service provider. IHRSA, FTC-
2023-0033-0863.
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Other commenters, while not specifically criticizing the definition
of negative option seller, raised concerns about the scope of the
proposed Rule where third parties are involved in marketing and
cancellation. For example, several suggested the Rule exempt a seller
who contracts with a third party for subscription enrollment,
management, or cancellation services.\137\ PDMI argued, ``it is
[[Page 90487]]
imperative that the Proposed Rule exempt sellers from compliance with
those provisions that are not under their direct control . . . [and]
should also exempt the seller from any misrepresentations made by a
third-party platform.'' \138\ NRF expressed concern a careful retailer
could still ``face steep financial penalties for negligent
misrepresentations (concerning, e.g., product efficacy) based on
information provided by third-party vendors.'' \139\
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\137\ NCTA asserted, ``The proposed rule also fails to account
for third-party sign-up arrangements. For example, programmers have
arrangements with Roku, Amazon, Apple, and others that allow
consumers to sign up through these third parties for their streaming
services.'' NCTA, FTC-2023-0033-0858. N/MA suggested the Commission
``should make clear that when a sale with a negative option feature
is made through a third party that controls the process of
purchasing and/or cancelling a subscription with a negative option
feature, any new requirements would apply to the third party only,
and not to the company that fulfills the subscription.'' N/MA, FTC-
2023-0033-0873. Marketplace Industry Association (``MIA'') requested
``the Commission clarify that where there are third-party payment
platforms managing Subscriptions on behalf of businesses . . .
(collectively, ``Third Party Subscription Managers''), that such
Third Party Subscription Managers be legally responsible and legally
liable for compliance with the proposed Rule. As is the case with
Third Party Subscription Managers, businesses that offer
Subscriptions have zero control over such Subscriptions, including
the initiation of Subscriptions or the cancellation of
Subscriptions. Said another way, it is impossible for businesses to
comply with the proposed Rule where there are Third Party
Subscription Managers. As such, the Association requests that the
Commission make clear that Third Party Subscription Managers be
responsible for compliance with the proposed Rule, including any
penalties for noncompliance.'' MIA, FTC-2023-0033-1008.
\138\ PDMI, FTC-2023-003-0864.
\139\ NRF, FTC-2023-0033-1005.
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(2) Analysis
Based on the record, the Commission revises the definition of
``negative option seller'' to remove the word ``promoting,'' but
declines to create status-based exemptions.\140\ Moreover, the
Commission clarifies it will enforce the final Rule in accordance with
established section 5 principles regarding parties' responsibilities
for, and involvement in, relevant activity. This approach should fully
address commenters' concerns while maintaining the Rule's consumer
protections.
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\140\ See also Section VII.B.1; Section VIII.A.1.
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As several commenters observed, a wide variety of actors may have
secondary or tertiary roles in promoting products or services with a
negative option feature. Further, as the Chamber noted, ``many of those
participants . . . may not actually play an active role in determining
how the negative option is presented to the consumer.'' \141\
Similarly, participants in the promotion process may have no role in
cancellation. Deleting the word ``promoting'' from the definition of
negative option seller addresses this issue by ensuring those who have
no active participation in the negative option feature are outside the
Rule's coverage. However, this amendment does not mean all actors
involved in promotion are exempt from the Rule. A participant who
promotes and takes on a further role ``selling, offering, charging for,
or otherwise marketing goods or services with a negative option
feature'' remains subject to the final Rule, including the provisions
covering ``promoting'' such goods or services for those who meet the
negative option seller definition.\142\
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\141\ Chamber, FTC-2023-0033-0885.
\142\ See, e.g., FTC v. LeadClick Media, LLC, 838 F.3d 158, 172
(2d Cir. 2016) (operator of affiliate marketing network liable where
it did not create ads but ``directly participat[ed] in the deceptive
scheme by recruiting, managing, and paying a network of affiliates
to generate consumer traffic through the use of deceptive
advertising and allowing the use of deceptive advertising where it
had the authority to control the affiliates participating in its
network.'').
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The Commission declines to adopt a status-based exemption for
payment intermediaries. Such exemptions are overbroad, excluding actors
engaged in the practices condemned by the Rule. For example, a payment
processor selling its own services on a negative option basis, as
opposed to just providing payment services for another negative option
seller, is no different than any other business covered by the Rule.
Additionally, as ETA correctly noted, the words ``charging for'' as
used in the Rule do not cover intermediaries merely effecting the
transfer of funds from the consumer buyer to the merchant seller. This
is consistent with the Commission's interpretation of ROSCA's coverage
of persons who ``charge or attempt to charge any consumer.'' \143\
Based on longstanding section 5 principles, the Commission has not
enforced ROSCA against payment intermediaries solely for their conduct
in effecting funds transfers.\144\ The Commission will apply the same
principles to the Rule.\145\
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\143\ 15 U.S.C. 8403.
\144\ See FTC v. Apex Capital Grp., LLC, No. 2:18-cv-09573 (C.D.
Cal. 2018). In this ROSCA matter, the Commission amended its
complaint to add payment intermediary defendants for their unlawful
conduct in connection with the scheme. However, the Commission did
not assert ROSCA claims against the payment intermediary defendants,
instead asserting counts for credit card laundering and manipulation
of chargeback levels as Section 5 violations.
\145\ Id.; see FTC v. First Am. Payment Sys., No. 4:22-cv-00654
(E.D. Tex. 2022) (ROSCA case against payment processor for its
unlawful acts and practices against its merchant customers).
---------------------------------------------------------------------------
Similarly, the Commission will not grant blanket exemptions to
sellers who contract with third parties while offering subscription
services. The Commission expects negative option sellers to evaluate
their commercial relationships with the Rule's provisions in mind. Even
where a seller does not directly manage its negative option feature
disclosures, consent, or cancellation, it can satisfy its obligations
under the Rule by choosing to contract with third parties who act in
accordance with the Rule and monitoring those parties' performance. An
exemption for all sellers who contract with third parties to manage
aspects of their negative option programs would effectively nullify the
Rule by incentivizing less than legitimate sellers to contract with
actors engaged in deceptive practices to maximize negative option
enrollments and frustrate cancellation with impunity. A seller cannot
evade its responsibility to deal honestly with consumers by contracting
with a third party who does not.\146\
---------------------------------------------------------------------------
\146\ E.g., FTC v. LeadClick Media, LLC, 838 F.3d 158, 170 (2d
Cir. 2016) (``A defendant may be held liable for its own acts of
deception under the FTC Act, whether by directly participating in
deception or by allowing deceptive acts or practices to occur that
are within its control.''); see also FTC v. Inc21.com Corp., 688 F.
Supp. 2d 927, 939 (N.D. Cal. 2010) (``Even if Inc21 did not approve
of the fraud (and it seems likely that it did approve), the fact
remains that Inc21 is responsible for organizing this engine of
fraud and reaping its profits. As such, Inc21 may certainly be held
accountable[.]'') (emphasis in original).
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(b) Insurance
(1) Comments
Several commenters asked the Commission to expressly exclude
insurance and State-regulated service contracts from the Rule.\147\
They argued Congress prohibited the FTC from regulating the ``business
of insurance'' in section 2 of the McCarran-Ferguson Act and the FTC
exempted insurance sales in its Cooling-Off Rule.\148\ They also
asserted, ``State regulations in every jurisdiction require an insurer
to give notice of a policy renewal,'' and State rules prohibit negative
options.\149\ Other commenters argued the Commission should exempt all
service contract providers from the Rule due to existing State laws and
regulations,\150\ regardless
[[Page 90488]]
of whether they are engaged in the ``business of insurance'' within the
meaning of the McCarran-Ferguson Act.
---------------------------------------------------------------------------
\147\ Asurion, FTC-2023-0033-0878; Florida Service Agreement
Association, FTC-2023-0033-0882; American Property Casualty
Insurance Association (``APCIA''), FTC-2023-0033-0996; National
Association of Mutual Insurance Companies (``NAMIC''), FTC-2023-
0033-1143.
\148\ See 15 U.S.C. 1012; 16 CFR 429(a)(6).
\149\ NAMIC, FTC-2023-0033-1143.
\150\ SCIC, FTC-2023-0033-0879 (noting SCIC's comment to the
ANPR stated most states have substantial regulatory frameworks for
service contracts and that industry operates nationwide consistent
with the intent of the proposed Rule); CTIA, FTC-2023-0033-0866
(noting service contracts are typically regulated by state
departments of insurance and most states with autorenewal laws,
including California, New York, and Oregon, provide an exemption for
entities regulated by the state department of insurance); Frontdoor,
Inc. (``Frontdoor''), FTC-2023-0033-0862 (noting majority of states
have rigorous laws for the offering, sale, and renewal of home
service contracts, including the use of automatic renewals and
applicable cancellation rights).
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(2) Analysis
The Commission declines to exempt insurance or service contracts
from the Rule. The final Rule can be enforced by the Commission only
against covered persons and activities within the Commission's
jurisdiction.\151\ Restating or further specifying each jurisdictional
limit in the final Rule's text, therefore, is not necessary.
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\151\ Nothing in this Rule, however, shall limit another
agency's ability to enforce this Rule within its own statutory
authority, even if that authority is different than the FTC's
authority. See, e.g., 12 U.S.C. 5581(b)(5)(B)(ii).
---------------------------------------------------------------------------
Additionally, the requested industry-wide exemption is considerably
broader than the FTC's jurisdictional limitations. The McCarran-
Ferguson Act does not exempt entities engaged in the business of
insurance from the Commission's jurisdiction unless such entities are
subject to State regulation.\152\ Moreover, activities of entities
within the insurance industry that are beyond the scope of the
``business of insurance'' are subject to the Commission's
jurisdiction.\153\ No commenter provided any compelling reason to
exempt these otherwise covered activities from the Rule.
---------------------------------------------------------------------------
\152\ FTC v. IAB Mktg. Assocs. LP, 746 F.3d 1228, 1235 (11th
Cir. 2014) (``[T]he FTC Act applies to the business of insurance
only to the extent that such business is not regulated by state
law.'').
\153\ The Supreme Court has explained that, under the McCarran-
Ferguson Act, a three-part factual inquiry is necessary to evaluate
whether any particular activity constitutes the business of
insurance. See Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119,
129 (1982). First, does the activity have the effect of transferring
or spreading a policyholder's risk; second, is the activity an
integral part of the policy relationship between the insurer and the
insured; and third, is the practice limited to entities within the
insurance industry. Id. This inquiry requires a factual analysis of
the activities in question.
---------------------------------------------------------------------------
Finally, commenters' citations to existing State laws and
regulations governing service contract sellers indicate these sellers
already provide disclosures and protections consistent with the Rule.
As a practical matter, sellers who already provide consumers the Rule's
protections should not be burdened by its application.\154\
---------------------------------------------------------------------------
\154\ Moreover, service contract sellers, like other interested
persons, may seek full or partial exemption from the final Rule. See
Section VIII.A.1 (discussing new Sec. 425.8, Exemptions provision).
---------------------------------------------------------------------------
(c) Business-to-Business
(1) Comments
Nine commenters noted the NPRM did not expressly address whether
the proposed Rule would apply to business-to-business (``B2B'')
transactions. Seven, including five industry associations,\155\ said it
should not apply.\156\ Two individuals disagreed.\157\
---------------------------------------------------------------------------
\155\ BSA, FTC-2023-0033-1015 (B2B software sellers); CTIA, FTC-
2023-0033-0866 (wireless communication industry); ETA, FTC-2023-
0033-1004 (payments industry); NCTA, FTC-2023-0033-0858 (internet
and television); USTelecom, FTC-2023-0033-0876 (broadband). A sixth
association, the U.S. Chamber of Commerce, asked the Commission to
ensure that the scope of its cost-benefit analysis includes
business-to-business transactions. FTC-2023-0033-0885.
\156\ Anonymous commenter, FTC-2023-0033-1007; BSA, FTC-2023-
0033-1015; CTIA, FTC-2023-0033-0866; ETA, FTC-2023-0033-1004; NCTA,
FTC-2023-0033-0858; USTelecom, FTC-2023-0033-0876; ZoomInfo, FTC-
2023-0033-0865.
\157\ Individual commenter, FTC-2023-0033-0755; Individual
commenter, FTC-2023-0033-0042.
---------------------------------------------------------------------------
Commenters advocating against including B2B sales in the Rule
asserted the Commission should presume businesses are more
sophisticated than individual consumers,\158\ and contended B2B
contracts typically are individually negotiated.\159\ For example,
ZoomInfo maintained business consumers are generally ``more
sophisticated than individual consumers,'' explaining B2B contracts
``are assumed to result from arm's-length negotiation and often benefit
from professional legal counsel.'' \160\ Similarly, NCTA, an
organization representing the internet and television industry,
characterized business consumers as ``typically sophisticated,'' and
said the Commission should not intervene in transactions based on
``[n]on-form contracts that are the subject of extensive bargaining
between sophisticated companies.'' \161\
---------------------------------------------------------------------------
\158\ Anonymous commenter, FTC-2023-0033-1007; CTIA, FTC-2023-
0033-0866; NCTA, FTC-2023-0033-0858; ZoomInfo, FTC-2023-0033-0865.
\159\ CTIA, FTC-2023-0033-0866; NCTA, FTC-2023-0033-0858;
USTelecom, FTC-2023-0033-0876; ZoomInfo, FTC-2023-0033-0865.
\160\ ZoomInfo, FTC-2023-0033-0865.
\161\ NCTA, FTC-2023-0033-0858. NCTA requested any final rule
exclude individually negotiated business-to-business contracts. FTC-
2023-0033-0858.
---------------------------------------------------------------------------
Seller and consumer commenters differed on whether the harmful
negative option practices discussed in the NPRM are extant for B2B
consumers. In support of excluding B2B transactions, two commenters
asserted there is insufficient evidence of harm in the B2B context to
support a prevalence finding.\162\ A B2B consumer, however, noted
individuals and small businesses both suffer from the harms of
deceptive and unfair negative option practices. ``As a small business
owner,'' the individual wrote, ``as well as a consumer, I am especially
aware of how purposely difficult many companies make it to cancel their
services. From telephone companies to travel channel companies . . . to
email targeting campaigns . . . the cancelling process is ridiculously
complex and at times hidden, if it exists at all on their websites.''
\163\
---------------------------------------------------------------------------
\162\ BSA, FTC-2023-0033-1015; NCTA, FTC-2023-0033-0858. The
Commission discusses the subject of prevalence more broadly at
Section VII.A.
\163\ Individual commenter, FTC-2023-0033-0755.
---------------------------------------------------------------------------
Seller and consumer commenters also differed on the significance of
existing State law B2B exclusions. Three B2B sellers recommended the
Commission follow those States that exclude B2B transactions.\164\ A
consumer, however, asserted such exclusions are why this Rule is
necessary.\165\ Specifically, the commenter explained: ``negative
option marketing also greatly affect[s] many individual sellers and
small businesses,'' but due to B2B exclusions, ``some larger
corporations or companies are able to take advantage of that loophole
and use predatory negative option practices against individual sellers
and small businesses.'' \166\
---------------------------------------------------------------------------
\164\ Anonymous commenter, FTC-2023-0033-1007 (California); BSA,
FTC-2023-0033-1015 (California, Colorado, Delaware); ZoomInfo, FTC-
2023-0033-0865 (California, Colorado, Connecticut, Delaware, Hawaii,
New York, Oregon, Tennessee, Virginia).
\165\ Individual commenter, FTC-2023-0033-0042.
\166\ Id.
---------------------------------------------------------------------------
Some sellers also referred to other Federal regulations to support
excluding businesses from the scope of the Rule. For instance, ETA and
NCTA each noted the Commission excluded most B2B transactions in the
TSR. ETA made the same observation about the Cooling Off Rule.\167\
Both CTIA and USTelecom approvingly cited the FCC's approach. USTelecom
explained, ``the FCC has limited certain consumer protection rules to
`mass-market retail services' '' that are `` `marketed and sold on a
standardized basis to residential customers, small businesses, and
other end-user customers such as schools and libraries.' '' \168\
USTelecom further explained, ``Mass-market retail services stand in
contrast to `customized or individually negotiated arrangements' that
are typically offered to larger organizations.'' \169\
---------------------------------------------------------------------------
\167\ 16 CFR 429.0-429.3.
\168\ USTelecom, FTC-2023-0033-0876.
\169\ Id.
---------------------------------------------------------------------------
ETA questioned whether the Commission has authority to address B2B
transactions. ETA argued the proposed Rule would let the Commission
``interpose regulatory influence and law enforcement authority in
contractual arrangements between businesses in a way that has not been
authorized by Congress or
[[Page 90489]]
justified by the Commission's own rationale for the Proposed Rule.''
\170\ ETA cited the Commission's use of ROSCA in the First American
Payment Systems case to illustrate its view the Rule's application in
the B2B context would be impermissible regulation of ``an automatic
renewal clause in an arm's length commercial agreement.'' \171\
---------------------------------------------------------------------------
\170\ ETA, FTC-2023-0033-1004.
\171\ Id. (citing FTC v. First Am. Payment Sys., No. 4:22-cv-
00654 (E.D. Tex. 2022)).
---------------------------------------------------------------------------
Finally, ETA and ZoomInfo argued various provisions of the Rule,
such as the disclosure and notice requirements, could present unusual
implementation problems in B2B transactions. For instance, ETA asserted
disclosure requirements could result in operational uncertainty because
the Commission did not consider all the typical terms included in B2B
agreements. Similarly, ZoomInfo explained ``B2B agreements are often
complex, involving multiple decision-makers and points of contact, who
might rotate or leave their roles over the course of a contract.''
\172\
---------------------------------------------------------------------------
\172\ ZoomInfo, FTC-2023-0033-0865. ETA also raised a concern
about the definition of negative option seller, addressed in Section
VII.B.1.a.
---------------------------------------------------------------------------
(2) Analysis
The final Rule, like the proposed Rule, covers B2B transactions. It
has been the Commission's longstanding view that section 5 of the FTC
Act \173\ protects business consumers as well as individual consumers.
Moreover, commenters' arguments that, under section 5, all business
consumers must be held to a heightened standard of sophistication are
inconsistent with settled law.
---------------------------------------------------------------------------
\173\ 15 U.S.C. 45(a).
---------------------------------------------------------------------------
The Commission has long enforced the FTC Act against those who
deceive and act unfairly to businesses and other organizations.\174\ As
the Supreme Court explained in FTC v. Standard Educ. Soc., 302 U.S.
112, 116 (1937), ``Laws are made to protect the trusting as well as the
suspicious.'' This principle applies no less to the business consumer
than to the individual.\175\ The Commission maintains a decades-long
list of business protection cases on its website and dedicates
significant effort to educate and protect small businesses.\176\
Indeed, the Commission has made protecting small businesses a
priority.\177\
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\174\ See, e.g., Indep. Directory Corp. v. FTC, 188 F.2d 468 (2d
Cir. 1951) (deceptive practices in selling directory ads to
businesses).
\175\ Indep. Directory Corp., 188 F.2d at 470 (applying Standard
Educ. Soc.); see also, e.g., FTC v. LoanPointe, LLC, 525 F. App'x
696, 701 (10th Cir. 2017) (FTC need only prove ``the likelihood that
a consumer (here, employers)'' would be deceived); FTC v.
Crittenden, 19 F.3d 26 (9th Cir. 1994) (Table) (noting stipulated
judgment with B2B office supplier); FTC v. Inc21.com Corp., 688 F.
Supp. 2d 927 (N.D. Cal. 2010) (preliminary injunction against
deceptive and unfair B2B billing scheme); FTC v. IFC Credit Corp.,
543 F. Supp. 2d 925, 934 (N.D. Ill. 2008) (FTC Act applies to B2B
sales).
\176\ See Fed. Trade Comm'n, ``Protecting Small Businesses:
Cases,'' https://www.ftc.gov/business-guidance/small-businesses/protecting-small-businesses-cases (last visited October 23, 2024);
Fed. Trade Comm'n, ``Protecting Small Businesses,'' https://www.ftc.gov/business-guidance/small-businesses (last visited October
23, 2024); Fed. Trade Comm'n, ``Scams and Your Small Business: A
Guide For Business,'' https://www.ftc.gov/business-guidance/resources/scams-your-small-business-guide-business (last visited
October 23, 2024).
\177\ See Press Release, Fed. Trade Comm'n, ``FTC, BBB, and Law
Enforcement Partners Announce Results of Operation Main Street:
Stopping Small Business Scams Law Enforcement and Education
Initiative'' (June 18, 2018), https://www.ftc.gov/news-events/press-releases/2018/06/ftc-bbb-law-enforcement-partners-announce-results-operation-main (last visited October 23, 2024).
---------------------------------------------------------------------------
Moreover, the TSR never exempted B2B transactions entirely.
Importantly, the Commission recently amended the TSR to cover a broader
scope of B2B activity. Specifically, in 2024, the Commission expanded
the TSR to prohibit material misrepresentations and false or misleading
statements in B2B calls due to the ongoing harm to small businesses
from such practices.\178\
---------------------------------------------------------------------------
\178\ TSR, 89 FR 26760 (April 16, 2024).
---------------------------------------------------------------------------
Additionally, recent Commission actions to protect small businesses
underscore the fact deceptive practices pertaining to negative option
features occur in B2B transactions just as they do with individual
consumers. None of these cases present the arms-length negotiation of
contracts by sophisticated parties that commenters claim to be
universal. For example, in its 2022 action against First American
Payment Systems,\179\ the Commission alleged the defendants violated
section 5 and ROSCA by making false claims about fees and cost savings
to persuade merchants in small- and medium-sized businesses, many of
whom had limited English proficiency, to enter into payment processing
agreements.\180\ Once enrolled, the defendants allegedly withdrew funds
from merchants' accounts without consent, and made it difficult and
expensive to cancel the service. Under a stipulated court order, the
defendants must (among other things) make it easier for merchants to
cancel their services.
---------------------------------------------------------------------------
\179\ FTC v. First Am. Payment Sys., No. 4:22-cv-00654 (E.D.
Tex. 2022).
\180\ In describing the basis for the misrepresentations
provision of the proposed Rule, the NPRM cited (among other cases)
First Am. Payment Sys. NPRM, 88 FR 24726 n.65. See also ETA, FTC-
2023-0033-1004.
---------------------------------------------------------------------------
In the Commission's 2022 Dun & Bradstreet 181 matter,
the complaint alleged multiple deceptive practices pertaining to
products the defendant marketed to small- and medium-sized businesses,
in violation of section 5. The resulting consent order includes
substantial provisions pertaining to negative option features.
---------------------------------------------------------------------------
\181\ In re Dun & Bradstreet, Inc., FTC Docket No. C-4761
(2022).
---------------------------------------------------------------------------
The Commission's 2022 action against Vonage \182\ also illustrates
this point. The complaint detailed the defendants' deceptive and unfair
practices targeting both business and residential customers and alleged
those practices violated section 5 and ROSCA.\183\ The stipulated court
order includes multiple provisions relating to consent, cancellation,
and disclosures pertaining to both individual and business consumers.
---------------------------------------------------------------------------
\182\ FTC v. Vonage Holdings Corp., No. 3:22-cv-06435 (D.N.J.
2022).
\183\ The Adobe matter provides another recent example of a
matter alleging unlawful negative option practices targeting both
individual and business consumers. United States v. Adobe, Inc., No.
5:24-cv-03630 (N.D. Cal. 2024).
---------------------------------------------------------------------------
Nonetheless, two arguments for excluding B2B transactions warrant
additional discussion. First, several commenters elide the distinction
between B2B agreements generally and individually negotiated B2B
agreements. It is neither the purpose nor the effect of the final Rule
to prevent businesses from entering into agreements with individually
negotiated negative option terms. By requiring the cancellation
mechanism to be ``at least as easy to use'' as the consent mechanism,
the final Rule incorporates a symmetrical standard that accounts for
individually negotiated B2B agreements. A B2B consumer who consents to
a negative option feature through an individually negotiated term of an
agreement can also individually negotiate the cancellation mechanism.
Moreover, as the Commission noted above, it will enforce this Rule in
the same manner in which it enforces section 5 of the FTC Act.\184\ The
Commission has not used its consumer protection authority in the type
of large individually negotiated B2B transactions commenters are
worried about.\185\ Unsurprisingly, no commenter cited any historical
instance to the contrary. Thus, the Rule preserves the ability of
sophisticated business consumers to individually negotiate B2B
agreement terms.\186\
---------------------------------------------------------------------------
\184\ See section VII.B.1.a.
\185\ See 16 CFR 2.3.
\186\ The Vonage order expressly exempts negative option feature
provisions in B2B contracts where the defendants ``possess evidence
that consumers negotiated significant terms of the negative option
feature that are only negotiable with business consumers.'' FTC v.
Vonage Holdings Corp., No. 3:22-cv-06435 (D.N.J. 2022). The final
Rule is less prescriptive and more flexible than that order, thereby
promoting more flexibility in the marketplace.
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[[Page 90490]]
Second, it appears several commenters mistakenly thought the
required simple cancellation mechanism would necessarily terminate all
aspects of any broader contract or agreement. In fact, this provision
only pertains to cancellation of the negative option feature. Complex
commercial agreements, such as those described by ETA, will have
numerous provisions unrelated to negative option features. Nothing in
this Rule prohibits these provisions from being subject to separate
cancellation and termination terms.
2. Proposed Sec. 425.2 Definitions
In the NPRM, the proposed Rule set forth several definitions. For
example, the proposed Rule defined ``negative option feature'' as a
contract provision under which the consumer's silence or failure to
take affirmative action to reject a good or service or to cancel an
agreement is interpreted by the negative option seller as acceptance or
continuing acceptance of an offer. This definition is consistent with
the TSR and ROSCA (which references the TSR's definition). 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.\187\
---------------------------------------------------------------------------
\187\ Section II of this Notice contains descriptions of these
various plans.
---------------------------------------------------------------------------
Additionally, the proposed Rule defined ``clear and conspicuous,''
``negative option seller,'' and ``save.'' To define ``clear and
conspicuous,'' the FTC imported its definition developed through years
of enforcement experience. As explained in the NPRM, the proposed
definition substantially overlaps with the concepts provided in
California and District of Columbia negative option laws,\188\ with one
exception. Specifically, the District of Columbia definition requires
disclosures to be visually proximate to any request for consumer
consent. The final Rule incorporates this requirement in a separate
consent section.
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\188\ Cal. Bus. & Prof. Code section 17601 and DC Code section
28A-202.
---------------------------------------------------------------------------
(a) Summary of Comments
The Commission did not receive any comments specifically supporting
any proposed definition, though several commenters generally supported
the concepts incorporated in the definitions, such as ``clear and
conspicuous disclosures.'' Several commenters critiqued the
Commission's omission of certain definitions, such as ``material'' in
connection with Sec. 425.3 and Sec. 425.4,\189\ ``simple cancellation
mechanism,'' \190\ ``practical,'' and ``normal business hours,'' \191\
because these terms are used throughout the Rule. Other commenters
asked the Commission to add a definition for ``consumer'' that excludes
businesses,\192\ while another asked the Commission to include small
businesses in that definition.\193\ Similarly, other commenters asked
the Commission to ``exempt'' certain industries from, or otherwise
alter the scope of, the definition of ``negative option seller.'' \194\
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\189\ See, e.g., BSA, FTC-2023-0033-1015 (material is not
defined); Chamber, FTC-2023-0033-0885 (same).
\190\ Center for Data Innovation (``CDI''), FTC-2023-0033-0887;
see also Act App Association, FTC-2023-0033-0874; NRF, FTC-2023-
0033-1005 (failed to defined ``as simple as'').
\191\ International Carwash Association, FTC-2023-0033-1142.
\192\ See, e.g., Anonymous commenter, FTC-2023-0033-1007;
Zoominfo, FTC-2023-0033-0865; CTIA, FTC-2023-0033-0866; BSA, FTC-
2023-0033-1015.
\193\ Individual commenter, FTC-2023-0033-0042.
\194\ See, e.g., Asurion, FTC-2023-0033-0878 (exempt service
contracts); Chamber, FTC-2023-0033-0885 (exclude promoting); ETA,
FTC-2023-0033-1004 (exclude ``charging for''). These requests are
more appropriately addressed in the scope and requested exemptions,
and the Commission does not consider them here.
---------------------------------------------------------------------------
Several commenters critiqued the proposed definitions. For example,
ESA stated ``the definition of `save' \195\ is overly broad and would
prohibit the presentation of useful, consumer-friendly details about a
consumer's subscription before they cancel it.'' \196\ Other commenters
questioned why the ``clear and conspicuous'' definitions says a
disclosure is not clear and conspicuous, if a consumer must click on a
hyperlink to see it.\197\
---------------------------------------------------------------------------
\195\ Save was defined in the proposed Rule as 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.
\196\ ESA, FTC-2023-0033-0867. PDMI argued similarly as to the
definition of save. FTC-2023-0033-0864 (arguing sellers should be
able to be able to immediately discuss pause, skip or modification
options without having to ask for permission, particularly because
it is impossible to know which customers prefer to cancel as opposed
to merely modify their current plan). Accord USTelecom, FTC-2023-
0033-0876 (definition of Save overly broad); RILA, FTC-2023-0033-
0883 (modify definition of save to allow short clarification and
confirmation of intent follow-up communications); Chamber, FTC-2023-
0033-0885; CDI, FTC-2023-0033-0887 (``Commission should exclude
information about permanent, irreparable harms that may result from
cancellation, and is relevant to the current subscription or product
plan.''); CCIA, FTC-2023-0033-0984; IAB, FTC-2023-0033-1000
(definition of save overly broad and ``would prohibit the
presentation of useful, consumer-friendly details about a consumer's
subscription before they cancel it.'').
\197\ See, e.g., NCTA, FTC-2023-0033-0858 (definition does not
take into account small screens); Chamber, FTC-2023-0033-0885 (``The
requirements that disclosure on the internet or mobile applications
be `unavoidable' and `immediately adjacent' rase practical
concerns.''); CCIA, FTC-2023-0033-0984 (definition should ``hew
closely to the Commission's guidance in its .com Disclosures policy
to ensure regulatory consistency.'').
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Additionally, several commenters requested the Commission revise
certain of its proposed definitions for clarity. For instance, the
National Federation of Independent Businesses (``NFIB'') asked the
Commission to revise the definitions for ``clear and conspicuous'' and
``negative option feature'' to ``make their meanings clearer'' \198\
by, for example, using simpler words in the clear and conspicuous
definition (``words and grammar'' versus ``diction and syntax'') or by
providing detailed examples of each type of program covered in the
definition of negative option feature. NFIB further explained ``Those
regulated by and served by subsection 425.2(d) most likely would
understand the meaning of an automatic renewal, but perhaps not the
meaning of the other examples.'' \199\
---------------------------------------------------------------------------
\198\ NFIB, FTC-2023-0033-0789. Accord Kuehn, FTC-2023-0033-0871
(proposed revised definition of negative option feature); Chamber,
FTC-2023-0033-0885 (requests the definition of negative option
feature to be revised to exclude monthly subscription services). See
section VII.B.4 for further discussion of proposed modifications.
See also ETA, FTC-2023-0033-1004 (clarify and narrow ``automatic
renewal in the definition).
\199\ NFIB, FTC-2023-0033-0789 (requesting specific examples of
each type of program be included in the definition of negative
option feature); see also IHRSA, FTC-2023-0033-0863 (observes the
Commission does not define what ``automatic renewal, continuity
plan'' and other examples of negative option features mean).
---------------------------------------------------------------------------
(b) Analysis
Based on the record, the Commission makes several changes to the
proposed definitions. First, as explained in sections VII.B.1.3
(material) and VII.B.6.c.2.b.ii (interactive electronic medium), it
adds definitions of material and interactive electronic medium for
clarity. Further, as discussed in section VII.B.4, the Commission
modifies the definition of clear and conspicuous.
Second, the Commission removes the definition of save. As discussed
in section VII.B.6.c the proposed saves provision did not achieve the
right balance between protecting consumers from unfair tactics and
allowing sellers to provide necessary and valuable information about
cancellation. Therefore, the Commission declines to include the NPRM's
proposed limitation on saves, and instead will consider issuing an
SNPRM in the future for
[[Page 90491]]
further comment. Accordingly, without the saves provision, the
Commission determines there is no need for a defined term at this time.
Although several commenters critiqued the lack of definitions for
such terms as ``simple cancellation mechanism,'' ``practical,'' or
``normal business hours,'' the Commission addresses these concerns with
further clarification, rather than with formal definitions, in the
section-by-section analysis below. As to commenter requests for a
definition of ``consumer'' expressly excluding (or including) business-
to-business transactions, the Commission similarly addresses these
requests in the sections regarding scope and requested exemptions,
above.
Finally, NFIB asked the Commission to add specific examples of each
type of negative option program to the text of the Rule, stating those
served by the Rule would likely not understand these ``terms of art.''
\200\ The Commission discusses examples of each type of negative option
program in more detail as part of the SBP at section II. Further, the
Commission typically engages in robust consumer and business education
campaigns when promulgating and issuing final rules and will do so
here. The Commission therefore disagrees the Rule must incorporate
these examples into the text.\201\
---------------------------------------------------------------------------
\200\ NFIB, FTC-2023-0033-0789.
\201\ Further, as explained in n.307, the Commission also
declines to revise the definition of ``clear and conspicuous'' to
replace the words ``diction and syntax'' with ``words and grammar.''
---------------------------------------------------------------------------
3. Proposed Sec. 425.3 Misrepresentations
Section 425.3 of the proposed Rule prohibited sellers from
misrepresenting ``any material fact related to the transaction, such as
the negative option feature, or any material fact related to the
underlying good or service.'' \202\ As explained in the NPRM,
``misrepresentations in negative option marketing cases 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.'' \203\ These include ``misrepresentations
related to costs, product efficacy, free trial claims, processing or
shipping fees, billing information use, deadlines, consumer
authorization, refunds, [and] cancellation.'' \204\
---------------------------------------------------------------------------
\202\ NPRM, 88 FR 24734.
\203\ NPRM, 88 FR 24726.
\204\ Id. (citing e.g., FTC v. Tarr, No. 3:17-cv-02024 (S.D.
Cal. 2017); FTC v. First Am. Payment Sys., No. 4:22-cv-00654 (E.D.
Tex. 2022); FTC v. XXL Impressions, LLC, No. 1:17-cv-00067 (D. Me.
2017); United States v. MyLife.com, Inc., No. 2:20-cv-6692 (C.D.
Cal. 2020); FTC v. Health Rsch. Labs., LLC, No. 2:17-cv-00467 (D.
Me. 2017); FTC v. Leanspa, LLC, No. 3:11-cv-01715 (D. Conn. 2011);
FTC v. WealthPress, Inc., No. 3:23-cv-00046 (M.D. Fla. 2023); FTC v.
BunZai Media Grp., Inc., No. 2:15-cv-04527 (C.D. Cal. 2015); FTC v.
Willms, No. 2:11-cv-00828 (W.D. Wash. 2011); FTC v. Universal
Premium Servs., No. 2:06-cv-00849 (C.D. Cal. 2006); FTC v. Remote
Response Corp., No. 1:06-cv-20168 (S.D. Fla. 2006); and FTC v.
Johnson, No. 2:10-cv-02203 (D. Nev. 2016).
---------------------------------------------------------------------------
The FTC Act provides the legal basis for the Commission to prevent
and remedy misrepresentations in the negative option context.
Specifically, section 5(a)(1) of the FTC Act declares unfair or
deceptive acts or practices in or affecting commerce to be unlawful.
Negative option sellers making material misrepresentations are engaged
in deceptive practices. Addressing these practices through the Rule
prevents deception by giving the Commission the ability to seek civil
penalties (where appropriate under 5(m)(1)(a)), where they are not
already provided, thus deterring misrepresentations, protecting
consumers, and leveling the playing field for ``honest sellers who must
compete with those who engage in deception.'' \205\
---------------------------------------------------------------------------
\205\ NPRM, 88 FR 24726.
---------------------------------------------------------------------------
(a) Summary of Comments
The State AGs strongly supported this provision, stating, for
example, it would ``combat[ ] seller misrepresentations, by providing
the FTC with authority to seek civil penalties and consumer redress for
material misrepresentations in all types of media.'' \206\ Echoing the
NPRM, they explained, ``[l]ike the FTC, we have found that negative
option marketing cases `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.' ''
\207\
---------------------------------------------------------------------------
\206\ State AGs, FTC-2023-0033-0886.
\207\ Id.
---------------------------------------------------------------------------
Law Professors further supported prohibiting ``material
misrepresentations . . . whether or not the false claim is exclusively
about the negative option feature.'' \208\ They, too, offered evidence
of the prevalence of misconduct, stating ``entities like the Better
Business Bureau have long reported, based on FTC and other data, the
prevalence of misrepresentation in certain negative option
arrangements, and non-FTC enforcement efforts confirm the problem.''
\209\ Citing multiple sources, they argued the ``Commission thus has
more than ample `reason to believe that' co-occurring negative option
violations and other misrepresentations `are prevalent.' '' \210\
---------------------------------------------------------------------------
\208\ Law Professors, FTC-2023-0033-0861.
\209\ Id., citing Better Business Bureau, ``BBB Investigation
Update: Free Trial Offer Scams'' (Apr. 2020), https://www.bbb.org/article/news-releases/22040-bbb-update-free-trial-offerscams; C.
Steven Baker & Better Business Bureau, ``Subscription Traps and
Deceptive Free Trials Scam Millions with Misleading Ads and Fake
Celebrity Endorsements'' (Dec. 2018), https://www.bbb.org/article/investigations/18929-subscription-traps-and-deceptive-free-trialsscam-millions-with-misleading-ads-and-fake-celebrity-endorsements. The Law professors further pointed to evidence found
by searching BBB's ScamTracker for terms like ``subscription.'' See,
e.g., Better Business Bureau, ScamTracker, ID #720953, https://www.bbb.org/scamtracker/lookupscam/720953. They additionally cited
Consumer Financial Protection Bureau, ``CFPB Charges TransUnion and
Senior Executive John Danaher with Violating Law Enforcement Order''
(Apr. 2022), https://www.consumerfinance.gov/about-us/newsroom/cfpb-charges-transunion-and-seniorexecutive-john-danaher-with-violating-law-enforcement-order/; David Pierson, `Santa Monica fitness brand
Beachbody is fined $3.6 million over automatic renewals,'' L.A.
Times (Aug. 29, 2017), https://www.latimes.com/business/la-fi-beachbody-20170829-story.html; Bruce A. Craig, Negative-Option
Billing--Understanding the Stealth Scams of the `90s, 7 Loy.
Consumer L. Rev. 5 (1994).
\210\ Law Professors, FTC-2023-0033-0861.
---------------------------------------------------------------------------
These commenters further argued the Commission should not adopt a
narrower provision limited strictly to the elements of a negative
option feature because, in their view, it would be difficult ``to fully
separate misrepresentations regarding the negative option feature from
all other material misrepresentations.'' \211\
---------------------------------------------------------------------------
\211\ Law Professors, FTC-2023-0033-0861.
---------------------------------------------------------------------------
Several commenters, largely trade groups and sellers, criticized
the proposed provision. As discussed in section V.A, several questioned
the prevalence of misrepresentations \212\ and asserted the provision
was not within the scope of the ANPR.\213\ Additionally, several
commenters argued the provision is overbroad, and suggested it is
unnecessary in light of existing law. Finally, they proposed ways to
narrow the proposed provision.
---------------------------------------------------------------------------
\212\ CTA, FTC-2023-0033-0997; ESA, FTC-2023-0033-0867; IAB,
FTC-2023-0033-1000; N/MA, FTC-2023-0033-0873; RILA, FTC-2023-0033-
0883; TechFreedom, FTC-2023-0033-0872. See section VII.A for a
discussion of prevalence addressing these comments.
\213\ ANA, FTC-2023-0033-1001; CCIA, FTC-2023-0033-0984;
Coalition, FTC-2023-0033-0884; ESA, FTC-2023-0033-0867; Frontdoor,
FTC-2023-0033-0862; IAB, FTC-2023-0033-1000; NRF, FTC-2023-0033-
1005; RILA, FTC-2023-0033-0883. See section VII.A for a discussion
addressing these comments.
---------------------------------------------------------------------------
Several commenters objected to the scope of the proposed provision.
Citing Commissioner Wilson's dissent to the NPRM, TechNet noted the
proposed Rule ``would capture alleged misrepresentations regarding the
underlying product or service `wholly unrelated' to the negative option
feature.'' \214\ Three commenters asserted no current trade regulation
rule
[[Page 90492]]
prohibits misrepresentations so broadly.\215\
---------------------------------------------------------------------------
\214\ TechNet, FTC-2023-0033-0869.
\215\ NCTA, FTC-2023-0033-0858; PDMI, FTC-2023-0033-0864;
TechFreedom, FTC-2023-0033-0872.
---------------------------------------------------------------------------
Similarly on scope, some commenters also argued the proposed
language lacked the specificity necessary to give sellers notice of
what conduct would violate the Rule.\216\ For example, ACT App
Association asserted, ``Notwithstanding best efforts, tech startups'
ability to flawlessly adhere to the vague and broad language used in
this rule is unrealistic.'' \217\
---------------------------------------------------------------------------
\216\ For example, the Coalition and IAB both said, ``The NPRM
fails, however, to identify which claims would constitute a material
fact, and thus fails to identify covered acts with the requisite
level of specificity.'' Coalition, FTC-2023-0033-0884; IAB, FTC-
2023-0033-1000. PDMI similarly claimed the proposed provision's lack
of specificity ``renders [the proposed Rule] overly vague and
unlawful.'' FTC-2023-0033-0864. See also ESA, FTC-2023-0033-0867;
TechFreedom, FTC-2023-0033-0872; USTelecom, FTC-2023-0033-0876
(citing Katharine Gibbs School v. FTC, 612 F.2d 658 (2d Cir. 1979)).
\217\ ACT App Association, FTC-2023-0033-0874.
---------------------------------------------------------------------------
A few commenters provided hypotheticals or asked rhetorical
questions to illustrate concerns about the proposal's breadth. MIA, for
example, stated, ``if a streaming service advertises, `movies that you
will love,' but you do not `love' them, is that a violation of this
rule subject to penalties? If a housekeeping service claims, `great
cleaning every time,' but the resulting cleanliness is not up to the
consumer's `standards,' will that trigger this provision and any
resulting penalties?'' \218\ The Chamber asked, ``[c]ould a privacy
policy, for example, be considered a material representation covered
under this requirement?'' \219\
---------------------------------------------------------------------------
\218\ MIA, FTC-2023-0033-1008.
\219\ Chamber, FTC-2023-0033-0885. See also CDI, FTC-2023-0033-
0887 (``consumers could argue that the dish detergent they received
through a subscription service did not clean dishes as
advertised.'').
---------------------------------------------------------------------------
Many of these commenters argued the reach of the proposed Rule
would negatively impact consumers by discouraging negative option
offerings. TechNet said, ``[f]or a variety of subscription services,
the main drivers of consumer engagement are the subscription services'
ability to provide financial savings, convenience, and access to
premium services. . . . Unfortunately, the NPRM ignores these benefits
and would discourage the offering of subscription services
altogether.'' \220\ ESA feared ``this section will discourage industry
members from developing and offering innovative negative option plans
that consumers will enjoy.'' \221\
---------------------------------------------------------------------------
\220\ TechNet, FTC-2023-0033-0869.
\221\ ESA, FTC-2023-0033-0867; see also IAB, FTC-2023-0033-1000
(predicting ``autorenewing (sic) subscriptions will become less
common and significantly more costly because of the regulatory
risks'' and ``businesses and consumers will be harmed by the loss of
convenience and savings offered by autorenewal arrangements.'');
Chamber, FTC-2023-0033-0885 (contending ``many entities may forgo
negative options altogether. This decreases consumer choice in the
marketplace given the clear popularity and use of negative option
features across the economy.'').
---------------------------------------------------------------------------
Several commenters asserted existing laws and regulations make the
proposed provision unnecessary. Some argued section 5's prohibition
against deceptive practices already provides the Commission sufficient
authority on this issue.\222\ Others asserted State laws and
regulations prohibiting misrepresentations are sufficient to protect
the public.\223\
---------------------------------------------------------------------------
\222\ ANA, FTC-2023-0033-1001; Consumer Technology Association
(``CTA''), FTC-2023-0033-0997; N/MA, FTC-2023-0033-0873.
\223\ NRF, FTC-2023-0033-1005; RILA, FTC-2023-0033-0883; SFE
Energy, Inc. (``SFE''), FTC-2023-0033-1151.
---------------------------------------------------------------------------
Commenters were divided on ROSCA's coverage. NRF, for example, said
``[i]n light of the Commission's decision that ROSCA already prohibits
deceptive statements made in connection with a subscription, even if
not directly related to subscription terms, many of the proposed
amendments are unnecessary.'' \224\ In contrast, PDMI said while
MoviePass ``perhaps reflects a colorable approach,'' the application of
ROSCA there ``exceeded Congress' intent.'' \225\ Similarly, IAB
asserted the proposed Rule would break new ground by ``grant[ing] the
Commission authority to seek monetary remedies against a first-time
offender for misrepresentations that would not give rise to monetary
relief if made outside the context of an autorenewal agreement.'' \226\
---------------------------------------------------------------------------
\224\ NRF, FTC-2023-0033-1005.
\225\ PDMI, FTC-2023-003-0864.
\226\ IAB, FTC-2023-0033-1000.
---------------------------------------------------------------------------
Several commenters recommended changes if the proposed provision
remains in the Rule. BSA, for example, suggested the Commission should
define the term ``material,'' citing the TSR and the FTC Policy
Statement on Deception as examples.\227\ Separately, RILA urged the
Commission ``to include clear language stating a `reasonable person
standard' will apply to determinations of `material facts' related to
products.'' \228\
---------------------------------------------------------------------------
\227\ BSA, FTC-2023-0033-1015; see also Chamber, FTC-2023-0033-
0885 (noting ``materiality'' not defined in NPRM).
\228\ RILA, FTC-2023-0033-0883.
---------------------------------------------------------------------------
Several commenters suggested the Commission limit the
misrepresentation provision to the terms of the negative option
feature. For instance, BSA advocated for limiting the provision ``to
facts relating to the transaction and not every material fact relating
to the underlying good or service.'' \229\ CCIA and CDI agreed, stating
the final phrase should instead cover only those material facts related
to the underlying negative option feature and exclude ``any material
fact related to the underlying good or service.'' \230\
---------------------------------------------------------------------------
\229\ BSA, FTC-2023-0033-1015.
\230\ CCIA, FTC-2023-0033-0984; CDI, FTC-2023-0033-0887; see
also TechFreedom, FTC-2023-0033-0872.
---------------------------------------------------------------------------
(b) Analysis
Based on the record, the Commission adopts a clarified version of
the material misrepresentation section and adds a definition for
further clarification. Specifically, the final Rule omits the proposed
language referring to ``any material fact related to the transaction,
such as the negative option feature, or any material fact related to
the underlying good or service'' and instead prohibits
misrepresentation of ``any material fact,'' and defines ``material''
consistent with the TSR and section 5 of the FTC Act. Further, to
enhance clarity and specificity, the text lists several examples of
potentially material fact categories, taken from Commission precedent.
As further explained below: (1) despite commenters' concerns to the
contrary, this provision is consistent with the ANPR and prevalence
requirements of section 18 of the FTC Act; (2) consistent with ROSCA,
the final provision is not limited to material misrepresentations about
the negative option feature itself; (3) the Commission declines to
exclude any subset of material misrepresentations from the scope of the
Rule; and (4) for clarity, the Commission adds a definition of
``material'' consistent with established law of section 5 and other
Commission Rules.
(1) Adoption of a prohibition against misrepresentations is
consistent with the ANPR and is appropriate to address prevalent unfair
or deceptive acts or practices.
Prior to the publication of any notice of proposed rulemaking
promulgated under the Magnuson Moss Act, the Commission must publish an
advance notice of proposed rulemaking (ANPR).\231\ That notice must
contain a ``brief description of the area of inquiry under
consideration, the objectives which the Commission seeks to achieve,
and possible regulatory alternatives
[[Page 90493]]
under consideration by the Commission.'' \232\ The ANPR in this case
meets this standard. Specifically, in the ANPR, the Commission stated
the objective of the Rule was to prevent deceptive or unfair practices
in the marketing of products and services with negative option
features. Several industry associations submitted comments in response
to the ANPR, illustrating the effectiveness of the ANPR in soliciting
views of the interested public and affected industry before issuing the
NPRM.\233\ Moreover, as detailed herein, the Commission has reviewed
and carefully considered the views of the public and industry as
expressed in response to both the ANPR and NPRM.
---------------------------------------------------------------------------
\231\ 15 U.S.C. 57a(b)(2).
\232\ 15 U.S.C. (b)(2)(A)(i).
\233\ Section 425.3 is the only remaining section as to which
commenters made this ANPR argument.
---------------------------------------------------------------------------
The record demonstrates misrepresentations made to induce consumers
to enter into negative option programs are prevalent. Specifically, the
Commission's enforcement experience (including consumer complaints,
matters cited in the NPRM, and matters cited in this Statement of Basis
and Purpose) as well as the experiences of the State AGs, the
information cited by the Law Professors, and comments by consumer
commenters all support this conclusion.\234\
---------------------------------------------------------------------------
\234\ See section VII.1.a. In the cited Commission law
enforcement matters, the Commission has applied its established
materiality standard, limiting its actions to misrepresentations
that are likely to affect consumers' choice of, or conduct
regarding, goods or services. In re Cliffdale Assocs., Inc., 103
F.T.C. 110 (1984). That is to say, in the cited matters the
Commission alleged defendants made misrepresentations to induce
consumers to enter into negative option programs.
---------------------------------------------------------------------------
As several commenters critical of the proposed provision correctly
note, misrepresentations to induce consumers to join negative option
programs are already unlawful under section 5, as well as under other
State and Federal laws and regulations, depending on (among other
things) media used and jurisdiction. This fact, however, does not
undermine the need for the Rule provision. By definition, a section 18
trade regulation rule addresses conduct that is already prohibited
under section 5. With such prohibited conduct defined, the trade
regulation rule may also more broadly ``include requirements prescribed
for the purpose of preventing such acts or practices,'' but the core of
a trade regulation rule is the description of acts or practices already
violative of section 5.\235\ The misrepresentations section of the Rule
is narrower than the full scope of tools available under section 18. It
simply prohibits conduct that is already deceptive. Such a provision
promotes clarity and confidence in the marketplace and provides for
more effective remedies (i.e., civil penalties, where appropriate)
against wrongdoers.
---------------------------------------------------------------------------
\235\ 15 U.S.C. 57a(a)(1)(B).
---------------------------------------------------------------------------
Moreover, the fact that ROSCA's disclosure requirement \236\
already essentially prohibits material misrepresentations about online
negative option transactions, means much of the rhetoric predicting the
downfall of negative option marketing simply is ill-founded. Indeed,
the Chamber pointed to the ``clear popularity and use of negative
option features across the economy'' even as ROSCA has been law for
over a decade.\237\ Far from undermining legitimate business, the
Rule's express prohibition on misrepresenting material facts in
connection with promoting or offering for sale a negative option
feature should increase consumer confidence in negative option
marketing, thus making it easier for legitimate businesses to market
their products.
---------------------------------------------------------------------------
\236\ 15 U.S.C. 8403(1).
\237\ Chamber, FTC-2023-0033-0885.
---------------------------------------------------------------------------
(2) Prohibiting misrepresentation of any material facts, not just
those pertaining to the negative option feature, promotes clarity
consistent with ROSCA and Commission precedent.
The final Rule prohibits misrepresentation of ``any material
fact.'' In doing so, it provides a non-exhaustive list of categories of
potentially material facts (including transaction terms) and adds a
definition of ``material,'' consistent with section 5 and the TSR.
Specifically, consistent with section 5, ``material'' means ``likely to
affect a person's choice of, or conduct regarding, goods or services.''
\238\ This approach both clarifies the terms most at issue and ensures
the Rule accords with longstanding section 5 precedent.
---------------------------------------------------------------------------
\238\ 16 CFR 310.2(t) (TSR); 16 CFR 461.1 (Impersonation Rule);
Policy Statement on Deception (Oct. 14, 1983) (appended to In re
Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)). See also BSA, FTC-
2023-0033-1015 (requesting definition of material consistent with
TSR and Policy Statement); Chamber, FTC-2023-0033-0885 (criticizing
the proposed Rule for not defining materiality).
---------------------------------------------------------------------------
The Commission declines to limit the misrepresentations prohibition
solely to elements of the negative option feature.\239\ First, the
Commission finds imposing such a narrow restriction would be
inconsistent with existing protections. Pursuant to ROSCA section 8403,
sellers must ``clearly and conspicuously disclose all material terms of
the transaction before obtaining the consumer's billing information.''
As Congress has explained, a healthy marketplace ``must provide
consumers with clear, accurate information and give sellers an
opportunity to fairly compete with one another for consumers'
business.'' \240\ Limiting a misrepresentations prohibition solely to
misrepresentations about the negative option feature itself would fall
well short of the scope of ROSCA and the Commission's responsibility to
protect the public.
---------------------------------------------------------------------------
\239\ E.g., ESA, FTC-2023-0033-0867; NFIB, FTC-2023-0033-0789;
TechFreedom, FTC-2023-0033-0872.
\240\ 15 U.S.C. 8401(2).
---------------------------------------------------------------------------
Moreover, seller commenters themselves highlighted transaction
elements other than negative option terms as critical to inducing
consumers to choose negative option features. IAB, for example, pointed
to the promise of ``broader selection and lower prices'' or
``convenience and savings.'' \241\ Similarly, TechNet identified the
``ability to provide financial savings, convenience, and access to
premium services'' as ``the main drivers'' of varied
subscriptions.\242\
---------------------------------------------------------------------------
\241\ IAB, FTC-2023-0033-1000.
\242\ TechNet, FTC-2023-0033-0869.
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Furthermore, such a distinction may invite dishonest actors to
misrepresent material facts about a transaction so long as they felt
they could evade monetary liability for such misrepresentations.
Moreover, simply refraining from making material misrepresentations is
hardly a significant burden given the fact that such misrepresentations
are already illegal under section 5 of the FTC Act, and subject to
civil penalties when made on the internet and over the telephone
pursuant to ROSCA and the TSR, respectively.
(3) The Commission declines to exclude any material facts from the
scope of the provision.
To further promote clarity, the Commission includes a list of non-
exclusive examples in the text of Sec. 425.3. In addition to the
negative option feature itself, the examples include certain
characteristics the Commission has identified as presumptively material
for more than 40 years \243\ and which have in fact appeared as the
subject of material misrepresentations in Commission negative option
cases--cost,\244\ purpose
[[Page 90494]]
or efficacy,\245\ and health or safety.\246\ The record demonstrates
the list must be non-exclusive because the Commission has observed the
use of material misrepresentations other than those enumerated to
induce consumers to enter into transactions with negative option
features, including, for example, characteristics of the seller,\247\
the format of the ad or other sales communication,\248\ consumer
authorization,\249\ consumer privacy or data security,\250\ and
endorsements or testimonials.\251\ The Commission cannot predict what
other material misrepresentations dishonest actors may employ in the
future.
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\243\ Policy Statement on Deception (Oct. 14, 1983) (appended to
In re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)) (describing
and citing materiality of purpose, safety, efficacy, and cost); In
re Thompson Medical Co., Inc., 104 F.T.C. 648, 816-17 (1984)
(listing cost, purpose, efficacy, and safety as presumptively
material characteristics).
\244\ In the negative option context, material cost
misrepresentations may include any cost (and total costs) from
inception through the course of the commercial relationship,
including misrepresentations as to recurring costs and refunds or
guarantees. See, e.g., FTC v. FloatMe Corp., No. 5:24-cv-00001 (W.D.
Tex. 2024); United States v. Cerebral, Inc., No. 1:24-cv-21376 (S.D.
Fla. 2024); FTC v. Bridge It, Inc., No. 1:23-cv-09651 (S.D.N.Y.
2023); FTC v. Benefytt Techs., Inc., No. 8:22-cv-01794 (M.D. Fla.
2022); FTC v. First Am. Payment Sys., No. 4:22-cv-00654 (E.D. Tex.
2022); FTC v. XXL Impressions, LLC, No. 1:17-cv-00067 (D. Me. 2017);
FTC v. Cardiff, No. 5:18-cv-02104 (C.D. Cal. 2018); FTC v. Health
Rsch. Labs., LLC, No. 2:17-cv-00467 (D. Me. 2017); FTC v. Tarr, No.
3:17-cv-02024 (S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 1:17-cv-
09083 (S.D.N.Y. 2017); FTC v. Pact, Inc., No. 2:17-cv-1429 (W.D.
Wash. 2017); FTC v. Leanspa, LLC, No. 3:11-cv-01715 (D. Conn. 2011);
FTC v. Willms, No. 2:11-cv-00828 (W.D. Wash. 2011); FTC v. Universal
Premium Servs., No. 2:06-cv-00849 (C.D. Cal. 2006).
\245\ See, e.g., FTC v. FloatMe Corp., No. 5:24-cv-00001 (W.D.
Tex. 2024); United States v. Cerebral, Inc., No. 1:24-cv-21376 (S.D.
Fla. 2024); FTC v. NGL Labs, LLC, No. 2:24-cv-05753 (C.D. Cal.
2024); FTC v. Bridge It, Inc., No. 1:23-cv-09651 (S.D.N.Y. 2023);
FTC v. WealthPress, Inc., No. 3:23-cv-00046 (M.D. Fla. 2023); In re
Dun & Bradstreet, Inc., FTC Docket No. C-4761 (2022); FTC v. First
Am. Payment Sys., No. 4:22-cv-00654 (E.D. Tex. 2022); In re
MoviePass, Inc., FTC Docket No. C-4751 (2021); United States v.
MyLife.com, Inc., No. 2:20-cv-6692 (C.D. Cal. 2020); FTC v.
RagingBull.com, LLC, No. 1:20-cv-03538 (D. Md. 2020); FTC v. Match
Grp., Inc., No. 3:19-cv-02281 (N.D. Tex. 2019); FTC v. XXL
Impressions, LLC, No. 1:17-cv-00067 (D. Me. 2017); FTC v. Cardiff,
No. 5:18-cv-02104 (C.D. Cal. 2018); FTC v. JDI Dating, Ltd., No.
1:14-cv-08400 (N.D. Ill. 2014); FTC v. Credit Bureau Ctr., LLC, No.
1:17-cv-00194 (N.D. Ill. 2017); FTC v. Health Rsch. Labs., LLC, No.
2:17-cv-00467 (D. Me. 2017); FTC v. Health Formulas, LLC, No. 2:14-
cv-01649 (D. Nev. 2014); FTC v. Leanspa, LLC, No. 3:11-cv-01715 (D.
Conn. 2011); FTC v. Willms, No. 2:11-cv-00828 (W.D. Wash. 2011); FTC
v. Johnson, No. 2:10-cv-02203 (D. Nev. 2010); FTC v. Remote Response
Corp., No. 1:06-cv-20168 (S.D. Fla. 2006).
\246\ See, e.g., FTC v. XXL Impressions, LLC, No. 1:17-cv-00067
(D. Me. 2017); FTC v. Cardiff, No. 5:18-cv-02104 (C.D. Cal. 2018);
FTC v. Health Rsch. Labs., LLC, No. 2:17-cv-00467 (D. Me. 2017); FTC
v. Health Formulas, LLC, No. 2:14-cv-01649 (D. Nev. 2014); FTC v.
Leanspa, LLC, No. 3:11-cv-01715 (D. Conn. 2011); FTC v. Willms, No.
2:11-cv-00828 (W.D. Wash. 2011).
\247\ E.g., FTC v. Elite IT Partners, Inc., No. 2:19-cv-00125
(D. Utah 2019) (affiliation with well-known companies); In re
Urthbox, Inc., FTC Docket No. C-4676 (2019) (independence of
reviews); FTC v. BunZai Media Grp., Inc., No. 2:15-cv-04527 (C.D.
Cal. 2015) (BBB accreditation and ratings); FTC v. DOTAuthority.com,
Inc., No. 0:16-cv-62186 (S.D. Fla. 2016) (ratings); FTC v. FTN
Promotions, Inc., No. 8:07-cv-1279 (M.D. Fla. 2007) (affiliation
with consumer's bank).
\248\ E.g., FTC v. XXL Impressions, LLC, No. 1:17-cv-00067 (D.
Me. 2017) (radio news show); FTC v. Leanspa, LLC, No. 3:11-cv-01715
(D. Conn. 2011) (news reports).
\249\ E.g., In re Dun & Bradstreet, Inc., FTC Docket No. C-4761
(2022) (charging for same product consumer previously purchased);
FTC v. Benefytt Techs., Inc., No. 8:22-cv-01794 (M.D. Fla. 2022)
(charging for authorized products); FTC v. Triangle Media Corp., No.
3:18-cv-01388 (S.D. Cal. 2018) (completeness of order); FTC v. Apex
Capital Grp., LLC, No. 2:18-cv-09573 (C.D. Cal. 2018) (completeness
of order); FTC v. Moneymaker, No. 2:11-cv-00461 (D. Nev. 2011)
(purpose of authorization).
\250\ E.g., United States v. Cerebral, Inc., No. 1:24-cv-21376
(S.D. Fla. 2024) (data security and privacy); In re MoviePass, Inc.,
FTC Docket No. C-4751 (2021) (data security).
\251\ E.g., FTC v. XXL Impressions, LLC, No. 1:17-cv-00067 (D.
Me. 2017); FTC v. Cardiff, No. 5:18-cv-02104 (C.D. Cal. 2018); FTC
v. Willms, No. 2:11-cv-00828 (W.D. Wash. 2011).
---------------------------------------------------------------------------
Some commenters asserted section 18 does not authorize the
Commission to prohibit material misrepresentations in a given area of
commerce. Section 18, however, permits the FTC to promulgate ``rules
which define with specificity acts or practices which are unfair or
deceptive acts or practices in or affecting commerce (within the
meaning of [section 5(a)(1)]) . . . [and] may include requirements
prescribed for the purpose of preventing such acts or practices.''
\252\ It places no additional restrictions on the scope of this
rulemaking.
---------------------------------------------------------------------------
\252\ 15 U.S.C. 57a(a)(1)(B).
---------------------------------------------------------------------------
Several commenters appear to think section 18 requires the
Commission to define specific claims as deceptive; for example, two
commenters cited the Business Opportunity Rule's treatment of
misrepresentations.\253\ While the cited Rules show one way to meet the
statute's specificity requirements, the statute does not require the
Commission to define claims with specificity, but instead acts or
practices.\254\ For example, in the Business Opportunity Rule, the
practice of misrepresenting ``any material aspect of any assistance
offered to a prospective purchaser'' in a business opportunity
transaction is a specific type of deceptive practice in or affecting
commerce.\255\ By the same token, the practice of misrepresenting
material facts to induce consumers to consent to negative option
features constitutes a specific type of deceptive practice.
---------------------------------------------------------------------------
\253\ PDMI, FTC-2023-003-0864 (contrasting the proposed Rule
language with Business Opportunity Rule language, saying ``The
Business Opportunity Rule does not prohibit any misrepresentation in
connection with business opportunities. It prohibits specific
misrepresentations about earnings claims.''); TechFreedom, FTC-2023-
0033-0872 (``For example, the Business Opportunity Rule prohibits no
fewer than 21 different kinds of misrepresentation regarding
business opportunities. This specificity is typical of trade
regulation rules.'') (footnotes omitted).
\254\ 15 U.S.C. 57a(a)(1)(B).
\255\ 16 CFR 437.6(i).
---------------------------------------------------------------------------
The record, including the submissions of many industry commenters,
shows negative option features are found across industries, but are
consistently distinguishable as a subset of general commercial
practices. As commenters point out, negative option features offer many
distinct benefits to consumers and sellers. These benefits do not lose
their distinct character merely because they occur across different
kinds of goods and services sold across different channels. While the
record shows this practice offers distinct benefits, it also shows the
practice is plagued by distinct abuse. This is not a hypothetical
statement; the Commission is not promulgating the final Rule because
negative option features may engender deception, whether relating to
the feature itself or to other material facts, but rather because the
record shows they have.\256\ Just as with the benefits of
[[Page 90495]]
negative option marketing, these problems do not lose their distinct
character, in other words they are distinct practices, even though they
appear in a variety of contexts.
---------------------------------------------------------------------------
\256\ See, e.g., FTC v. FloatMe Corp., No. 5:24-cv-00001 (W.D.
Tex. 2024); United States v. Cerebral, Inc., No. 1:24-cv-21376 (S.D.
Fla. 2024); FTC v. NGL Labs, LLC, No. 2:24-cv-05753 (C.D. Cal.
2024); FTC v. Bridge It, Inc., No. 1:23-cv-09651 (S.D.N.Y. 2023);
FTC v. WealthPress, Inc., No. 3:23-cv-00046 (M.D. Fla. 2023); FTC v.
Benefytt Techs., Inc., No. 8:22-cv-01794 (M.D. Fla. 2022); In re Dun
& Bradstreet, Inc., FTC Docket No. C-4761 (2022); FTC v. First Am.
Payment Sys., No. 4:22-cv-00654 (E.D. Tex. 2022); In re MoviePass,
Inc., FTC Docket No. C-4751 (2021); United States v. MyLife.com,
Inc., No. 2:20-cv-6692 (C.D. Cal. 2020); FTC v. RagingBull.com, LLC,
No. 1:20-cv-03538 (D. Md. 2020); FTC v. Match Grp., Inc., No. 3:19-
cv-02281 (N.D. Tex. 2019); FTC v. Elite IT Partners, Inc., No. 2:19-
cv-00125 (D. Utah 2019); In re Urthbox, Inc., FTC Docket No. C-4676
(2019); FTC v. Triangle Media Corp., No. 3:18-cv-01388 (S.D. Cal.
2018); FTC v. Apex Capital Grp., LLC, No. 2:18-cv-09573 (C.D. Cal.
2018); FTC v. XXL Impressions, LLC, No. 1:17-cv-00067 (D. Me. 2017);
FTC v. Cardiff, No. 5:18-cv-02104 (C.D. Cal. 2018); FTC v. JDI
Dating, Ltd., No. 1:14-cv-08400 (N.D. Ill. 2014); FTC v. Credit
Bureau Ctr., LLC, No. 1:17-cv-00194 (N.D. Ill. 2017); FTC v. BunZai
Media Grp., Inc., No. 2:15-cv-04527 (C.D. Cal. 2015); FTC v.
DOTAuthority.com, Inc., No. 0:16-cv-62186 (S.D. Fla. 2016); FTC v.
Health Rsch. Labs., LLC, No. 2:17-cv-00467 (D. Me. 2017); FTC v.
Tarr, No. 3:17-cv-02024 (S.D. Cal. 2017); FTC v. AdoreMe, Inc., No.
1:17-cv-09083 (S.D.N.Y. 2017); FTC v. Pact, Inc., No. 2:17-cv-1429
(W.D. Wash. 2017); FTC v. RevMountain, LLC, No. 2:17-cv-02000 (D.
Nev. 2017); FTC v. AAFE Prods. Corp., No. 3:17-cv-00575 (S.D. Cal.
2017); FTC v. Health Formulas, LLC, No. 2:14-cv-01649 (D. Nev.
2014); FTC v. Dill, No. 2:16-cv-00023 (D. Me. 2016); FTC v. Leanspa,
LLC, No. 3:11-cv-01715 (D. Conn. 2011); FTC v. Willms, No. 2:11-cv-
00828 (W.D. Wash. 2011); FTC v. Moneymaker, No. 2:11-cv-00461 (D.
Nev. 2011); FTC v. Johnson, No. 2:10-cv-02203 (D. Nev. 2010); FTC v.
Inc21.com Corp., 745 F. Supp. 2d 975 (N.D. Cal. 2010); FTC v. JAB
Ventures, LLC, No. 2:08-cv-04648 (C.D. Cal. 2008); FTC v. Ultralife
Fitness, Inc., No. 2:08-cv-07655 (C.D. Cal. 2008); FTC v. FTN
Promotions, Inc., No. 8:07-cv-1279 (M.D. Fla. 2007); FTC v. Think
All Publ'g, LLC, No. 4:07-cv-00011 (E.D. Tex. 2007); FTC v
HispaNexo, Inc., No. 1:06-cv-424 (E.D. Va. 2006); FTC v. Universal
Premium Servs., No. 2:06-cv-00849 (C.D. Cal. 2006); FTC v. Remote
Response Corp., No. 1:06-cv-20168 (S.D. Fla. 2006).
---------------------------------------------------------------------------
In addressing this deceptive practice, the Commission remains
guided by core principles articulated in its 1983 Deception Policy
Statement. As the Commission explained, in considering whether to act
against a deceptive practice, the Commission will observe the extent to
which consumers themselves have been able to police and generate
consequences for seller deception.
Finally, as a matter of policy, when consumers can easily
evaluate the product or service, it is inexpensive, and it is
frequently purchased, the Commission will examine the practice
closely before issuing a complaint based on deception. There is
little incentive for sellers to misrepresent (either by an explicit
false statement or a deliberate false implied statement) in these
circumstances since they normally would seek to encourage repeat
purchases. Where, as here, market incentives place strong
constraints on the likelihood of deception, the Commission will
examine a practice closely before proceeding.\257\
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\257\ Policy Statement on Deception (Oct. 14, 1983) (appended to
In re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)).
The record shows the practice of misrepresenting material facts to
induce consent to negative option features has created distinct issues
consumers have not been able to address themselves, enabling sellers to
collect numerous recurring payments before consumers detect the
misrepresentation and act to stop the charges. This problem is not
confined to a particular subset of industries or misrepresentations but
instead is a too-frequent practice throughout negative option
marketing.\258\ Specifically, when a consumer makes a series of
purchases from the same seller in ordinary circumstances (rather than
through a negative option), each purchase requires the consumer to
actively, even if only briefly, re-evaluate the transaction and
affirmatively consent. Dishonest negative option sellers too easily
bypass these typical guardrails of ``repeat purchases.'' Thus, up-front
misrepresentations can induce consumers into recurring transactions
lacking ordinary sales' built-in interruptions for re-evaluation and
renewed consent. As with other areas where consumers have limited
opportunities for critical up-front evaluation (for example, consumers
cannot easily evaluate medical claims about dietary supplements), so
too, here, the Commission finds additional protection warranted.
---------------------------------------------------------------------------
\258\ See n.257.
---------------------------------------------------------------------------
The Commission has considered commenters' section 18 specificity
concerns pertaining to material misrepresentations and finds them
unsupported by the record. These commenters suggest a hypothetical
world where negative option features provide distinguishable commercial
benefits without presenting distinguishable material misrepresentation
challenges. The reality is otherwise. Thus, the final Rule prohibits
the specific practice of sellers misrepresenting material terms or
facts in connection with negative option sales.
(4) For clarity, the final Rule adds a definition of ``material''
consistent with precedent.
As noted above, and as suggested by commenters, the Commission
defines ``material'' in the final Rule. This definition adds clarity
and addresses the rhetorical questions raised by commenters regarding
scope. Specifically, consistent with section 5, the TSR, and
longstanding Commission policy and case law, the final Rule defines the
term to mean likely to affect a person's choice of, or conduct
regarding, goods or services.\259\ Thus, mere puffery is not
material.\260\
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\259\ 16 CFR 310.2(t); In re Cliffdale Assocs., Inc., 103 F.T.C.
110 (1984).
\260\ See FTC v. Direct Mktg. Concepts, Inc., 624 F.3d 1, 11
(1st Cir. 2010) (``Where a claim is merely `exaggerated advertising,
blustering, and boasting upon which no reasonable buyer would rely,'
it may be un-actionable puffery.'').
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The hypotheticals posed by MIA--``movies that you will love'' or
``great cleaning every time''--are classic examples of puffery, and
thus, are not within the scope of materiality.\261\ The response to the
question posed by the Chamber--whether misrepresentation of a privacy
policy would be covered--depends, as it always has, on whether the
seller misrepresents its privacy policy in a way likely to affect
consumer choice or conduct.
---------------------------------------------------------------------------
\261\ The Commission declines to add language defining a
``reasonable person standard'' as suggested by RILA, and refers
instead to the discussion of reasonableness set forth in the
Commission's Policy Statement on Deception (Oct. 14, 1983) (appended
to In re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)).
---------------------------------------------------------------------------
4. Proposed Sec. 425.4 Important Information
Section 425.4 of the proposed Rule prohibited sellers from failing
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.'' \262\ As explained in the NPRM, the Commission drafted this
provision because ``many sellers fail to provide adequate disclosures,
thereby luring consumers into purchasing goods or services they do not
want.'' \263\ To address this issue, the proposed Rule required sellers
to provide the following important information prior to obtaining a
consumer's billing information: ``(1) that consumers' payments will be
recurring, if applicable; (2) the deadline by which consumers must act
to stop charges; (3) the amount or ranges of costs consumers may incur;
(4) the date the charge will be submitted for payment; and (5)
information about the mechanism consumers may use to cancel the
recurring payments.'' \264\
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\262\ NPRM, 88 FR 24727.
\263\ NPRM, 88 FR 24726-27.
\264\ NPRM, 88 FR 24726.
---------------------------------------------------------------------------
The Commission also proposed requirements regarding the form and
location of this important information, as its ``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.''
\265\ Thus, under the proposed Rule, information ``directly related to
the negative option feature . . . must appear immediately adjacent to
the means of recording the consumer's consent for the negative option
feature.'' Information ``not directly related to the negative option
feature . . . must appear before consumers make a decision to buy
(e.g., before they `add to shopping cart').''
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\265\ NPRM, 88 FR 24727.
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Further, the proposal stated all disclosures must be clear and
conspicuous as defined in Sec. 425.2(c). Among other elements of the
clear and conspicuous definition, the proposed Rule specified that in
any communication using an interactive electronic medium, such as the
internet, mobile application, or software, the disclosure must be
unavoidable. The proposed Rule also specified that 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.''
Finally, the proposed Rule prohibited sellers from including any
information that interferes with, detracts from, contradicts, or
otherwise undermines the ability of consumers to read, hear, see, or
otherwise understand the required disclosures. The final clause of this
prohibition ``includ[ed] any
[[Page 90496]]
information not directly related to the material terms and conditions
of any negative option feature.''
Through these provisions, the Commission sought to prevent
deception by businesses taking advantage of the gray areas in current
law, to deter fraudulent actors through the possibility of monetary
relief, and to ``level the playing field for legitimate businesses,
freeing them from having to compete against those employing
deception.'' \266\
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\266\ NPRM, 88 FR 24727.
---------------------------------------------------------------------------
(a) Summary of Comments
Thousands of commenters supported the important information
requirement, stating it is ``critically important that companies make
it explicitly clear what consumers are signing up for.'' \267\
Consumers identified problematic practices the provision would address,
including insufficient and unclear disclosures in small print or those
appearing too late in the transaction. For example, an individual
commenter said, ``[t]oo many [sellers] hide these details in extra fine
print, and increasingly text is in a very light gray color, making it
even harder to read.'' \268\ Another individual commenter noted, ``I
ordered skin care from a tv infomercial only to find out it was a
subscription thing though none of this was disclosed by famous
actresses on the promotion. . . . I went back to my receipt of what I
originally ordered and in fine print saw that I had been duped!'' \269\
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\267\ Thousands of consumers submitted the following identical
comment in their own names: ``It's critically important that
companies make it explicitly clear what consumers are signing up for
and to make canceling fast and easy. If you signed up online, you
should be able to cancel online. If it took one click to join, it
should take one click to cancel. Implementing this consumer
protection rule has the potential to save American consumers
millions of dollars and I hope it is implemented as soon as
possible.'' While apparently a response to a mass solicitation, many
consumers further personalized their submission by adding their
unique experiences and desire for the Rule. See, e.g., Individual
commenter, FTC-2023-0033-0161; -0163; -0164; 0198; -0204; -0545;
0658.
\268\ Individual commenter, FTC-2023-0033-0268. Similarly,
another individual commenter said, ``Businesses should not present
agreements in tiny print on an agent's tablet for the customer to
sign. I can't read the print.'' Individual commenter, FTC-2023-0033-
0349.
\269\ Individual commenter, FTC-2023-0033-0345.
---------------------------------------------------------------------------
Several individual commenters indicated clear upfront disclosures
would help them make informed choices and improve their willingness to
try negative option offerings, particularly if the disclosure provided
an easy cancellation mechanism. As one put it, ``I am much more
like[ly] to try--and buy--a new service if I know there is an easy way
to cancel online.'' \270\ Another said, ``I actually subscribe to far
fewer services than I would if I knew that I could easily cancel once I
had tried a sample.'' \271\
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\270\ Individual commenter, FTC-2023-0033-0781.
\271\ Individual commenter, FTC-2023-0033-0031. Accord
Individual commenter, 0196 (``I have had to get to the point of not
subscribing to any online offers, as far too many times I have found
it nearly impossible to unsubscribe''); Individual commenter, FTC-
2023-0033-0306 (``you could win over more subscribers to your
services if you took away the fear and doubts of the public that
they will probably be hooked into something that would be more
troublesome to get out of . . . I can tell you that I have passed
over many opportunities that I was interested in for this very
reason.''); Individual commenter, FTC-2023-0033-0333 (``I've had
some difficulty in the past cancelling enrollments or subscriptions,
so that now I've become very wary of products or services I would
otherwise appreciate having. Implementing this consumer protection
rule would help me feel more confident again.'').
---------------------------------------------------------------------------
Public advocacy commenters also supported the provision. The
Berkeley Consumer Law Center said, ``the requirement of `clear and
conspicuous' disclosures of `any material term related to the
underlying goods or services that is necessary to prevent deception'
will help prevent cancellation terms from being shrouded in mystery
through complicated terms and conditions, while also blocking the
practice of hiding subscription services that are needed to fully use a
product.'' \272\ Similarly, a coalition of consumer and public interest
advocacy organizations asserted the proposed disclosure requirement
``will clearly inform consumers of the terms of the contract and how
they may terminate the agreement.'' \273\
---------------------------------------------------------------------------
\272\ Berkeley Consumer Law Center, FTC-2023-0033-0855.
Similarly, for the same reasons they provided in connection with the
misrepresentations provision, the Law Professors encouraged the
Commission to maintain the proposed disclosure provision's coverage
of material terms necessary to prevent deception, regardless of
whether such terms are exclusively about the negative option
feature. Law Professors, FTC-2023-0033-0861.
\273\ Public Interest Groups, FTC-2023-0033-0880.
---------------------------------------------------------------------------
Law enforcement commenters likewise supported the important
information requirements. The State AGs said they would ``repel the
abusive practices of hidden disclosures, `including those in fine
print, buried in paragraphs of legalese and sales pitches, and
accessible only through hyperlinks.' '' \274\ They particularly
emphasized their support for ``the required disclosure of `the
information necessary for the consumer to cancel the negative option
feature.' '' \275\ The California Auto-Renew Task Force (``CART''), a
group of Southern California prosecutors, supported disclosures
appearing ``immediately adjacent to the means of recording the
consumer's consent for the negative option feature.'' \276\ CART
asserted this provision, together with others, ``will greatly minimize
consumer deception and ensure that consumers fully understand--and
agree to--the nature of the transaction under consideration.'' \277\
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\274\ State AGs, FTC-2023-0033-0886.
\275\ Id.
\276\ CART, FTC-2023-0033-0698.
\277\ Id.
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Other commenters, mostly industry groups,\278\ expressed several
concerns with the proposed requirements, specifically with the
definition of ``clear and conspicuous,'' the scope and timing of the
material terms to be disclosed, specific disclosure requirements,
placement, and treatment of other information.\279\
---------------------------------------------------------------------------
\278\ Not all industry groups criticized the provision.
Specifically, MIA wrote, ``The Association agrees with the important
information requirement under the proposed Rule.'' MIA, FTC-2023-
0033-1008.
\279\ In addition, some commenters cited industry-specific laws
and regulations pertaining to disclosures as rendering the proposed
provision unnecessary or counterproductive. ACA Connects-America's
Communications Association (``ACA''), FTC-2023-0033-0881; NCTA, FTC-
2023-0033-0858; SFE, FTC-2023-0033-1151; USTelecom, FTC-2023-0033-
0876.
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Multiple commenters claimed the requirement that disclosures using
an interactive electronic medium must be ``unavoidable'' would be
unworkable given the additional provision that 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.'' \280\
Commenters noted it would be difficult or impossible to implement this
requirement on small screens (such as mobile phones), and it may reduce
rather than improve clarity.
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\280\ ANA, FTC-2023-0033-1001; CCIA, FTC-2023-0033-0984;
Coalition, FTC-2023-0033-0884; ESA, FTC-2023-0033-0867; IAB, FTC-
2023-0033-1000; NCTA, FTC-2023-0033-0858; Chamber, FTC-2023-0033-
0885. NFIB suggested the Commission strike the provision ``The
disclosure must use diction and syntax understandable to ordinary
consumers'' and replace it with `` `The disclosure must use words
and grammar that ordinary consumers would likely understand.' ''
FTC-2023-0033-0789.
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Several commenters also objected to the requirement sellers
disclose material terms other than those pertaining exclusively to the
negative option feature, asserting this would be overbroad.\281\
Additionally, commenters questioned how the Commission would enforce a
requirement to disclose material terms before obtaining a
[[Page 90497]]
consumer's billing information, especially where a consumer previously
elected to save billing information with the seller.\282\ Commenters
also found the requirement that material terms ``not directly related
to the negative option feature . . . must appear before consumers make
a decision to buy'' to be vague.\283\
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\281\ ACT App Association, FTC-2023-0033-0874; ANA, FTC-2023-
0033-1001; BSA, FTC-2023-0033-1015; CCIA, FTC-2023-0033-0984; NCTA,
FTC-2023-0033-0858; NFIB, FTC-2023-0033-0789; NRF, FTC-2023-0033-
1005; PDMI, FTC-2023-003-0864; Sirius XM, FTC-2023-0033-0857;
Chamber, FTC-2023-0033-0885.
\282\ CTA, FTC-2023-0033-0997; ESA, FTC-2023-0033-0867; IAB,
FTC-2023-0033-1000; NRF, FTC-2023-0033-1005; RILA, FTC-2023-0033-
0883. Sirius XM asserted this requirement could be interpreted to
mean every advertisement must contain disclosure of all material
terms. FTC-2023-0033-0857.
\283\ Rebecca Kuehn (``Kuehn''), FTC-2023-0033-0871; NRF, FTC-
2023-0033-1005.
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Several commenters took issue with the five specific disclosures in
the proposed Rule. For example, the requirement to disclose ``the date
(or dates) each charge will be submitted for payment'' drew substantial
criticism, with several commenters asserting appropriate disclosures
regarding frequency should suffice.\284\ Commenters also criticized the
requirements to disclose deadlines to act and the amount or range of
costs.\285\ A group of direct marketers asserted, for example, ``the
Proposed Rule goes too far in appearing to require a specific date by
which consumers must act to stop charges when certain negative option
plans are inherently more flexible and allow consumers to cancel
anytime.'' \286\ Commenters also found the requirement to disclose
``the information necessary for the consumer to cancel the negative
option feature'' was vague and impractical. They contended the
requirement would result in unnecessary details crowding out other
disclosures.\287\ IAB contended ``[a] more effective strategy
[regarding cancellation disclosures] would be to make clear but concise
disclosures of where that information can be found.'' \288\
---------------------------------------------------------------------------
\284\ CCIA, FTC-2023-0033-0984; CTA, FTC-2023-0033-0997; ESA,
FTC-2023-0033-0867; IAB, FTC-2023-0033-1000; NRF, FTC-2023-0033-
1005; RILA, FTC-2023-0033-0883; Sirius XM, FTC-2023-0033-0857.
\285\ IAB, FTC-2023-0033-1000 (deadlines); Comment from Kelley
Drye & Warren LLP on behalf of certain direct marketing companies
(``Direct Marketing Companies''), FTC-2023-0033-1016 (deadlines);
NRF, FTC-2023-0033-1005 (amount or range of costs); Sirius XM, FTC-
2023-0033-0857 (amount or range of costs).
\286\ Direct Marketing Companies, FTC-2023-0033-1016.
\287\ CCIA, FTC-2023-0033-0984; ESA, FTC-2023-0033-0867; IAB,
FTC-2023-0033-1000; NRF, FTC-2023-0033-1005.
\288\ IAB, FTC-2023-0033-1000.
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Additionally, multiple commenters criticized the provision
requiring the placement of material terms ``directly related to the
negative option feature'' . . . ``immediately adjacent'' to recording
the consumer's consent.\289\ Commenters asserted having numerous
disclosures in a constrained space would impair consumers' ability to
make informed choices. As an individual commenter explained, ``this
important information may still become overwhelming to a user, or
challenge the integrity of other disclosures if it must compete for
space (especially because this disclosure must be placed immediately
adjacent to where a user will consent to the negative option
feature).'' \290\ NRF found unclear the distinction between which terms
are or are not ``directly related to the negative option feature.''
\291\ Other commenters noted the ``immediately adjacent'' requirement
may not be appropriate for voice transactions.\292\
---------------------------------------------------------------------------
\289\ ANA, FTC-2023-0033-1001; CCIA, FTC-2023-0033-0984;
Coalition, FTC-2023-0033-0884; CTA, FTC-2023-0033-0997; ESA, FTC-
2023-0033-0867; IAB, FTC-2023-0033-1000; Direct Marketing Companies,
FTC-2023-0033-1016; NRF, FTC-2023-0033-1005; SFE, FTC-2023-0033-
1151; Sirius XM, FTC-2023-0033-0857; Chamber, FTC-2023-0033-0885.
\290\ Individual commenter, FTC-2023-0033-0552.
\291\ NRF, FTC-2023-0033-1005.
\292\ Coalition, FTC-2023-0033-0884; Chamber, FTC-2023-0033-
0885.
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Finally, one commenter expressed uncertainty about the meaning of
the ``other information'' provision. NRF said it ``asks companies to
walk a tight rope between ensuring they contain all material terms,
while risking liability if they include `any information not directly
related to the material terms.' '' \293\
---------------------------------------------------------------------------
\293\ NRF, FTC-2023-0033-1005 (emphasis in comment); see also
Chamber, FTC-2023-0033-0885 (``[T]he [disclosure] requirement is
also ambiguous considering it does not clearly outline the specific
material terms that need to be disclosed, which is particularly
important considering the requirement applies not just to the
negative option feature, but all terms in the transaction.'').
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The State AGs also recommended three amendments to this proposal.
First, they recommended requiring sellers to ``disclose all material
policies concerning cancellation.'' Second, they recommended ``sellers
be required to disclose `all the information necessary for the consumer
to effectively cancel the negative option feature.' '' (Emphasis in
comment.) They explained, ``[d]isclosures in the form of `click-here-
to-cancel' icons, which lead to terms and conditions pages, confusing
cancellation flows, or do not otherwise explain how to cancel online,
should not be permitted.'' Third, they recommended ``the FTC amend this
provision to require that the important information identified by this
proposed Rule be provided to the consumer in a manner that is capable
of being retained by the consumer.'' \294\
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\294\ State AGs, FTC-2023-0033-0886.
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(b) Analysis
Based on the record, the Commission retains proposed Sec. 425.4
with several clarifications. First, as explained in section VII.B.3 of
this SBP, the Commission adds a definition of ``material'' at Sec.
425.2(e). Second, in Sec. 425.4(a), the Commission clarifies three of
the listed types of important information sellers must provide and
omits one to address commenters' concerns. Third, as explained in
section VII.B.4.b.2 of this SBP, the Commission revises the definition
of ``clear and conspicuous'' in Sec. 425.2(c). Fourth, in Sec.
425.4(b)(2) the Commission clarifies language regarding ``placement''
of disclosures. Finally, the Commission clarifies the language
prohibiting sellers from including ``any other information'' that
``interferes with, detracts from, contradicts, or otherwise
undermines'' consumers' abilities to read, hear, see, or understand the
required disclosures.
(1) The Commission declines to limit the required important
information under Sec. 425.4(a).
The Commission declines to limit the scope of the required
information under this provision to only information related to the
negative option feature. Section 425.4(a)'s requirement that sellers
disclose ``all material terms'' prior to obtaining the consumer's
billing information is consistent with ROSCA and section 5 of the FTC
Act. Moreover, in the Commission's law enforcement experience such a
provision is necessary to prevent deception.\295\ Therefore, extending
this requirement is well within the Commission's rulemaking
authority.\296\
---------------------------------------------------------------------------
\295\ See., e.g., In re MoviePass, Inc., FTC Docket No. C-4751
(2021).
\296\ 15 U.S.C. 57a(a)(1)(B).
---------------------------------------------------------------------------
To address commenters' concerns about clarity, however, Sec.
425.2(e) adds a definition of ``material;'' specifically, material
means ``likely to affect a person's choice of, or conduct regarding,
goods or services.'' \297\ This definition is consistent with
longstanding section 5 case law and other Commission rules defining
``material.'' \298\
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\297\ Additionally, the Commission changes ``any'' to ``all''
material terms, and deletes the phrase ``related to the underlying
good or service that is necessary to prevent deception'' for
clarity. Specifically, the Commission makes clear that sellers are
required to disclose all material terms, consistent with the
requirements of ROSCA.
\298\ See In re Cliffdale Associates, Inc., 103 F.T.C. 110, 165
(1984) (misleading impression created by a solicitation is material
if it ``involves information that is important to consumers and,
hence, likely to affect their choice of, or conduct regarding, a
product.''); see also FTC v. Cyberspace.com, LLC, 453 F.3d 1196,
1201 (9th Cir. 2006); 16 CFR 310.2(t) (TSR); 16 CFR 461.1
(Impersonation Rule); Policy Statement on Deception (Oct. 14, 1983)
(appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110, 174
(1984)).
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[[Page 90498]]
Additionally, the Commission modifies the proposed list of
important information.\299\ The Commission retains the first proposed
requirement that sellers must disclose ``[t]hat 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.'' \300\ The Commission continues
to find this requirement appropriate to combat deception.
---------------------------------------------------------------------------
\299\ In the misrepresentations provision (Sec. 425.3), the
final Rule uses the term ``including'' to provide examples of
categories of potentially material facts. In the disclosures
provision, the final Rule retains the proposed Rule's use of ``and
including'' (rather than just ``including'') to establish all of the
specifically listed disclosures as being always material.
\300\ NPRM, 88 FR 24735 (proposed 425.4).
---------------------------------------------------------------------------
The Commission revises the second proposed disclosure, that sellers
provide ``the deadline (by date or frequency) by which the consumer
must act in order to stop all charges.'' As revised, this provision
requires sellers to disclose ``each deadline (by date or frequency) by
which the consumer must act to prevent or stop the Charges.'' This
change clarifies there may not be a single ``deadline'' by which a
consumer must act to ``stop all charges.'' A single seller, for
example, may offer a single consumer multiple goods or services, and
the consumer may wish to stop some charges without terminating the
entire relationship. The Commission also clarifies that ``frequency''
as used in the final Rule includes a description of an irregular
frequency (e.g., within a certain period after the seller notifies the
consumer a new item in a series has become available) as well as a
regular one (e.g., the 15th of each month).
The Commission also clarifies the third proposed disclosure. The
proposed Rule required sellers to disclose ``[t]he 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'').\301\ The record suggests,
however, that in some circumstances, the amounts to be charged may be
inexact before the seller obtains the consumer's billing information.
For example, taxes or delivery fees may depend in part on the billing
information the consumer provides. Thus, the Commission clarifies under
the final Rule as adopted, the ``amount (or range of costs)'' need not
be exact if an exact figure is impossible, but the seller must give a
reasonable approximation. For example, it is within the meaning of
``amount (or range of costs)'' for a seller to disclose an amount
``plus tax'' where the seller requires billing information to determine
the actual amount of tax. However, a ``plus shipping'' disclosure may
not be sufficient if the amount of shipping is beyond what a consumer
would reasonably expect or is greater than the amount a seller would
reasonably incur for shipping. In such a circumstance, the seller would
need to provide an estimate of shipping costs. These clarifications
should address commenters' concerns about having to disclose an exact
cost when doing so is not possible.
---------------------------------------------------------------------------
\301\ The final Rule requires sellers to disclose ``The amount
(or range of costs) the consumer will be Charged and, if applicable,
the frequency of the Charges a consumer will incur unless the
consumer takes timely steps to prevent or stop those Charges.''
---------------------------------------------------------------------------
The final Rule omits the proposed fourth disclosure: the date (or
dates) each charge will be submitted for payment. The Commission is
persuaded by commenters' concern that a specific date or dates may be
cumbersome or impossible to calculate. For example, if the seller will
submit a charge when it ships a new item in a series, the seller may
not be able to predict the specific dates it will submit the charge in
the future. In addition, in light of the change to the placement
requirements of Sec. 425.4(b)(2)(i), discussed below, including these
dates could reduce the clarity and conspicuousness of higher priority
adjacent disclosures (especially cancellation deadlines, which will
often occur before dates of charges). If, however, disclosure of the
date (or dates) each charge will be submitted for payment is necessary
to prevent deception in individual cases, such disclosure is required
under Sec. 425.4(a). However, its placement is governed by revised
Sec. 425.4(b)(2)(ii) rather than Sec. 425.4(b)(2)(i).
Finally, the Commission clarifies the fifth proposed mandatory
disclosure (the fourth in the final Rule). The proposed Rule required
sellers to disclose ``[t]he information necessary for the consumer to
cancel the negative option feature''. In contrast, the final Rule
requires sellers to disclose ``The information necessary for the
consumer to find the simple cancellation mechanism required pursuant to
Sec. 425.6''. This change addresses commenters' concern the language
of the proposed Rule, combined with the placement requirements of Sec.
425.4(b)(2)(i), would result in detailed cancellation disclosures
crowding out other important required disclosures.\302\ This new
language should provide consumers with concise critical upfront
information about how to cancel, while offering sellers flexibility to
avoid obscuring other important information.\303\
---------------------------------------------------------------------------
\302\ For example, IAB suggested the Commission should require
sellers ``to make clear but concise disclosures of where
[cancellation] information can be found, so consumers can find that
information if and when it is relevant to them.'' IAB, FTC-2023-
0033-1000.
\303\ The Commission declines to adopt the State AGs three
suggestions to supplement this section. The Commission expects the
final Rule will address two of those suggestions (disclosure of
``all material policies concerning cancellation'' and of ``all the
information necessary for the consumer to effectively cancel the
negative option feature'') through the requirement that sellers
disclose all material terms (Sec. 425.4), the prohibition of
misrepresentations of material facts or terms including those
pertaining to cancellation (Sec. 425.3), and the requirement of a
simple cancellation mechanism (Sec. 425.6). The Commission expects
to address the concerns underlying their third suggestion (``to
require that the important information identified by this proposed
Rule be provided to the consumer in a manner that is capable of
being retained by the consumer''), through its further development
of the reminders requirement. In the interim, the Commission expects
the Rule provisions as adopted will encourage sellers to make
important information easy to find and easy to retain.
---------------------------------------------------------------------------
Some sellers expressed concern regarding the timing of disclosures
where a consumer previously elected to save billing information with
the seller. To address this concern the Commission now clarifies that,
where a consumer has previously provided account information to the
seller and expressly allowed the seller to store that information,\304\
the seller must make the required disclosures prior to obtaining the
consumer's consent to use saved account information.\305\
---------------------------------------------------------------------------
\304\ It is a violation of section 5 for a seller to retain and
use a consumer's payment information without the consumer's consent.
E.g., FTC v. Classic Closeouts LLC, No. 2:09-cv-2692 (E.D.N.Y.
2009).
\305\ See FTC v. Amazon.com, Inc., No. 2:23-cv-00932, 2024 WL
2723812, at *11 (W.D. Wash. May 28, 2024) (``Nothing in ROSCA says
that companies . . . may not give consumers the option to autofill
the billing information already on file or simply to provide billing
information after the disclosures, but ROSCA requires that consumers
be given that choice after the disclosures.'') (emphasis in
original).
---------------------------------------------------------------------------
(2) The Commission modifies the requirements of Sec. 425.4(b) to
promote clarity.
Section 425.4(b)(1) provides, ``[e]ach disclosure required by
paragraph (a) of this section must be clear and conspicuous.'' The
Commission retains this requirement but revises the definition of clear
and conspicuous at Sec. 425.2(c) to address commenters' concerns
regarding space-constrained
[[Page 90499]]
disclosures.\306\ Specifically, the Commission deletes the sentence,
``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.'' This prohibition would have made effective space-constrained
disclosures of the terms required by the final Rule difficult if not
impossible. However, a clear and conspicuous disclosure still must be
``unavoidable.'' By this requirement, consumers are protected from
buried or inconspicuous disclosures. Sellers, on the other hand, can
make disclosures ``unavoidable'' even if the consumer must take some
action to see it. Specifically, the seller could make it impossible for
the consumer to consent to a transaction or feature unless and until
the consumer has seen the disclosure. For example, a seller dealing
with space constraints on a mobile device might not display a consent
button until after the consumer has scrolled down to a clear disclosure
and then clicked a button indicating they have seen the disclosure.
---------------------------------------------------------------------------
\306\ The Commission declines to adopt NFIB's suggested change
to strike the provision ``The disclosure must use diction and syntax
understandable to ordinary consumers'' and replace it with `` `The
disclosure must use words and grammar that ordinary consumers would
likely understand.' '' Particularly in the context of audio
disclosures, the terms ``diction and syntax'' provide clearer
requirements than the terms ``words and grammar.'' NFIB, FTC-2023-
0033-0789.
---------------------------------------------------------------------------
Section 425.4(b)(2) (``Placement'') retains the proposed Rule's
structure requiring a subset of disclosures to ``appear immediately
adjacent to the means of recording the consumer's consent for the
negative option feature,'' while setting a more general timing
requirement regarding other disclosures. However, the Commission has
revised some terms to promote clarity.
Specifically, final Sec. 425.4(b)(2)(i) requires only the four
specific mandatory disclosures listed in Sec. 425.4(a) to appear
``immediately adjacent to the means of recording the consumer's
consent.'' The Commission is persuaded by commenters' concerns that
requiring market participants to determine which required disclosures
are ``directly related to the negative option feature,'' and which are
not, is too great a burden and could lead to consumer confusion.\307\
Thus, rather than define ``directly related to the negative option
feature,'' the Commission removes this phrasing and confines the
``immediately adjacent'' requirement to a specific, narrow list of
disclosures. This change provides clarity and improves predictability
for consumers, and should prevent disclosure overload.
---------------------------------------------------------------------------
\307\ NRF, FTC-2023-0033-1005; Law Professors, FTC-2023-0033-
0861.
---------------------------------------------------------------------------
Several commenters requested clarification of the ``immediately
adjacent'' requirement in the context of voice transactions.\308\ In
response, the Commission clarifies to comply with this requirement, a
voice transaction seller must make the required disclosures immediately
before requesting and recording the consumer's consent to the negative
option feature.
---------------------------------------------------------------------------
\308\ Coalition, FTC-2023-0033-0884; Chamber, FTC-2023-0033-
0885.
---------------------------------------------------------------------------
Two commenters expressed concern that requiring sellers to make
disclosures ``before consumers make a decision to buy'' creates
uncertainty because it is unclear when that triggering event
occurs.\309\ The Commission agrees. Therefore, it revises Sec.
425.4(b)(2)(ii) to provide generally for all required disclosures to
appear before the seller obtains consumer consent to the transaction
pursuant to Sec. 425.5. This amended language provides a triggering
event based on a clear point in the process. Additionally, the
Commission revises Sec. 425.4(b)(2)(ii) to remove the phrase ``not
directly related to the negative option feature,'' doing so for the
same clarity reasons described above for removing the phrase ``directly
related to the negative option feature'' from Sec. 425.4(b)(2)(i).
---------------------------------------------------------------------------
\309\ Kuehn, FTC-2023-0033-0871; NRF, FTC-2023-0033-1005.
---------------------------------------------------------------------------
Finally, the Commission adopts a clarified version of Sec.
425.4(b)(3) (``Other information''). The Commission retains the
proposed Rule's requirement that sellers not employ ``other information
that interferes with, detracts from, contradicts, or otherwise
undermines the ability of consumers to read, hear, see, or otherwise
understand the disclosures.'' However, the Commission finds the final
clause in the proposed Rule (``including any information not directly
related to the material terms and conditions of any negative option
feature'') could be read to contradict other requirements of the Rule.
Specifically, there may be necessary material disclosures not directly
related to the terms and conditions of a negative option feature, and
it is illogical to simultaneously require these disclosures (through
Sec. Sec. 425.4(a) and (b)(2)) and prohibit them (through Sec.
425.4(b)(3)). The Commission therefore omits the clause from the final
Rule. This revision does not alter the requirement of Sec.
425.4(b)(2)(i) that certain specific disclosures be made clearly and
conspicuously immediately adjacent to the means of recording the
consumer's consent. A seller who makes additional disclosures
immediately adjacent to the means of recording the consumer's consent
in a manner undermining the clarity and conspicuousness of the required
Sec. 425.4(b)(2)(i) disclosures violates Sec. 425.4(b)(2)(i) and
Sec. 425.4(b)(3).
5. Proposed Sec. 425.5 Consent
Section 425.5(a) of the proposed Rule prohibited sellers from
charging consumers before obtaining their express informed consent to
the negative option feature. This provision mirrors 15 U.S.C. 8403(2)
(ROSCA), but provided specificity for sellers covered by the Rule and
to prevent unfair and deceptive practices. Specifically, the provision
addressed one of the most pervasive problems of negative option
marketing: sellers employing inadequate consent procedures to increase
enrollment. Even for marketers trying to comply with the law, negative
option programs present unique challenges. Specifically, consumers
often focus on the aspects of an offer that mirror the offers they
regularly encounter (e.g., the quality, functionality, and one-time
price of the item) and think they are consenting to these core
attributes while missing the negative option feature.
To address this problem, Sec. 425.5(a)(1) of the proposed Rule
required sellers to obtain a consumer's unambiguously affirmative
consent to the feature separately from any other portion of the
transaction. Section 425.5(a)(2) of the proposed Rule further required
the seller to exclude any information that ``interferes with, detracts
from, contradicts, or otherwise undermines'' the consumer's ability to
provide express informed consent to the negative option feature. This
prohibition is consistent with longstanding Commission precedent that
consent can be subverted, including by so-called ``dark patterns,''
sophisticated design practices used to manipulate users into making
choices they would not otherwise have made.\310\
---------------------------------------------------------------------------
\310\ See, e.g., FTC v. RevMountain, LLC, No. 2:17-cv-02000 (D.
Nev. 2017); FTC v. Cyberspace.com, LLC, 453 F.3d 1196 (9th Cir.
2006); United States v. Mantra Films, Inc., No. 2:03-cv-9184 (C.D.
Cal. 2003); FTC v. Crescent Publ'g Grp., Inc., 129 F. Supp. 2d 311
(S.D.N.Y. 2001).
---------------------------------------------------------------------------
Additionally, under Sec. 425.5(a)(3) of the proposed Rule, sellers
had to obtain consumers' unambiguously affirmative consent to the rest
of the transaction to ensure consumers agreed to all elements of the
agreement, even those not specifically related to the negative option
feature. Further, Sec. 425.5(a)(4) of the proposed Rule required
sellers to obtain and maintain (for three years or a year after
cancellation, whichever is
[[Page 90500]]
longer) verification of the consumer's consent. The Commission
specifically sought comment on the appropriate recordkeeping
period.\311\
---------------------------------------------------------------------------
\311\ NPRM, FR 88 24727 n.70; see also id. at 24734.
---------------------------------------------------------------------------
To maintain consistency with the TSR, Sec. 425.5(b) contained a
cross-reference to 16 CFR part 310 so sellers subject to the TSR know
they must comply with all applicable provisions of that Rule, including
those related to pre-acquired account information and free-to-pay
conversions.
Proposed Sec. 425.5(c) provided an exemplar consent mechanism for
those making written offers (including those on the internet) to
illustrate how sellers could obtain consumers' unambiguously
affirmative consent to the negative option feature. Specifically, this
provision stated for all written offers, sellers may obtain such
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. This consent had to be independent from
any other portion of the offer.\312\
---------------------------------------------------------------------------
\312\ To avoid potential conflict with EFTA, this proposed
provision does not apply to transactions covered by the
preauthorized transfer provision 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 include 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.
---------------------------------------------------------------------------
Finally, the Commission invited comments on whether sellers
offering free trials should be required to obtain an additional round
of consent before charging a consumer at the end of a free trial.\313\
---------------------------------------------------------------------------
\313\ NPRM, 88 FR 24728.
---------------------------------------------------------------------------
(a) Summary of Comments
Consistent with the Commission's and States' enforcement
experience,\314\ individual consumers' comments confirm the need for
clear, unambiguous, affirmative consent to a negative option feature.
These comments identify numerous examples of consumers' unwitting
enrollment in negative option programs.\315\
---------------------------------------------------------------------------
\314\ See, e.g., State Attorneys General (ANPR), FTC-2019-0082-
0012; State AGs, FTC-2023-0033-0886 (citing cases); FTC v.
Amazon.com, Inc., No. 2:23-cv-0932 (W.D. Wash. 2023); see also
n.109.
\315\ See, e.g., Anonymous commenter, FTC-2023-0033-0799
(automatically enrolled in program without consent); Individual
commenter, FTC-2023-0033-0039 (free-trial conversion to one year
plan without consent); Individual commenter-FTC-2023-0033-0052
(discount to full-price conversion without consent); Individual
commenter, FTC-2023-0033-1119 (cancelled, then automatically re-
enrolled without consent); Individual commenter, FTC-2023-0033-0079
(automatically re-enrolled without consent); Individual commenter,
FTC-2023-0033-0083 (no disclosure account would be automatically
renewed); FTC-2023-0033-0138 (charged after cancellation);
Individual commenter, FTC-2023-0033-0275 (no affirmative consent to
monthly charge).
---------------------------------------------------------------------------
Sellers and trade groups also supported the requirement,\316\ as
did consumer groups.\317\ However, sellers and trade groups expressed
concern about the requirement that sellers obtain separate,
unambiguously affirmative consent to the ``rest of the transaction,''
as opposed to the ``negative option feature'' itself. Specifically,
these commenters asserted consumers may be confused where the product
or service itself is only offered as a negative option, such as with
streaming services or periodicals.\318\ As explained by one commenter,
in these situations a second consent is likely unanticipated, and thus,
could be confusing.\319\
---------------------------------------------------------------------------
\316\ Sirius XM, FTC-2023-0033-0857 (businesses should be
required to obtain express informed consent to the negative option
feature at the point of sale); PDMI, FTC-2023-0033-0864 (no
objection to the general requirement that sellers obtain a
consumer's consent to a transaction containing a negative option
feature); MIA, FTC-2023-0033-1008 (agreeing with the consent
requirement under the proposed Rule).
\317\ Berkely Consumer Law Center, FTC-2023-0033-0855; State
AGs, FTC-2023-0033-0886 (noting State Attorneys General support the
FTC's proposed consent requirements and agree this provision is
necessary given how easily marketers can enroll consumers in
negative option programs without actual consent.). One individual
consumer generally supported the separate consent requirements of
the proposed Rule, but asked that the regulation prevent businesses
from only offering goods and services through auto-renewal and
subscription programs, i.e., consumers should have the option to
purchase a good or service a la carte and not only on a recurring
basis. Individual commenter, FTC-2023-0033-0026.
\318\ Sirius XM, FTC-2023-0033-0857 (requiring an additional
consent will only result in consumer confusion); NCTA, FTC-2023-
0033-0858 (``requiring two consents could lead to consumer confusion
(to say nothing of their exasperation at being forced to read and
provide consent to a plethora of successive and largely duplicative
documents). They may wonder why they are being asked to consent
twice to a single transaction. And might worry that they have
somehow misunderstood one or both of the consent notices''); PDMI,
FTC-2023-003-0864 (anecdotal evidence received from several PDMI
members demonstrates that any time an additional choice or check box
is offered to a consumer during a single transaction, such extra
steps are likely to cause consumer confusion); N/MA, FTC-2023-0033-
0873 (``Requiring sellers to separate a single unified offer into
separate components is not only unnecessary, it risks creating
consumer confusion and fatigue'' and consumers may ``simply abandon
the transaction''); RILA, FTC-2023-0033-0883 (``requirement for two
distinct consents . . . may be confusing and not helpful to
consumers.''); DCN, FTC-2023-0033-0983 (``We are concerned that
requiring a separate consent would be confusing for the consumer who
may not have the details of the entire contract readily available in
the mandated separate context. For example, most consumers would
likely want to review all of the benefits they would receive as part
of a subscription including any discounts when deciding on whether
to choose the option of automatic renewal.''); APCIA, FTC-2023-0033-
0996 (``Requiring a separate consent for a feature that is inherent
in service contracts--continuous coverage--seems unnecessary and
detrimental to consumers.'').
\319\ IAB, FTC-2023-0033-1000 (``Furthermore, consumers are
familiar with subscription sign-up experiences and do not expect to
have to consent a second time once they choose to purchase an
autorenewal plan.''). One individual consumer confirmed the comment.
Individual commenter, FTC-2023-0033-0552 (``The rule specifically
prescribes that users must affirmatively assent specifically to the
negative option feature, but in cases where a user is only
purchasing a negative option product, how should other disclosures
be presented?'')
---------------------------------------------------------------------------
Other groups asserted if consumers are confused, they may not
affirmatively consent to the rest of the transaction, which could cause
uncertainty about the existence of the contract.\320\ Commenters also
noted too many required actions during the purchasing process may lead
to ``fatigue'' and ``cognitive overload,'' causing consumers to abandon
transactions they may have otherwise wanted.\321\ Finally, several
commenters complained the separate consent requirements would be
difficult (and costly) to implement, but without any benefit to
consumers.\322\
[[Page 90501]]
Thus, these commenters asked the Commission to exclude transactions
where the negative option feature is not independent of the good or
service being sold, i.e., where the good or service is itself only
offered as a negative option,\323\ or to delete the requirement that
sellers obtain separate, unambiguous, affirmative consent ``to the rest
of the transaction.'' \324\
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\320\ NCTA, FTC-2023-0033-0858; Sonsini Alarm Clients, FTC-2023-
0033-0860 (``could lead to consumers inadvertently failing to
consent to auto-renewal (because they did not notice the second
check box) and having an unintended lapse in home security system
coverage.''); Asurion, FTC-2023-0033-0878 (``many consumers who want
and could benefit from auto-renewal protection provisions will
neglect to make the requisite two separate affirmative consents and
suffer real consequences when they find themselves with a broken
device during a gap in coverage''); APCIA, FTC-2023-0033-0996 (``A
consumer who wants a service contract but then inadvertently fails
to check a box indicating separate consent for the negative option
feature could find that they no longer have coverage at the time
they most need it.'').
\321\ See, e.g., DCN, FTC-2023-0033-0983 (could lead to over-
notification); CCIA, FTC-2023-0033-0984 (``Adding too much
additional information or too many required actions in a purchase
cart has diminishing returns for consumer comprehension and
attention, and can increase the cognitive load for consumers to the
point that they simply stop reading or give up on the purchase.'');
ANA, FTC-2023-0033-1001.
\322\ NCTA, FTC-2023-0033-0858 (``would require companies to
change their current customer sign-up flows, at significant cost,
without providing consumers with any additional benefits''); PDMI,
FTC-2023-003-0864 (``requiring merchants to implement a double opt-
in would impose an extraordinary financial and resource burden on
sellers.''); id. (double opt-in requirements ``makes absolutely no
sense, where, as is often the case, there is no transaction separate
from the negative option transaction''); SCIC, FTC-2023-0033-0879;
Chamber, FTC-2023-0033-0885 (little to no evidence that double opt-
in will create any consumer benefit, instead will increase consumer
fatigue); see also IAB, FTC-2023-0033-1000 (double opt-in could be
especially burdensome for bundled services, requiring consumers to
check an additional box for each service, without added benefit to
clarity or disclosure); ICA, 2023-0033-1142 (``requiring recording
keeping of ``express informed consent'' potentially expressed
through verbal, digital, or written records for multiple years will
be an onerous and expensive requirement for small business owners to
fulfill.'').
\323\ Chamber, FTC-2023-0033-0885 (``unless there is a negative
promotional option, service providers should not be required to have
a separate consent for monthly billing and the underlying
transaction when the underlying transaction is for a monthly
service.''); see also MIA, FTC-2023-0033-1008 (``an additional
consent to initiate a Subscription is unnecessary and
superfluous'').
\324\ See, e.g., Direct Marketing Companies, FTC-2023-0033-1016.
---------------------------------------------------------------------------
Two commenters asked the Commission to modify the proposed
provision by merging consent to the transaction and the negative option
feature. These commenters suggested a separate consent should only be
necessary where there are two independent portions of the transaction:
one related to the negative option feature and a second for the sale of
a separate good or service (including a free trial).\325\ Without this
change, commenter Kuehn suggested ``the proposed Rule could have the
unintended result of diminishing the efficacy of other important terms
of the contract.'' Accordingly, Kuehn suggested the Commission revise
the definition of negative option feature to encompass the entire
contract (rather than a provision of the contract).\326\ This
alteration, along with changing ``rest of the transaction'' to ``the
sale of another good or service,'' would make it clear separate consent
is only required where the seller has both an auto renewal agreement
and the sale of another good or service.
---------------------------------------------------------------------------
\325\ Kuehn, FTC-2023-0033-0871; RILA, FTC-2023-0033-0883.
\326\ Kuehn, FTC-2023-0033-0871.
---------------------------------------------------------------------------
IAB, DCN, CTA, and several direct marketing companies asserted the
Commission could achieve the same outcome--informed consent--through
less restrictive means, e.g., by requiring a clearer disclosure of the
negative option feature.\327\ For example, CTA posited:
``[a]lternatively, to advance the same goal, and because the Proposed
Rule already requires clear and conspicuous disclosure of material
terms, the FTC could instead require subscription service providers to
prominently disclose subscription terms in a manner that differentiates
them from other disclosures, such as in bolded or underlined font, in
the course of obtaining consumer consent to the transaction.'' \328\
Additionally, several commenters questioned ``why a seller should be
precluded from including other material terms of the transaction in
obtaining a single consent.'' \329\
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\327\ Direct Marketing Companies, FTC-2023-0033-1016 (``the
Commission provides no evidence or rationale that a robust, clear
and conspicuous disclosure proximate to the consumer's consent would
be insufficient to prevent deception and remedy allegedly prevalent
unfair or deceptive acts and practices'').
\328\ CTA, FTC-2023-0033-0997.
\329\ PDMI, FTC-2023-003-0864; Sirius XM, FTC-2023-0033-0857
(``Businesses should be able to obtain such consent in conjunction
with the other terms of an offer,[ ] as long as they clearly and
conspicuously disclose the negative option features and the other
material terms of the offer and refrain from ``includ[ing] any
information that `interferes with, detracts from, contradicts, or
otherwise undermines'' the negative option terms.'').
---------------------------------------------------------------------------
Some commenters raised additional concerns. For instance, several
commenters challenged the Commission's statement that a separate check
box or similar method could be used to record a consumer's
unambiguously affirmative consent. Specifically, PDMI contended the
check box, signature, or ``substantially similar'' method of consent
could quickly become obsolete and ``replaced by far more effective and
consumer friendly mechanisms.'' \330\ Another, NRF, argued courts
routinely hold a separate check box is not required for consumers to
manifest asset to terms and conditions of the agreement, so long as the
terms are reasonably conspicuous.\331\ Finally, a group of direct
marketing companies, argued standalone consent is not necessary or
reasonable, and other methods could suffice. They suggested the
Commission include language that it ``shall be a question of fact''
whether the seller obtained consent through another means.\332\
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\330\ PDMI, FTC-2023-003-0864.
\331\ NRF, FTC-2023-0033-1005 (citing Meyer v. Uber Techs.,
Inc., 868 F.3d 66, 79 (2d Cir. 2017)). It is unclear from NRF's
comment whether it questioned separate consent generally, or the
guidance on a check box.
\332\ Direct Marketing Companies, FTC-2023-0033-1016.
---------------------------------------------------------------------------
Additionally, several trade groups and sellers expressed concern
about the NPRM's proposed recordkeeping requirements. For instance, one
trade group explained the proposed requirements ``would require sellers
to maintain records of consumer consent for at least three years, even
for consumers who signed up for a free trial and cancelled it before
being charged. As drafted, the proposed amendments would also require
sellers to maintain records of consumer consent for eleven years for
individuals who continuously subscribe to negative option features for
at least ten years.'' \333\
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\333\ ANA, FTC-2023-0033-1001; see also BSA, FTC-2023-0033-1015
(``the current language could be read to require a company to retain
for three years the records of a customer who signed up for a free
trial but cancelled before the trial ended--and was therefore never
a paying customer.'').
---------------------------------------------------------------------------
Numerous commenters asserted these recordkeeping requirements would
increase costs, which could ultimately be passed onto consumers,\334\
or small businesses, especially with respect to in-person and telephone
transactions.\335\ Others raised concern the proposed recordkeeping
requirement could conflict with best privacy practices. For example,
commenters noted the retention period is at odds with the need to
minimize the amount of consumer data that businesses hold and to enable
customers to request deletion of their data.\336\ Commenters also
suggested the Commission reduce the length of the recordkeeping
requirement, e.g., to six months,\337\ or revise the proposal to
eliminate the requirement for those who do not allow customers to
purchase without
[[Page 90502]]
accepting the terms of the negative option feature.\338\
---------------------------------------------------------------------------
\334\ APCIA, FTC-2023-0033-0996; IAB, FTC-2023-0033-1000 (``this
requirement will be significantly costly, as subscription businesses
will need to overhaul their sign-up processes to comply with this
requirement. Businesses seeking to offset this increased cost will
be forced to pass this cost to consumers or avoid offering
subscriptions at all'').
\335\ NCTA, FTC-2023-0033-0858 (``The proposal fails to account
for the immense burden the proposal would impose on companies using
alternative means to sell their products and services by requiring
them to create and implement ways to capture and store duplicative
layers of consumer consent.'').
\336\ CCIA, FTC-2023-0033-0984 (``This record retention rule
also seems to be at odds with key principles of consumer privacy,
namely the need to minimize the amount of consumer data that
businesses hold and to enable customers to request deletion of any
data in possession of a third party. A shorter mandatory retention
period is more appropriate for both businesses and consumers.'');
NCTA, FTC-2023-0033-0858 (``Not only is it expensive to maintain
these records, it does not comport with privacy best practices.'').
\337\ ICA, 2023-0033-1142 (``Decrease the duration of the
record-keeping requirement to six months after the business and the
consumer enters into the agreement.''); see also Direct Marketing
Companies, FTC-2023-0033-1016 (change recordkeeping requirement to
keep or maintain records ``for at least one year if the consumer is
charged at least twice within six months after the initial charge;
or for at least three years if the consumer is not charged at least
twice within six months after the initial charge.'').
\338\ PDMI, FTC-2023-003-0864; Chamber, FTC-2023-0033-0885.
---------------------------------------------------------------------------
Two consumer groups supported the consent provision but asked the
Commission to add clarifying language. Specifically, Berkeley Consumer
Law Center asked the Commission to state the Rule strictly prohibits
the use of dark patterns to obtain consent and that consent cannot be
given through silence. A group of professors asked the Commission to
clarify that disclosures ``appear in each language in which the
representation that requires the disclosure appears.'' \339\
---------------------------------------------------------------------------
\339\ Law Professors, FTC-2023-0033-0861.
---------------------------------------------------------------------------
Finally, commenters split on whether the Rule should require
separate affirmative consent for free-trial offers. Several consumers
supported requiring separate consent at the conclusion of a free-trial
period,\340\ with one consumer suggesting the Commission ban free-trial
offers that require the prepurchase of the good or service.\341\ Other
consumer interest and public advocacy groups reiterated consumers often
forget, or are unaware they have signed up for, a negative option
feature in connection with a free trial offer.\342\ Sellers and trade
groups disagreed, specifically noting the Commission's own analysis
indicating a separate consent may not be necessary given the other
requirements of the Rule \343\ and existing State laws.\344\
---------------------------------------------------------------------------
\340\ Individual commenter, FTC-2023-0033-0843 (``In addition to
making it easy to cancel an online subscription, it should be
illegal for companies offering a `free trial' to bill for any term
of subscription without an opt-in step. If they really believe
trying their product will prompt me to keep using it, then it needs
to be a 2-step process in which at the end of the trial period they
must ask for and receive an opt in before they place a charge on my
card.''); Individual commenter, FTC-2023-0033-0615 (``Rather than
automatic renewals, I think subscriptions should only be renewed
following consumer approval. For example, after a 14-day trial of an
app, consumers should be asked if they approve a purchase to
continue. If approval isn't given, the default should be that the
subscription expired and the consumer isn't charged.''); Individual
commenter, FTC-2023-0033-0993 (``If it's a trial subscription the
company should notify you that your trial is over and affirm your
desire to continue.'').
\341\ Individual commenter, FTC-2023-0033-0026; see also
Individual commenter, FTC-2023-0033-0583 (``Require that any entity
not require a credit card on file for a trial, or any free
period.''); Individual commenter, FTC-2023-0033-0641 (``Consumers
shouldn't have to be required to submit credit/debit card
information for a trial usage. And, consumers shouldn't be
automatically charged the day after the trial expires.'');
Individual commenter, FTC-2023-0033-1069 (``A free trial should not
create an automatic subscription!''); Individual commenter, FTC-
2023-0033-0607 (``A `trial offer' should be just that--a ONE-TIME
purchase.'').
\342\ State AGs, FTC-2023-0033-0886 (``the State Attorneys
General again respectfully encourage the FTC to require sellers
offering free trials to obtain an additional round of consent before
charging a consumer at the completion of the free trial.''); Law
Professors, FTC-2023-0033-0861 (``we ask that the Commission require
additional consent from the consumer before a business may convert a
free (or nominal-fee) trial into an expensive subscription. Indeed,
it seems that Congress, in adopting ROSCA, validated consumer
expectations that they would ``have an opportunity to accept or
reject [a] membership club offer at the end of [a] trial period.'');
TINA, FTC-2023-0033-1139 (``Such consumer complaints are consistent
with survey data showing that 42 percent of consumers forget they
are still paying for a subscription they no longer use.[ ] `Many of
those happen after you get enticed by a free trial for an online
streaming service or a monthly subscription service for clothes or
personal items, and then you forget to cancel it after that trial is
over.' '').
\343\ Sirius XM, FTC-2023-0033-0857 (``As long as consumers are
clearly informed about the terms of a free trial offer and evince
affirmative consent, no further consumer consent should be required
when the free trial period expires.'').
\344\ CCIA, FTC-2023-0033-0984; Chamber, FTC-2023-0033-0885.
---------------------------------------------------------------------------
(b) Analysis
Based on the record, the Commission removes the proposed
requirement that sellers obtain separate consent to ``the rest of the
transaction'' under Sec. 425.5(a)(3). Further, the Commission modifies
the recordkeeping requirement to require sellers to maintain records
only for three years from the date of consent. Alternatively, if
sellers can show by a preponderance of the evidence they use processes
that make it technologically impossible for a consumer to purchase the
good or service without consent, sellers need not retain such
records.\345\ Finally, the Commission declines to modify the consent
provisions to require separate consent for free-trial offers. However,
should the Commission seek additional comments about a provision to
require annual reminders,\346\ it will consider addressing such offers
at that time.
---------------------------------------------------------------------------
\345\ This change will not affect a seller's obligation to
maintain appropriate records under other regulations, e.g., the TSR.
\346\ See section VII.B.7.
---------------------------------------------------------------------------
Prior to addressing each of the issues listed above, it is
important to clarify one point. A negative option feature is not itself
a product or service--it is simply a mechanism for repeatedly
consenting to the extension of a contract through silence. Thus, there
are not situations in which the negative option feature is the product,
as some commenters suggested. In the example provided above, a
subscription to a streaming entertainment service can be offered with
(e.g., the offer renews each month until cancellation) or without
(e.g., the subscription lasts one year and then must be affirmatively
renewed, or it cancels) a negative option feature. There are situations
in which sellers only offer products or services on a negative option
basis; however, doing so does not lessen the need to ensure consumers
consent to the negative option mechanism within the agreement.
Therefore, the analysis below does not separately address this issue.
(1) The Commission does not adopt a requirement for separate
consent to ``the rest of the transaction'' because it is unnecessary,
confusing, and hard to implement.
Based on the comments, the Commission finds requiring consumer
consent to ``the rest of the transaction'' apart from the negative
option feature is unnecessary, potentially confusing, and may be hard
to implement. First, even without the separate consent requirement, the
proposed Rule contained several elements that work together to ensure
consumers know they are agreeing to a negative option feature.
Specifically, the proposed Rule required sellers to obtain the
consumer's unambiguously affirmative consent to the negative option
feature separately from any other portion of the transaction \347\
through, for example, a separately presented check box.\348\ It also
required sellers to clearly and conspicuously provide important
information immediately adjacent to the request for consumer consent,
including that the charge will be recurring, the deadline to act to
stop charges, the amount of the charges, and information necessary to
cancel.\349\ Further, the proposed Rule stated the seller cannot
include any information or employ any techniques that interfere with
the consumer's ability to understand these important disclosures and
provide unambiguously affirmative consent to the negative option
feature.
---------------------------------------------------------------------------
\347\ Section 425.5(a)(1).
\348\ Section 425.5(c) allows sellers to comply with the
requirement to obtain unambiguously affirmative consent to the
negative option feature through a check box, signature, or other
substantially similar method.
\349\ See Rule Sec. 425.4(a)(1)-(4).
---------------------------------------------------------------------------
Given these protections, a separate consent requirement is not
necessary.\350\ Second, the Commission agrees the separate consent
requirement could cause consumer confusion. Moreover, compliance with
the Rule's required disclosure and consent provisions should address
the concerns commenters raised regarding deception. Finally, several
sellers suggested, and there is no evidence to the contrary, that
seeking consent to both the negative
[[Page 90503]]
option feature and the rest of the transaction could be hard to
implement for many sellers. Thus, the final Rule does not contain the
separate consent requirement.\351\
---------------------------------------------------------------------------
\350\ The Commission further notes because the seller is
obtaining express informed consent to the negative option feature
separately from the rest of the transaction, consumers are, in
effect, agreeing to both the negative option feature and the sale of
the good or service separately.
\351\ See Sec. 425.5(a)(3).
---------------------------------------------------------------------------
(2) The Commission modifies the recordkeeping requirements to
address legitimate privacy concerns and reduce undue burden on small
businesses.
Section 425.5(a)(4) of the proposed Rule required sellers to obtain
and maintain (for three years or a year after cancellation, whichever
was longer) verification of the consumer's consent to the negative
option feature. Implementation of this requirement would undoubtably
enhance the FTC's ability to enforce the Rule. However, the Commission
agrees the proposal creates privacy concerns. The Commission has long
recommended companies employ data retention policies that ``dispose of
data once it has outlived the legitimate purpose for which it was
collected.'' \352\ Therefore, the Rule's data retention requirement,
could, in some instances, be at odds with this guidance. Further,
several commenters asserted a longer recordkeeping requirement will be
burdensome, particularly for small businesses.
---------------------------------------------------------------------------
\352\ NCTA, FTC-2023-0033-0858 (citing FTC, ``Protecting
Consumer Privacy in an Era of Rapid Change'' (2012) at 28,
www.ftc.gov/reports/protecting-consumer-privacy-era-rapid-change-recommnedations-businessespolicymakers).
---------------------------------------------------------------------------
Balancing the Commission's interest in robust Rule enforcement
against privacy and burden concerns, the Commission modifies the
proposed Rule. Specifically, Sec. 425.5(a)(3) of the final Rule
requires sellers to keep or maintain verification of the consumer's
consent for a period of three years from the date of consent (rather
than three years or a year after cancellation, whichever is longer).
Removing the requirement that sellers keep records until one year after
cancellation prevents the retention of records for very long periods of
time while the contract is still in force. Moreover, as some commenters
stated,\353\ sellers can employ technological processes for online
consent that could alter the balance of concerns. Specifically, it is
technologically feasible to make it impossible for customers to enroll
without providing unambiguously affirmative consent. The Commission
therefore further modifies the recordkeeping requirement to eliminate
the requirement entirely if a seller can demonstrate it meets this
threshold. The final provision will allow sellers to destroy consumer
records more quickly, while accomplishing the same goal.\354\ Finally,
the Commission clarifies maintaining copies of advertisements or
telephone scripts documenting the disclosures provided in general does
not meet this requirement. Such information is easily manipulated by
deceptive sellers and cannot show any particular consumer received the
disclosures prior to giving consent. Therefore, sellers must either
maintain records of each consumer's unambiguously affirmative consent
or demonstrate they satisfy the technological exemption provision.
---------------------------------------------------------------------------
\353\ ANA, FTC-2023-0033-1001; ESA, FTC-2023-0033-0867 (for
purchases that cannot be completed without a consumer's consent, a
business will be deemed compliant with any recordkeeping requirement
and is not required to maintain an individual record of consent).
\354\ Importantly, if the seller does not maintain records and
cannot satisfy the technological exemption, the seller has violated
the Rule.
---------------------------------------------------------------------------
(3) Other concerns raised by commenters do not warrant
modifications to the rule.
As noted above, a few commenters questioned the Commission's
proposed exemplar consent mechanism under Sec. 425.5(c). This proposed
provision states for written offers, a check box, signature, or
``substantially similar'' method can be used to obtain a consumer's
unambiguously affirmative consent. The Commission notes the mechanism
applies to the negative option feature only, and thus corrects the
cross-reference contained in this provision from (a)(3) to (a)(1).
The Commission further notes this provision does not require a
check box or signature. The Commission offered these methods only as
examples a seller can use to obtain unambiguously affirmative consent,
not the only ways to do so. Thus, the exemplar does not conflict with
caselaw holding that a check box is not required to manifest consent.
The Commission also declines to include language in the final Rule, as
one commenter suggested,\355\ stating whether a seller has complied
with this provision is a question of fact. This is unnecessary because
the Commission always evaluates sellers' practices on a case-by-case
basis to determine whether they comply with the law.
---------------------------------------------------------------------------
\355\ Direct Marketing Companies, FTC-2023-0033-1016.
---------------------------------------------------------------------------
The Commission further declines to remove this provision's
reference to ``substantially similar'' methods as some commenters
requested. The language is intended to cover any method that affords
consumers all the same protections as a check box or signature. The
phrase ``substantially similar'' performs this function while allowing
for technological advancement, innovation, and adaption without tying
sellers to specific mechanism that may become obsolete.
Further, the Commission declines to modify the final Rule to allow
sellers to obtain express informed consent by merely ``disclosing'' the
negative option more clearly through, e.g., bolded or underlined font,
rather than obtaining expressed informed consent separately for the
negative option feature. Although this change would be ``less
restrictive,'' it would not adequately protect consumers from
unknowingly enrolling in negative option programs. In the NPRM, the
Commission balanced the need for clear, unavoidable disclosure of,
inter alia, the negative option feature with the need for flexibility
to allow sellers to best communicate their entire message to consumers.
The proposed Rule strikes the right balance. As discussed above,
proposed Sec. 425.4 (Important Information), required sellers to
clearly and conspicuously disclose important information about the
negative option feature, immediately adjacent to the means of recording
consent to the feature, and, under Sec. 425.5 (Consent), separately
from any other portion of the transaction. The Commission did not
specify exact placement, language, or font size because doing so would
have diminished flexibility without a sufficient corresponding benefit.
While this balance is appropriate, the required disclosure of
important information under Sec. 425.4 does not replace the
requirement that sellers obtain consumers' express informed consent. To
avoid harm from unfair and deceptive practices, it is imperative
consumers unequivocally understand they are agreeing to enrollment in a
negative option program and demonstrate their agreement.
The Commission also declines to add language stating (1) the Rule
strictly prohibits the use of dark patterns to obtain consent and (2)
consent cannot be given through silence. The Rule already addresses
both concerns. First, the Rule bars any information that ``interferes
with, detracts from, contradicts, or otherwise undermines'' the
consumer's ability to provide express informed consent. To the extent
dark patterns run afoul of any of these requirements, they are
prohibited. To the extent they do not, consumers' express informed
consent as required by the Rule is not implicated. Second, under Sec.
425.5, consumers already must give affirmative consent.
Finally, the Commission does not need to clarify, as some
commenters suggested, that required consents ``appear in each language
in which the
[[Page 90504]]
representation . . . appears.'' \356\ To obtain a consumer's express
informed consent, each disclosure must be clear and conspicuous and
immediately adject to the means of recording the consumer's consent. To
meet the clear and conspicuous standard as defined in the Rule, the
disclosure must, among other things, ``appear in each language in which
the representation that requires the disclosure appears.'' \357\
---------------------------------------------------------------------------
\356\ Law Professors, FTC-2023-0033-0861.
\357\ Rule Sec. 425.2(c)(6).
---------------------------------------------------------------------------
(4) The Commission does not modify the Rule to require separate
consent for free trial offers.
In the NPRM, the Commission invited comments on whether the Rule
should require an additional (or alternative) round of consent after
the end of a free trial offer. As explained in the NPRM, if the seller
follows 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. As discussed
above, however, several commenters explained with enough time between
initial enrollment and charge after conversion, consumers are primed to
forget the negative option feature.\358\ The Commission agrees this an
important issue; however, clear upfront disclosures lessen the chance a
negative option feature may be unfair or deceptive. Specifically,
clear, accurate upfront disclosures reduce the risk of deception, and
the potential harms caused are more likely to be reasonably avoidable
(i.e., the consumer can simply refuse to enter into the contract). That
said, taking advantage of consumers' ``forgetfulness'' is extremely
troubling and thus ripe to be addressed by other means.
---------------------------------------------------------------------------
\358\ Deceptive sellers also commonly delay shipment of goods or
services until close to the end of the trial period, giving
consumers little time to stop the charge or cancel the negative
option. See, e.g., Individual commenter, FTC-2023-0033-0085.
---------------------------------------------------------------------------
6. Proposed Sec. 425.6 Simple Cancellation (``Click to Cancel'')
Section 425.6 of the proposed Rule contains several requirements to
ensure consumers can easily cancel negative option features. As
explained in the NPRM, ``easy cancellation is an essential feature of a
fair and non-deceptive negative option program,'' but one that has
become ``far too often illusory.'' \359\ ``If consumers cannot easily
leave a negative option program, the negative option feature is little
more than a means of charging consumers for goods and services they no
longer want.'' \360\
---------------------------------------------------------------------------
\359\ NPRM, 88 FR 24729; see ANPR, 84 FR 52395 (discussing
general requirements for nondeceptive negative options); id. at
52396 (discussing the ongoing problems in the marketplace including
inadequate or overly burdensome cancellation procedures).
\360\ NPRM, 88 FR 24729.
---------------------------------------------------------------------------
To prevent unfairly trapping consumers in a transaction they do not
want, the proposed Rule directed sellers to provide a cancellation
mechanism that (1) immediately halts recurring charges; (2) is as
simple to use as the mechanism the consumer used to consent to the
negative option feature; and (3) is readily accessible through the same
medium the consumer used to provide that consent. The Commission
intended these requirements to erect clear guardrails, while providing
sellers with the flexibility to innovate. Therefore, rather than
propose specific prohibitions, which may lose utility over time, or
inadvertently provide a roadmap for deception, the proposed Rule
outlined a performance-based standard mapping the contours of what
constitutes a simple mechanism, without overly prescriptive
requirements.
(a) Sec. 425.6(a) and (b) Simple Mechanism Required for Cancellation;
and Simple Mechanism at Least as Simple as Initiation
(1) Summary of Comments
Proposed Sec. 425.5(a) and (b) required a fast and easy
cancellation mechanism that, at minimum, allows the consumer to cancel
as easily as they enrolled in the program. The Commission received
thousands of comments in support of this provision, with individual
consumers uniformly expressing their desire for a simple easy to use
cancellation mechanism.\361\ Such comments included: ``If you signed up
online, you should be able to cancel online. If it took one click to
join, it should take one click to cancel;'' \362\ ``I would like the
option to cancel my subscriptions, [and] offers online just as easily
as it was to sign up;'' \363\ ``As more and more services enter online
use, it is ridiculous that consumers have to jump through so many hoops
to cancel services when it is so easy to sign up for them;'' \364\ and
``Consumers need the one-click option.'' \365\
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\361\ Individual commenter FTC-2023-0033-0029 (``Please
implement this necessary rule to protect consumers and save us hours
on the phone cancelling services we signed up for with one click
online.''); Individual commenter, FTC-2023-0033-0072 (``I have had
issues with some online subscriptions which were entered into purely
online, but to cancel I had to call a phone number open only during
certain business hours. I would like a rule that requires all
subscriptions to be available to cancel through the same means as
they were initiated, whether that is online, in person, phone, mail,
or chat. I believe that would be fair to people of all technological
levels while allowing businesses to conduct business how they feel
comfortable without allowing them to create unnecessary hurdles for
customers looking to end their service.'').
\362\ Individual commenter, FTC-2023-0033-0111. Thousands of
individual consumers repeated this phrase through a mass media
campaign. See, e.g., Anonymous commenter, FTC-2023-0033-0013;
Individual commenter, FTC-2023-0033-0016 (``If I can subscribe in
one click, I should be able to unsubscribe in one click.'');
Individual commenter, FTC-2023-0033-0017 (``It should be as easy as
one click to cancel an online account.''); Individual commenter,
FTC-2023-0033-0068 (``Being able to go online and with a simple
click be able to cancel a subscription would be a dream.''); see
also Individual commenter, FTC-2023-0033-0015 (``Ending a
subscription should be as easy as it was to sign up. it makes no
sense how hard it is to close out an account with some places.'');
Individual commenter, FTC-2023-0033-0020 (``The time has come to
make it as easy for consumers to cancel subscriptions as it has been
to start them.''); Individual commenter, FTC-2023-0033-0087 (``I
think any offer you can buy with a click should also be an offer to
unsubscribe with a click.'').
\363\ Individual commenter, FTC-2023-0033-0003; see also
Individual commenter, FTC-2023-0033-0010 (``I for one would be for
the Easing of subscription cancellation. Having it be much harder to
cancel a subscription than start it simply shouldn't be.'');
Anonymous commenter, FTC-2023-0033-0024 (``It should be no harder
for consumers to stop giving a company their money than it is for
them to start giving it to them.''); Individual commenter, FTC-2023-
0033-0025 (``In fact, it should be as easy to cancel as it is to
sign up.'').
\364\ Individual commenter, FTC-2023-0033-0231; Individual
commenter, FTC-2023-0033-0109.
\365\ Individual commenter, FTC-2023-0033-0403.
---------------------------------------------------------------------------
Some commenters suggested unsubscribing should be easier than
enrolling,\366\ and others, ``very easy.'' \367\ Indeed, several
advocated for an ``Unsubscribe link,'' \368\ similar to those available
under the CAN-SPAM Act.\369\ Numerous commenters complained they
[[Page 90505]]
often have to resort to disputing the charge with credit card companies
(or cancelling the card altogether) because cancellation is so
difficult or impossible.\370\ Additionally, commenters described the
simple cancellation mechanism requirements as a ``no brainer,''
``common sense,'' and ``only fair'' to consumers.\371\ These and others
commenters complained of the hundreds of dollars \372\ and hours \373\
wasted on unused and unwanted products and services they were not
effectively able to cancel due to byzantine cancellation
procedures.\374\
---------------------------------------------------------------------------
\366\ ``Unsubscribing should be easier than subscribing.''
Individual commenter, FTC-2023-0033-0005. Accord Individual
commenter, FTC-2023-0033-0021 (same); Anonymous commenter, FTC-2023-
0033-0040 (``I am in favor of making it easier to discontinue
services.''); Individual commenter, FTC-2023-0033-0107 (``Canceling
a subscription should be easier that setting up the
subscription.'').
\367\ Individual commenter, FTC-2023-0011 (``It should be very
easy to cancel a subscription, artificially creating difficulty or
hurdles only serves to hurt the consumer of a service as well as a
company's image and deplete trust in a brand or service.'');
Individual commenter, FTC-2023-0033-0036 (``It should be very easy
to cancel a subscription!!!!!'').
\368\ Individual commenter, FTC-2023-0033-0030; Individual
commenter, FTC-2023-0033-0035; see also Individual commenter, FTC-
2023-0033-0188 (``If you sign up online, you should be able to
cancel online. If it took one click to join, it should take one
click to cancel. Kind of like `unsubscribing' from an email
newsletter you don't want to get anymore.''); Individual commenter,
FTC-2023-0033-0236 (``When I get an email from a politician I'm not
interested in there is always an unsubscribe button. Why can't paid
subscriptions be the same?'').
\369\ Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003 (``CAN-SPAM Act''), 15 U.S.C. 7701-7713; 16
CFR part 316.
\370\ See, e.g., Individual commenter, FTC-2023-0033-0068;
Individual commenter, FTC-2023-0033-0086; Individual commenter, FTC-
2023-0033-0203 (``Recently, I had to start a dispute case with my
credit card company because I had subscribed to a service and there
was no way to cancel that service.''); Individual commenter, FTC
2023-0033-0211; Individual commenter, FTC-2023-0033-0225 (had new
card issued); Individual commenter, FTC-2023-0033-0275 (disputed the
charge and cancelled card); Individual commenter, FTC-2023-0033-0311
(cancelled credit card); Individual commenter, FTC-2023-0033-0320
(disputed charge); Individual commenter, FTC-2023-0033-0501
(terminated credit card); Individual commenter, FTC-2023-0033-1134
(cancelled credit card).
\371\ See, e.g., Individual commenter, FTC-2023-0033-0256;
Individual commenter, FTC-2023-0033-0408 (``common sense'');
Individual commenter, FTC-2023-0033-0431 (``no brainer'');
Individual commenter, FTC-2023-0033-0586 (``no brainer'').
\372\ Individual commenter, FTC-2023-0033-0232; Individual
commenter, FTC-2023-0033-0459 (``I once lost hundreds of dollars
because I could not find how to cancel.''); Individual commenter,
FTC-2023-0033-0509; Individual commenter, FTC-2023-0033-0232 (``I'm
currently trapped in at least three subscriptions that are nearly
impossible to cancel, costing me hundreds of dollars per year.'');
Individual commenter, FTC-2023-0033-0509; Individual commenter, FTC-
2023-0033-0825 (``I have wasted hundreds of dollars for things that
automatically renewed as a result of not being able to figure out
easily how to cancel.''); Individual commenter, FTC-2023-0033-0572;
Individual commenter, FTC-2023-0033-0697 (``I have been caught up in
just this very unfair practice where I've been lured in and can't
get out--to the tune of hundreds of dollars that I don't have.'');
see also Public Interest Groups, FTC-2023-0033-0880.
\373\ See, e.g., Individual commenter, FTC-2023-0033-029
(``Please implement this necessary rule to protect consumers and
save us hours on the phone cancelling services we signed up for with
one click online.''); Anonymous commenter, FTC-2023-0033-0040 (``My
negative experience was that it was a simple `click' on-line to sign
up for a service but to cancel same service it took three phone
calls and hours of my time.); Individual commenter, FTC-2023-0033-
0084 (``I spent over two hours of my time trying to cancel the
subscription.''); Individual commenter, FTC-2023-0033-0106 (``I've
definitely lost at least 30 hours of my life dealing with
insufferable `retention specialists,' all of whom should be ashamed
of what they do.''); Individual commenter, FTC-2023-0033-0431;
Individual commenter, FTC-2023-0033-0385 (``This is not a bot
generating a letter; it's an actual person, and I want to register
strong support for the one Click rule you are considering. I have
wasted hours trying to deal with customer service, whose only goal
is to keep me on board.''); Individual commenter, FTC-2023-0033-0672
(``It's about time! Trying to unsubscribe can waste many hours,
induce stress, result in unwanted subscription or cancellation fees,
and leave personal data subject to abuse.''); Individual commenter,
FTC-2023-0033-0642 (``There needs to be a substantial penalty when a
service is requested to be cancelled, but the charges continue. I
dropped my TV service from Comcast 3 months ago and they continue to
charge me. Every time I need to re-contact them I waste an hour.'').
\374\ Individual commenter, FTC-2023-0033-0422 (``Implementing
this consumer-protection rule has the potential to save American
consumers millions of dollars, and prevent unscrupulous companies
from using byzantine cancellation procedures to squeeze unwarranted
funds out of their customers.''); Individual commenter, FTC-2023-
0033-0233 (``I had to navigate an endless labyrinth of dark-
patterned links in order to cancel an Amazon Prime subscription that
took me one click to sign up for.''); Individual commenter, FTC-
2023-0033-0482 (``They make it a labyrinth of obscure phrases and if
you don't know to click on just the right one, you'll never be able
to cancel.'').
---------------------------------------------------------------------------
As summarized by the Berkeley Consumer Law Center, ``requiring the
mechanism of cancellation be as simple as enrollment'' will minimize
``overly complex cancellation processes with multiple steps,'' and
prevent sellers ``from trapping consumers in automatically renewing
subscriptions through obstacles created by tedious processes or
confusion.'' \375\
---------------------------------------------------------------------------
\375\ Law Professors, FTC-2023-0033-0861; see also State AGs,
FTC-2023-0033-0886 (``state attorneys general strongly endorse the
FTC's efforts to ensure that consumers enrolled in subscription
services or other negative option plans are continuing to pay for
those plans because they want to maintain their subscriptions, and
not because it is too much trouble to cancel.'').
---------------------------------------------------------------------------
Sellers and trade organizations argued the proposed requirements
were ``too vague.'' \376\ For instance, PDMI asserted the requirement
that the simple cancellation mechanism be as easy to use as the one
used to initiate the transaction provides no clear guidance on when a
transaction is ``initiated.'' Several industry and trade groups echoed
this comment, contending ``as easy as'' is a difficult, and often
subjective, standard.\377\ Other businesses complained the proposed
Rule fails to define ``simple mechanism'' \378\ and making cancellation
as easy as enrollment was not possible because they serve different
purposes.\379\ IAB asserted the proposed requirements were overbroad in
relation to the prevalent acts or practices the Commission
identified.\380\
---------------------------------------------------------------------------
\376\ PDMI, FTC-2023-003-0864; ACT App Association, FTC-2023-
0033-0874 (elusive language); IAB, FTC-2023-0033-1000 (unclear how
to measure simplicity).
\377\ Chamber, FTC-2023-0033-0885 (``ambiguous and hard to
implement requirement); NRF, FTC-2023-0033-1005 (as simple as not
defined and no examples).
\378\ ACT App Association, FTC-2023-0033-0874. The Commission
does indeed define ``simple mechanism'' through the requirements of
Sec. 425.6, as well as through existing caselaw and the 2021
Enforcement Policy Statement. See n.385.
\379\ ESA, FTC-2023-0033-0867; IHRSA, FTC-2023-0033-0863;
Chamber, FTC-2023-0033-0885; BSA, FTC-2023-0033-1015.
\380\ IAB, FTC-2023-0033-1000. The Commission addresses IAB's
prevalence assertions elsewhere. See section VII.A.
---------------------------------------------------------------------------
(2) Analysis
Considering the overwhelming support for a simple cancellation
\381\ mechanism that immediately halts charges,\382\ and given
substantial evidence supporting the need for such mechanism to prevent
unfair and deceptive acts and practices, the Commission retains
proposed Sec. 425.6(a) and (b).\383\ The Commission disagrees with
commenters' argument that the ``as easy as'' standard is vague. The
Commission has provided considerable guidance on what constitutes a
simple or ``easy'' cancellation mechanism through numerous cases and
its 2021 Enforcement Policy Statement.\384\
---------------------------------------------------------------------------
\381\ Beyond the near universal support by consumers and
consumer advocacy groups, some trade groups also supported the goal
of ensuring consumers have a quick and easy mechanism to cancel.
RILA, FTC-2023-0033-0883; see also Sirius XM, FTC-2023-0033-0857
(``All parties want an easy-to-use and an accessible method of
cancellation''); ZoomInfo, FTC-2023-0033-0865 (``We concur with the
FTC's recognition that negative option terms, often concealed in
`fine print', can be difficult for consumers to negotiate or even to
comprehend fully, and that canceling these contracts can be unfairly
burdensome.'').
\382\ Some commenters asked for clarification regarding whether
the requirement under Sec. 425.6(a) would also immediately cancel
the entire contract. See, e.g., N/MA (``The FTC should also clarify
that the ``Click to Cancel'' proposal applies only to the negative
option portion of a subscription and not to the entire
subscription.''). The language of the Rule is clear--cancellation
under the Rule applies only to the negative option portion of the
contract, and not the entire contract. Section 425.6 (``it is
violation of this Rule . . . for the negative option seller to fail
to provide a simple mechanism for a consumer to cancel the negative
option feature''). Thus, when a consumer cancels, all terms and
conditions continue until the expiration of the contract or
agreement.
\383\ BSA specifically requested the Commission revise
subsection (a) to the following: ``We suggest revising this language
to clarify the intended result by stating the obligation is `to
cancel the negative option feature and immediately stop any
recurring charges for the good or service.' '' BSA, FTC-2023-0033-
1015. However, this change could create ambiguity regarding
application of the subsection to the initiation of charges under
free- and fee-to-paid conversions. Accordingly, the Commission will
not incorporate the suggested change.
\384\ See, e.g., EPS, 86 FR 60822; FTC v. FloatMe Corp., No.
5:24-cv-00001 (W.D. Tex. 2024); United States v. Cerebral, Inc., No.
1:24-cv-21376 (S.D. Fla. 2024); FTC v. Bridge It, Inc., No. 1:23-cv-
09651 (S.D.N.Y. 2023); FTC v. Vonage Holdings Corp., No. 3:22-cv-
06435 (D.N.J. 2022); FTC v. Benefytt Techs., Inc., No. 8:22-cv-01794
(M.D. Fla. 2022); FTC v. First Am. Payment Sys., No. 4:22-cv-00654
(E.D. Tex. 2022); United States v. MyLife.com, Inc., No. 2:20-cv-
6692 (C.D. Cal. 2020); FTC v. RagingBull.com, LLC, No. 1:20-cv-03538
(D. Md. 2020); FTC v. Age of Learning, Inc., No. 2:20-cv-07996 (C.D.
Cal 2020); FTC v. Match Grp., Inc., No. 3:19-cv-02281 (N.D. Tex.
2019); FTC v. Cardiff, No. 5:18-cv-02104 (C.D. Cal. 2018); FTC v.
AdoreMe, Inc., No. 1:17-cv-09083 (S.D.N.Y. 2017); FTC v. AAFE Prods.
Corp., No. 3:17-cv-00575 (S.D. Cal. 2017); FTC v. JDI Dating, Ltd.,
No. 1:14-cv-08400 (N.D. Ill. 2014).
---------------------------------------------------------------------------
[[Page 90506]]
Moreover, the ``as easy as'' standard is even clearer in context,
i.e., a flexible measure that ensures consumers have similar
cancellation and consent experiences in terms of time, burden, expense,
and ease of use, among other things.\385\ The Commission is aware these
experiences may not always be perfectly symmetrical. Consumers may have
to verify or authenticate their identity, for instance,\386\ or they
may be asked to confirm their intent to cancel.\387\ However,
reasonable verification, authentication, or confirmation procedures
should not create distinctly asymmetrical experiences, particularly if
the cancellation mechanism is located within account or user settings
secured by authentication requirements for access. Any authentication,
verification, or confirmation procedure that creates unreasonable
asymmetry runs afoul of section 5 of the FTC Act and the Rule.
Moreover, given the extensive record and the Commission's experience
with sellers using verification and authentication tools to thwart or
delay cancellation,\388\ the Commission declines to create a safe
harbor for these activities as some States have \389\ and as some
commenters requested.\390\
---------------------------------------------------------------------------
\385\ Some commenters raised the concern that sellers might
create complicated signup procedures to justify complex cancellation
mechanisms. ESA, FTC-2023-0033-0867; State AGs, FTC-2023-0033-0886;
IAB, FTC-2023-0033-1000. As pointed out by the State AGs sellers
must comply with all requirements of a simple cancellation
mechanism, including that consumers can promptly effectuate
cancellation through an accessible means.
\386\ Commenters insisted that reasonable authentication and
verification procedures be allowed prior to cancellation to ensure
that only authorized persons are making changes to an account. NFIB,
FTC-2023-0033-0789; IHRSA, FTC-2023-0033-0863; ESA, FTC-2023-0033-
0867; N/MA, FTC-20230033-0873; RILA, FTC-2023-0033-0883; ANA, FTC-
2023-0033-1001.
\387\ See, e.g., MIA, FTC-2023-0033-1008.
\388\ Berkeley Consumer Law Center, FTC-2023-0033-0855;
RocketMoney, FTC-2023-0033-0998; Anonymous commenter, FTC-2023-0033-
0024; Individual commenter, FTC-2023-0033-0411; Individual
commenter, FTC-2023-0033-0850; Individual commenter, FTC-2023-0033-
0861; Individual commenter, FTC-2023-0033-0888; Anonymous commenter;
FTC-2023-0033-0134; Individual commenter, FTC-2023-0033-0326;
Individual commenter, FTC-2023-0033-0778.
\389\ See, e.g., Cal. Bus. & Prof. Code Sec. 17602(d)(3); Colo.
Rev. Stat. Sec. 6-1-732(2)(d)(I)(B).
\390\ USTelecom, FTC-2023-0033-0876 (``expressly allow''
business to engage in privacy and data security measures prior to
cancellation); ANA, FTC-2023-0033-1001.
---------------------------------------------------------------------------
Nevertheless, as some commenters point out, the proposed initiation
or purchase date trigger may provide insufficient clarity.\391\ Not all
negative option features begin with a purchase (e.g., free trials), and
when a transaction is initiated is subject to interpretation or
possible manipulation. Given this ambiguity, businesses attempting to
comply with the proposed Rule may have difficulty, and those attempting
to evade the proposed Rule may find loopholes with the proposed
initiation or purchase date trigger. Thus, the Commission revises Sec.
425.6(b) \392\ to require the simple cancellation mechanism be ``as
easy as'' the mechanism the consumer used ``to consent'' to the
negative option feature, rather than ``initiate'' or ``purchase'' the
feature. The moment of consent avoids the lack of clarity the terms
``purchase'' and ``initiate'' introduce and clarifies the action to
which the cancellation must be compared.
---------------------------------------------------------------------------
\391\ For online cancellation, Sec. 425.6(c)(1) of the proposed
Rule required sellers to provide a simple cancellation mechanism
through the same medium consumers used ``to purchase the negative
option feature.''
\392\ The Commission also will make a conforming change to add
``consent'' in section 425.6(c)(1).
---------------------------------------------------------------------------
(b) Proposed Sec. 425.6(c) Minimum Requirements for Simple Mechanisms
(1) Summary of Comments
The proposed Rule required sellers to provide a simple cancellation
mechanism through the same medium (internet, phone, in-person) the
consumer used to consent to the negative option feature. Almost
uniformly, consumers supported this requirement.\393\ However, a number
of a trade groups disagreed, arguing, as explained below, the
requirement is too prescriptive, or could lead to accidental or
inadvertent cancellation.\394\ Instead, these commenters suggested the
Commission allow consumers to choose their cancellation medium (e.g.,
based on ``consumer expectations,'' convenience, or common use by the
seller).\395\
---------------------------------------------------------------------------
\393\ See, e.g., Individual commenter, FTC-2023-0033-0072 (``I
would like a rule that requires all subscriptions to be available to
cancel through the same means as they were initiated, whether that
is online, in person, phone, mail, or chat.''); Individual
commenter, FTC-2023-0033-0252 (``the method provided for signing up
for a service must also be provided for cancelling the same service,
be just as easy to find, and require no more steps than it took to
sign up.'').
\394\ See, e.g., NCTA, FTC-2023-0033-0858; PDMI, FTC-2023-0033-
0864; CTA, FTC-2023-0033-0997; ANA, FTC-2023-0033-1001. See also
Wilson Sonsini Goodrich & Rosati on behalf of certain of its alarm
company clients (``Sonsini Alarm Clients''), FTC-2023-0033-0860
(alarm companies should be able to speak to the customers to verify
identity and confirm cancellation intent); N/MA-FTC-2023-0033-0873
(A ``one click'' cancellation requirement for an entire
subscription, especially absent some form of authentication, could
also lead to accidental and/or malicious cancellations.); NRF, FTC-
2023-0033-1005 (data suggests that one-click-cancellation functions
frequently cause accidental cancellations).
\395\ See, e.g., Sirius XM, FTC-2023-0033-0857; N/MA, FTC-2023-
0033-0873; State AGs, FTC-2023-0033-0886.
---------------------------------------------------------------------------
Consumer groups and law enforcement asked the Commission to add
minimum requirements to the simple cancellation mechanism. For
instance, the State AGs asked the Commission to include the various
requirements stated in the 2021 Enforcement Policy Statement, e.g.,
require negative option sellers ``not [to] erect unreasonable barriers
to cancellation or impede the effective operation of promised
cancellation procedures, and must honor cancellation requests that
comply with such procedures.'' \396\ They also urged the Commission to
adopt language from New York's statute, which provides simple
cancellation mechanisms must be ``cost effective, timely, and easy to
use.'' \397\ Additionally, the Center for Data Innovation asked the
Commission to create a working group to define simple mechanism
further, including best practices for businesses.\398\
---------------------------------------------------------------------------
\396\ State AGs, FTC-2023-0033-0886.
\397\ Id.
\398\ CDI, FTC-2023-0033-0887.
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Finally, some commenters suggested the record lacks evidence that
it would be unfair or harmful to consumers to have a cancellation
process different from the sign-up process.\399\ Accordingly, they
argued promulgating a trade regulation rule requiring such symmetry is
beyond the Commission's authority. Further, IAB argued the Commission
cannot create new requirements defining simple cancellation methods
beyond ROSCA's simplicity standard, i.e., that sellers provide simple
mechanisms to stop recurring charges, because Congress already decided
the appropriate standard.\400\
---------------------------------------------------------------------------
\399\ CTA, FTC-2023-0033-0997; IAB, FTC-2023-0033-1000.
\400\ IAB, FTC-2023-0033-1000.
---------------------------------------------------------------------------
(a) Proposed Sec. 425.6(c)(1): Online Cancellation
Section 425.6(c)(1) of the proposed Rule specifically addressed
online cancellation, requiring sellers to provide a cancellation
mechanism over the same website or web-based application the consumer
used to consent. Thousands of commenters repeated the mantra: ``If you
signed up online, you should be able to cancel online,'' noting they
often face hurdles finding a cancellation mechanism, and then must call
and
[[Page 90507]]
spend significant time on the telephone to cancel their
subscriptions.\401\
---------------------------------------------------------------------------
\401\ Individual commenter, FTC-2023-0033-0215 (``If you signed
up online, you should be able to cancel online. If it took one click
to join, it should take one click to cancel.''); Individual
commenter, FTC-2023-0033-0847; Anonymous commenter, FTC-2023-0033-
0040 (``My negative experience was that it was a simple `click' on-
line to sign up for a service but to cancel same service it took
three phone calls and hours of my time. If I can sign up with a
`click' then I SHOULD be able to cancel with a `click.' '').
---------------------------------------------------------------------------
In contrast, RILA suggested consumers would not always expect to
find a cancellation function through the same online medium the
consumer used to enroll. ``For example, contracts are . . .
increasingly concluded online through third parties or via social media
apps. Regardless of how a customer initially signs up, once she/he
establishes a purchasing arrangement with a seller, the customer will
logically look to the seller to cancel.'' \402\ Several commenters
agreed, stating where a consumer enrolls through a third party, or
through an IoT device, the consumer may naturally look to the seller
with whom the consumer has the agreement.\403\
---------------------------------------------------------------------------
\402\ RILA, FTC-2023-0033-0883.
\403\ ESA, FTC-2023-0033-0867; ANA, FTC-2023-0033-1001.
---------------------------------------------------------------------------
Similarly, trade groups, such as NCTA and PDMI, argued mandating
consumer cancellation through the same website or web-based application
the consumer used to initiate the transaction is too prescriptive.\404\
Several of these commenters asserted the proposed requirement is
unnecessary and contrary to consumer expectations.\405\ They further
contended when consumers enroll online, any online cancellation
mechanism should be adequate.\406\ Further, these commenters suggested
it may not be possible to offer the same website or web-based
application due to contractual obligations and limitations imposed by
third parties.\407\
---------------------------------------------------------------------------
\404\ NCTA, FTC-2023-0033-0858; PDMI, FTC-2023-0033-0864; CTA,
FTC-2023-0033-0997; ANA, FTC-2023-0033-1001.
\405\ See, e.g., ESA, FTC-2023-0033-0867; IAB, FTC-2023-0033-
1000.
\406\ See, e.g., IAB, FTC-2023-0033-1000; MIA, FTC-2023-0033-
1008; see also RILA, FTC-2023-0033-0883 (enrollment online, e.g.,
internet-based mobile applications, should be allowed through
seller's website).
\407\ See, e.g., ESA, FTC-2023-0033-0867.
---------------------------------------------------------------------------
Additionally, broadband, wireless, and streaming groups, such as
NCTA and USTelecom, suggested the same-medium requirement is
particularly troublesome for their industries because consumers often
subscribe to multiple, or bundled, services, rendering cancellation
online through a single click difficult or impossible. These industries
posited consumers often do not, in fact, want to cancel, but rather
seek to downgrade or modify services. Therefore, requiring a consumer
to speak to a live agent best accomplishes this goal, regardless of how
the consumer enrolled.\408\
---------------------------------------------------------------------------
\408\ USTelecom, FTC-2023-0033-0876; CTIA, FTC-2023-0033-0866
(``imperative that businesses are able to have a live representative
speak with a customer seeking to cancel, regardless of the medium
used to sign up''); NCTA, FTC-2023-0033-0858; (``Whatever these
consumers' reasons for seeking to cancel or modify services, in most
instances they are best served by speaking with a live agent, even
if they enrolled online.''); see also Chamber, FTC-2023-0033-0885
(subscriptions to multiple products or services ``require[ ] more
time and personal assistance to address when a customer seeks to
cancel only one of such related products or services'').
---------------------------------------------------------------------------
Alarm companies raised a similar concern, i.e., there are no
safeguards to ensure the consumer intended to cancel (rather than,
e.g., unsubscribe from marketing emails) when cancelling online. They
also emphasized the importance of verifying a consumer's identity prior
to cancellation. As explained by a commenter representing various alarm
company clients, alarm companies' ``cancellation procedures are
designed to prevent inadvertent or malicious disabling of alarm
monitoring services, often by directing consumers to call trained
customer support representatives who can verify the consumer's identity
via their secure passcode and ensure any changes made to the account
are intentional and fully informed.'' \409\
---------------------------------------------------------------------------
\409\ Sonsini Alarm Clients, FTC-2023-0033-0860; see also Joint
Alarm Industry Comments--ESA, TMA, SIA and AICC, FTC-2023-0033-1014
(asking for clarification that alarm companies can require written
or verbal confirmation of online cancellation requests). The
concerns raised by these industries are likely an artifact of the
Saves provision, which, as proposed, could be interpreted to prevent
verification procedures and cancellation intent. The Commission
addresses these concerns in section VII.B.6.c.
---------------------------------------------------------------------------
(b) Proposed Sec. 425.6(c)(2): Telephone Cancellation
Proposed Sec. 425.6(c)(2) addressed situations in which sellers
obtain consumer consent by telephone. In these situations, the proposed
Rule required sellers to provide a telephone number to consumers and
``assure'' all calls are answered promptly during ``normal business
hours'' and are no more costly than the call to enroll.
Several commenters asked the Commission to modify this section.
Specifically, N/MA asked that sellers be allowed to confirm telephone
cancellations through email verification.\410\ A group of law
professors asked the Commission to require sellers to answer
cancellation calls in ``comparable timeframe to sign-up calls.'' \411\
They also suggested telephone answering systems should not be limited
to normal business hours if they are entirely automated. The State AGs
further asked the Commission to incorporate the guidance for telephone
cancellation from the 2021 Enforcement Policy statement, for example,
ensuring ``the calls are not lengthier or otherwise more burdensome
than the telephone call the consumer used to consent to the negative
option feature,'' and prohibiting sellers from ``hang[ing] up on
consumers who call to cancel; plac[ing] them on hold for an
unreasonably long time; provid[ing] false information about how to
cancel; or misrepresent[ing] the reasons for delays in processing
consumers' cancellation requests.'' \412\
---------------------------------------------------------------------------
\410\ N/MA, FTC-2023-0033-0873.
\411\ Law Professors, FTC-2023-0033-0861.
\412\ State AGs, FTC-2023-0033-0886.
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(c) Proposed Sec. 425.6(c)(3): In-person Cancellation
For in-person sales, proposed Sec. 425.6(c)(3) required sellers to
offer online or telephone call cancellation mechanisms in addition to
the same in-person mechanism, where practical. The proposed Rule
further required sellers not make telephone cancellation more costly
than the method used to consent to the negative option feature.
Individual consumers identified the many ways in which demanding
in-person cancellation is unfair. For instance, they observed it may
not always be possible to cancel in person, as was true during the
COVID pandemic,\413\ after a consumer moves from the area,\414\ or for
people with young children or who have difficulty leaving their
home.\415\ Others
[[Page 90508]]
complained they showed up numerous times in person, only to be told
they could not cancel because the manager was not available.\416\ One
commenter complained sellers demanded consumers cancel by certified
mail if they originally consented in person.\417\
---------------------------------------------------------------------------
\413\ Individual commenter, FTC-2023-0033-0399 (``Even if I
didn't sign up online, terminating, a membership in person isn't
always possible. Lock down during Covid being a prime example.'').
\414\ Individual commenter, FTC-2023-0033-0677 (``Companies are
absolutely being deceptive about their practices when it comes to
canceling a service, including their initial pitch to `Cancel
anytime!' only for you to find out that canceling requires you to go
in person to a business in a place you might not even live
anymore'').
\415\ Individual commenter, FTC-2023-0033-0741 (``[m]any places
. . . require you to go in person to cancel--they won't even let you
do it over the phone! This harms anyone that may have trouble
leaving the house regularly, including disabled folks and parents of
small children and those caring for older or ailing family
members.''). See also TechFreedom, FTC-2023-0033-0872 (``Returning
to the in-person venue where the initial sale occurred may be
inconvenient, or even impossible, for the consumer.''); Individual
commenter, FTC-202-0033-1141 (``Sometimes an unexpected move or
unforeseen circumstances make it impossible to cancel in person. I
would like to see an option to be able to cancel remotely, even if
the subscription was purchased on site.'').
\416\ See, e.g., Individual commenter, FTC-2023-0033-0510 (``I
had to go in person 3 different times because the manager wasn't
there so to cancel it'').
\417\ Individual commenter, FTC-2023-0033-0007 (``I work dispute
resolutions for a bank. I see so many cases where someone is trying
to cancel something like a gym membership and, while they can sign
up in person, they for some reason have to mail a certified letter
to the [company's] home office. That has always seemed unreasonable
and deliberately contrived.'').
---------------------------------------------------------------------------
In contrast, two trade associations requested the Commission allow
sellers to require consumers to cancel in person if they signed up in
person. These commenters argued such a limitation is appropriate due to
the unique challenges of their industries. For example, IHRSA, which
represents the health and fitness industry, stated, ``it is appropriate
for a brick-and-mortar business'' to require customers to cancel in
person ``to verify their identity.'' The International Carwash
Association (``ICA'') stated some of its members sell products and
services exclusively in person; therefore, it asked the Commission to
not ``force'' these small business owners ``to set up an online
marketplace'' to process cancellations if the seller does not already
have an online presence.\418\
---------------------------------------------------------------------------
\418\ ICA, FTC-2023-0033-1142. ICA's comment seems to suggest a
misunderstanding that the Rule would require both telephone and
online cancellation for in-person consent. It does not. A business
may elect either online or telephone (or both), but there must be at
least one mechanism in addition to in-person cancellation.
---------------------------------------------------------------------------
(2) Analysis
(a) The Commission retains the general ``same medium'' requirements
of Sec. 425.6(c).
Based on the record, the final Rule retains the general
requirements proposed in Sec. 425.6(c); specifically, the negative
option seller must provide a simple cancellation mechanism through the
same medium (such as internet, telephone, mail, or in-person) the
consumer used to consent to the negative option feature. Further, the
final Rule retains Sec. 425.6(a) that requires sellers to provide
consumers with a simple mechanism to immediately stop charges that is
cost-effective, timely, and easy to use. Such a mechanism cannot
include ``unreasonable barriers to cancellation or impede the effective
operation of promised cancellation procedures.'' \419\ This provision
makes adding language from the 2021 Enforcement Policy Statement or the
New York statute unnecessary because the simple mechanism provision
already includes it. Further, several commenters asked the Commission
to allow consumers to choose additional, alternate means of
cancellation.\420\ This modification, however, is also unnecessary. The
``same medium'' requirement presents a floor, not a ceiling. That is,
it only requires businesses to offer consumers the ability to cancel in
the manner they were able to sign up. Sellers are free to provide
additional cancellation mechanisms, giving consumers choices.
---------------------------------------------------------------------------
\419\ EPS, 86 FR 60823; see also NPRM, 88 FR 24728 (explaining
the simple cancellation mechanism proposed in the Rule should remove
barriers, such as unreasonable hold times or verification
requirements).
\420\ See, e.g., N/MA, FTC-2023-0033-0873 (subscribers should be
allowed to choose method most convenient; subscribers who sign up by
mail may prefer to cancel online or by telephone, and consumers who
subscribed by telephone may prefer to cancel online); Sirius XM,
FTC-2023-0033-0857 (``For example, requiring a customer to use
direct mail to cancel if the customer used direct mail to accept a
subscription offer would be inconvenient for the customer and not
the customer's expected or desired means for cancellation. Instead,
the cancellation method should be an easy-to-use mechanism for a
consumer to stop recurring charge which would closely track consumer
expectations and allow for changes in technology.''); State AGs,
FTC-2023-0033-0886 (``We respectfully suggest requiring sellers to
allow all consumers to cancel through any medium that the seller
uses to sell subscriptions or memberships, regardless of the medium
through which that particular consumer signed up.'').
---------------------------------------------------------------------------
Moreover, despite some commenters' assertions to the contrary, the
Commission has clear authority to issue a rule requiring sellers to
offer cancellation through the same medium as enrollment. As detailed
in section VII.A, there is a substantial record demonstrating the
negative option practices covered by this Rule are unfair or deceptive,
prevalent, and have caused significant consumer harm.\421\ Moreover,
Magnuson-Moss empowers the Commission to promulgate requirements
designed to prevent any unfair or deceptive practice it identifies with
specificity.\422\ By promulgating a rule that prevents sellers from
making cancellation unreasonably difficult, the Commission has done so
here. Further, while ROSCA does not provide for APA rulemaking, it does
not limit the Commission's authority to issue a trade regulation
rule.\423\ In fact, the Commission's Negative Option Rule predates
ROSCA, and the statute does not rescind that Rule.
---------------------------------------------------------------------------
\421\ See generally section VII.A.
\422\ 15 U.S.C. 57a(a)(1)(B).
\423\ NPRM, 88 FR 24716 n.9. Although, as stated in the NPRM,
Congress did not direct the FTC to promulgate implementing
regulations, it certainly did not preclude them, and the language
contained in ROSCA confirms the FTC's authority to do so. 15 U.S.C.
8404(a) (``Violation of this chapter or any regulation prescribed
under this chapter shall be treated as a violation of a rule. . .
.''); see also id. 8404(b) (``Any person who violates this chapter
or any regulation prescribed under this chapter'' shall be subject
to penalties); id. 8404(c) (``Nothing in this section shall be
construed to limit the authority of the Commission under any other
provision of law.'').
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(b) The Commission modifies the requirements of Sec. 425.6(c)(1):
Online Cancellation.
In response to comments, the Commission makes several changes to
clarify the online cancellation mechanism requirements. First, it
removes the requirement that, for website or web-based applications,
cancellation must be afforded through the same precise means as
consent. Instead, the final Rule provides the simple cancellation must
be easy to find. Second, the revised provision incorporates a
definition of ``interactive electronic medium'' in place of
``internet.'' Third, the Commission excludes cancellation mechanisms
requiring interaction with a live or virtual agent, unless the consumer
consented to the negative option feature through such mechanism. Each
modification is discussed below.
(i) The simple cancellation mechanism must be easy to find.
Consumers uniformly opposed having to engage with a representative
to cancel when they could simply click a button to enroll.\424\ They
also expressed deep
[[Page 90509]]
frustration over having to hunt to find cancellation mechanisms,
usually buried deep within a website or in fine print on a bill or
other correspondence.\425\ The Commission has brought numerous cases
alleging these practices are unfair or deceptive.\426\ The proposed
Rule sought to prevent these unfair and deceptive practices by
requiring sellers to provide an easily accessible online cancellation
mechanism to consumers who enrolled online.\427\ As several commenters
rightly noted, however, consumers may not always expect (and it may not
always be possible) to use the same precise means for both enrollment
and cancellation.\428\
---------------------------------------------------------------------------
\424\ Individual commenter, FTC-2023-0033-0003 (``When signing
up, I didnt talk to a single individual. So its fair that when
cancelling, I should not have to talk to a single individual.'');
Individual commenter, FTC-2023-0033-0006 (was forced to call ``and
speak with several agents'' because unable to cancel online);
Anonymous commenter, FTC-2023-0033-0044 (shouldn't be forced to make
a phone call and sit on hold for hours if signed up online);
Individual commenter, FTC-2023-0033-0072 (fair to consumers to allow
consumers to cancel through same means as they were initiated);
Individual commenter, FTC-2023-0033-0087 (``I think any offer you
can buy with a click should also be an offer to unsubscribe with a
click''; having to call instead is a scam); Anonymous commenter,
FTC-2023-0033-0095 (``I would like to specify that [company] did not
allow to terminate the account online. They specifically requested a
phone call, which they then ignored for as long as possible. This
practice is unfair and deceptive and needs to be outlawed.'');
Anonymous commenter; FTC-2023-0033-0097 (FTC should ban practice of
companies only offering cancellation via phone call, despite not
requiring a phone call for signup); Individual commenter, FTC-2023-
0033-0274 (``having to call the company to cancel when the party
clicked on the website is forced verbal speech''); Individual
commenter, FTC-2023-0033-0356 (``If you signed up online, you should
be able to cancel online. If it took one click to join, it should
take one click to cancel. I am tried [sic] of calling some call
center, waiting on hold, and then having someone go through a long
script about why I should not cancel. Generally make it as easy to
cancel as to sign up.''); Individual commenter, FTC-2023-0033-0379
(``I have now been charged for a full month because I have to call
and speak to a representative instead of clicking to cancel.'');
Individual commenter, FTC-2023-0033-0443 (``If the public is allowed
to set up an account online we should be allowed to cancel online
without ever making a phone call. The consumer should have more
rights than corporations.''); Individual commenter, FTC-2023-0033-
0617 (``It is truly obnoxious to be able to click to join but have
to research to find the way to cancel, often involving making a
phone call and being left on hold.''); Individual commenter, FTC-
2023-0033-0716 (``We shouldn't have to call the company to
cancel!''); Individual commenter, FTC-2023-0033-0788 (requiring a
call when enrolled online is ``coercive and unfair''); Individual
commenter, FTC-2023-0033-0822 (``I am sick of having to call a phone
number to cancel something I signed up for on line, and often
speaking to someone who is snide, sarcastic, or downright rude!'').
\425\ Individual commenter, FTC-2023-0033-0065 (``Often a
company makes it significantly more difficult to even find out where
or how to cancel a subscription.''); Individual commenter, FTC-2023-
0033-0024 (``It took a Google search to find the right Customer
Service number because it was hidden or unavailable on the
website.''); Individual commenter, FTC-2023-0033-0084 (finally found
corporate number to cancel trampoline park after scouring website
for a membership enrolled online); see also Individual commenter,
FTC-2023-0033-0067 (``why are they allowed to sign you up for
automatic renewal with no way to cancel nothing on their web page in
order to cancel a subscription''); Individual commenter, FTC-2023-
0033-0071 (biggest annoyance is that subscriptions can be signed up
for so easily with a few buttons on the remote but nearly impossible
to cancel); Anonymous commenter, FTC-2023-0033-0108 (``I certainly
hope this goes through. These companies make it incredibly difficult
to even find the cancel or opt out option.''); Anonymous commenter,
FTC-2023-0033-0123 (``Straight forward plain language cancelation
instructions that are easy to locate should be required.'');
Individual commenter, FTC-2023-0033-0124 (``Clearly there should be
an easy way to unsubscribe that is easy to find.''); Individual
commenter, FTC-2023-0033-0560 (cancellation page should be easy to
find); Individual commenter, FTC-2023-0033-0642 (``If you signed up
online, you should be able to cancel online. If it took one click to
join, it should take one click to cancel. I have had trouble finding
where to cancel on multiple subscription services. Often, they are
confusing on purpose to keep customers like me trapped in the
payment cycle. Some require an email or phone call to a separate
customer service representative. Cancelling should not be harder
than signing up for their service.''); Individual commenter, FTC-
2023-0033-0685 (``I am tired of having to screen grab the fine print
to figure out my options for cancelling subscriptions-it just
shouldn't be this hard!?!''); Ashley Sheil on behalf of Maynooth
University and in collaboration with Radboud University, FTC-2023-
0033-1006 (observing that companies may take advantage of the ``as
easy as'' requirement, and recommending any termination button
should be highlighted and in an obvious location).
\426\ See n.385 (citing simple cancellation cases).
\427\ NPRM, 88 FR 24728 (``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.'').
\428\ See, e.g., ESA, FTC-2023-0033-0867 (``Such a requirement
would not be helpful for players seeking to cancel a subscription,
as in-game is not the place that most players would expect to find a
cancellation ingress.''); RILA, FTC-2023-0033-0883 (``The method
that a consumer uses for initial sign-up may not be the place where
that consumer would expect to find a simple cancellation function.
For example, contracts are also increasingly concluded online
through third parties or via social media apps. Regardless of how a
customer initially signs up, once she/he establishes a purchasing
arrangement with a seller, the customer will logically look to the
seller to cancel the arrangement.'').
---------------------------------------------------------------------------
Accordingly, to clarify the intent of the original language and to
better match consumer expectation with actual cancellation procedures,
the Commission now clarifies that where a consumer enrolls online,
whether through a website, a mobile application, chat, email, or
messaging, consumers must be afforded an equally simple online
cancellation experience, i.e., one that allows them easily to find and
use the cancellation mechanism.\429\
---------------------------------------------------------------------------
\429\ The Chamber asked the Commission to clarify that web-based
chat is an appropriate cancellation where a consumer signs up
online. As is clear from the record, unless the seller required the
consumer to engage with an agent through a web-based chat to enroll,
the Rule will preclude requiring the consumer to do so to cancel.
There is substantial evidence this asymmetrical practice of
requiring consumers to engage with agents (live or virtual) for
cancellation but not enrollment is one of the principal methods
sellers use to create unfair and deceptive cancellation procedures.
Accordingly, it is appropriate to include limitations within the
Rule to prevent unscrupulous sellers from using such practices.
---------------------------------------------------------------------------
Many commenters agreed consumers would consider a link or button
located on a website or within a user's account or device settings to
be ``easy to find.'' \430\ Providing a clearly-labeled cancellation
button in a consumer's account or user settings is, thus, one example
of a simple online cancellation mechanism.\431\ The Commission
cautions, however, while such a mechanism need not be exactly the same
as the consent mechanism, the seller cannot make it more difficult to
use or find than the consent mechanism. For example, the seller cannot
prominently label the mechanism within the account settings but make it
difficult for consumers to find the account settings in the first
instance.
---------------------------------------------------------------------------
\430\ Individual commenter, FTC-2023-0033-0124 (``Clearly there
should be an easy way to unsubscribe that is easy to find.'');
Individual commenter, FTC-2023-0033-0252 (``I had been thinking of
contacting my Governor to suggest just such a rule that the method
provided for signing up for a service must also be provided for
cancelling the same service, be just as easy to find, and require no
more steps than it took to sign up.''); Individual commenter, FTC-
2023-0033-0560 (``And ensure the bill is explicit with requirement
to make it EASY TO FIND HOW TO REACH the company or cancellation
page.''); Individual commenter, FTC-2023-0033-0640 (``The Federal
Trade Commission needs to make it mandatory for companies to have an
easy to find button to cancel a subscriptions -online-.'');
Individual commenter, FTC-2023-0033-0784 (``And the cancel button
should be easy to find and as attractively marketed as an
opportunity to extend a subscription (font size, colors, etc.).'');
Individual commenter, FTC-2023-0033-1006 (cancellation should be
highlighted and in an obvious location).
\431\ See, e.g., Cal. Bus. & Prof. Code Sec. 1702(d)(1)(A);
Conn. Gen. Stat. Ann. Sec. 42-158ff (d)(1)(A); N.J. Stat. Ann.
Sec. 56:8-42.1.a.
---------------------------------------------------------------------------
Further, the Commission emphasizes that the cancellation mechanism
must be easy to find at the time the consumer decides to cancel.
Providing an easy-to-find mechanism at consent does not mean the
mechanism will be easy to find later when the consumer wants to cancel,
and therefore will not prevent unreasonable barriers to cancellation.
Thus, providing the information necessary to find the cancellation
mechanism at enrollment (as required under Sec. 425.4) does not
discharge the seller's obligation to ensure cancellation is easy to
find when most relevant to the consumer.\432\
---------------------------------------------------------------------------
\432\ See, e.g., Individual commenter, FTC-2023-0033-0022
(``Note that subscriptions are by their very nature long lasting in
time, therefor requirements should not just emphasize some fine
print disclosure at the time of sign up but also it should be easy
to check back with the company or their many layers of
subcontractors to cancel at anytime in the future.'').
---------------------------------------------------------------------------
(ii) ``Interactive electronic medium'' is broadly defined to
include all methods of electronic communication.
The State AGs asked the Commission specifically to address the
requirements for cancellation by chat, text messaging, and email. The
State AGs explained that although chat and text are increasingly common
cancellation mechanisms, they share some of the same qualities and
potential problems as telephone cancellation because they require
interaction with a live or virtual customer representative.\433\
Further, the State AGs suggested email should not be an acceptable
cancellation medium for online consent.\434\
---------------------------------------------------------------------------
\433\ State AGs, FTC-2023-0033-0886.
\434\ Id.
---------------------------------------------------------------------------
To address these concerns, the Commission revises the proposed
provision to refer to ``interactive electronic medium'' rather than
``internet.'' This change clearly includes text, chat, and email within
the scope of online cancellation mechanisms.
[[Page 90510]]
Specifically, the phrase ``interactive electronic medium'' used in the
``clear and conspicuous'' definition includes all media that involve
electronic communications (except telephone calls), whether or not they
strictly use the internet (and thus would otherwise be ``online'').
Consumers may not know whether a text or chat is MMS (online) or SMS
(offline), for example. This broader definition should provide
flexibility to sellers while continuing to require parallel
cancellation and sign-up procedures to meet consumers expectations.
Although the State AGs suggested prohibiting the use of email as a
cancellation mechanism, the record provides no basis for doing so.
Further, consistent with the Commission's definition of interactive
electronic medium, several States specifically allow sellers to use
email as an online cancellation method.\435\ Thus, the final Rule does
not bar the use of email to effectuate online cancellation.
---------------------------------------------------------------------------
\435\ See, e.g., Cal. Bus. & Prof. Code Sec. 17602 (``The
business shall provide a method of termination that is online in the
form of either of the following: By an immediately accessible
termination email formatted and provided by the business that a
consumer can send to the business without additional
information.''); Conn. Gen. Stat. Ann. Sec. 42-158ff (an electronic
mail message from the business to the consumer, which is immediately
accessible by the consumer and to which the consumer may reply
without obtaining any additional information); N.J. Stat. Ann. Sec.
56:8-42.1 (a termination email formatted and provided by the
subscription service provider that a consumer can email to the
subscription service provider without being required to provide any
additional information).
---------------------------------------------------------------------------
(iii) No interaction with representatives for online cancellation.
The State AGs noted, and consumer comments further support, the
fact that sellers have often used chat, text, and messaging to
perpetrate the same abuses documented for telephone cancellation. The
Commission, therefore, reiterates all cancellation mechanisms,
including chat, text, messaging, and email, are subject to the same
``simple'' requirements, i.e., sellers may not erect unreasonable
barriers or prevent consumers from immediately halting charges.
Cancellation mechanisms must be as easy to use as the mechanism the
consumer used to sign up, in terms of time, expense, burden, and ease
of use; and the mechanism must be as readily accessible as the means
the consumer used to consent in the first place.
Consumer comments, as well as the Commission's and State AGs'
enforcement experience demonstrate asymmetrical enrollment and
cancellation experiences, such as requiring telephone cancellation when
consumers can easily sign up online without speaking with an agent, are
unfair. Specifically, this asymmetry creates unreasonable barriers to
cancellation, such as unreasonable hold times, unreasonable
verification requirements, and aggressive save tactics. Moreover,
comments and the Commission's enforcement experience indicate consumers
likely understand a simple online enrollment experience as an implied
claim that the cancellation experience also will be simple.\436\ As
consumers themselves explain, they do not anticipate engaging with a
customer service representative (whether by phone, or through a web-
based chat or messaging) if they did not do so to sign up for the
negative option feature.\437\ Thus, the Commission further clarifies,
for online consent, the seller cannot require the consumer to engage
with an agent or customer service representative to cancel unless the
consumer did so at enrollment.\438\
---------------------------------------------------------------------------
\436\ See nn.362-369; see also vlogbrothers, Why isn't this
Illegal?, https://www.youtube.com/watch?v=FjAw1LMShIA&pp=ygUMdmxvZ2Jyb3RoZXJz (last visited Aug. 25,
2024).
\437\ See, e.g., Anonymous commenter, FTC-2023-0033-0024 (could
not cancel online even though consumer could upgrade online and via
TV); Individual commenter, FTC-2023-0033-0137 (``3 months to cancel,
3 minutes to sign-up. Seriously?''); Individual commenter, FTC-2023-
0033-0252 (detailing three instances where consumer signed up online
with a few clicks but was required to call to cancel, concluding
``the method provided for signing up for a service must also be
provided for cancelling the same service, be just as easy to find,
and require no more steps than it took to sign up.''); Individual
commenter, FTC-2023-0033-0457 (``If I enrolled in a subscription
online, there are no good reasons why I can't disenroll that way as
well. Forcing me to call a number to unsubscribe, which is only
staffed during `normal business hours,' unnecessarily complicates
the process''); Anonymous commenter, FTC-2023-0033-0802 (this
practice of making someone call or chat to someone to cancel a
membership is predatory).
\438\ The Chamber asked the Commission to ``make clear that a
web-based chat qualifies as an appropriate cancellation mechanism
where a customer signed up for a service online.'' FTC-2023-0033-
0885. The Commission reiterates that a web-based chat cancellation
mechanism may be appropriate, but only if the consumer enrolled
through a virtual or live agent.
---------------------------------------------------------------------------
Finally, the Commission declines to exclude industries providing
bundled services from the same medium requirement. NCTA and other
industries with such services insisted their customers are better
served by speaking with a live representative, even when they enroll
online.\439\ They expressed concern these sellers cannot confirm a
consumer's cancellation intent (consumers may want to modify or
renegotiate services) or apprise consumers of any negative consequences
of cancellation (loss of access to emergency services, for example)
without a live discussion.\440\ They further assert providing this
information online could be complicated and expensive for the seller
and not what the consumer would prefer.\441\ NCTA noted only 30% of its
members' customers sign up online, with the remaining 70% enrolling in
person or over the phone.\442\
---------------------------------------------------------------------------
\439\ NCTA, FTC-2023-0033-0858; CTIA, FTC-2023-0033-0866.
\440\ Id.
\441\ Id.
\442\ NCTA, FTC-2023-0073-0008.
---------------------------------------------------------------------------
NCTA's comment seems to suggest the simple cancellation mechanism
requirement demands a certain asymmetry--specifically, no matter how
complex online enrollment is, the proposed Rule would require a simple
``one click'' cancellation mechanism, which could preclude the seller
from confirming cancellation intent or apprising consumers of negative
consequences of cancellation. The Commission reiterates the simple
cancellation requirement requires symmetry in terms of, inter alia,
time, burden, expense, and ease of use. It does not require use of the
exact same mechanism.
Further, existing verification procedures, such as two-factor
authentication, are routinely used to ensure a consumer's identity in
highly sensitive situations. Thus, they are more than sufficient to
ensure the correct person is cancelling and do not require the use of a
cancellation mechanism different than enrollment. Moreover, at this
juncture, the Commission has removed the proposed ``saves'' provision
from the final Rule, making communication regarding material
consequences of cancelling easier to convey (so long as communicating
through the same medium).
(c) The Commission adopts Sec. 425.6(c)(2): Telephone Cancellation
as proposed, with one exception.
The Commission adopts the telephone cancellation provision as
proposed, except the final Rule removes the requirement sellers must
assure all calls are answered during normal business hours. Instead,
the final Rule requires sellers to promptly effectuate cancellation
requests by consumers via a telephone number that is answered or
records messages during normal business hours.
Several commenters suggested specific changes were necessary to
enhance the proposed telephone medium requirements. For instance, the
State AGs asked the Commission to include the various requirements
detailed in the 2021 Enforcement Policy Statement, e.g., require
negative option
[[Page 90511]]
sellers ``not [to] erect unreasonable barriers to cancellation or
impede the effective operation of promised cancellation procedures, and
. . . honor cancellation requests that comply with such procedures.''
However, the proposed provisions already include these
requirements.\443\
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\443\ E.g., the requirements that all cancellation mechanisms be
simple and easy to use (Sec. 425.6), and the seller disclose where
to find the cancellation mechanism prior to the sale (Sec. 425.4).
---------------------------------------------------------------------------
Nonetheless, several commenters correctly pointed out requiring
sellers to answer cancellation calls during normal business hours could
create considerable costs for small businesses while not directly
addressing the core problem identified by the Commission--the
unreasonable delay of cancellation requests. To address these concerns,
the Commission first clarifies normal business hours are those hours in
which the business would normally engage with its customers. A seller,
however, cannot make telephone cancellation available only at times
that are so inconvenient they erect a barrier to cancellation. For
instance, it would be improper to limit cancellation calls to only
between midnight and 3 a.m., regardless of whether these are the
seller's normal business hours. Importantly, however, the final Rule
does not require a seller to physically answer the telephone call (a
task that could be difficult for, e.g., a sole proprietorship). An
answering machine that clearly provides for cancellation (e.g., a
message stating: if you want to cancel your subscription please
identify that subscription, and leave identifying information) would
comply with this provision of the Rule. To effectuate the provision's
intent, the final Rule states sellers, whether answering the
cancellation call in person or not, must effectuate that cancellation
promptly. Thus, a seller could not, for example, have an answering
machine it does not regularly monitor or for which it does not promptly
effectuate cancellation requests.
Notably, the final Rule retains the requirement that, for the
mechanism to be at least as simple as the one used to initiate the
recurring charge, any cancellation call cannot be more expensive than
the call used to enroll (e.g., if the sign-up call is toll free, the
cancellation call must also be toll free). Consumers would not expect
such fees, rendering them unfair or deceptive.\444\
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\444\ Cf. United States v. Adobe, Inc., No. 5:24-cv-03630 (N.D.
Cal. 2024) (cancellation fees plead as a failure to disclose and
failure to obtain consent to charge in violation of ROSCA); FTC v.
FloatMe Corp., No. 5:24-cv-00001 (W.D. Tex. 2024) (extra cost in
relation to timing of receipt of product deceptive in violation of
section 5); United States v. Cerebral, Inc., No. 1:24-cv-21376 (S.D.
Fla. 2024) (delays in cancellation deceptive and injured consumers
in violation of section 5); FTC v. Bridge It, Inc., No. 1:23-cv-
09651 (S.D.N.Y. 2023) (claims to cancel at any time without paying
any fees, interest, or other charges deceptive); FTC v. Vonage
Holdings Corp., No. 3:22-cv-06435 (D.N.J. 2022) (requiring phone
cancellation with roadblocks including long hold times, frequent
disconnects, endless loops, and early termination fee unfair under
section 5); FTC v. Benefytt Techs., Inc., No. 8:22-cv-01794 (M.D.
Fla. 2022) (unexpected cost for additional product is deceptive and
unfair); In re Dun & Bradstreet, Inc., FTC Docket No. C-4761 (2022)
(renewal practices, including at end of designated time periods,
deceptive); FTC v. First Am. Payment Sys., No. 4:22-cv-00654 (E.D.
Tex. 2022) (misrepresentations in cancellation and unfair debiting);
United States v. MyLife.com, Inc., No. 2:20-cv-6692 (C.D. Cal. 2020)
(cancellation by phone discouraged or prevented by unavailable or
uncooperative agents specified as a violation of ROSCA); FTC v.
Match Grp., Inc., No. 3:19-cv-02281 (N.D. Tex. 2019) (pleading
cancellation difficulties in violation of ROSCA); In re Urthbox,
Inc., FTC Docket No. C-4676 (2019) (unexpected charges, including
for a full 6 months following the first month of free trial, are a
failures to disclose in violation of section 5); FTC v. Cardiff, No.
5:18-cv-02104 (C.D. Cal. 2018) (unexpected charges a section 5
misrepresentation and unfair charging); FTC v. BunZai Media Grp.,
Inc., No. 2:15-cv-04527 (C.D. Cal. 2015) (failure to disclose charge
as deceptive and unfair); FTC v. Tarr, No. 3:17-cv-02024 (S.D. Cal.
2017) (failure to disclose material terms deceptive and unfair); FTC
v. AdoreMe, Inc., No. 1:17-cv-09083 (S.D.N.Y. 2017) (cancelling made
difficult by phone, contributing to misrepresentations regarding
store credit); FTC v. RevMountain, LLC, No. 2:17-cv-02000 (D. Nev.
2017) (unexpected product deceptive); FTC v. AAFE Prods. Corp., No.
3:17-cv-00575 (S.D. Cal. 2017); FTC v. Health Formulas, LLC, No.
2:14-cv-01649 (D. Nev. 2014) (deceptive costs).
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(d) The Commission adopts Sec. 425.6(c)(3): In-Person Cancellation
as proposed.
Based on the Commission's experience and that of other States, as
well as many comments in the record, requiring in-person cancellation
presents significant opportunities for unfair and deceptive practices.
To prevent such practices, the final Rule adopts provision 425.6(c)(3)
essentially as proposed. Thus, the provision continues to require in-
person sellers to provide alternatives to in-person cancellation,
either online or by phone, at the seller's choice. The Commission,
however, corrects the requirement that if the alternative is a
telephone call, the call cannot be more costly than the in-person
consent. That proposal connected two unrelated costs and thus did not
make logical sense. To effectuate the purpose of this provision,
however, the Commission adds language stating the call cannot impose
any cost that creates an unreasonable barrier to cancellation,
including by making the call unreasonably expensive.\445\
---------------------------------------------------------------------------
\445\ N/MA suggested there may be instances where the original
method of consent is no longer available. FTC-2023-0033-0873. For
example, if the person signed up a trade show in person, returning
to the in-person venue may be impossible. The Commission notes the
in-person method only must be made available, ``where practical.''
---------------------------------------------------------------------------
To address ICA's concerns, the Commission clarifies the Rule does
not require sellers who sell in-person to maintain an alternative
online presence to process cancellations. Sellers who have no such
presence can allow cancellations by phone if they comply with the
simple telephone cancellation requirements detailed above.
(c) Sec. 425.6(d) Saves
(1) Summary of Comments
Proposed Sec. 425.6(d) would have required sellers to immediately
effectuate cancellation unless they obtained the consumer's
unambiguously affirmative consent to receive a save prior to
cancellation. The Commission explained the record shows many businesses
have created unnecessary and burdensome obstacles to cancellation,
including forcing uninterested consumers to sit through multiple
upsells before allowing them to cancel.\446\ Individual consumer
commenters corroborated the pervasive use of such unfair tactics to
thwart cancellation.\447\
---------------------------------------------------------------------------
\446\ NPRM, 88 FR 24729.
\447\ See, e.g., Individual commenter, FTC-2023-0033-0006
(``Last year I had the pleasure of trying to cancel a radio
subscription which took 2 attempts and far too much time to
accomplish. Unable to cancel online, I was forced to call and speak
with several agents trying to convince me to keep their service.
After nearly a half hour of insisting I wanted to cancel, they
simply hung up on me which forced me to start the cancellation
process all over again from the beginning.''); Anonymous commenter,
FTC-2023-0033-0024 (able to cancel only after listening to a ``long
sale pitch about why he shouldn't''); Anonymous commenter, FTC-2023-
0033-0066 (when you request a cancellation, will pass your call on
to a more ``experienced representative'' in an attempt to convince
you to keep your service. They do not listen to your concerns,
instead make you jump through hoops for a cancellation which makes
me not want to be one of their customers even more); Individual
commenter, FTC-2023-0033-0071 (call to cancel and they repeatedly
said ``well let's just see how we can save you money'' instead of
canceling); Individual commenter, FTC-2023-0033-0082 (``You have to
call them and endure a high pressure pitch to renew . . . . It
wastes time and minutes on your phone bill''); Anonymous commenter,
FTC-2023-0033-0097 (the only way to cancel a service is to call them
on the phone, intended to allow for sales reps to make a pitch);
Individual commenter, FTC-2023-0033-0120 (``However, when you
attempt to cancel a continuous subscription you are told you cannot
do that and you must call the provided phone number. You are
connected to a sales person who then will negotiate with you to
continue at a lower rate.''); Individual commenter, FTC-2023-0033-
0125 (``The only way for me to cancel this service was to CALL THEM
DIRECTLY, whereupon they spent nearly half an hour trying to upsell
me into a two year subscription.''); Individual commenter, FTC-2023-
0033-0130 (``It should not be required to call (and sit on hold
forever), only to have to sit through a diatribe of hard-sell
techniques to try to convince one not to cancel.''); Individual
commenter, FTC-2023-0033-0233 (``I had to wait on hold and then get
sales pitch after sales pitch after sales pitch to cancel a digital-
only [newspaper] subscription that I signed up for online.'');
Individual commenter, FTC-2023-0033-0228 (had difficulty canceling a
newspaper subscription of all things as it required consumer to call
an 800 number during the day and then had to listen to multiple
sales pitches and saying ``No! What part of `no' don't you
understand'' to cancel); Individual commenter, FTC-2023-0033-0312
(``I and members of my family have had to use valuable time to call
corporations to cancel subscriptions, each time getting a long pitch
to keep the subscription. If I wanted to keep it, I would not be
calling to cancel it.''); Individual commenter, FTC-2023-0033-0356
(``If it took one click to join, it should take one click to cancel.
I am tired of calling some call center, waiting on hold, and then
having someone go through a long script about why I should not
cancel.''); Individual commenter, FTC-2023-0033-0457 (Forcing me to
call a number to unsubscribe, which is only staffed during ``normal
business hours,'' unnecessarily complicates the process for the
provider's benefit: I don't need to give opportunity to upsell or
persuade me to continue at a reduced price.); Individual commenter,
FTC-2023-0033-0491 (``Some have even required me to make a phone
call and listen to a hard sell before they will cancel the
service.''); Individual commenter, FTC-2023-0033-0597 (have to sit
and turn down multiple offers to cancel); FTC-2023-0033-0677 (sit
and ``suffer through a long sales pitch'' to cancel); Individual
commenter, FTC-2023-0033-0784 (``I suggest limiting the seller's
efforts to pitch additional offers & modifications when trying to
cancel . . . . no one wants to wade through too many of screens
until the cancel `finally' appears.''); Anonymous commenter, FTC-
2023-0033-0785 (person being ``penalized by losing time waiting to
speak to a customer service rep, having to decline further sales, or
being stuck with recurring charges they don't want''); Individual
commenter, FTC-2023-0033-0798 (difficult to cancel subscriptions,
including by repeatedly forcing the customer to turn down ``special
offers'' to entice the customer not to cancel); Individual
commenter, FTC-2023-0033-0815 (No reason to have to call customer
service reps who will keep trying to prevent me from canceling);
Individual commenter, FTC-2023-0033-0835; Individual commenter, FTC-
2023-0033-0850 (Have to make a long awkward phone call and wait on
hold or long repetitive live chat); Individual commenter, FTC-2023-
0033-0913 (``I've experienced having to call to cancel a
subscription only to be forced to listen to a sales spiel in order
to do so.''); Individual commenter, FTC-2023-0033-0967 (``Some have
even required me to make a phone call and listen to a hard sell
before they will cancel the service.''); Individual commenter, FTC-
2023-0033-0999 (Consumers should have an on-line option to cancel. A
national media company ONLY provides a cancel option with a call to
customer service. When doing so, you are met with a CS rep that will
not accept your request to cancel, talks over you, continued
harassment, making offer after offer. We must stop this deceptive
practice.); Individual commenter, FTC-2023-0033-1063 (``Now I'm
about to cancel my [company name] account. If it's anything like the
last time when I moved, I expect to spend several hours dealing with
multiple levels of salespeople, trying to convince me to stay.'');
Individual commenter, FTC-2023-0033-1099 (Once customer service is
contacted, it should not take more than about 90 seconds to cancel a
subscription instead of the endless questions of why you want to
cancel. Then try to keep you by offering a discounted rate on yet
another year of useless service. Please make this end.); Individual
commenter, FTC-2023-0033-1138 (The agent, made multiple attempts to
sell me the service, disregarding my many direct statements that I
just wanted to cancel.); Individual commenter, FTC-2023-0033-1150
(They make you call their company so that sales retention can try to
talk you into staying with freebies etc.); Individual commenter,
FTC-2023-0033-1153 (There is no reason a person should be subjected
to 20 minutes or repeated drilling if they say upfront that they
want to cancel service.).
---------------------------------------------------------------------------
[[Page 90512]]
However, other commenters explained some of the ``barriers''
consumers complained about are necessary to prevent harm, at least in
certain situations. Specifically, commenters noted consumers might not
understand the negative consequences of cancellation,\448\ and the
provision might prevent consumers from taking advantage of money-saving
offers prior to cancellation.\449\ Some commenters also expressed
confusion regarding whether verification or authentication procedures,
or discussion of consumers' attempts to pause or modify their existing
offers, would violate the Rule.\450\ Finally, commenters noted the
proposed provision requiring consumers to opt-in to saves could
interfere with the simplicity of a cancellation mechanism.\451\
---------------------------------------------------------------------------
\448\ NCTA, FTC-2023-0033-0858; PDMI, FTC-2023-0033-0864;
Chamber, FTC-2023-0033-0885.
\449\ Id.
\450\ See, e.g., PDMI, FTC-2023-0033-0864; ANA, FTC-2023-0033-
1001; CTIA, FTC-2023-0033-0866.
\451\ See, e.g., CCIA, FTC-2023-0033-0984. Some commenters also
argued the saves provision violates the First Amendment. E.g., PDMI,
FTC-2023-0033-0864; Chamber, FTC-2023-0033-0885; ACT App
Association, FTC-2023-0033-0874. The Commission rejects this
proposition. See Mainstream Mktg. Servs., Inc. v. FTC, 358 F.3d 1228
(10th Cir. 2004).
---------------------------------------------------------------------------
(2) Analysis
Based on the record, the Commission determines revisions to this
proposed provision are necessary, for which the Commission would need
to seek additional comment. Therefore, the Commission does not adopt
this provision in the final Rule at this time. On one hand, the record
demonstrates saves are often used simply as a barrier to prevent
cancellations.\452\ On the other, the proposed opt-in save provision
could have unintended consequences.\453\ Specifically, the provision
may thwart attempts to confirm consumers' intent or apprise consumers
of any negative consequences of cancellation (e.g., losing data).
Moreover, the opt-in save provision may prevent consumers from
obtaining valuable concessions (e.g., lower prices), which they would
otherwise want.
---------------------------------------------------------------------------
\452\ See nn.447-448.
\453\ See nn.449-452.
---------------------------------------------------------------------------
Consequently, the proposed saves provision did not achieve the
right balance between protecting consumers from unfair tactics and
allowing sellers to provide necessary and valuable information about
cancellation. Therefore, the Commission will consider issuing an SNPRM
in the future seeking a better solution to this difficult problem.
However, the Commission notes the removal of the saves proposal is
not a license to erect unreasonable and unnecessary barriers to
cancellation. The final Rule requires sellers to provide a simple, easy
to use cancellation mechanism. Save attempts that interfere with this
mandate by requiring consumers to navigate through upsells, jump
through unreasonable hoops, or wait unreasonable amounts of time to
cancel are neither simple nor easy.\454\
---------------------------------------------------------------------------
\454\ See, e.g., United States v. Adobe, Inc., No. 5:24-cv-03630
(N.D. Cal. 2024); FTC v. Amazon.com, Inc., No. 2:23-cv-0932 (W.D.
Wash. 2023).
---------------------------------------------------------------------------
7. Proposed Sec. 425.7 Annual Reminders
In the NPRM, the Commission proposed requiring sellers to provide
an annual reminder to consumers for non-physical goods sold with a
negative option feature. Under this proposal, reminders would have
needed to identify the product or service, the frequency and amount of
charges, and the means to cancel. Additionally, the proposal required
Negative Option Sellers to provide the reminders through the same
medium the consumer used to consent to the negative option feature. The
Commission opined the delivery of physical goods may remind consumers
they enrolled in a negative option feature. Therefore, these consumers
effectively already receive reminders and can reasonably avoid further
payments by canceling their subscription. For services lacking a
regular, tangible presence (e.g., data security monitoring or
subscriptions for online services), however, many consumers may
reasonably forget they enrolled and, consequently, incur charges for
services they do not want or use. Thus, the Commission concluded, the
failure to provide reminders for such contracts would meet all elements
of unfairness.\455\ The Commission sought
[[Page 90513]]
comment on this proposal, including whether it should narrow the
coverage of the proposed language, for example, by types of covered
services or the duration between reminders.\456\
---------------------------------------------------------------------------
\455\ NPRM, 88 FR 24729, citing FTC Policy Statement on
Unfairness, appended to In re 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.;
see also 15 U.S.C. 45(n) (Commission has no authority to declare a
practice unfair ``unless the act or practice causes or is 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'').
\456\ NPRM, 88 FR 24729; see also id. at section XIII, Request
for Comments (``The Commission seeks any suggestions or alternative
methods for improving current requirements.'').
---------------------------------------------------------------------------
(a) Summary of Comments
The Commission received 32 comments in response.\457\ Consumers,
public interest and consumer advocacy groups, and academics, among
others, generally supported the reminder requirement, observing, for
example, that ``subscription-based products and services have become so
widespread that consumers are having difficulty keeping track of them
all.'' \458\ The commenters asserted the proposed ``annual notice will
clearly inform consumers of the terms of the contract and how they may
terminate the agreement.'' \459\ Despite this support, virtually every
group of commenters--individuals, consumer advocates, trade
organizations, and industry groups--suggested the Commission modify or
clarify its proposal.
---------------------------------------------------------------------------
\457\ The Commission received comments from, inter alia,
individual consumers; cable/broadband/communications industry
groups; public interest and consumer advocacy groups; various trade
associations representing traditional and digital marketing,
technology, news and magazine media, gaming and entertainment, and
retail industries; academic and public policy groups; and service
contract and alarm company industries.
\458\ State AGs, FTC-2023-00330-0886.
\459\ Public Interest Groups, FTC-2023-0033-0880.
---------------------------------------------------------------------------
Only three commenters specifically requested the Commission
jettison a reminder provision altogether. Specifically, ESA argued the
requirement (1) would impose a significant burden on businesses because
several State laws already require reminders or notices; (2) would be
improper because the Commission did not raise reminders in the ANPR;
and (3) would increase the overall number of notices consumers receive,
which could result in consumers ignoring reminders, thus benefiting bad
actors. NCTA suggested the Commission should instead ``allow businesses
flexibility to determine whether to provide reminders.'' \460\ IAB also
``recommend[ed] that the Commission remove this requirement for several
reasons.'' \461\ Both ESA and NCTA conceded, however, the Commission
could adopt the provision with additional modifications, such as making
the reminders optional (NCTA) or offering consumers the ability to opt-
out of subscription reminders (ESA).\462\ Other commenters agreed,
asking for ``less prescriptive'' requirements that would allow
businesses more flexibility.\463\
---------------------------------------------------------------------------
\460\ NCTA, FTC-2023-0033-0858.
\461\ IAB, FTC-2023-0033-1000.
\462\ ESA, FTC-2023-0033-0867; NCTA, FTC-2023-0033-0858.
\463\ See, e.g., Sirius XM, FTC-2023-0033-0857 (asking
Commission not to mandate exactly how renewal notices must be sent);
N/MA, FTC-2023-0033-0873 (allow sellers to obtain consent to provide
notice through alternate means); Chamber, FTC-2023-0033-0885
(proposed revisions); DCN, FTC-2023-0033-0983 (make annual notice an
option company could comply with to provide adequate notice of
obligations); ACT App Association, FTC-2023-0033-0874 (adopt a less
prescriptive approach so same medium can be used to comply with
State and Federal requirements).
---------------------------------------------------------------------------
Several commenters, while not urging the Commission to reject the
reminder requirement, suggested the NPRM proposal did not satisfy the
unfairness test. For instance, CTA, a technology trade association,
questioned whether there was sufficient basis to find a lack of annual
reminder is an unfair practice or causes consumer harm.\464\ Similarly,
two other commenters from the communications industry questioned
whether a lack of annual reminder would be unfair in the specific
context of services that are ``always on,'' such as cable or wireless
services.\465\
---------------------------------------------------------------------------
\464\ CTA, FTC-2023-0033-0997 (no basis to conclude different
medium is unfair, or that lack of reminders is unfair).
\465\ NCTA, FTC-2023-0033-0858 (lack of notice for ``always on''
services not unfair, injury reasonably avoidable); USTelecom, FTC-
2023-0033-0876 (same).
---------------------------------------------------------------------------
A few commenters asked to be exempted from the reminder requirement
based on the nature of their industries or the frequency of existing
notices.\466\ For instance, cable/broadband/wireless/streaming industry
groups suggested they should be exempt for the same reasons they argued
the unfairness test did not render the lack of reminders illegal in
their industries. Similarly, these and other sellers, such as service
contract providers, suggested consumers who receive monthly bills are
already effectively receiving reminders, and therefore, these
transactions should be exempt.\467\
---------------------------------------------------------------------------
\466\ See, e.g., CTIA, FTC-2023-0033-0866 (exempt mobile
services offered on a month-to-month basis); USTelecom, FTC-2023-
0033-0876 (exempt broadband and communication services). The
Commission addresses exemptions elsewhere in the SBP at sections
VII.B.1 and VIII.
\467\ See, e.g., Chamber, FTC-2023-0033-0885.
---------------------------------------------------------------------------
Several commenters questioned the proposed requirement that sellers
provide the annual reminder through the same medium the consumer used
to consent to the negative option feature.\468\ For example, several
commenters observed that requiring reminders through a telephone call
could violate the TCPA, the TSR, or at minimum, be a nuisance, and thus
ignored by consumers.\469\ Many of these commenters advocated for
letting consumers choose how they want to receive annual
reminders,\470\ or allowing sellers to provide reminders through any
medium they typically use to communicate with consumers.\471\
---------------------------------------------------------------------------
\468\ Sirius XM, FTC-2023-0033-0857; Kuehn, FTC-2023-0033-0871;
N/MA, FTC-2023-0033-0873; Act App Association, FTC-2023-0033-0874;
CTA, FTC-2023-0033-0997; Chamber, FTC-2023-0033-0885; ANA, FTC-2023-
0033-1001.
\469\ Sirius XM, FTC-2023-0033-0857; Kuehn, FTC-2023-0033-0871;
N/MA, FTC-2023-0033-0873; Chamber, FTC-2023-0033-0885; SCIC, FTC-
2023-0033-0879.
\470\ Sirius XM, FTC-2023-0033-0857; Kuehn, FTC-2023-0033-0871;
Chamber, FTC-2023-0033-0885; Public Interest Groups, FTC-2023-0033-
0880.
\471\ State AGs, FTC-2023-0033-0886.
---------------------------------------------------------------------------
Additionally, several commenters disagreed with the Commission's
observation that agreements involving delivery of physical goods
inherently create a ``regular, tangible presence'' that serves as a
reminder of the contract.\472\ For example, they noted some companies
charge a monthly fee, but only deliver physical goods at the consumer's
request.
---------------------------------------------------------------------------
\472\ Individual commenter, FTC-2023-0033-0026; TINA, FTC-2023-
0033-1139.
---------------------------------------------------------------------------
Some commenters stated that, without Federal preemption, the annual
reminder requirement would create another layer of regulatory
complexity because several State laws already require reminders or
notices.\473\ In contrast, Professor Hoofnagle stated many ``credit
card processing service'' providers likely afford a simple and
inexpensive means for sellers to comply with State and Federal mandates
``because policy changes can be made programmatically in dashboards.''
\474\
---------------------------------------------------------------------------
\473\ NCTA, FTC-2023-0033-0858; ESA, FTC-2023-0033-0867; IAB,
FTC-2023-0033-1000; ACT App Association, FTC-2023-0033-0874.
\474\ Hoofnagle, FTC-2023-0033-1137.
---------------------------------------------------------------------------
Several commenters suggested the Commission amend the proposal. For
instance, TINA and several individual consumers recommended the
Commission require reminders at the end of a free trial period.\475\
Others suggested the Commission require more frequent reminders, such
as every six
[[Page 90514]]
months, or before each charge.\476\ They noted that under an annual
notice requirement, a consumer could be charged up to 12 times before
discovering a negative option feature.\477\ One commenter asked the
Commission to require a reminder for so-called ``zombie'' agreements,
ones that have long periods, e.g., 24 months, of inactivity.\478\
---------------------------------------------------------------------------
\475\ Individual commenter, FTC-2023-0033-0039 (not reminded
``that the free trial was up''); Individual commenter, FTC-2023-
0033-0045 (``consumer should get an email reminder their free period
is about to end''); Individual commenter, FTC-2023-0033-0050
(businesses should ``be required to provide advance notice that the
free trial is about to expire.''); TINA, FTC-2023-0033-1139; ACT App
Association, FTC-2023-0033-0874 (provide less prescriptive process).
\476\ Public Interest Groups, FTC-2023-0033-0880 (``consumers
deserve to know when they are about to be charged automatically,
with a chance to opt out''); State AGs, FTC-2023-0033-0886; MIA,
FTC-2023-0033-1008; Individual commenter, FTC-2023-0033-0026
(notification within one month of renewal, stating specific renewal
date); Individual commenter, FTC-2023-0033-0708 (commenting that
companies do not provide reminders before being charged, possibly
overdrawing an account).
\477\ See, e.g., Public Interest Groups, FTC-2023-0033-0880.
\478\ Law Professors, FTC-2023-0033-0861.
---------------------------------------------------------------------------
In contrast, other commenters noted consumers may suffer from
``notice fatigue'' given the increasing popularity of subscription
services.\479\ Some argued there is no evidence of tangible consumer
benefit from additional notices, and consumers should be given a choice
whether to opt-in to receive annual reminders (or more frequent
reminders), or to opt-out.\480\ Three commenters suggested sending
annual reminder notices could increase opportunities for phishing and
other deceptive practices.\481\
---------------------------------------------------------------------------
\479\ NCTA, FTC-2023-0033-0858; USTelecom, FTC-2023-0033-0876;
CCIA, FTC-2023-0033-0985 (recommending a biannual reminder for
longer subscriptions); and Coalition, FTC-2023-0033-0884; see also
DCN, FTC-2023-0033-0983 (incorrectly states the current proposed
rule would require monthly notice for month-to-month renewals).
\480\ NCTA, FTC-2023-0033-0858 (opt in); ESA, FTC-2023-0033-0867
(opt out); Chamber, FTC-2023-0033-0885 (opt in); DCN, FTC-2023-0033-
0983 (opt out); Public Interest Groups, FTC-2023-0033-0880 (opt
out).
\481\ NCTA, FTC-2023-0033-0858; ESA, FTC-2023-0033-0867; DCN,
FTC-2023-0033-0983.
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Finally, several commenters asked the Commission to clarify certain
aspects of the reminder requirement. For instance, ANA asked the
Commission to explain what constitutes the ``same medium,'' and a group
of law professors asked for more detail about what constitutes an
adequate telephone reminder.\482\ Additionally, some commenters asked
the Commission to clarify that sellers can rely on contact information
provided by the consumer at the time of consent,\483\ or to provide
that abiding by State reminder requirements satisfies a seller's
obligations under this provision.\484\
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\482\ ANA, FTC-2023-0033-1001 (same medium); Law Professors,
FTC-2023-0033-0861 (adequate phone reminder).
\483\ Sirius XM, FTC-2023-0033-0857; NFIB, FTC-2023-0033-0789.
\484\ ACT App Association, FTC-2023-0033-0874.
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(b) Analysis
After reviewing these comments, the Commission determines it needs
additional information on the scope and particularities of the proposed
annual reminder requirement. The record suggests, given the
proliferation of subscription and auto-renewal services, consumers have
difficulty tracking all the negative option services and products in
which they may be enrolled--so much so that there are now companies
claiming to help consumers keep track of these services for a fee. As
one commenter noted, consumers should not have to sign up for yet
another service to manage all their subscriptions.\485\ Thus, limiting
the reminder provision to just non-physical goods, and only annually,
may not adequately mitigate the harm caused by negative option
practices in the marketplace.
---------------------------------------------------------------------------
\485\ State AGs, FTC-2023-0033-0886 (``Subscription management
has become an entire industry; consumers can choose from a variety
of companies that offer to monitor their recurring subscriptions. We
believe that consumers should not have to sign up for yet another
service--one that comes with privacy and security risks, as
subscription monitoring services require sharing financial account
and other sensitive information--in order to effectively manage
their subscriptions.'').
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Additionally, the Commission shares some commenters' concerns that
consumers may ignore these reminder calls. Further, as some commenters
noted, the proposed provision does not specify the timing for these
reminders (e.g., should sellers issue reminders annually from the date
of initial purchase and a specific number of days before the charge?).
Accordingly, the Commission will consider issuing a SNPRM seeking
additional comment on these issues at a later date.
8. Proposed Sec. 425.8 Relation to State Laws
In its NPRM, the Commission proposed that amendments to the Rule
would not affect State laws, regulations, orders, or interpretations
relating to negative options, except to the extent they are
inconsistent with the final Rule, and then only to the extent of the
inconsistency. A State provision would not be ``inconsistent'' with the
proposed Rule if it affords any consumer greater protection than the
Rule.\486\
---------------------------------------------------------------------------
\486\ See proposed Sec. 425.8.
---------------------------------------------------------------------------
The Commission received a range of comments in response. On one
end, a commenter opined the ``FTC cannot preempt existing [State]
laws,'' so it should instead strive for ``harmonization and consistency
with existing laws.'' \487\ At the other end, multiple industry groups
said the Commission should completely preempt State laws in this
area.\488\ These commenters argued having both State and Federal
standards may confuse consumers and create financial and operational
burdens for sellers, thus raising consumer prices. For example, NCTA
asserted that, without preemption, the proposed Rule ``would encourage
the enactment of new [S]tate laws with differing standards.'' \489\
Another industry commenter suggested the Commission should work with
lawmakers on one national standard.\490\
---------------------------------------------------------------------------
\487\ ANA, FTC-2023-0033-1001.
\488\ NCTA, FTC-2023-0033-0858; PDMI, FTC-2023-0033-0864; CCIA,
FTC-2023-0033-0984; ESA, FTC-2023-0033-0867; IAB, FTC-2023-0033-
1000.
\489\ NCTA, FTC-2023-0033-0858; see also Chamber, FTC-2023-0033-
0885 (``A floor just creates an increased [F]ederal burden without
actually ensuring consistency of overall regulation on entities in
the different [S]tates.'').
\490\ IHRSA, FTC-2023-0033-0863 (national standard).
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Other industry groups and individual businesses supported
preemption in various ways. For example, CTA argued the Rule should
``preempt [S]tate laws with differing requirements.'' \491\ Two
additional commenters, including a mixed group of industry
associations, asserted the Rule should set the ceiling and preempt any
State provision that is more stringent.\492\
---------------------------------------------------------------------------
\491\ CTA, FTC-2023-0033-0997; see also Sirius XM, FTC-2023-
0033-0857; DCN, FTC-2023-0033-0983.
\492\ Coalition, FTC-2023-0033-0884; CCIA, FTC-2023-0033-0984.
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NRF said the Rule should ``preempt any [S]tate law requirements
that contradict or are inconsistent with the Rule . . . to the extent
of the inconsistency.'' \493\ To effectuate this change, NRF suggested
the Commission adopt language from California's Automatic Renewal Law,
which it said other States have copied. NRF proposed State laws be
deemed inconsistent if they require disclosures or actions ``that
contradict . . . the [final rule],'' and requirements be deemed
contradictory if they use the same terms differently from the final
rule or require ``using a term different from the one required in the
[final rule] to describe the same item.'' \494\
---------------------------------------------------------------------------
\493\ NRF, FTC-2023-0033-1005.
\494\ Id.
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Several industry groups expressed concern regarding potential
confusion about preemption. For example, ACA Connects asserted it ``may
be unclear whether and to what extent [a particular State law offers]
`greater' or `lesser' protection than [the proposed Rule]'' and asked
for more guidance generally or for a process that lets interested
parties ask the Commission if a
[[Page 90515]]
particular State law is inconsistent.\495\ NRF noted such a system has
worked well with gift card laws, explaining the CARD Act (Pub. L. 111-
24, 124 Stat. 2385) preempts less restrictive State laws.\496\
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\495\ ACA, FTC-2023-0033-0881 (greater or lesser); NRF, FTC-
2023-0033-1005 (more guidance); DCN, FTC-2023-0033-0983 (more
guidance).
\496\ NRF, FTC-2023-0033-1005.
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Finally, a group of law professors supported the Commission's
proposed Rule. They noted ``more than half of [S]tates . . . regulate
some negative option marketing practices,'' and said the Commission
``does not occupy the field or displace non-conflicting [S]tate
[laws].'' \497\ The professors added States ``can often move more
nimbly to address problematic elements and evolving business models''
and should retain the ability to do so.\498\
---------------------------------------------------------------------------
\497\ Law Professors, FTC-2023-0033-0861.
\498\ Id.
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Having considered the foregoing comments, the Commission will
streamline the text of the final Rule for clarity and efficiency, while
maintaining the substance of the proposed Rule's proposed preemption
language (renumbered in the final Rule as Sec. 425.7). The FTC Act
does not expressly preempt State law, and the legislative history of
the FTC Act indicates Congress did not intend the FTC to occupy the
consumer protection regulation field.\499\ Therefore, any preemptive
effect of the Rule must be limited to instances where it is not
possible to comply with both State law and the Rule, or where
application of State law would frustrate the purposes of the Rule.\500\
This approach preserves States' ability to continue to act as
laboratories to handle new and changing business models. This approach
is consistent with other Commission Rules.\501\
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\499\ See, e.g., Am. Fin. Servs. Ass'n v. FTC, 767 F.2d 957, 989
(D.C. Cir. 1985).
\500\ 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. Ass'n v. FTC, 767 F.2d 957
(D.C. Cir. 1985) (Credit Practices Rule); Harry & Bryant Co. v. FTC,
726 F.2d 993 (4th Cir. 1984) (Funeral Rule); Am. Optometric Ass'n v.
FTC, 626 F.2d 896 (D.C. Cir. 1980) (Ophthalmic Practices Rule).
\501\ See, e.g., 16 CFR 437.9(b) (Business Opportunity Rule);
id. 435.3(b) (Merchandise Rule); id. 436.10 (Franchise Rule); id.
429.2 (Cooling-Off Rule).
---------------------------------------------------------------------------
Therefore, Sec. 425.7 of the final Rule specifies the Rule does
not supersede, alter, or affect State statutes, regulations, orders, or
interpretations relating to negative option marketing, except to the
extent a State statute, regulation, order, or interpretation is
inconsistent with the Rule. The final language also continues to make
clear State requirements are not inconsistent with the Rule to the
extent they afford greater protection to any consumer. The manners in
which a State law may provide greater protection are many. For example,
a State law that requires sellers to remind consumers at the end of a
free trial that they are about to be billed would provide greater
protection to consumers and not be inconsistent with the Rule.
VIII. Modifications, Alternatives Considered
A. New Provisions in Final Rule for Clarification
1. New Sec. 425.8 Exemptions
The NPRM sought comment on whether the Rule should exempt any
entities or activities that are otherwise subject to the Commission's
authority under the FTC Act.\502\ Several commenters requested Rule
exemption for their business or industry.\503\ These commenters made
various arguments based on the law and facts in their particular
circumstances. For example, some argued existing State licensing and
other requirements that already apply to their activities adequately
address the problems identified in the NPRM and additional rules would
only interfere with the existing regulatory structure. Because such
decisions are highly fact dependent, the Commission must consider
exemptions, even of larger groups, on an individualized basis pursuant
to the FTC's Rules of Practice.\504\ Pursuant to these rules,
interested persons may file petitions for exemption with relevant
evidence and data. If the Commission deems the petition sufficient to
warrant further consideration, it will follow the procedures outlined
in Sec. 1.31 of its rules.
---------------------------------------------------------------------------
\502\ See, e.g., NPRM, 88 FR 24730.
\503\ Categories of products and services for which commenters
sought exemptions include: alarm companies (FTC-2023-0033-0860; FTC-
2023-0033-1001); wireless carriers (FTC-2023-0033-0866);
telecommunication providers (FTC-2023-0033-0876; FTC-2023-0033-
0881); service contracts (FTC-2023-0033-0877; FTC-2023-0033-0879;
FTC-2023-0033-0882; FTC-2023-0033-0996; FTC-2023-0033-1136; FTC-
2023-0033-1143); insurance agreements, service contracts on consumer
goods, and cancellable month-to-month agreements (FTC-2023-0033-
0878); and retail energy service (FTC-2023-0033-1151). Some of these
and others sought to exclude B2B agreements. See section VII.B.1.c.
\504\ See 16 CFR 1.25, 1.31; see also 86 FR 59851 (Oct. 29,
2021) (amending Commission procedures and rules on the petition
exemption process).
---------------------------------------------------------------------------
The Commission adopts a new section, Sec. 425.8. Pursuant to this
provision, and consistent with the Commission's Rules of Practice,
sellers and other covered persons may seek full or partial exemptions
if they can demonstrate application of the Rule's requirements to a
particular product or service, or class of product or service, is not
necessary to prevent the acts or practices to which the Rule relates.
2. New Sec. 425.9 Severability
One commenter, NFIB, asked the Commission to address severability
in the Rule.\505\ Specifically, NFIB proposed a provision stating if a
court finds any part of the Rule to be invalid, then the remainder of
the Rule remains in force. The Commission agrees with this proposal. It
is the Commission's intent that the provisions of the final Rule are
separate and severable from one another; therefore, if any provision is
stayed or determined to be invalid, the remaining provisions shall
continue in effect. Thus, the final Rule includes this language in a
new section, Sec. 425.9.\506\
---------------------------------------------------------------------------
\505\ NFIB, FTC-2023-0033-0789.
\506\ This provision is comparable to the severability provision
in other Commission Rules. See 16 CFR 437.10 (Business Opportunity
Rule); 16 CFR 455.7 (Used Motor Vehicle Rule); 16 CFR 436.11
(Franchising Rule); 16 CFR 453.8 (Funeral Industry Rule); 16 CFR
310.9 (TSR).
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B. Notice of Material Changes
In the NPRM, the Commission sought comment on whether and how
sellers should notify consumers when they make material changes to
contracts with a negative option.\507\ As discussed in the NPRM,
several commenters responding to the ANPR recommended the Commission
require sellers to send consumers notices of such changes. TINA, for
example, asserted the Commission should require such notice and provide
consumers an opportunity to cancel before the terms become
effective.\508\ Several States require similar notices.\509\ The
Commission, however, did not require notice of material changes in the
proposed Rule. As it explained at the time, whether a seller's failure
to provide such notice is unfair or deceptive is a highly fact-specific
inquiry that must be determined on a case-by-case basis. Given the
importance of the issue, however, the Commission requested further
comment.
---------------------------------------------------------------------------
\507\ NPRM, 88 FR 24730.
\508\ NPRM, 88 FR 24724.
\509\ Those States include Virginia, California, and Oregon.
NPRM, 88 FR 24724.
---------------------------------------------------------------------------
1. Summary of Comments
Five commenters responded.\510\ TINA reiterated sellers should
provide
[[Page 90516]]
consumers with notice of material changes to subscription terms.\511\
Further, it asserted the Commission's reasoning is at odds with State
laws and the Commission's longstanding position on material terms,
i.e., that they be ``clearly and conspicuously disclosed when relevant
to the marketing being presented.'' \512\ TINA further argued allowing
businesses to ``hide'' material changes to these contracts is likely to
cause injury because consumers ``do not read these contracts (let alone
monitor them for changes) and a significant minority of consumers are
not even aware they are bound by these subscription contracts.'' \513\
---------------------------------------------------------------------------
\510\ ESA, FTC-2023-0033-0867; USTelecom, FTC-2023-0033-0876;
ACA, FTC-2023-0033-0881; IAB, FTC-2023-0033-1000; and TINA, FTC-
2023-0033-1139.
\511\ TINA, FTC-2023-0033-1139.
\512\ Id.
\513\ Id.
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In contrast, ESA, USTelecom, ACA, and IAB supported the
Commission's proposal. IAB and ESA said it is ``industry practice for
subscription-based services and products to have regular price
increases over time,'' and consumers expect it.\514\ USTelecom agreed
with the Commission's rationale that ``whether such a practice is
unfair or deceptive depends heavily on the facts presented in each
case.'' \515\ ACA, a telecommunications trade association, noted the
FCC and States already have notice requirements for contract term
changes.\516\
---------------------------------------------------------------------------
\514\ IAB, FTC-2023-0033-1000; ESA, FTC-2023-0033-0867.
\515\ USTelecom, FTC-2023-0033-0876.
\516\ ACA, FTC-2023-0033-0881.
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2. Analysis
Based on the record, the Commission does not require notice of
material changes to contract conditions in the final Rule. The final
Rule requires the seller disclose important information prior to
charging the consumer. Such information includes all material terms,
including, e.g., the range of costs the consumer will be charged and
the frequency of charges that will incur unless the consumer takes
timely steps to prevent or stop them. The seller's failure to disclose
such information upfront, clearly and conspicuously, violates the Rule.
Moreover, State laws have different predicate requirements (e.g.,
less robust initial disclosures) and, importantly, are often based on
different legal authority. Additionally, the Commission's final Rule
does not conflict with its longstanding advice on clear upfront
disclosure. The final Rule requires just such disclosure, Sec. 425.4;
and the Commission has never required after sale disclosure based on
its section 5 authority.
Finally, as the Commission explained in the NPRM, whether a
seller's failure to notify a consumer of material changes is unfair or
deceptive could be heavily dependent on the particular facts and
circumstances, such as the seller's upfront marketing claims. For
example, based on a clear upfront agreement to allow periodic price
increases, consumers may understand that firms can make small price
increases over long periods of time. On the other hand, significant
unilateral changes to the terms of the agreement, such as huge prices
increases over short periods of time would probably be inconsistent
with reasonable consumer expectation, and therefore, deceptive or
unfair. Because the determination of whether a practice runs afoul of
section 5 in this context is highly fact dependent, the Commission
declines to address it at this time. Nevertheless, the Commission will
continue to monitor the need for such a requirement and will continue
to bring enforcement actions when appropriate.
C. Consumer Education
The Commission solicited comments on alternative approaches such as
additional consumer and business education, and received two comments
in response.\517\ 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 is not 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.
---------------------------------------------------------------------------
\517\ See NPRM. 88 FR 24730; NFIB, FTC-2023-0033-0789
(requesting a business education enforcement provision); Hoofnagle,
FTC-2023-0033-1137 (consumer and business education probably
uneconomical intervention).
---------------------------------------------------------------------------
D. Implementation Date
Several industry groups and one individual commenter asked the
Commission to delay the final Rule's effective date. Three commenters
sought a delay of at least 12 months or up to 18 months, citing
generalized concerns that changes can take time ``given the
complexities'' of the proposed Rule.\518\ The Chamber asked for a two-
year period ``depending on the scope and specific requirements of the
final rule.'' \519\ By contrast, consumers generally encouraged the
Commission to enact the Rule without delay.\520\
---------------------------------------------------------------------------
\518\ IAB, FTC-2023-0033-1000 (at least 12 months); ESA, FTC-
2023-0033-0867 (12-18 months); Kuehn, FTC-2023-0033-0871 (12-18
months).
\519\ Chamber, FTC-2023-0033-0885.
\520\ Individual commenter, FTC-2023-0033-0257; Individual
commenter, FTC-2023-0033-0685.
---------------------------------------------------------------------------
None of the commenters identified a precise period it would take to
comply with a specific provision or otherwise detailed what would
necessitate a particular length of time.\521\ They did, however, detail
the general actions they would need to take. For example, NCTA
explained, ``this proposal would require companies to change and update
their customer processes and user interfaces to provide the mandated
notices, obtain additional consent, and implement cancellation
mechanisms,'' as well as troubleshoot those changes in a careful way to
avoid ``glitches and issues that would affect service and frustrate and
harm consumers.'' \522\
---------------------------------------------------------------------------
\521\ ACA, FTC-2023-0033-0881; SCIC, FTC-2023-0033-0879 (noting
many States require service contract forms be filed with State
regulators for approval); ANA, FTC-2023-0033-1001; NCTA, FTC-2023-
0033-0858.
\522\ NCTA, FTC-2023-0033-0858.
---------------------------------------------------------------------------
The Commission recognizes changes to processes and disclosures
typically require some time to address and has regularly provided a
grace period for implementation of its rules.\523\ Small businesses in
particular may require time to ensure their modified processes conform
to the Rule. To address these concerns, the final Rule provides 180
days from the date the final Rule is published to come into full
compliance. However, sellers must comply with Sec. 425.3 60 days after
publication of the Rule, consistent with 5 U.S.C. 801(a)(3). This
section prohibits misrepresentations in connection with a negative
option feature. Existing law already requires sellers not to make
misrepresentations. Therefore, this provision should not impose an
added time or cost burden on businesses operating lawfully.\524\
---------------------------------------------------------------------------
\523\ E.g., 38 FR 33766 (Dec. 7, 1973) (original Negative Option
Rule, 6-month grace period); 60 FR 43842 (Aug. 23, 1995) (TSR. 4-
month grace period); 89 FR 26767 (Apr. 16, 2024) (TSR amendment,
180-day grace period); 79 FR 55615 (Sept. 17, 2014) (Merchandise
Rule amendments, 3-month grace period).
\524\ Similarly, the various procedural sections of the Rule,
e.g., Sec. 425.1 (Scope), Sec. 425.2 (Definitions); Sec. 425.7
(Relation to State Laws), Sec. 425.8 (Exemptions), and Sec. 425.9
(Severability) are also operative 60 days after publication.
---------------------------------------------------------------------------
The Commission recognizes the remainder of the final Rule may
require some businesses to implement or modify systems, software, or
procedures. As detailed in the NPRM, however, the existing legal
landscape already includes a patchwork of relevant Federal laws and
regulations in
[[Page 90517]]
addition to State laws to address sellers' negative option
practices.\525\ The Commission has also issued guidance to businesses
on the basic requirements that negative option marketers must follow to
avoid deception.\526\ Compliance with these statutes and regulations
should mean sellers have a significant head start on their compliance
efforts.
---------------------------------------------------------------------------
\525\ NPRM, 88 FR 24716-18.
\526\ See EPS, 86 FR 60822; Staff Report, https://www.ftc.gov/sites/default/files/documents/reports/negative-options-federal-tradecommission-workshop-analyzing-negative-optionmarketing-report-staff/p064202negativeoptionreport.pdf {last visited on Aug. 26,
2024{time} .
---------------------------------------------------------------------------
Moreover, the Commission has streamlined the final Rule,
significantly reducing the compliance burdens. Specifically, for
reasons detailed in section VII, above, the final Rule omits or
modifies proposed requirements that gave some commenters particular
concern. Most notably, the Commission omitted the entire annual
reminder and saves requirements. As commenters pointed out, these two
sections imposed the greatest compliance burdens on sellers.\527\ Their
removal, therefore, should substantially reduce the time and expense
needed to ensure processes comply.
---------------------------------------------------------------------------
\527\ See sections VII.B.6 (saves) and VII.B.7 (reminders).
---------------------------------------------------------------------------
Similarly, other modifications should clarify and streamline
requirements, making compliance easier. For example, the final Rule
eliminates certain recordkeeping requirements.\528\ Additionally, the
final Rule narrows the required disclosures.\529\ These changes
combined with existing law obviate the need for a lengthy grace period.
---------------------------------------------------------------------------
\528\ See Sec. 425.5(a)(4).
\529\ See Sec. 425.4.
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E. Anti-Abuse Provision
The Law Professors suggested the Commission include an ``anti-
abuse'' provision to provide a mechanism for enforcement against
sellers' attempts to evade the Rule.\530\ Such a provision would make
it an ``unfair or deceptive act or practice'' for a seller to, for
example, set up a facially complicated sign-up process to allow for a
similarly complicated cancellation process, but in practice to simplify
the sign-up process to maximize enrollment.\531\ As the Law Professors
acknowledge, such attempts to evade the Rule already violate the Rule,
and the record does not suggest a need for such an additional anti-
abuse provision.
---------------------------------------------------------------------------
\530\ Law Professors, FTC-2023-0033-0861.
\531\ Id.
---------------------------------------------------------------------------
IX. Congressional Review Act
Pursuant to the Congressional Review Act, 5 U.S.C. 801 et seq., we
anticipate the Office of Information and Regulatory Affairs will
designate the final Rule as a ``major rule,'' as defined by 5 U.S.C.
804(2).
X. Final Regulatory Analysis
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. Although
the Commission preliminarily determined the proposed amendments to the
Rule would 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, several commenters raised
concerns with the Commission's preliminary determination. Ultimately,
the presiding officer determined, after receiving additional comments
from interested stakeholders, the proposed amendments would have such
effect.\532\ In accordance with section 22, the Commission therefore
issues its final regulatory analysis below.
---------------------------------------------------------------------------
\532\ Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-2024-0001-0042.
---------------------------------------------------------------------------
A. Introduction
Under section 22 of the FTC Act, 15 U.S.C. 57b-3, the final
regulatory analysis must contain (1) a concise statement of the need
for, and objectives of, the final rule; (2) a description of any
alternatives to the final rule which were considered by the Commission;
(3) an analysis of the projected benefits, any adverse economic
effects, and any other effects of the final rule; (4) an explanation of
the reasons for the determination of the Commission that the final rule
will attain its objectives in a manner consistent with applicable law
and the reasons the particular alternative was chosen; and (5) a
summary of any significant issues raised by the comments submitted
during the public comment period in response to the preliminary
regulatory analysis, and a summary of the assessment by the Commission
of such issues.
The Commission received comments from trade associations regarding
the preliminary regulatory analysis in the NPRM, and three presented
testimony and expert reports at the informal hearing. Comments and
testimony, including reports submitted by experts, were largely
conclusory in nature.\533\ The general theme of the comments and
testimony, however, was that the compliance costs would be higher than
those estimated in the NPRM's preliminary analysis, and the Commission
herewith presents revised estimates of those compliance costs.
---------------------------------------------------------------------------
\533\ Where specific components of the Rule, as anticipated when
the NPRM was published, were discussed, commenters combined them,
such that the concerns expressed cannot readily be separated to
reflect what remains in the final Rule. For example, NCTA claims
that ``(t)he rigid `Click-to-Cancel' requirements and limits on
`saves' will harm consumers,'' but addresses these harms only in
combined and qualitative ways. FTC-2023-0073-0008.
---------------------------------------------------------------------------
B. Regulatory Analysis
1. Concise statement of the need for, and the objectives of, the
final Rule.
As discussed previously, the objective of the proposed amendments
is to curb deceptive or unfair negative option practices . The legal
basis for the proposed amendments is section 18(a)(1)(B) of the FTC
Act, which provides the Commission with authority to issue ``rules
which define with specificity acts or practices which are unfair or
deceptive acts or practices in or affecting commerce.'' \534\
---------------------------------------------------------------------------
\534\ 15 U.S.C. 57a(a)(1)(B).
---------------------------------------------------------------------------
As described in this SBP, the amendments address unfair or
deceptive negative option practices. The FTC, other Federal agencies,
and State attorneys general have brought multiple administrative and
judicial actions to stop and remedy harmful negative option practices.
The record demonstrates, however, that existing legal authorities fall
short because they leave consumers unprotected from certain practices
and constrain the relief the Commission may obtain for law violations
to redress consumers and deter future unlawful activity. In the ANPR
and NPRM, the Commission explained it receives thousands of consumer
complaints a year related to negative option marketing.
As discussed above in sections III-VII, the final Rule clarifies
existing requirements regarding negative option marketing currently
dispersed in other rules and statutes administered by the FTC and
provides a consistent legal framework across media and offers. It also
consolidates all requirements, such as those in the TSR and ROSCA,
specifically applicable to negative
[[Page 90518]]
option marketing. The final Rule also provides 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. The
final Rule now provides clear standards for sellers about, inter alia,
the content and timing of important information disclosures and what
constitute ``simple mechanisms'' for the consumer to stop recurring
charges. Further, the Rule allows the Commission to seek civil
penalties and consumer redress under section 19(a)(1) of the FTC Act in
contexts where such remedies are currently unavailable, such as
deceptive or unfair practices involving negative options in print
materials and face-to-face transactions (i.e., in media not covered by
ROSCA or the TSR).
2. A description of any alternatives to the final Rule which the
Commission considered.
In formulating the final Rule, the Commission makes every effort to
avoid imposing unduly burdensome requirements on sellers. To that end,
the Commission avoids, where possible, proposing specific, prescriptive
requirements that could stifle marketing innovation or otherwise limit
seller options in using new technologies. In the NPRM, the Commission
sought comments 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 Commission also sought comments on how it could modify
the proposed amendments to reduce costs or burdens for small entities.
In response to the comments, and as discussed in the section-by-section
analysis, the Commission determines not to finalize the proposed Rule
in its entirety. Instead, the Commission finalizes a Rule that limits
the material terms to be disclosed immediately adjacent to consent for
the negative option feature; removes the limitation on saves and the
accompanying recordkeeping requirement; removes the annual reminder
provision; and modifies the length of the recordkeeping requirement for
verification of consent to three years and provides an alternative
method of compliance.
One alternative to the final Rule would be to terminate the
rulemaking and rely instead on the existing legal framework to combat
unfair or deceptive negative option practices. Another alternative
would be to limit the scope of the final Rule to just those negative
option plans that are marketed in person or through the mail and
therefore, currently, are covered only by section 5 of the FTC Act and
not by ROSCA or the TSR. However, failing to proceed in accordance with
the final Rule would substantially reduce or eliminate the benefits of
the Rule, including clarifying the requirements currently spread
throughout statutes and regulations and covering negative options in
media not subject to the TSR or ROSCA.
Given that the Commission expects the unquantified benefits and
unquantified costs of the final Rule to be small, and that there is
considerable scope for the net benefits to remain positive and large
even if compliance costs have been substantially underestimated, this
regulatory analysis indicates that adoption of the Rule will result in
benefits to the public that outweigh the costs.
3. An analysis of the projected benefits and any adverse economic
effects and any other effects of the final Rule.
(a) Summary of Benefits and Costs
The primary consumer benefits of the final Rule, relative to the
existing regulatory baseline,\535\ come in the form of faster
cancellations when consumers wish to cancel subscriptions.\536\
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\535\ As explained in section III of the SBP, several other
statutes and regulations address harmful negative option practices.
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. ROSCA,
the TSR, 1the Unordered Merchandise Statute, and EFTA all address
various aspects of negative option marketing.
\536\ The final Rule also requires that specific disclosures
relating to negative option features be provided separately to
consumers before consent is obtained, whereas the existing
regulatory framework requires that all material terms of a negative
option contract be disclosed in a clear and conspicuous manner. The
new disclosure requirements will aid consumers in understanding both
that they are entering a negative option contract and the terms and
conditions of that contract, especially how they can cancel the
contract and when such cancellation must occur to avoid future
charges. No consumer testing of the final Rule's disclosure
requirements, relative to a ``control'' of ``clear and conspicuous''
disclosure requirements under the existing regulatory baseline, has
been done. Accordingly, it is not possible to quantify any
incremental consumer comprehension of a negative option plan at the
time a consumer provides consent to that plan that may result from
the final Rule's disclosure requirements. Moreover, some academic
studies claim that ``[n]ot only do consumers have a tendency to
forget, but also a tendency to forget that they forget,'' suggesting
that any gain in comprehension of the negative option features of an
agreement that might be measured under consumer testing might not be
durable. See Sophia Wang, ``One Size Does Not Fit All: The
Shortcomings of Current Negative Option Legislation,'' 26 Cornell J.
of L. & Pub. Policy, 197, 212 n.135 (2016) citing Keith M. Marzilli
Ericson, ``Forgetting We Forget: Overconfidence and Memory,'' 9 J.
Eur. Econ. Assoc. 43 (2011). Additionally, if the disclosures
required by the final Rule come to be viewed as ``boilerplate''
language that consumers rush through, or consumers consider those
disclosures to be less salient than other aspects of the
transaction, such as acquiring a free trial of a product or service,
the final Rule's disclosures may not offer any incremental benefit
over existing ``clear and conspicuous'' because ``people have
limited attentional resources and will overlook non-salient features
of any transaction.'' See Tess Wilkinson-Ryan, ``A Psychological
Account of Consent to Fine Print,'' 99 Iowa L. Rev. 1745 (2014).
Concerns such as these are consistent with some consumer advocacy
groups seeking amendments that would require a second round of
consent to be obtained at the end of a free trial and before any
recurring charges could be initiated in addition to routine
reminders of recurring charges. See, e.g., TINA, FTC-2019-0082-0014
(seeking amendments to require notice and re-affirmance of consumer
consent, prior to being charged because consumers may forget about
the trial and incur unwanted charges or enrollments at the end of
the offer, particularly with long trial periods).
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The final Rule requires negative option sellers to provide
cancellation mechanisms that are at least as easy to use as the
mechanisms by which consumers consent to negative option plans. For
negative option sales made online or over the telephone, ``at least as
easy to use'' requires that the cancellation mechanism operate in the
same medium and take no more time or effort than the consumer used when
enrolling in the negative option plan. For negative option sales that
are made in-person or through the mail, the final Rule requires that,
in addition to offering cancellation through the specific method used
for enrollment, the seller must also offer at least one alternate
cancellation mechanism that can be used remotely, e.g., cancellation
via a website, email, or a toll-free telephone number and, again, that
the consumer can cancel the negative option contract at least as
quickly as he or she completed enrollment in the negative option plan.
In the following analysis, the Commission describes the anticipated
effects of the final Rule. Where possible, it quantifies the benefits
and costs. If a benefit or cost is quantified, it indicates the sources
of the data relied upon. If an assumption is needed, the text makes
clear which quantities are being assumed. The Commission measures the
benefits and costs of the Rule against the existing regulatory baseline
that consists primarily of ROSCA, the TSR, and section 5
enforcement.\537\
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\537\ The Unordered Merchandise Statute and EFTA also address
various aspects of negative option marketing, but violations of
those laws in relation to negative option marketing are typically
pleaded in conjunction with violations of other laws; without loss
of generality, the regulatory analysis expressly considers only
ROSCA, the TSR, and section 5 as the regulatory baseline against
which incremental benefits and costs from the final Rule are
measured.
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[[Page 90519]]
First, the likely per-cancellation benefits of the final Rule in
relation to four scenarios under the existing regulatory baseline are
considered. Next, the number of transactions relevant to each scenario
are estimated. The product of average benefits-per-cancellation in each
scenario multiplied by the likely number of consumer cancellation
transactions for each scenario, summed across all scenarios, provides
an estimate of the aggregate, quantifiable, consumer benefits produced
by marketers' compliance with the final Rule's cancellation
requirements. Quantifiable costs primarily reflect the resources spent
by businesses to review the Rule and to take any preemptive or remedial
steps to comply with its provisions, including, when and as needed,
making changes to the manner they receive and process cancellation
requests from consumers.
The Commission estimates the present discounted value of quantified
benefits over ten years, using a 2 percent discount rate, will range
between $6.1 and $49.3 billion. Annualized over 10 years, the
Commission estimates the quantified benefits will range between $682.8
million and $5.5 billion per year. The Commission estimates the present
discounted value of quantified costs over ten years, using a 2 percent
discount rate, will range between $100.9 and $826.2 million. Annualized
over ten years, the Commission estimates the quantified costs will
range between $11.2 and $92.0 million per year. These estimates are
presented in Table 1 below.
Table 1--Summary of Total Quantified Benefits and Costs
[In millions, 2023 dollars]
------------------------------------------------------------------------
Low High
------------------------------------------------------------------------
Present Discounted Value over 10 years, 2% discount rate
------------------------------------------------------------------------
Benefits................................ $6,133.57 $49,315.39
Costs................................... 100.89 826.15
-------------------------------
Net Benefits........................ 5,307.43 49,214.50
------------------------------------------------------------------------
Annualized over 10 years, 2% discount rate
------------------------------------------------------------------------
Benefits................................ 682.83 5,490.11
Costs................................... 11.23 91.97
-------------------------------
Net Benefits........................ 590.86 5,478.88
------------------------------------------------------------------------
(b) Benefits of the Final Rule
This section describes the beneficial impacts of the Rule, provides
quantitative estimates where possible, and describes benefits that are
only assessed qualitatively.
The quantifiable estimates reflect benefits stemming from the
decreased amount of time and effort consumers will need to expend
cancelling subscriptions, and in contexts where data are available,
welfare gains from avoided expenditure for unwanted subscriptions,
under the final Rule relative to marketers' compliance with the
existing regulatory baseline. This section first estimates per-consumer
savings from cancellation mechanisms that would become at least as easy
to use as the mechanisms through which consent to the negative option
transactions was given and then estimates the number of cancellation
transactions to which those benefits apply.
In addition to these quantified benefits, there are several
benefits we do not quantify. First, marketers' compliance with the
final Rule is likely to improve consumer confidence in using
subscriptions \538\ and increase the number of consumers who are
willing to subscribe and obtain the convenience, and often cost
savings, that subscriptions can provide. Second, research in economics
and psychology finds the perceived monetary and psychological costs
from switching products or services can lead consumers to make sub-
optimal decisions. The final Rule, by reducing these costs through
simpler cancellation methods, may improve consumer decision-making by
reducing enrollments in subscriptions that consumers do not value and
increasing enrollments in subscriptions that they do value.\539\
Marketers' compliance with the final Rule, and the consumer confidence
that compliance inspires, may also ``exert additional competitive
pressures on businesses who offer subscription contracts (and) could
increase productivity in the sector.'' \540\
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\538\ One survey found that consumers without subscriptions were
much more pessimistic about the ability to cancel subscriptions than
were consumers who had subscriptions. See Jabil, ``Connected
Packaging Perceptions and Attitudes: A Consumer Insights Survey''
(July 2021), https://www.jabil.com/dam/jcr:ecdb74e6-c34f-4c30-aa34-c10269617db6/2021-connected-packaging-survey.pdf#page=3. Another
recent study finds that consumers are aware that they may be
inattentive in future and not cancel subscriptions that they no
longer desire, and so are less likely to sign up for negative-option
subscriptions. See Klaus Miller, et al., ``Sophisticated Consumers
with Inertia: Long-Term Implications from a Large-Scale Field
Experiment'' (2023), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4065098.
\539\ A large literature in economics has documented that
consumers face switching costs and/or psychological biases towards
inertia. See, e.g., Brigitte Madrian & Dennis Shea, ``The Power of
Suggestion: Inertia in 401(k) Participation and Savings Behavior,''
116 Quarterly J. of Econ. 1149 (2001); William Samuelson and Richard
Zeckhauser, ``Status Quo Bias in Decision Making,'' 1 J. of Risk &
Uncertainty 7 (1988). Research has found that many consumers do not
cancel subscriptions due to such inertia effects. See, e.g., Miller,
et al. (2023); Liran Einav, et al., ``Selling Subscriptions''
(2023), https://harris.uchicago.edu/sites/default/files/mahoney_ppe_seminar_paper_9-26-23_0.pdf.
\540\ See U.K. Department for Business and Trade, ``Impact
Assessment--Digital Markets, Competition and Consumers Bill:
Subscription Measures,'' at 3 (Apr. 20, 2023), https://publications.parliament.uk/pa/bills/cbill/58-03/0294/ImpactAssessmentAnnex2.pdf.
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Compliance with the final Rule may also result in some allocative
effects when consumers can cancel online instead of by telephone. In
such cases, consumers will be able to cancel subscriptions at times of
the day that may be more convenient to them than the hours that
subscription sellers staff their telephone lines and from devices that
they find more convenient to use than telephones.\541\
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\541\ In some instances, an online cancellation completed at,
say, 11:59 p.m., compared to a counterfactual in which a call center
closed at, say, 8 p.m., could result in sparing a consumer from a
recurring charge that would take effect the next day, and such
instances would result in actual monetary savings to consumers, but
we are unable to estimate the frequency of such occurrences or the
monetary savings they would engender.
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[[Page 90520]]
Finally, the Commission's estimates of quantified benefits are
based on reductions in time and effort from cancelling subscriptions to
non-business consumers. The Commission expects small businesses may
also benefit in similar ways from less costly cancellations, but it
does not quantify such benefits due to lack of data on business
cancellation transactions.
The following subsections then estimate the quantified benefits
from reductions in time and effort from cancelling subscriptions.
First, in subsection (1), the Commission estimates the per-cancellation
benefit relative to the regulatory baseline for (i) online cancellation
when only ROSCA-compliant telephonic cancellation was available, (ii)
simpler online cancellation when only ROSCA-compliant online
cancellation was available, (iii) simpler telephone cancellation when
only TSR-compliant cancellation was available, and (iv) online or
telephone cancellation when only in-person or mail cancellation was
available. The Commission then estimates the number of cancellation
transactions in subsection (2), and finally calculates benefits as the
per-cancellation benefit in each scenario multiplied by the number of
affected transactions in subsection (3).
(1) Estimating Per-Cancellation Benefits
For each of the four scenarios below, the Commission estimates a
range of benefits that a consumer will gain each time they cancel a
negative option subscription. In these scenarios, the Commission
assumes a final Rule-compliant online cancellation should take no more
than 30 seconds to one minute, based on the Commission's experience
that the average time for consumers to read required disclosures and
provide consent to a negative option plan online is 30 seconds to one
minute. For telephone cancellations under the final Rule, the
Commission assumes that a rule-compliant cancellation should take no
more than one to two minutes, based on the assumption it takes a
telemarketer twice as long to read required disclosures to a consumer
as it would take a consumer to read such disclosures to his or herself
online.
(a) Estimated Per-Cancellation Benefit Relative to ROSCA-Compliant
Telephonic Cancellation
For consumers enrolling in negative option plans online, the
existing regulatory baseline, ROSCA, requires marketers to provide
``simple'' cancellation mechanisms. A facially ROSCA-compliant,
``simple'' telephonic cancellation may, nonetheless, require more time
and effort from consumers than was expended when enrolling in the
negative option plan. Online subscription sellers' compliance with the
final Rule will save consumers that extra measure of time and effort.
To estimate the average time savings to consumers of a final Rule-
compliant ``click-to-cancel'' mechanism compared to a ROSCA-compliant
simple telephonic cancellation, this analysis first assumes that ROSCA-
compliant simple telephonic cancellations take no more time than the
``average handle time'' for all customer service requests made to call
centers, which an industry source indicates is six minutes and three
seconds.\542\ As discussed at the beginning of this subsection, the
Commission assumes a final Rule-compliant cancellation should take no
more than 30 seconds to one minute, saving consumers between five
minutes and three seconds and five minutes and 33 seconds per
cancellation relative to a simple telephonic cancellation.
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\542\ See Michelle Hawley and Shane O'Neill, ``21 Important Call
Center Statistics to Know About,'' (Apr. 3, 2024), https://www.cmswire.com/contact-center/16-important-call-center-statistics-to-know-about. We use this proxy for the time a ROSCA-compliant
telephonic cancellation takes only for the express purpose of
estimating the incremental benefits to consumers of a final Rule-
compliant cancellation replacing a ROSCA-compliant telephonic
cancellation. ``Average handle time'' has not been used as a
standard for ROSCA enforcement and is not intended to set a standard
here.
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The Commission then assumes consumers, on average, value their non-
work time at 82% of the mean hourly wage of $31.48, or $25.81 (i.e.,
.82 x $31.48) per hour.\543\ Accordingly, the Commission estimates the
faster online cancellations the final Rule will provide, relative to
ROSCA-compliant telephonic cancellations, will be valued at between
$2.17 (i.e., 5:03 minutes x $25.81/hour) and $2.39 (i.e., 5:33 minutes
x $25.81/hour).
---------------------------------------------------------------------------
\543\ The Commission uses a mean hourly wage rate of $31.48; see
Bureau of Labor Statistics, ``May 2023 National Occupational and
Wage Estimates, Unites States,'' https://www.bls.gov/oes/current/oes_nat.htm. A meta-analysis of studies on how consumers value time
used in traveling (an area in which ``a huge literature has
arisen'') has determined that consumers value time used in that
matter at 82% of their wage rate. See Daniel S. Hamermesh, ``What's
to Know About Time Use?,'' 30 J. Econ. Surv. 1, 198-203 (2015). The
Commission assumes for the purpose of the final Rule consumers value
transaction costs savings in the same way that they value travel
time.
---------------------------------------------------------------------------
(b) Estimated Per-Cancellation Benefit Relative to ROSCA-Compliant
Online Cancellation
For online cancellations of online-entered subscriptions, the
Commission lacks a source of average cancellation times presumed to be
ROSCA-compliant that is as comprehensive as that used for the average
handle times of call centers. The Commission relies, instead, on an
experiment that involved signing up for 16 online subscriptions between
August 2 to October 4, 2022, then canceling each one, and recording the
time it took to cancel, as well as the variety of other obstacles faced
in canceling.\544\ To estimate the average time for online
cancellations, the Commission subtracts the time incurred in canceling
the three subscriptions that required telephonic cancellation from the
aggregate time reported to cancel all 16 subscriptions. This yields an
average of two minutes and 4 seconds per online cancellation.\545\
---------------------------------------------------------------------------
\544\ See Caroline Sinders, ``How Companies Make It Difficult to
Unsubscribe,'' https://pudding.cool/2023/05/dark-patterns. Among the
obstacles noted for otherwise seemingly simple online cancellations
were that some websites did not use straight forward terms, such as
``unsubscribe'' or ``cancel,'' and instead put the cancellation path
under titles such as ``auto-renew'' or ``edit plan.''
\545\ The researcher reported the aggregate time expended to
cancel all 16 subscriptions was 57 minutes and 31 seconds. Of the
three subscriptions that required telephonic cancellations, one call
took 17 minutes and 36 seconds, one took seven minutes, and the time
to cancel the third one was not reported (apart from explaining that
it was necessary to call three times due to the seller's ``technical
difficulties''). The Commission replaces this missing value with the
average handle time found by Hawley/O'Neill (2024) of six minutes
and three seconds. The Commission therefore subtracted 30 minutes
and 39 seconds from the aggregate cancellation time of 57 minutes
and 31 seconds; measured in seconds, this becomes 3,451-1,839 =
1,612. Dividing this result by 13 equals 124 seconds, or two minutes
and 4 seconds. The Commission notes this average cancellation time,
though relevant for this regulatory analysis, has not been used as a
standard for ROSCA enforcement and is not intended to set a standard
here. Moreover, while we have calculated this average, the study
notes cancellation took under one minute for three large sellers of
digital entertainment subscriptions. Last, the Commission notes one
commenter opined, ``(f)or the most part,'' companies offer
convenient, no-hassle, cancellation options that probably take about
five clicks on average, though the commenter did not indicate a time
duration. See Individual commenter, FTC-2023-0033-0780.
---------------------------------------------------------------------------
Based on the Commission staff's experience, the average time needed
to read the required disclosures and provide consent to a negative
option feature is 30 seconds to one minute. An online cancellation that
took no longer than the provision of online consent would therefore
save the consumer between one minute and four seconds and one minute
and 34 seconds. Valuing consumers' time at $25.81 per
[[Page 90521]]
hour, as assumed above, the final Rule would therefore save consumers
who enroll online and cancel online time that they value at between
$0.46 (i.e., 1:04 seconds x $25.81/hour) and $0.67 (i.e., 1:34 minutes
x $25.81/hour).
(c) Average Per-Cancellation Benefit Relative to TSR-Compliant
Cancellation
For consumers enrolling in negative option plans via telemarketing,
the existing regulatory baseline is the TSR. The TSR does not specify a
performance standard specific to negative option cancellations.
Although egregious cancellation delays can be pleaded against
telemarketers under Sec. 310.3(a)(1)(vii) (requiring disclosure of all
material terms and conditions of the negative option feature) or Sec.
310.3(a)(2)(ix) (prohibiting misrepresentation directly or by
implication of any material aspect of a negative option feature), the
final Rule's requirement that the cancellation mechanism be at least as
easy to use as the consent mechanism provides cancellation-specificity
to negative options sold through telemarketing that is lacking under
the existing regulatory baseline. Because telemarketers have
substantial discretion in designing and implementing consent processes
specific to their programs, telemarketers will have a clear benchmark
for the speed with which they must complete a final Rule-compliant
cancellation.
As described at the beginning of this subsection, the Commission
assumes it takes telemarketers between one and two minutes to read the
required disclosures to consumers and receive their consent for
enrollment in a negative option plan. Using the same average handle
time measure of six minutes and three seconds used a previous scenario
to proxy for baseline time spent for a telephonic cancellation, the
Commission assumes the final Rule will save consumers who consent to a
negative option sale via telemarketing, and cancel in the same manner,
between four minutes and three seconds and five minutes and three
seconds. Evaluating that time saving in the same manner as above,
compliance with the final Rule results in a per-cancellation time
saving that is worth between $1.74 (i.e., 4:03 minutes x $25.81/hour)
and $2.17 (i.e., 5:03 minutes x $25.81/hour).
(d) Estimated Per-Cancellation Benefit Related to In-Person Enrollments
Some sellers market negative option plans in ways that are not
covered by ROSCA or the TSR. Those that involve in-person enrollment
and only offer in-person or mail cancellation, in particular, may be
highly burdensome to consumers. The final Rule requires sellers who
offer in-person enrollment to offer at least one alternate cancellation
method that consumers may use remotely, e.g., online \546\ or via
telephone.
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\546\ At the seller's choice, an online cancellation method may
be through a website or via email.
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Providing consumers with an alternative to in-person cancellations
will give consumers a faster route to cancel a subscription and may
also spare some consumers from incurring additional recurring charges
which might accrue during the pendency of a slow cancellation
mechanism, enabling consumers to reallocate their spending power in
directions of greater utility, resulting in allocative efficiencies.
Unlike negative option transactions entered into online (ROSCA) or
by telephone (TSR), the Commission lacks comprehensive experience with
negative option plans that require cancellation in person or through
the mail. However, because many gym/fitness center/health studio
memberships (hereafter, ``gym memberships'') are sold via negative
options \547\ and may require cancellation via certified mail or in
person (sometimes even when consumers can enroll online \548\), the
Commission proxies the per-cancellation benefits of an additional,
remote, method of cancellation by looking at those benefits in the
context of gym memberships.\549\
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\547\ IHRSA, The Global Health & Fitness Association, commenting
on behalf of itself and the industry (see FTC-2023-0033-0863)
claimed there were clear distinctions between in-person, brick and-
mortar health and fitness businesses and online subscription
services, explaining a month-to-month contract is a very different
risk to consumers than a long-term contract that begins after a free
trial or auto-renews without notice. IHRSA further claims short-term
(e.g., month-to-month) continuous service agreements should be
distinguished from purely online subscription services targeted by
the rule. IHRSA further (mis-) characterizes the Rule as appearing
to be concerned with paid contracts that initiate automatically
after a free trial period or auto-renew without notice after a long,
pre-paid initial term. IHRSA notes consumers with membership
agreements with firms in its industry are on notice of the recurring
cost because of the monthly charge and have the option to cancel
each month under the terms of their contract. The Commission
disagrees with IHRSA's characterization of the Rule; the Rule is not
intended to exclusively, or even primarily, address online
subscription services or long-term contracts that begin after a free
trial or auto-renew without notice, but to address all recurring
charge plans where the consumer's silence or failure to cancel is
interpreted as consent to recurring charges. Accordingly, consumer
memberships with firms in IHRSA's industry where consumers have the
option to cancel each month squarely fit within the Rule's coverage
of negative option plans.
\548\ Individual commenter, FTC-2023-0033-0233.
\549\ The International Carwash Association (``ICA''), however,
commented many of its 60,000 U.S. members offer carwash
subscriptions that offer a reduced price for carwashes to
subscribers and strengthen the relationship with customers and
reduce dependence on cash transactions for these businesses. See
FTC-2023-0033-1142. These subscriptions may be purchased in person,
on the world wide web, via a mobile app, or at an automated teller,
which indicates at least some of those subscriptions are covered by
ROSCA. ICA asserts cancellation through a means other than in person
may be burdensome to the generally small businesses that operate
carwashes. Id. Although commenter Rocket Money, FTC-2023-0033-0998,
mentioned ``car wash chains that require consumers to visit a
specific location to cancel their membership as an example of
draconian cancellation requirements they experienced working with
consumers, no individual consumer commenter mentioned difficulties
with carwash subscriptions. Because no consumer commenter provided
any other indication of the number of carwash subscriptions
purchased or the costs of cancelling such subscriptions, even
anecdotally, they are excluded from the analysis. The estimate of
the consumer benefits that would flow from the final Rule's
provision that an extra, remote, cancellation mechanism be required
of marketers who currently offer only in person or mail cancellation
mechanisms may therefore be an under-estimate of such benefits.
---------------------------------------------------------------------------
As noted in the comment submitted by comment filed by IHRSA,\550\
The Global Health & Fitness Association, ``many (fitness club)
operations allow several options for agreement termination through
simple online solutions including online account management, email
cancellation requests, and specific online cancellation buttons or
forms'' and ``[m]any of these options are currently available for
members who have purchased their membership either online or in
person.'' IHRSA did not quantify the share of their member
organizations that provide such cancellation opportunities or the
number or share of consumer cancellation transactions in which online
cancellation is available. Accordingly, the Commission assumes the low-
end of the range of quantifiable benefits to consumers who purchased
negative option plans in person, but could currently cancel online is
the same as the same the low-end of the range for consumers who
purchased negative option plans online and had access to online
cancellations: $0.46 per cancellation.
---------------------------------------------------------------------------
\550\ FTC-2023-0033-0863.
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Notwithstanding IHRSA's assertion that many fitness clubs offer
online cancellation, at least 25 individual consumers submitted
comments attesting to the difficulties of canceling gym memberships.
Some wrote in general terms of the difficulties consumers experience in
canceling such memberships as something that contributed to their
support for the Rule.
[[Page 90522]]
``What seems more troublesome tend to be stuff like gym
memberships.'' \551\
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\551\ Individual commenter, FTC-2023-0033-0780.
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``I work dispute resolutions for a bank. I see so many
cases where someone is trying to cancel something like a gym membership
and, while they can sign up in person, they for some reason have to
mail a certified letter to the companies (sic) home office.'' \552\
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\552\ Individual commenter, FTC-2023-0033-0007.
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``I have experienced so much frustration ending
memberships with gyms, online subscriptions, etc. over many years and
welcome help in this matter. So many friends I speak to share similar
stories of how they were roped into paying for longer memberships and
subscriptions that they no longer wanted.'' \553\
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\553\ Individual commenter, FTC-2023-0033-1046.
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``Many places, like [specific fitness center chain],
require you to go in person to cancel--they won't even let you do it
over the phone! This harms anyone that may have trouble leaving the
house regularly, including disabled folks and parents of small children
and those caring for older or ailing family members, not to mention
being horribly inconvenient for everyone else.'' \554\
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\554\ Individual commenter, FTC-2023-0033-0741.
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Many others conveyed personal experiences with burdensome gym
membership cancellation. The Commission relies upon these comments to
estimate the high-end of the range of quantifiable benefits that the
final Rule will provide to consumers who purchase negative option plans
in-person. Examples of these include:
``I had to write a letter and physically mail it to cancel
a gym membership I singed [sic] up for on an iPad.'' \555\
---------------------------------------------------------------------------
\555\ Individual commenter, FTC-2023-0033-0233.
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``Recently it took me three days and several hours to
cancel a gym membership (that) had taken less than 20 minutes to join,
on line [sic].'' \556\
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\556\ Individual commenter, FTC-2023-0033-1076.
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``I had to go in person 3 different times because the
manager wasn't there so [sic] to cancel it.'' This consumer attached a
screen shot of the gym's cancellation policy, which read, in part,
``There is no contract and you are free to cancel your Direct Debit at
any time. If you do decide to cancel your membership, you must allow at
least 7 days before the fifth of the month to ensure your payment is
cancelled and advise Reception of the cancellation.'' Both ``(a)t least
7 days before the fifth of the month,'' and the failure to specify
whether ``7 days'' is seven business days or seven calendar days
introduce considerable uncertainty as to when, precisely, the consumer
must tender a cancellation to avoid the next recurring payment.\557\
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\557\ Individual commenter, FTC-2023-0033-0510.
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``Years ago, I had signed up for a gym membership, and
after a change in job situation, was no longer able to make use of it.
Repeated attempts to reach the gym membership department and cancel my
membership went unheeded--a [sic] got a classic runaround, and as often
forwarded to unattended phone numbers--and I kept racking up monthly
bills for a membership I didn't want . . . . It was only through a
personal relationship with someone who worked in the corporate office
that I was finally able to get past their automatic renewals and effect
a cancellation.'' \558\
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\558\ Individual commenter, FTC-2023-0033-0968.
---------------------------------------------------------------------------
``We wanted to cancel the [gym] membership, but when we
called and emailed, we were told we couldn't cancel that way. We had to
send a certified letter or go in person. We have gone in person twice
to try to cancel or [sic] membership and it has been a nightmare.''
\559\
---------------------------------------------------------------------------
\559\ Individual commenter, FTC-2023-0033-0387.
---------------------------------------------------------------------------
``Personally, I have been impacted by my local gym's
undisclosed policies and shady cancelation policies that have costed me
hundreds of dollars.'' \560\
---------------------------------------------------------------------------
\560\ Individual commenter, FTC-2023-0033-0572.
---------------------------------------------------------------------------
``They bill you monthly for your gym membership but when
you want to cancel your membership that's when the problems arise. You
cannot do it over phone or on their website. You have to go into the
gym personally to cancel said membership. Not only that I was told that
I'd have to go to the gym [home gym] where I signed up in order to
cancel membership. I could only imagine what this would be like had I
moved out of the state. Please help us stop these practices.'' \561\
---------------------------------------------------------------------------
\561\ Individual commenter, FTC-2023-0033-0299.
---------------------------------------------------------------------------
``I am currently trying to cancel a gym membership and
have been overwhelmed by how difficult it has been . . . . I just
called my gym . . . and the pre-recorded automated answering message
literally says there is no direct line to the gym! That's
outrageous!!!'' \562\
---------------------------------------------------------------------------
\562\ Individual commenter, FTC-2023-0033-1163.
---------------------------------------------------------------------------
``My personal experience is with my gym membership . . . .
Getting out of it was terrible, and I'd hate to see it happen to anyone
else.'' \563\
---------------------------------------------------------------------------
\563\ Individual commenter, FTC-2023-0033-0545.
---------------------------------------------------------------------------
Based on these comments, the Commission makes the simplifying
assumption that the worst gym membership cancellation experiences
involve three failed attempts at cancellation, each costing one hour of
time, and that, because of those cancellation failures, three unwanted
monthly charges were processed. The Commission assumes a fourth
cancellation attempt, also costing one hour of time, succeeds in
halting the recurring payments.
As above, the Commission values consumers' time at $25.81/hour. The
typical gym membership costs between $40 and $70 a month.\564\ The
Commission therefore assumes, at the high-end, consumers incur gym
membership cancellation costs of $313.25 (i.e., (4 x $25.81) + (3 x
$70)) in the absence of this Rule.\565\ As stated previously, the
Commission assumes a final Rule-compliant cancellation should take no
more one minute at the high end, which has a value of consumers' non-
market time of $0.43. Then, to estimate the high-end avoided burden
that such consumers would experience under the final Rule, the
Commission takes the difference between the high-end cancellation costs
in the absence of this Rule ($313.25) and the high-end final Rule-
compliant cancellation costs ($0.43), which equates to $312.82.
Accordingly, the low-to-high range of benefits provided by the final
Rule to consumers who purchase negative option plans in person or
through the mail ranges from $0.46 to $312.78.\566\
---------------------------------------------------------------------------
\564\ See Dana George, ``This Is How Much the Average American
Really Spends on Gym Memberships,'' Jan. 7, 2024, https://www.fool.com/the-ascent/personal-finance/articles/this-is-how-much-the-average-american-really-spends-on-gym-memberships. Because this
report is from January 2024, the Commission assumes it measured gym
membership costs in 2023 dollars.
\565\ Note the avoided recurring payments associated with
delayed cancellations may overstate the amount of consumer surplus
gained attributable to the final Rule if consumers continue to use
their gym membership during that period of delayed cancellation.
However, it is difficult to estimate the extent to which that occurs
due to lack of data. A part of those gains may also be transfers of
producer surplus from firms to consumers.
\566\ Other cancellation methods gyms may currently offer, such
as in-person visits that succeed in cancellation and cancellation
via certified mail, would fall in between these low/high endpoints,
as would the benefits to consumers if those methods were augmented
under the final Rule not with online cancellations but with
telephonic cancellations.
---------------------------------------------------------------------------
(e) Summary of Per-Cancellation Benefits
Table 2 presents a summary of the per-cancellation benefit the
Commission estimates would result from this final Rule. For
subscriptions that are currently cancelled over the phone but would be
cancelled online under this final Rule, the Commission estimates
[[Page 90523]]
consumers would experience a benefit of between $2.17 and $2.39 per
cancellation. For subscriptions that are currently cancelled online and
would move to a simpler online cancellation under this Rule, the
Commission estimates consumers would experience a benefit of between
$0.46 and $0.67 per cancellation. For subscriptions that are currently
cancelled over the phone and would move to a simpler telephone
cancellation under this Rule, the Commission estimates consumers would
experience a benefit of between $1.74 and $2.17 per cancellation. For
subscriptions enrolled in person that would be required to provide
online or telephone cancellation under this Rule, the Commission
estimates consumers would experience a benefit of between $0.46 and
$312.82 per cancellation.
Table 2--Estimates of Benefit per Cancellation
[In 2023 dollars]
------------------------------------------------------------------------
Low High
------------------------------------------------------------------------
Phone to Online Cancellation............ $2.17 $2.39
Online to Simpler Online Cancellation... 0.46 0.67
Phone to Simpler Phone Cancellation..... 1.74 2.17
In-Person to Online or Phone 0.46 312.82
Cancellation...........................
------------------------------------------------------------------------
(2) Estimating the Number of Consumer Cancellation Transactions
(a) Baseline Number of Subscriptions
The Commission regards ``consumers'' for the purposes of this
analysis as the U.S. population over the age of 18; \567\ this is
estimated to be 269 million in 2025,\568\ the first year in the ten-
year period over which the Commission estimates the benefits and costs
of the final Rule (``Year 1'').
---------------------------------------------------------------------------
\567\ Although this final Rule also benefits small businesses
that purchase negative option plans, the Commission does not have
sufficient data to quantify those effects in this analysis.
\568\ See U.S. Census, ``Demographic Turning Points for the
United States: Population Projections for 2020 to 2060: Population
Estimates and Projections,'' Feb. 2020, https://www.census.gov/library/publications/2020/demo/p25-1144.html. The Commission
linearly extrapolated between the report's figures for the
population over the age of 18 in 2020 and its estimates of the same
population in 2030 to estimate the number of consumers in years 2025
through 2029. Similarly, the Commission linearly extrapolated
between the report's estimates of the over age 18 population in 2030
and 2040 to estimate the over age 18 population in the years 2031
through 2034.
---------------------------------------------------------------------------
Because negative option sales are a form of marketing of goods and
services, and not an industry or type of output, and because no
occupational category is uniquely associated with negative option
marketing, no publicly produced data source, such as the Economic
Census, tracks the use of negative option marketing in the United
States. Accordingly, the Commission must look to other data sources, to
estimate the number of subscription cancellations and the channels
through which consumer consent was obtained and cancellation mechanisms
provided.
To estimate the aggregate number of consumer cancellation
transactions, the Commission relies upon a credible source that found
that, as of mid-2023, 83% of American consumers had at least one
subscription.\569\ The Commission assumes, for the purposes of this
analysis, that the percentage of American consumers with at least one
subscription remains constant over ten years. Accordingly, in Year 1
the Commission assumes 223.27 million consumers (i.e., .83 x 269
million) have at least one subscription.
---------------------------------------------------------------------------
\569\ See Julia Stoll, ``SVOD service user shares in the U.S.
2015-2023'' (Sept. 7, 2023) (noting 83 percent of U.S. consumers
used a subscription video-on-demand service in 2023), https://www.statista.com/statistics/318778/subscription-based-video-streaming-services-usage-usa.
---------------------------------------------------------------------------
To estimate the total number of subscriptions held by U.S.
consumers the Commission looks to data on the average number of
subscriptions per subscriber. One source, relying upon a large sample
of U.S. consumers conducted in late 2023 and early 2024, reported,
``[t]he average subscriber now has 4.5 subscriptions.'' \570\ The
Commission therefore applies a multiplier of 4.5 to the number of
consumers estimated to have at least one subscription to estimate the
aggregate number of subscriptions held by consumers in each year.
Continuing with the Year 1 example from above, the Commission assumes
the 223.27 million U.S. consumers who have subscriptions collectively
hold 1,004,715 subscriptions (i.e., 223.27 million x 4.5). The
Commission acknowledges some uncertainty in these estimates which could
lead to overestimation since subscriptions may be held by households of
multiple individual consumers or underestimation due to potential
growth in subscription-based goods and services.
---------------------------------------------------------------------------
\570\ Bango, ``Subscription Wars: Super Bundling Awakens,'' at 4
(2024) (based on data from 5,000 U.S. subscribers), https://bango.com/resources/subscription-wars-super-bundling-awakens.
---------------------------------------------------------------------------
(b) Baseline Number of Cancellations
The Commission next considers how many subscriptions consumers may
want to cancel. To do so, we look to subscription ``churn,'' or
cancellation, rate data. Churn rates can reflect intentional
cancellations as when a consumer completes a merchant's cancellation
process, but can also reflect involuntary or passive cancellations,
which occur when the payment mechanism the consumer has on file with
the merchant is unable to be processed by the merchant.\571\ Churn
rates may be calculated on a monthly, quarterly, or annual basis,\572\
and some rates do not disclose a time dimension; mischaracterizing a
monthly churn rate as an annual churn rate could vastly underestimate
the volume of annual cancellations.
---------------------------------------------------------------------------
\571\ See Stripe, ``Subscription churn 101: A complete guide for
businesses'' (Jan. 23, 2024), https://stripe.com/resources/more/subscription-churn-101.
\572\ Id. (noting the choice often depends on your business
cycle and how often you want to assess your performance).
---------------------------------------------------------------------------
One source reports an aggregate measure of voluntary \573\ churn of
3% per month.\574\ The Commission assumes
[[Page 90524]]
this rate is constant from month to month and from year to year and
therefore assume that the average annual churn rate across all
subscriptions is 36%.\575\ This churn rate, multiplied by the number of
subscriptions held by consumers each year, provides the yearly estimate
of how many subscriptions are cancelled by consumers.\576\ Continuing
with the Year 1 example from above, the Commission therefore estimates
361.70 million cancellations (i.e.,.36 x 1,004.72 million) will occur
in Year 1 of the analysis and that this number will increase to 384.82
million by Year 10. Table 3 presents the number of subscriptions and
total number of cancellations expected in each year.
---------------------------------------------------------------------------
\573\ Some consumers may welcome an ``involuntary'' cancellation
of a subscription, and other cancellations that payment processors
perceive as ``involuntary'' may reflect consumers' deliberate
cancellation of a credit card as a means of escaping a subscription
that was difficult to cancel. The Commission's analysis nonetheless
uses only the reported ``voluntary'' churn rate to avoid the
possibility of over-estimating the consumer benefits of the final
Rule.
\574\ Recurly, a subscription management platform used across
multiple industries, reports an overall churn rate of 4.1% per month
and parses this rate into that arising from voluntary cancellations,
3%, and involuntary cancellations, 1%, with, presumably, 0.1% lost
to rounding. Recurly explains its methodology in producing these
estimates is based on a sample of over 1,200 subscription sites on
the Recurly platform over 12 months (January to December 2023); its
churn rates are monthly, calculated by dividing the number of
subscribers who churn during the month by the total number of
subscribers and uses median, 25th, and 75th percentile values to
eliminate outliers and provide a more accurate representation of the
data in its view. See Recurly, ``What is a good churn rate?,''
https://recurly.com/research/churn-rate-benchmarks. Other payment
processors report similar churn rates but provide fewer details on
the data underlying their churn rate estimates or do not distinguish
voluntary from involuntary churn rates.
\575\ Because consumers may cancel a subscription and then
enroll in a different subscription (or even re-enroll in a recently
canceled subscription), the Commission assumes average, aggregate,
monthly voluntary churn rates are additive across months and that
the number of consumers with subscriptions do not ``decay'' at a
rate of 3% per month. Indeed, another report found one-quarter of
U.S. consumers cancelled a streaming video service in the past 12
months and resubscribed to the same service, with younger
generations significantly more likely to return. See Deloitte,
Digital Media Trends Survey: 16th Edition (2022), https://www2.deloitte.com/us/en/insights/industry/technology/digital-media-trends-consumption-habits-survey/summary.html. The Deloitte report
also notes the average churn cancellation rate has remained
consistent since 2020 at about 37% across all paid streaming video
on demand services. Similarly, a comment from NCTA, FTC-2023-0073-
0008, quotes Congressional testimony from Consumer Reports that 36%
of consumers who subscribed to streaming services, switched and
resubscribed multiple times over a period of 12 months.
\576\ The Commission is aware a recent survey of U.S.
subscribers found 75% identified one subscription as one they will
never cancel or even pause. See Bango (2024) at 8. The Commission
assumes no adjustment is needed to the reported ``churn'' rate in
light of this finding as subscriptions with such loyalty are already
reflected in the denominator of the reported churn rate.
Table 3--Number of Subscriptions and Total Cancellations per Year
[In millions]
------------------------------------------------------------------------
Year Subscriptions Cancellations
------------------------------------------------------------------------
1....................................... 1,004.72 361.70
2....................................... 1,012.48 364.49
3....................................... 1,020.25 367.29
4....................................... 1,028.02 370.09
5....................................... 1,035.79 372.88
6....................................... 1,043.56 375.68
7....................................... 1,049.91 377.97
8....................................... 1,056.26 380.25
9....................................... 1,062.61 382.54
10...................................... 1,068.96 384.82
------------------------------------------------------------------------
(c) Number of Cancellations by Enrollment and Baseline Cancellation
Method
As discussed in the estimates of per-cancellation benefits, the
estimated per-cancellation benefits stemming from the final Rule depend
on the regulatory baseline cancellation methods relative to those that
would be made available under the final Rule. To determine the number
of cancellations for which the four categories of per-cancellation
benefits estimates would apply, the Commission uses data on its
enforcement experience to determine the share of cancellations likely
to occur through online and telephone methods. For cancellations of
subscriptions that are enrolled in person, the Commission uses data on
gym membership cancellations as a proxy.
(i) In-Person Subscriptions
As a proxy for the number of subscriptions entered into in person,
the Commission uses a report from Renew Bariatrics that claims 19
percent of the U.S. population are members of gyms or health
clubs.\577\ The Commission assumes gym members are uniformly
distributed by age and multiplies the U.S. adult population by 19
percent to estimate that 51.11 million adults will have active gym
membership subscriptions when this final Rule goes into effect. An
IHRSA article from 2019 stated the average health club has an annual
attrition rate of 28.6 percent.\578\ Interpreting this to mean 28.6
percent of all adult gym members cancel their memberships each year,
the Commission estimates 14.62 million gym membership subscriptions
will be cancelled in the first year of this Rule. In Year 10, the
Commission estimates 15.55 million gym membership subscriptions will be
cancelled. The Commission uses these estimates as a proxy for the total
number of subscriptions that are entered into in person and cancelled
each year.
---------------------------------------------------------------------------
\577\ See ``28 Gym Membership Statistics: Average Cost of
Memberships,'' Renew Bariatrics (Jan. 4, 2024), https://renewbariatrics.com/gym-membership-statistics/.
\578\ See ``Why Health Club Retention Requires a Technology
Solution,'' IHRSA (May 20, 2019), https://www.healthandfitness.org/
improve-your-club/why-health-club-retention-requires-a-technology-
solution/
#:~:text=Acquiring%20a%20new%20customer%20is%20five%20times,rates%20b
y%205%%20increases%20profits%20from%2025%%2D95%.
---------------------------------------------------------------------------
The Commission acknowledges several limitations with this proxy. To
begin, there are likely many other types of businesses, such as car
washes, lawn care, pest control, and personal care and grooming
establishments, that may offer in-person subscription enrollment. To
the extent these subscriptions are not included in the count, the
estimates may be understated. Further, the source that states 19
percent of the population are members of gyms does not specify the age
distribution of the gym members. The Commission has assumed children
and adults are distributed uniformly across that 19 percent; however,
if adults are more likely to have gym memberships than children, the
estimates of gym memberships and cancellations among adults will be
understated. On the other hand, gym memberships are not always
individual memberships; multiple family members may share a single-
family membership. In estimating the number of gym memberships and
cancellations, the Commission has assumed each adult gym member has
their own subscription, which may overestimate the number of
subscriptions and cancellations.
(ii) Online and Telephone Subscriptions
The Commission assumes all subscriptions that are not entered into
in person are instead entered into either online or over the phone.
Subtracting the in-person subscription, as proxied by gym membership
cancellations, from the total number of cancellations, the Commission
estimates 347.08 million subscriptions entered into either online or
over the phone will be canceled in the first year of this Rule. This
number would increase to 369.27 million cancellations in Year 10.
To estimate the distribution of cancellation methods for these
subscriptions that are entered into online and over the phone, the
Commission reviewed matters it has brought and resolved \579\ in which
complaints specifically alleged negative option cancellation mechanisms
that violated ROSCA, the TSR, or section 5.\580\ The Commission found
54 matters met these criteria.
---------------------------------------------------------------------------
\579\ This tally does not include ongoing matters or matters
that obtained ``fencing-in'' relief encompassing the sale of
negative options without expressly pleading complaint counts related
to cancellation mechanisms.
\580\ In many instances, ROSCA and TSR counts were cross-pled as
section 5 counts; in parsing cancellation transactions by their
enrollment methods, we use ``section 5'' to refer to instances in
which neither ROSCA nor TSR violations were pled.
---------------------------------------------------------------------------
Online \581\ enrollment was possible in 42 of 54 matters that met
the review
[[Page 90525]]
criteria. In the remaining 12 matters, enrollment occurred over the
phone. Among the 42 matters in which online enrollment was possible,
only six firms offered online \582\ cancellation,\583\ and the
remaining 36 firms offered only telephonic cancellation.\584\ Among the
12 matters in which enrollment occurred over the telephone; none of the
firms offered online cancellation, therefore, the Commission treats
these 12 matters as if only telephone cancellation was available.\585\
To summarize, the Commission finds that, among subscriptions that are
entered into online and over the phone, 66.7 percent (i.e., 36/54)
offered online enrollment and only telephone cancellation, 11.1 percent
(i.e., 6/54) offered online enrollment and online cancellation, and
22.2 percent (i.e., 12/54) offered telephone enrollment and telephone
cancellation. Extrapolating the baseline cancellation methods from
enforcement matters may weight the online enrollment/telephone
cancellation subscriptions and the telephone enrollment/telephone
cancellation subscriptions more heavily than is currently experienced
in the market. It also assumes that there are no subscriptions offered
in the baseline with cancellation methods that are already compliant
with the provisions of this Rule. The Commission explores the impacts
of these limitations in a sensitivity analysis in section (d).
---------------------------------------------------------------------------
\581\ For ease, the Commission includes in this tally two
negative option plans that enrolled consumers via phone apps.
Similarly, the Commission regards matters involving online marketing
of negative options that were resolved before the passage of ROSCA
(and some others that were resolved after the passage of ROSCA, but
addressed online marketers' conduct that occurred prior to the
passage of ROSCA), as ROSCA matters for the purposes of assessing
the incremental benefits of the final Rule relative a regulatory
baseline of ROSCA's simple cancellation mechanism.
\582\ In a few of these matters, online cancellation was offered
in addition to telephonic cancellation, and to simplify the
analysis, the Commission attributed half to the measure of
telephonic cancellations and half to the measure of online
cancellations. In a few other instances the Commission's designation
of ``online'' cancellation includes cancellation by email or within
the marketer's app.
\583\ In contrast, other evidence indicated that 81.25% of U.S.
online marketers offered online cancellation. See, e.g., Sinders
(2023). Different research looked at nine U.S. news media publishers
that sold subscriptions online. When two ``personas'' created by the
researchers subscribed to each of the nine publications, and then
attempted to cancel, 17 of the 18 subscriptions could be canceled
online; one publication permitted only the California resident
persona to cancel online and offered only telephonic cancellation to
the persona posing as a Texas resident. See Ashley Sheil, et al.,
``Staying at the Roach Motel: Cross-Country Analysis of Manipulative
Subscription and Cancellation Flows,'' in Mueller, F.F. (ed.), CHI
`24: Proceedings of the CHI Conference on Human Factors in Computing
Systems (May 11-16, 2024), https://repository.ubn.ru.nl/handle/2066/30690.
\584\ In some of the 36 matters, no cancellation method was
disclosed by the seller, and in a few other matters consumers were
required to return merchandise through the mail to prevent a free
trial from rolling over into a subscription or to obtain a refund
for merchandise that was shipped to a consumer, and for which the
consumer was charged. Such instances generally occurred before the
passage of ROSCA, and it is highly unlikely that an online marketer
who offered only a mailed-in cancellation could be in compliance
with ROSCA's requirement that cancellation mechanisms be ``simple.''
Without loss of generality, the Commission therefore treats
instances in which online cancellation was not offered as instances
in which only telephonic cancellation was offered to consumers.
\585\ Some required the return of merchandise through the mail
if consumers wanted refunds. In two matters, no cancellation
mechanism was revealed. Without loss of generality, we assume that
cancellation could take place telephonically.
---------------------------------------------------------------------------
Multiplying the distribution of cancellation methods for
subscriptions entered into online and over the phone by the total
number of cancellations of online and telephone subscriptions, the
Commission estimates the annual number of cancellations that fall into
each of these categories. In Year 1, the Commission estimates that, in
the absence of this final Rule, there would be 231.39 million
cancellations by telephone of subscriptions entered into online, 38.56
million online cancellations of subscriptions entered into online, and
77.13 million telephone cancellations of subscriptions entered into
over the phone.
(iii) Summary of Subscription Cancellations by Enrollment and Baseline
Cancellation Method
Table 4 provides the number of subscription cancellations each year
distributed across the four enrollment and regulatory baseline
cancellation method categories: online enrollment and telephone
cancellation; online enrollment and online cancellation; telephone
enrollment and telephone cancellation; and in-person enrollment.
Table 4--Cancellations by Enrollment and Baseline Cancellation Method
[In millions]
----------------------------------------------------------------------------------------------------------------
Online Online Telephone
enrollment, enrollment, enrollment, In-person
Year telephone online telephone enrollment
cancellation cancellation cancellation
----------------------------------------------------------------------------------------------------------------
1............................................... 231.39 38.56 77.13 14.62
2............................................... 233.18 38.86 77.73 14.73
3............................................... 234.96 39.16 78.32 14.84
4............................................... 236.75 39.46 78.92 14.96
5............................................... 238.54 39.76 79.51 15.07
6............................................... 240.33 40.06 80.11 15.18
7............................................... 241.79 40.30 80.60 15.27
8............................................... 243.26 40.54 81.09 15.37
9............................................... 244.72 40.79 81.57 15.46
10.............................................. 246.18 41.03 82.06 15.55
----------------------------------------------------------------------------------------------------------------
(3) Total Quantified Benefits
To estimate total benefits from this final Rule, the Commission
first matches the enrollment and baseline cancellation method
categories from the previous section to the four scenarios used to
estimate the per-cancellation benefit. The Commission assumes that,
under this final Rule, subscriptions enrolled online and cancelled over
the phone in the baseline would move to online cancellations;
subscriptions enrolled online and cancelled online would move to
simpler online cancellation; subscriptions enrolled over the phone and
cancelled over the phone would move to simpler telephone cancellation;
and subscriptions enrolled in person would allow online or phone
cancellation.
Next, the Commission multiplies the number of cancellations in each
baseline category by the matched per-cancellation benefit on the low-
and the high-end and then sums across all four categories to obtain
total benefits each year. Those totals are presented in Table 5. In the
first year following implementation of the final Rule, the Commission
estimates the benefits will
[[Page 90526]]
range between $661.52 million and $5.32 billion. In Year 10, the
Commission estimates the benefits will range between $703.82 million
and $5.66 billion. Using a 2 percent discount rate, the Commission
estimates the present discounted value of benefits over 10 years to
range between $6.13 and $49.32 billion. Annualized over 10 years using
a 2 percent discount rate, the Commission estimates the benefits to
range between $682.83 million and $5.49 billion per year.
Table 5--Total Quantified Benefits
[In millions, 2023 dollars]
------------------------------------------------------------------------
Year Low High
------------------------------------------------------------------------
1....................................... $661.52 $5,318.76
2....................................... 666.63 5,359.88
3....................................... 671.75 5,401.01
4....................................... 676.86 5,442.14
5....................................... 681.98 5,483.26
6....................................... 687.09 5,524.39
7....................................... 691.27 5,558.00
8....................................... 695.45 5,591.62
9....................................... 699.63 5,625.23
10...................................... 703.82 5,658.84
-------------------------------
Present Discounted Value of Benefits 6,133.57 49,315.39
over 10 years, 2% discount rate....
Annualized Benefits over 10 years, 682.83 5,490.11
2% discount rate...................
------------------------------------------------------------------------
(c) Estimated Costs of the Final Rule
This section describes the costs associated with firms coming into
compliance with the final Rule, provides quantitative estimates where
possible, and describes costs that are only assessed qualitatively.
Whereas benefits were estimated based on cancellation transactions,
compliance costs are estimated on the basis of firms covered by the
final Rule. The Commission first examines the comment record on
compliance costs and then estimates the compliance costs for the
initial year and subsequent nine years following implementation of the
final Rule.
(1) The Comment Record
The comment record has not provided specific data useful to the
estimation of the costs of compliance with the disclosure,
cancellation, and recordkeeping requirements of the final Rule.
Some industry commenters addressed compliance costs by providing
broad, aggregate, conclusory cost estimates; because those costs were
not itemized by specific features of the Rule as proposed in the NPRM,
the Commission is unable to use those comments to estimate compliance
costs relevant to the substantially narrowed scope of the final Rule in
comparison to the Rule proposed in the NPRM.\586\ The same is generally
true of testimony and expert reports submitted in conjunction with the
informal hearing. Those materials did not focus on providing specific,
relevant, data that would permit estimating compliance costs of the
final Rule.\587\
---------------------------------------------------------------------------
\586\ For example, NCTA, FTC-2023-0073-0008, indicated some
major cable operators estimate it could cost $12-$25 million per
company and take 2-3 years to rebuild their systems and one of its
members thought annual costs could be 15-20% of the implementation
costs (an industry rule of thumb). This comment does not itemize
costs across different elements of the specific rules adopted.
Additionally, estimates of the annual costs of maintaining systems
may be blanket costs that include a host of programming maintenance
features that are unrelated to the specific disclosures and ``click
to cancel'' features of the final Rule. Moreover, NCTA's comment
indicated customers of top cable operators enrolled over the phone
(43%), online (30%), and in person (24%) and calls to customer
service are answered within 30 seconds and lines are available 24
hours a day, 7 days a week. Accordingly, no extra compliance steps
may be necessary with respect to offering final Rule-compliant
cancellations for enrollments made by telephone, and compliance with
the final Rule's requirement that firms offer an extra cancellation
mechanism for in-person enrollments likely could be met through
reliance on these firms' existing telephonic cancellation
capabilities. Accordingly, the provision of an online cancellation
mechanism will be required only for the 43% of their consumers who
presently enroll online, and NCTA has not provided estimates of
compliance costs that are specifically tailored to that segment of
their consumer base. Because NCTA members who enroll consumers
online already, clearly, have websites, the Commission rejects the
notion that adding ``click to cancel'' functionality to websites
that already include an order path for enrolling, and likely also
include functionality for registering a payment mechanism for
automated billing, would cost $12-$25 million, particularly in light
of NCTA's discussion of compliance with the 2019 Television Viewer
Protection Act (``TVPA'') which, NCTA claims, already regulates the
very same practices the FTC is attempting to regulate here. NCTA
further claims major cable operators estimate that it cost
approximately $2.5 to 4 million per company and took about one year
for TVPA compliance. However, having already incurred the costs to
comply with ``the very same practices'' the final Rule addresses in
the course of complying with the TVPA, there would appear to be no
incremental costs to comply with the final Rule. Therefore, because
the final Rule is narrower in scope than as proposed in the NPRM and
because it offers firms the opportunity to apply to be excluded, the
Commission rejects NCTA's claim compliance with the Rule would be
multiples of TVPA compliance costs and require building online
cancellation systems virtually from the ground up and expensive
ongoing recordkeeping requirements across all services. Accordingly,
the Commission does not include in the estimates of compliance costs
the aggregate, non-specific, and possibly idiosyncratic compliance
costs NCTA cites. Similarly, an expert's survey submitted by IAB
(attachment B to FTC-2024-0001-0010) found only six respondents (out
of more than 100,000 companies subject to the proposed Rule)
indicated the annual cost of compliance would be a total of $50
million, but provided no itemization of these costs, such that they
cannot be disaggregated to comport with the narrower scope of the
final Rule.
\587\ For example, an expert report (Christopher Carrigan and
Scott Walster, FTC-2024-0001-0026) filed by IAB concluded the
effects of the proposed Rule, if finalized, on the U.S. economy
would surpass $100 million annually. The Commission agrees with this
conclusion. The Commission disagrees, however, with both the initial
and on-going compliance costs used by Carrigan-Walster; both were
liberally based on replicating assumptions made in the preliminary
regulatory analysis in the NPRM. Further, their assumptions are
inappropriate to this cost analysis because they fail to account for
the fact firms subject to the final Rule, unlike firms subject to
the proposed Unfair or Deceptive Fees Rule, are already required to
provide clear and conspicuous disclosures of all material facts
relating to the sale of negative option contracts under the totality
of ROSCA, the TSR, and section 5 of the FTC Act, and to provide
simple cancellation mechanisms under ROSCA for those firms covered
by ROSCA. In addition, firms subject to the final Rule are also
required to comply with a variety of other laws relating to negative
option sales, including the current Prenotification Rule, EFTA, the
Unordered Merchandise Statute, numerous State laws, various laws and
regulations that effect specific industries, such as the Television
Viewer Protection Act of 2019 (TVPA), other FCC regulations, and,
for multi-national entities, various foreign laws. Accordingly, the
units of specialized labor, e.g., lawyer, web developer, and
business analyst time, that Carrigan-Walster adopt from the Unfair
or Deceptive Fees NPRM are not valid representations of the usage of
such inputs that are incremental to compliance with the final Rule
relative to its existing regulatory baseline.
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[[Page 90527]]
Another commenter addressed the Paperwork Reduction Act cost
estimate in the NPRM in a way that conflated it with the totality of
compliance costs. IFA, which represents firms, including small firms,
in the fitness, preventative healthcare, personal wellness or
children's extracurricular activities industries, commented, ``the
FTC's estimate (in the NPRM) that it will cost companies merely three
hours annually at $22.15/hr to comply is grossly understated for IFA's
members.'' \588\ The Commission agrees the final Rule's compliance
costs will exceed the Paperwork Reduction Act costs discussed in the
NPRM because the Paperwork Reduction Act costs only include burden
associated with information collection requirements, such as
recordkeeping and disclosure costs, while the total compliance costs
include those costs as well as costs of familiarization with the Rule
and costs to bring cancellation mechanisms into compliance. IFA did
not, however, provide a sufficiently detailed alternative estimate of
annual or ongoing general compliance or recordkeeping costs for its
members.\589\ Similarly, IFA provided no information on the enrollment
mechanisms used by its members nor an estimate of what share of its
members offer negative option plans.\590\
---------------------------------------------------------------------------
\588\ See IFA, FTC-2024-0001-0001.
\589\ IFA provided an extreme example relevant to what it
identified as a preventative healthcare franchise system without
disclosing how many individual firms belonged to that system. In the
context of that system, IFA stated it would take thousands of hours
to access if modifications are necessary to existing contracts,
marketing, and operational processes and implement any requirements,
costing hundreds of thousands of dollars. IFA did not, however,
provide detailed, itemized, estimates of compliance costs that
relate to the specific features of the final Rule, which has been
substantially streamlined relative to what was proposed in the NPRM,
making IFA's highly aggregated notion of compliance costs for one
particular group system' inapplicable to the current cost analysis.
The same lack of specificity is present in IFA's discussion of
``Fitness franchise systems.'' With somewhat greater specificity,
IFA estimates costs to comply with disclosure and recordkeeping
requirements are 24 hours annually, but IFA did not disclose what
type of labor inputs are involved in those tasks nor the number of
fitness facilities that will incur these costs. Moreover, IFA
reveals its members estimate the impact to member lifetime value
will exceed $100,000 per fitness center and lost revenue is expected
to be nearly $40,000 annually per fitness center, but these figures
cannot properly be considered compliance costs as they may, in fact,
represent benefits consumers receive from speedier exits from
fitness club memberships that are no longer wanted by consumers.
\590\ Some of its members may offer yearly contracts that do not
auto-renew, but that apportion payments over 12 months for the
convenience of consumers. Such contracts are installment plans, and
not negative option plans. Others may conduct business on a pay-as-
you-go basis.
---------------------------------------------------------------------------
IFA did, however, comment that many of its members already offer
consumers the ability to pause or ``freeze'' memberships, noting,
``consumers take advantage of alternatives to membership cancellation
at rates of 10% to 40%, with many consumers electing to reactivate
their memberships, saving thousands of dollars annually in increased
membership rates and additional initiation fees.'' While pause/freeze
capabilities are indeed beneficial to consumers, they do not relieve a
firm from an obligation to offer a cancellation mechanism. IFA did not
provide similar data on what percentage of its member firms' consumers
are dissatisfied with pause/freeze opportunities and seek authentic
cancellations or what cancellation mechanisms its member firms make
available to consumers.
The technological capability to pause or freeze subscriptions
suggests the presence of software architecture ``scaffolding'' upon
which a cancellation mechanism could be built at a modest incremental
cost. Alternatively, the offering of subscription pauses or freezes by
some IFA members may suggest those members use the services of third-
party e-commerce hosting platforms or payment processors who routinely
provide consumer subscription account management tools relied on by
businesses, including small businesses. As discussed, below, existing
software scaffolding and the utilization of third-party consumer
subscription management tools can facilitate low- (and even no-) cost
compliance with some of the final Rule's requirements.
(2) Initial Compliance Costs
The Commission has previously estimated that 106,000 firms offer
negative option plans.\591\ The Commission assumes that to come into
compliance with the final Rule, all 106,000 firms selling negative
option plans will need to expend some resources to familiarize
themselves with the final Rule and some firms will incur costs related
to improvements in their pre-consent disclosures and cancellation
mechanisms.
---------------------------------------------------------------------------
\591\ As explained in the NPRM, 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 Commission staff's own research and industry
knowledge, the Commission identified an estimated total of 530,000
firms involved in such industries. However, the Commission estimates
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 be exempt from
the Commission's authority. Accordingly, the Commission estimates
approximately 106,000 business entities (20%) offer negative option
features to consumers. See 88 FR 24733. Although no commenter
proposed a different number, ETA, FTC-2023-0033-1004, challenged the
Commission's estimated number of firms selling negative option plans
on the basis that it did not account for ``the many providers of
goods and services to business where automatic renewal clauses are
used.''
---------------------------------------------------------------------------
Familiarization costs: No commenters presented estimates expressly
related to the costs of legal and managerial review of the final Rule
and front-line staff training needed to come into compliance. The U.K.
``Impact Assessment,'' using surveys and interviews with managers of
firms that sold goods and services via negative options, found that
firms would need between four and 16 hours of ``senior staff'' time,
depending upon the size of the firm, to gain familiarization with their
proposed rule, and between zero and 80 hours of ``service staff'' time,
again depending upon the size of the firm.\592\ The Commission assumes
that similarities between American and British firms are such that the
same units of time are relevant for American firms to gain familiarity
with the final Rule. In the American context, the Commission assumes
``senior staff time'' is proxied by ``attorney time,'' and uses the
mean hourly wage for attorneys, $84.84 per hour, to estimate those
costs.\593\ Similarly, the Commission assumes ``service staff time'' is
proxied by the average of mean wages for salespersons and clerical
workers, which is $23.27.\594\ Accordingly, the
[[Page 90528]]
Commission estimates the aggregate initial year familiarization costs
as ranging between $35.97 million and $341.22 million.
---------------------------------------------------------------------------
\592\ See U.K. ``Impact Assessment'' (2023) at 26. While the
U.K.'s rule may not be directly analogous to the final Rule, it
addresses similar problems associated with consent and cancellation
associated with negative option practices. Therefore, the burden the
U.K.'s rule places upon subscription sellers, in terms of executive
and staff resources to read and understand the rule and assess
whether existing procedures are in compliance or need to be revised,
may be highly similar to the familiarization steps that U.S.
businesses will need to undertake.
\593\ The mean hourly wage for lawyers in 2023 was $84.84; see
Bureau of Labor Statistics, ``Occupational Employment and Wages, May
2023, 23-1011 Lawyers,'' https://www.bls.gov/oes/current/oes231011.htm.
\594\ The Commission uses a mean hourly wage for sales personnel
of $25.62; see Bureau of Labor Statistics, ``Occupational Employment
and Wages, May 2023, 41-0000 Sales and Related Occupations (Major
Group),'' https://www.bls.gov/oes/currenT/oes410000.htm. The
Commission uses a mean hourly wage for clerical workers of $20.94,
see Bureau of Labor Statistics, ``Occupational Employment and Wages,
May 2023, 43-9061 Office Clerks, General,'' https://www.bls.gov/oes/currenT/oes439061.htm. The average of these two mean wage rates is
$23.27.
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Disclosures: Clear and conspicuous disclosures are already required
by the existing regulatory baseline; Sec. 425.4(a)(1)-(4) of the final
Rule adds specificity to those disclosures, albeit in a flexible
way.\595\ As estimated below, the Commission assumes some marketers are
already in compliance with the disclosure requirements of the final
Rule; for these marketers, there are no incremental costs of compliance
with the disclosure requirements of the final Rule.
---------------------------------------------------------------------------
\595\ The final Rule requires disclosure of: the fact consumers
will be charged; the amount(s) they will be charged; when the
consumer must act (by deadline or frequency) to prevent or stop
charges; and the information needed for the consumer to find the
simple cancellation mechanism.
---------------------------------------------------------------------------
For online marketers, the current regulatory baseline is ROSCA,
which requires marketers to clearly and conspicuously disclose all
material terms of the transaction before obtaining the consumer's
billing information. To the extent ROSCA-covered marketers' current
disclosures lack the specificity required by the final Rule, the
Commission estimates changes will be needed only to textual elements of
such marketers' websites and that no changes to the underlying website
architecture will be needed. The Commission further assumes any such
changes, if needed, will be made by website developers, whose mean
hourly wage is $45.95.\596\ Similarly, some telemarketers and in-person
negative option marketers may need to modify their sales agents'
scripts to incorporate the disclosures required by the final Rule.
Without loss of generality, the Commission assumes the mean wage rates
of marketers' staff who will make such script changes is proxied by the
mean wage rates of web developers.\597\ Although in the Commission's
experience these changes should take very little time, perhaps as
little as one hour, the Commission adopts a range of one to 10 hours to
complete this task.\598\
---------------------------------------------------------------------------
\596\ See Bureau of Labor Statistics, ``Occupational Employment
and Wages, May 2023, 15-1254 Web Developers,'' https://www.bls.gov/oes/2023/may/oes151254.htm.
\597\ This is consistent with the approach taken in the expert
report submitted by IAB. See Carrigan-Walster, FTC-2024-0001-0026
(noting many firms using negative option marketing present offers
through the internet and, for firms presenting offers through other
means, web developer time is used as a proxy for worker time to
create the presentation of the offers).
\598\ The assumed range of one to 10 hours is consistent with
the time estimate used for compliance checks and minor modifications
of websites in the Unfair or Deceptive Fees NPRM. See 88 FR 77420
(Nov. 9, 2023).
---------------------------------------------------------------------------
Accordingly, the Commission estimates that for those marketers
whose disclosures are not already in compliance with the requirements
of the final Rule, disclosure compliance costs will range between
$45.95 and $459.50.
Cancellation mechanisms: Section 425.6 of the final Rule requires
negative option marketers to provide a simple cancellation mechanism
that is in the same medium, and at least as simple for the consumer to
use, as the mechanism by which the consumer provided consent to the
negative option plan. Additional requirements are medium-specific. For
example, when consent is provided through an interactive electronic
medium, the cancellation mechanism (also provided through an
interactive electronic medium) must be easy for the consumer to find
when the consumer seeks cancellation information (for example, on a
website, the cancellation mechanism cannot be hidden in ``terms and
conditions'' or otherwise difficult to find) and cannot require
interactions with live or virtual representatives (such as chatbots) if
no such interactions were required when the consumer consented.
When consent is provided over the telephone, the final Rule
requires that telephonic cancellation must be available during normal
business hours and not be more costly for the consumer to use than the
telephone call the consumer used to consent to the negative option
feature.
When consumer consent to a negative option plan is provided via an
in-person method, the marketer must offer cancellation opportunities,
where practical, in a like manner. In addition, the marketer must offer
an alternative simple cancellation mechanism through an interactive
electronic medium or by providing a telephone number that satisfies all
final Rule requirements related to use of those cancellation media.
The costs negative option sellers will incur in the initial year
following implementation of the final Rule to bring their cancellation
mechanisms into compliance with the final Rule will depend upon their
pre-existing cancellation mechanisms. No commenter provided research or
data on the frequency of use of different cancellation mechanisms
across negative option marketers or on the incremental costs to make
the existing cancellation mechanism compliant with the requirements of
the final Rule.\599\
---------------------------------------------------------------------------
\599\ Trade association commenters who addressed cancellation
mechanisms used by their members, and whether those mechanisms were
or were not symmetric with enrollment mechanism or as easy to use as
enrollment mechanisms did so only in a very general manner. For
example, NCTA (FTC-2024-0001-0011) commented that, in 2021 and 2022,
customers of top cable operators enrolled over the phone (43%),
online (30%), and in person (24%)'' but provided no information on
available cancellation mechanisms. Additionally, NCTA stated its
analysis shows complaints received about cancellation are very
limited (approximately 0.017% of cancellations) out of the
approximately 14 million customers who cancelled some or all of
their services from NCTA's largest cable operator members in 2022.
Anecdotes such as these, about ``top'' or ``largest'' companies do
not provide sufficiently reliable data for the instant analysis.
Similarly, IHRSA's comment about ``many'' fitness club operations
allowing options to cancel by simple online solutions is not
specific enough to be helpful (see FTC-2023-0033-0863).
---------------------------------------------------------------------------
Because the comment record has not provided sufficient data to
estimate the costs of compliance with the final Rule's cancellation
requirements, the Commission turns to data from the U.K.'s ``Impact
Assessment'' on regulating subscriptions there. Based on these sources,
the Commission finds some sellers of negative option plans are already
in compliance with the cancellation requirements of the final Rule, and
many others will incur only minimal costs to make their cancellation
flows compliant with the final Rule.
The relevant experimental research looked at the cancellation
practices of 16 online subscription sellers, many of them large and
well-known firms, and noted the cancellation mechanisms made available
to consumers and how easy those mechanisms were for consumers to locate
and use.\600\ Although the number of firms sampled in this research was
small, publicly available data on total enrollments, located for just
seven of the 16 firms, collectively numbered over 350 million,\601\
which may lend significance
[[Page 90529]]
to this research beyond what might otherwise be associated with a
sample size of 16 firms. Moreover, the methodology of the study
suggests that the researcher's experiences with enrollment and
cancellation likely would be typical of any consumer undertaking the
same enrollment and cancellation tasks with those firms.
---------------------------------------------------------------------------
\600\ See Sinders (2023).
\601\ The Commission located subscriber estimates for seven
(Amazon, Ancestry, Hulu, Netflix, Paramount+, The Boston Globe, and
The New York Times) of the 16 firms included in the research. The
number of U.S. subscribers to Amazon Prime is estimated to reach
171.8 million in 2024. See https://www.yaguara.co/amazon-prime-statistics. At year-end 2023, Ancestry.com had over 3 million
subscribers. See https://www.ancestry.com/corporate/newsroom/press-releases/ancestry-releases-2023-annual-impact-report--underscoring-corpor. As of the second quarter of 2024, Hulu had 50.2 million paid
U.S. subscribers. See https://www.statista.com/statistics/258014/number-of-hulus-paying-subscribers). Also as of the second quarter
of 2024, Netflix had 84.11 million subscribers in the U.S. and
Canada. See https://www.statista.com/statistics/483112/netflix-subscribers. Even if the Commission makes the extreme assumption
that every Canadian held a Netflix subscription, that would still
leave approximately 50 million U.S. subscribers. Paramount+ had over
71 million subscribers as of the first quarter of 2024. See https://www.theverge.com/2024/4/29/24144766/paramount-plus-now-has-over-71-million-subscribers). The Boston Globe had 260,000 (mostly digital)
subscribers in 2023. See https://pressgazette.co.uk/north-america/us-local-news-subscribers-ranking. As of mid-year 2024, the New York
Times had 10.8 million subscribers. See https://www.nytimes.com/2024/08/07/business/media/new-york-times-earnings.html. The
Commission was unable to locate subscriber data for some of the
other firms sampled (e.g., Savage Fenty, Daily Harvest, Deliveroo)
and in some other instances found subscriber data reported only on a
global basis (e.g., Google One, Adobe).
---------------------------------------------------------------------------
The experimental research found that 18.75% (i.e., 100 x 3/16) of
the online marketers studied offered online cancellations in a
straightforward, easy to use manner such that it took the researcher
less than one minute to complete a subscription cancellation. The
Commission therefore assumes that 18.75% of online sellers of negative
option plans will not need to change their websites to come into
compliance with the cancellation requirements of the final Rule.
Although this research did not specifically measure the adequacy of
pre-consent disclosures, the Commission assumes that companies who make
cancellation so easy for consumers perform equally well in making
disclosures. Accordingly, the Commission assumes that the 18.75% of
online firms selling negative options that will not incur incremental
costs to comply with the final Rule's cancellation requirements also
will not incur any incremental costs to comply with the final Rule's
disclosure requirements. The Commission assumes that the remaining
81.25% of online negative option sellers that lacked such easy-to-use
cancellation mechanisms also performed less well in making the
disclosures required by the final Rule, such that they would incur
initial year compliance costs of improving their disclosures as
indicated by the range estimated above.
The same research found that 62.5% (i.e., 100 x 10/16) of sampled
online negative option sellers had cancellation paths that took longer
for consumers to complete as a result of nomenclature, not website
architecture. These sites, rather than using straightforward terms such
as ``unsubscribe'' or ``cancel,'' put the cancellation path under
titles such as ``auto-renew'' or ``edit plan,'' \602\ and locating the
cancellation mechanism delayed the researcher in completing the
cancellation task because of the non-intuitive labeling of the entry
point into the cancellation mechanism. In such instances, more
intuitive, consumer-friendly labeling of the existing cancellation
architecture is assumed to be what is needed for these sites to come
into compliance with the cancellation requirements of the final Rule.
The Commission assumes such relabeling will not require any additional
programming or changes to the underlying website architecture. In the
Commission's experience, such ``cosmetic'' changes can be made quickly
and inexpensively, possibly in as little as one hour of a website
developer's time. The Commission notes, however, that the U.K. ``Impact
Assessment,'' in considering ``general updates to websites such as
reflecting the clearer communication on contract conditions and
updating cancellation options,'' estimated that such changes would
``require eight hours' work from an IT professional and that these
costs are uncorrelated with the size of the business.'' \603\ The
website changes contemplated in that assessment likely exceed those
required to merely relabel consumer-facing elements of an existing
cancellation architecture. Out of an abundance of caution, however, the
Commission uses the U.K.'s estimate of eight hours as an upper bound on
the time required to make the needed changes and further assumes that
the relevant ``IT professionals'' are website developers, which, as
noted previously, have a mean wage rate of $45.95. Accordingly, the
Commission assumes each firm that needs to relabel existing
cancellation mechanisms to make those mechanisms easy for consumers to
locate and use will spend between $45.95 (i.e., 1 x $45.95) and $367.60
(i.e., 8 x $45.95) to come into compliance with the final Rule's
cancellation requirements.
---------------------------------------------------------------------------
\602\ In the researcher's view, this kind of naming is confusing
and adds unnecessary friction to the cancellation process. See
Sinders (2023).
\603\ U.K. ``Impact Assessment'' (2023) at 26.
---------------------------------------------------------------------------
Lastly, the aforementioned research found that 18.75% (i.e., 100 x
3/16) of online negative option sellers offered only telephonic
cancellation. Such firms, because they were online sellers, clearly had
online ordering and payment website architecture in place, and so had
``scaffolding'' upon which online cancellation architecture could be
built. No commenter provided relevant data on the costs of building-out
a ``click-to-cancel'' mechanism in such instances, and the U.K ``Impact
Assessment'' indicated it ``lacked high quality evidence on the costs
businesses would incur'' to integrate ``easy exiting mechanisms into
websites.'' As a result, the ``Impact Assessment'' turned to ``external
estimates'' from ``[t]he U.S. eCommerce agency OuterBox [which]
indicates a possible range of costs. It suggests that integrating
simple tools into an existing eCommerce platform would cost most
businesses approximately $500'' in 2022.\604\ In 2023 dollars, that
amount is $532.05.\605\ The Commission notes, however, that many
payment processors and website hosting platforms used by many
businesses, particularly small and medium-sized businesses, provide
marketers with consumer subscription account management tools that
provide consumers with ``click-to-cancel'' functionality at no direct
\606\ incremental cost to marketers.\607\ As no commenter
[[Page 90530]]
provided information on (1) how many negative option sellers comply
with ROSCA by offering only telephonic cancellation, (2) what specific
costs they would face to provide an online cancellation mechanism, or
(3) whether they would build such functionality themselves or use a
third-party payment processor or hosting platform to provide it for
them, we estimate such costs to range between $0 and $532.05 per firm.
---------------------------------------------------------------------------
\604\ U.K. ``Impact Assessment'' (2023) at 27 (citing a report
from 2022).
\605\ See Bureau of Labor Statistics, ``CPI Inflation
Calculator,'' https://www.bls.gov/data/inflation_calculator.htm. We
note that this amount is equal to 10.25 hours of computer programmer
time valued at a mean hourly wage rate of $51.90; see Bureau of
Labor Statistics, ``Occupational Employment and Wages, May 2023, 15-
1251 Computer Programmers,'' https://www.bls.gov/oes/current/oes151251.htm. As such, this is consistent with the outcome of the
approach used by Carrigan-Walster, FTC-2024-0001-0026, in proxying
the first-year costs of compliance costs with each of the six
provisions of the Rule proposed in the NPRM (which differed,
substantially, from the narrowed final Rule, although not with
respect to ``click to cancel'' provisions). That approach made the
ad hoc assumption that technological changes required by the Rule
would require the same labor inputs as similar requirements in the
NPRM for the FTC's Rule on Unfair or Deceptive Fees, notwithstanding
the two rules differ substantially in their regulatory baselines.
See 88 FR 77420.
\606\ To the extent that a marketer uses the easy subscription
account management and cancellation tools offered by hosting
platforms or payment processors and the presence of such tools
reduces consumers' perception of the risks of entering into a
subscription agreement with the marketer, the marketer's sales may
increase along with any payments to the platform or processor that
are based on the number of transactions or aggregate sales.
\607\ See, for example, Shopify's help page at https://help.shopify.com/en/manual/products/purchase-options/shopify-subscriptions/customer-experience#subscription-management-for-customers, ``Shopify Subscriptions displays subscription information
to customers in the checkout. For example, when buying a
subscription product, the order frequency and discount amount for
the subscription is displayed in the order summary . . . . During
checkout, your customer needs to agree to the cancellation policy
terms to confirm that they understand they're purchasing a
subscription. They can't complete their purchase without agreeing to
this policy . . . . Customers can log in to their customer account
to view and manage their subscription orders. Customers can resume,
skip, and cancel their subscriptions, and manage their payment
methods and shipping address.'' Moreover, Shopify offers a variety
of consumer subscription management tools to merchants that use
Shopify for payment processing (``checkout'') or website hosting at
no incremental cost to merchants See https://apps.shopify.com/categories/selling-products-purchase-options-subscriptions. The fees
Shopify charges merchants varies with a number of merchant-specific
features, including website design elements, whether merchants want
``Shopify checkout'' to work on social media platforms in addition
to the merchant's own website, how many of the merchant's employees
will have the ability to log-in to the merchant's Shopify account,
etc. (see https://aureatelabs.com/blog/shopify-website-development-cost). So, although what merchants pay to use Shopify may vary
across firms, the incremental cost of using Shopify for consumer
subscription account management is assumed to be zero. See also
Hoofnagle, FTC-2023-0033-1137 (``There are scores of companies like
Chargebee that help companies manage subscriptions . . . .
Compliance with new rules is inexpensive because policy changes can
be made programmatically in dashboards'' provided by entities such
as Chargebee.'').
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Accordingly, the Commission assumes that most online marketers of
negative option plans will face minimal IT costs of coming into
compliance with the cancellation requirements of the final Rule.\608\
---------------------------------------------------------------------------
\608\ No commenter to the ANPR or NPRM, and no comment, expert
report, or testimony in relation to the informal hearing provided
estimates of compliance costs firms would incur that were specific
to the features of the Rule as then-proposed that remain in the
final Rule.
---------------------------------------------------------------------------
As noted previously, telemarketers have substantial control over
both how long the consent process takes and how long it takes a
consumer to complete a cancellation over the telephone. If compliance
with the final Rule expedites the cancellation process over the phone,
telemarketers may experience cost-savings associated with such
resources. Furthermore, no telemarketers or call centers that provide
services to telemarketers submitted comments relating to what costs
telemarketers would incur to bring cancellation mechanisms into
compliance with the final Rule. Because of this, and because the
Commission has previously found that only 2,000 \609\ of 106,000 firms
selling negative options were telemarketers (and no commenter has
disputed this finding), the Commission proceeds as if telemarketers
face no incremental costs in complying with the final Rule's
cancellation requirements. However, to reduce any potential downward
bias \610\ this might introduce into the compliance cost estimate, the
Commission does not subtract the estimated number of telemarketers
(2,000) from the total estimated number of online negative option
marketers in its calculations of costs. Similarly, the Commission lacks
data on how many of the 106,000 firms selling negative option plans
currently offer only in-person or by-mail cancellations.\611\ The final
Rule requires such firms to add a cancellation mechanism that consumers
can easily use in a remote manner, e.g., through interactive electronic
media or by telephone.
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\609\ See NPRM, 88 FR 24733.
\610\ Because telemarketing firms are such a small share of all
firms that will be covered by the final Rule, the Commission does
not expect this treatment of telemarketers (or, indeed, even a total
exclusion of telemarketers from the analysis) to impart a
significant bias.
\611\ Three trade associations, who have some members who either
sell or offer cancellation mechanisms in-person, submitted comments
that were not sufficiently detailed to permit Commission staff to
estimate the number of firms that both sell and cancel in-person or
through the mail. For example, IHRSA (FTC-2023-0033-0863) commented
many of its members allow several options for agreement termination
through simple online solutions including online account management,
email cancellation requests, and specific online cancellation
buttons or forms, adding many of these options are currently
available for members who have purchased their membership either
online or in person. The International Carwash Association
(``ICA''), FTC-2023-0033-1142, commented on subscription-related
revenues of member firms (noting more than half, and sometimes more
than 80%, of store revenues can be attributable to subscription
sales), but not on the number of firms that sell subscriptions or
how many subscriptions they sell. Similarly, although it commented
subscriptions could be purchased in person, on the world wide web,
via a mobile app, or at an automated teller, it provided no data on
the relative shares of subscription purchases through these channels
or the cancellation mechanisms made available to consumers. The
objections ICA raised to a Rule requiring its members to offer
cancellation by any method other than in-person strongly suggests
that most member firms currently only offer cancellation that way,
suggesting that those who sell on the internet, via a mobile app and
(possibly) at an automated teller may already be in violation of
ROSCA if in-person cancellations are a violation of ROSCA's ``simple
cancellation mechanism'' requirement. IFA (FTC-2023-0033-0856)
provided data from its database on the number of franchisees
operating fitness establishments, spa/massage studios, entertainment
facilities, and preventative healthcare facilities in the U.S., but
provided no information on what share of firms sold subscriptions or
the media through which consent was obtained or cancellation
mechanisms were offered. In a later comment (FTC-2024-0001-0009),
IFA noted consumers of member firms used the alternative of
``freezing'' their memberships at rates of 10%-40% but did not
provide information on what the ``freezing'' mechanism was or what
cancellation mechanisms were available to consumers.
---------------------------------------------------------------------------
Lastly, the Commission considers the initial year recordkeeping
costs required by the Rule, which are estimated in section XIII to be
$6.54 million when aggregated across all 106,000 firms.
Because of the aforementioned data limitations emerging from the
comment record, the Commission applies the findings of the experimental
research above, which looked only at online sellers, to the full number
of firms, 106,000, that it has previously estimated to be marketers of
negative option plans. This approach comports with a general
proposition made by the report submitted by IAB.\612\
---------------------------------------------------------------------------
\612\ See Carrigan-Walster, FTC-2024-0001-0026 (employing a
similar assumption: ``Many firms using negative option marketing
present their offers through the web. For those firms that present
offers through other means, web developer time is used as a proxy
for worker time to create the presentation of the offers.'').
---------------------------------------------------------------------------
Accordingly, the Commission makes the following estimates of
initial year compliance costs.
Familiarization costs: All 106,000 firms selling negative options
will collectively incur final Rule familiarization costs of between
$35.97 million and $341.22 million.
Disclosure costs: 19,875 firms (i.e., .1875 x 106,000) will incur
no costs in bringing their disclosures into compliance with the
requirements of the final Rule because their disclosures are already
compliant. The remaining 86,125 firms will collectively incur costs of
between $3.96 million (i.e., $45.95 x 86,125) and $39.58 million (i.e.,
$459.50 x 86,125) to make their disclosures compliant with the final
Rule.
Cancellation costs: 19,875 firms (i.e., .1875 x 106,000) will incur
no costs in bringing their cancellation mechanisms into compliance with
the final Rule. 66,250 firms (i.e., .625 x 106,000) collectively will
incur costs of between $3.04 million (i.e., 1 x $45.95 x 66,250) and
$24.35 million (i.e., 8 x $45.95 x 66,250) to bring their online
cancellation mechanisms into compliance with the final Rule by
relabeling consumer-facing elements of their existing cancellation
architecture. 19,875 firms (i.e., .1875 x 106,000) collectively will
incur costs of between $0 and $10.57 million (i.e., 19,875 x $532.05)
to bring their telephonic cancellation mechanisms into compliance with
the final Rule.
The Commission notes that this analysis does not quantify costs for
the firms selling negative option plans that offer only in-person or
by-mail cancellation. The Commission assumes that, in complying with
this final Rule, these firms will choose to provide the alternative
cancellation method (by phone, online, or both) that makes the most
economic sense. The Commission also assumes that the cost of processing
a cancellation over the phone should be similar to or less than the
cost of processing a cancellation in person or by-mail for these firms.
Therefore, the Commission assumes that these firms will not incur
significant compliance
[[Page 90531]]
costs to provide an alternative cancellation method.
Recordkeeping costs: Collectively, firms will incur recordkeeping
costs of $6.54 million annually.
Total Initial Year Costs: Summing costs enumerated above, the
Commission estimates the costs of the Rule in the first year will range
between $49.52 and $422.26 million. These costs are presented in Table
6. The Commission assumes that these costs will be incurred by the end
of the initial year following the Rule's implementation.
Table 6--Total Initial Year Compliance Costs
[In millions, 2023 dollars]
------------------------------------------------------------------------
Low High
------------------------------------------------------------------------
Familiarization Costs................... $35.97 $341.22
Disclosure Costs........................ 3.96 39.57
Cancellation Mechanisms Costs........... 3.04 34.93
Recordkeeping Costs..................... 6.54 6.54
-------------------------------
Total Initial Year Costs............ 49.52 422.26
------------------------------------------------------------------------
(3) Ongoing Compliance Costs, Years 2 Through 10
Compliant disclosures, cancellation paths, and consumer-facing
information about cancellation mechanisms will form a ``template'' that
can be used without any incremental compliance costs as new
subscription products are added to a marketer's retinue of products
offered for sale via a negative option plan. The information relevant
to the sale of a new product may be ``dropped'' into the template in a
fill-in-the-blank way. The Commission assumes marketers, in the
ordinary course of business, know what is required for the disclosures
(e.g., the amounts consumers will be charged, when, by date or
frequency, such charges will occur, when consumers must act to stop
recurring charges, etc.) and consider the costs of entering this
information into established disclosure templates to be a routine cost
of doing business, not an incremental cost required by compliance with
the final Rule. The same will also be true for negative option plans
that are telemarketed or sold in person; once a telemarketing script or
an in-person sales disclosure form is developed in the initial year of
compliance, it becomes a template that readily can be used as new
subscription products are offered over time. Accordingly, once a
marketer comes into compliance with the final Rule there should be no
incremental costs of ongoing compliance with respect to disclosures and
cancellation mechanisms, and the costs of adding, changing, or deleting
products the marketer offers for sale via negative option will be no
different from what they would have been absent the final Rule.
The Commission can seek redress or civil penalties for violations
of the final Rule. Absent the final Rule, enforcement actions against
unfair or deceptive negative option practices would be brought under
section 5 where civil penalties are not available and where, post-AMG,
it is difficult to obtain redress. Accordingly, some negative option
marketers may pay closer attention to underlying claims made for
products marketed using negative option sales because of the monetary
relief available for violations of the final Rule relative to a section
5 enforcement action. This, however, is no different than what any firm
should do to assure that it is not in violation of section 5, and the
Commission considers the costs of attentiveness to section 5 compliance
as part of the existing regulatory baseline, not as costs that are
incremental to complying with the final Rule.
The U.K.'s ``Impact Assessment'' of its regulatory treatment of
subscription plans did not estimate ongoing compliance costs because
``the size of these costs . . . are likely small in comparison to the
one-off cost and benefits.'' \613\ In further support of this, the
``Impact Assessment'' cited a report that found that on-going costs
were meaningful only in relation to sending reminders to consumers
about their subscriptions, and only for firms that used postal mail
delivery and not electronically delivered reminders.\614\ The final
Rule does not contain a ``reminder'' requirement, and so the ongoing
costs of sending reminders to consumers, small though they may be, are
not ongoing costs of compliance with the final Rule.
---------------------------------------------------------------------------
\613\ U.K. ``Impact Assessment'' (2023) at 30.
\614\ ``We note for example, that Ofcom assessed . . . the
business costs of providing customers with notifications at the end
of their contracts. These involved possible ongoing costs related to
identifying customers that needed notifications on an ongoing basis
and providing them with the notification. After consultation with
stakeholders, Ofcom only estimated the costs of providing consumers
with letters, on the basis that only this medium had significant
ongoing costs.'' Id.
---------------------------------------------------------------------------
The experts' report submitted by IAB estimated 10 hours of attorney
time for annual compliance checks for the Rule proposed in the NPRM.
Because the final Rule has removed the most complex (and, therefore,
costly) features of the proposed Rule (e.g., double consent, the
treatment of ``saves'' in cancellation flows, and the issuance of
annual ``reminders'' for some subscriptions), the Commission assumes
half of the annual compliance check hours assumed in IAB's experts'
report, five hours, is an upper bound on attorney hours needed for
annual compliance checks. Moreover, the Commission assumes that some
firms will incur no incremental annual compliance check costs, either
because their pre-existing business practices followed what the final
Rule requires or because the platforms or payment processors they use
provide compliant disclosures and cancellation flows.\615\
---------------------------------------------------------------------------
\615\ See discussion in section VII.B.1.a.2 of this SBP and
n.146.
---------------------------------------------------------------------------
Accordingly, the Commission estimates the aggregate annual costs of
compliance checks to range between $0 and $44.97 million (i.e., 106,000
x 5 hours x $84.84/hour). Inclusive of recordkeeping costs, total
ongoing costs range between $6.54 million (i.e., $0 + $6.54 million)
and $51.51 million (i.e., $44.97 million + $6.54 million).
(4) Summary of Total Costs
Table 7 presents the initial and recurring costs of this Rule in
each year, as well as the present discounted value and annualized costs
over 10 years using a 2 percent discount rate. The Commission estimates
that in Year 1, the initial costs will range between $49.52 and $422.26
million. In each of the following years, the Commission estimates that
the recurring costs will range between $6.54 and $51.51 million. The
Commission estimates that the
[[Page 90532]]
present discounted value of costs over ten years, using a 2 percent
discount rate, will range between $100.89 and $826.15 million. The
Commission estimates that these costs, annualized over ten years using
a 2 percent discount rate, would range between $11.23 and $91.97
million per year.
Table 7--Total Quantified Costs
[In millions, 2023 dollars]
------------------------------------------------------------------------
Year Low High
------------------------------------------------------------------------
1....................................... $49.52 $422.26
2....................................... 6.54 51.51
3....................................... 6.54 51.51
4....................................... 6.54 51.51
5....................................... 6.54 51.51
6....................................... 6.54 51.51
7....................................... 6.54 51.51
8....................................... 6.54 51.51
9....................................... 6.54 51.51
10...................................... 6.54 51.51
-------------------------------
Present Discounted Value of Costs 100.89 826.15
over 10 years, 2% discount rate....
Annualized Costs over 10 years, 2% 11.23 91.97
discount rate......................
------------------------------------------------------------------------
(d) Sensitivity Analysis
As a sensitivity analysis, the Commission considers an alternative
method that does not rely on data from historical enforcement matters
for distributing subscription cancellations across the baseline
cancellation methods used to estimate quantified benefits. This
alternative method assumes the majority of subscriptions are enrolled
online and can be cancelled online in the baseline; whereas, in the
main analysis, the majority of subscriptions are enrolled online and
can only be cancelled by phone in the baseline. Compared with the main
analysis, this alternative method produces lower total quantified
benefits by $419.77 to $449.53 million annualized per year, yet the
estimated range of quantified benefits still exceeds the estimated
range of quantified costs.
(1) Number of Cancellations by Enrollment and Baseline Cancellation
Method
Under this sensitivity analysis, the Commission assumes that the
baseline number of subscriptions and cancellations is the same as in
the main analysis. The Commission also assumes the number of in-person
subscriptions, as proxied for by gym memberships, is the same as in the
main analysis. What differs here is the approach for determining the
share of cancellations likely to occur through online and telephone
methods.
The main analysis uses enforcement data to determine the share of
cancellations likely to occur through online and telephone methods.
This data may suffer from selection bias if, among other factors, only
the more egregious violations are pursued through enforcement methods.
This approach also assumes no marketers of negative option plans comply
with this Rule in the baseline. Further, because the data only include
resolved cases and resolved cases tend to be older, they are less
likely to reflect the current state of the market.
In this alternative analysis, the Commission uses statistics
discussed in the NPRM--that 106,000 firms offer negative option plans
and 2,000 of those firms are telemarketers.\616\ Based on that, the
Commission assumes 1.9 percent (i.e., 2,000/106,000) of subscriptions
and cancellations are enrolled and cancelled over the phone in the
baseline. The Commission then assumes the remaining cancellations of
subscriptions that were not enrolled over the phone or in person were
instead enrolled online.\617\
---------------------------------------------------------------------------
\616\ See NPRM, 88 FR 24733.
\617\ The Commission acknowledges this excludes subscriptions
that are enrolled by mail, likely resulting in an overestimate of
the number of subscriptions enrolled online.
---------------------------------------------------------------------------
To estimate the distribution of baseline cancellation methods of
subscriptions enrolled online, the Commission uses the results from an
experiment in which a researcher consented to 16 online subscriptions
between August 2 to October 4, 2022 and then canceled each one,
recording the time it took to cancel along with a variety of other
obstacles faced in cancelling.\618\ Of the 16 online subscriptions,
three were found to be easy to cancel online, indicating they are
likely in compliance with this Rule; three required phone calls to
cancel; and the remaining 10 had a non-straightforward online
cancellation method. Based on these results, the Commission assumes
18.75 percent (i.e., 3/16) of online subscriptions have Rule-compliant
cancellation methods in the baseline; 18.75 percent (i.e., 3/16) of
online subscriptions require telephone cancellation in the baseline;
and 62.5 percent (i.e., 10/16) of online subscription offer non-Rule-
compliant online cancellations in the baseline.
---------------------------------------------------------------------------
\618\ See Sinders (2023). Among the obstacles noted for
otherwise seemingly simple online cancellations were that some
websites did not use straight forward terms, such as ``unsubscribe''
or ``cancel,'' and instead put the cancellation path under titles
such as ``auto-renew'' or ``edit plan.''
---------------------------------------------------------------------------
Table 8 provides the number of subscription cancellations each year
distributed across the enrollment and regulatory baseline cancellation
methods: online enrollment and telephone cancellation; online
enrollment and non-Rule-compliant online cancellation; online
enrollment and Rule-compliant online cancellation; telephone enrollment
and telephone cancellation; and in-person enrollment.
[[Page 90533]]
Table 8--Sensitivity Analysis: Cancellations by Enrollment and Baseline Cancellation Method
[In millions]
----------------------------------------------------------------------------------------------------------------
Online Online
Online enrollment, enrollment, Telephone
Year enrollment, non-compliant compliant enrollment, In-person
telephone online online telephone enrollment
cancellation cancellation cancellation cancellation
----------------------------------------------------------------------------------------------------------------
1............................... 63.79 212.63 63.79 6.87 14.62
2............................... 64.28 214.27 64.28 6.93 14.73
3............................... 64.78 215.92 64.78 6.98 14.84
4............................... 65.27 217.56 65.27 7.03 14.96
5............................... 65.76 219.21 65.76 7.08 15.07
6............................... 66.26 220.85 66.26 7.14 15.18
7............................... 66.66 222.19 66.66 7.18 15.27
8............................... 67.06 223.54 67.06 7.22 15.37
9............................... 67.46 224.88 67.46 7.27 15.46
10.............................. 67.87 226.23 67.87 7.31 15.55
----------------------------------------------------------------------------------------------------------------
(2) Estimating Total Benefits
To estimate total quantified benefits under this sensitivity
analysis, the Commission uses the same matching of enrollment and
baseline cancellation methods to per-cancellation benefit estimates as
in the main analysis. The only difference here is that the Commission
assumes consumers who experience Rule-compliant online cancellations in
the baseline will not see any additional benefit as a result of this
final Rule.
As in the main analysis, the Commission multiplies the number of
cancellations in each category by the matched per-cancellation benefit
on the low- and the high-end and then sums across all five categories
to obtain total quantified benefits each year. Those totals are
presented in Table 9 below. In the first year following implementation
of the final Rule, the Commission estimates the benefits under this
sensitivity analysis will range between $254.85 million and $4.88
billion. In Year 10, the Commission estimates the benefits will range
between $271.15 million and $5.20 billion. Using a 2 percent discount
rate, the Commission estimates the present discounted value of benefits
over 10 years to range between $2.36 and $45.28 billion. Annualized
over 10 years using a 2 percent discount rate, the Commission estimates
the benefits to range between $263.06 million and $5.04 billion per
year. These annualized benefits estimates are between $419.77 and
$449.53 million less per year than the estimates from the main
analysis.
Table 9--Sensitivity Analysis: Estimates of Benefits
[In millions, 2023 dollars]
------------------------------------------------------------------------
Year Low High
------------------------------------------------------------------------
1....................................... $254.85 $4,883.26
2....................................... 256.82 4,921.01
3....................................... 258.79 4,958.77
4....................................... 260.76 4,996.53
5....................................... 262.73 5,034.29
6....................................... 264.70 5,072.05
7....................................... 266.31 5,102.91
8....................................... 267.92 5,133.77
9....................................... 269.54 5,164.63
10...................................... 271.15 5,195.49
-------------------------------
Present Discounted Value of Benefits 2,362.97 45,277.43
over 10 years, 2% discount rate....
Annualized Benefits over 10 years, 263.06 5,040.58
2% discount rate...................
Difference in Annualized Benefits -419.77 -449.53
from Main Analysis.................
------------------------------------------------------------------------
4. An explanation of the reasons for the determination of the
Commission that the final Rule will attain its objectives in a manner
consistent with applicable law and the reasons the particular
alternative was chosen.
As discussed above in sections I, II, and VII.A, the Commission
determines the following deceptive or unfair practices are widespread
in the negative option marketplace and cause consumer harm: (1)
material misrepresentations made while marketing goods or services with
negative option features; (2) failure to provide important information
about material terms prior to obtaining consumers' billing information
and charging consumers; (3) lack of informed consumer consent; and (4)
failure to provide consumers with a simple cancellation method,
including failure to honor cancellation requests, refusal to provide
refunds to consumers who unknowingly enrolled in programs, denying
consumers refunds and forcing them to pay to return the unordered
goods, and requiring consumers to cancel using a different method than
the one used to sign up for the program.
The final Rule amendments prohibit sellers from misrepresenting
material facts in connection with promoting or offering for sale a good
or service with a negative option feature, require negative option
sellers to disclose certain important 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 (unless the seller satisfies
[[Page 90534]]
the technological exemption), and provide consumers a simple mechanism
for cancellation. In promulgating the final Rule, the Commission sought
to enhance consumer protections while avoiding detailed, prescriptive
requirements that would impede innovation.
5. A summary of any significant issues raised by the comments
submitted during the public comment period in response to the
preliminary regulatory analysis and a summary of the assessment by the
Commission of such issues.
Several commenters (e.g., NCTA, IAB) raised concerns over the
Commission's conclusions regarding the economic effect of the proposed
Rule. NCTA asserted the NPRM lacked any meaningful cost-benefit
analysis, suggesting compliance with the proposed Rule would result in
significant costs to its members.\619\ Among other things, NCTA said
its members would be required to implement changes to their existing
customer processes, review and revise existing disclosures, and revamp
recordkeeping systems. During the informal hearing process, NCTA
further argued it could cost major cable operator members between $12-
25 million to comply with the proposed Rule.\620\ Additional commenters
also suggested compliance with the proposed Rule would cost more than
what the Commission estimated. None of them, however, offered any
empirical analysis of the issue. In response to these comments, and
following the presiding officer's recommended decision, the Commission
provides the detailed cost-benefit analysis above in Section X.B.3.
---------------------------------------------------------------------------
\619\ NCTA, FTC-2023-0033-0858; IAB, FTC-2023-0033-1000. See
also IFA, FTC-2023-0033-0856; USTelecom, FTC-2023-0033-0876; RILA,
FTC-2023-0033-0883; Coalition, FTC-2023-0033-0884; Chamber, FTC-
2023-0033-0885 (urging the Commission to refine its cost benefit
analysis).
\620\ FTC-2024-0001-0011; see also Asurion, FTC-2023-0033-0878
(stating the Commission's estimated annual labor costs are
understated, and projecting the costs to Asurion and its clients
would be millions of dollars); SCIC, FTC-2023-0033-0879 (cost of
compliance for the service contract industry would be substantially
higher than cost of compliance for unregulated entities, and
disproportionately borne by small businesses; APCIA, FTC-2023-0033-
0996 (same).
---------------------------------------------------------------------------
XI. Final Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-612,
requires the Commission to conduct an Initial Regulatory Flexibility
Analysis (``IRFA'') with a proposed rule and a Final Regulatory
Flexibility Analysis (``FRFA''), if any, with a final rule, unless the
Commission certifies the rule will not have a significant economic
impact on a substantial number of small entities.\621\ The Regulatory
Flexibility Act further states the required elements of the FRFA may be
performed in conjunction with or as part of any other agenda or
analysis required by any other law if such other analysis satisfies the
provisions of the FRFA.\622\
---------------------------------------------------------------------------
\621\ See 5 U.S.C. 603-605.
\622\ 5 U.S.C. 605.
---------------------------------------------------------------------------
In the NPRM, the Commission provided an IRFA, stating its belief
that the proposal will not have a significant economic impact on small
entities, and solicited comments on the burden on any small entities
that would be covered. Specifically, the Commission acknowledged it did
not have sufficient empirical data to determine whether the proposed
amendments may affect a substantial number of small entities;
therefore, the Commission sought comment on the percentage of affected
companies that qualify as small businesses.
The Commission reviewed and considered the comments in response to
the NPRM and determined, as an alternative to finalizing the proposed
Rule in its entirety, to modify the Rule. In particular, the Commission
decided to limit the material terms to be disclosed immediately
adjacent to consent for the negative option feature; remove the
limitation on saves and the accompanying recordkeeping requirement;
remove the annual reminder provision; and modify the length of the
recordkeeping requirement for verification of consent by fixing it to
three years and provide an alternative method of compliance. After
careful consideration of the comments and following the Commission's
determination not to finalize the proposed Rule in its entirety, the
Commission certifies that the final Rule will not have a significant
economic impact on a substantial number of small entities.
Nevertheless, because the Commission included an IFRA in the NPRM, the
Commission has also performed an FRFA below, and comments to the IFRA
are discussed below.
A. A statement of the need for, and objectives of, the Rule.
The Commission describes the need for and the objectives of the
final Rule in section X.B.1 to the Final Regulatory Analysis.
B. A statement of the significant issues raised by the public
comments in response to the Initial Regulatory Flexibility Analysis, a
statement of the assessment of the agency of such issues, and a
statement of any changes made in the proposed Rule as a result of such
comments.
Several commenters raised issues about the proposed Rule's economic
impact on small businesses. For instance, NFIB asked the Commission to
adopt a special provision that would limit enforcement of the Rule
against small businesses (fewer than 50 employees) to instances of
willful or repeated violations, and set up a program for education on
compliance.\623\ IFA and IHRSA encouraged the Commission to conduct a
``Small Business Regulatory Impact Analysis'' to determine how the
proposal will impact small businesses.\624\ IHRSA stated that small
businesses in the health and fitness industry operate at ``much
different capacity'' than larger industries, noting 44% of U.S. small
businesses have less than three months of cash reserves, making them
more vulnerable to disruptions.\625\ Similarly, ACT App Association
noted that roughly 20% of small business startups fail in the first
year due to scarcity in financial resources.\626\
---------------------------------------------------------------------------
\623\ NFIB, FTC-2023-0033-0789.
\624\ IFA, FTC-2023-0033-0856; IHRSA, FTC-2023-0033-0863.
\625\ IHRSA, FTC-2023-0033-0863.
\626\ ACT App Association, FTC-2023-0033-0874.
---------------------------------------------------------------------------
Other commenters, including PDMI, ESA, Joint Small Business Digital
Economy Innovators, and ICA, generally stated the proposed Rule would
impose unnecessary and undue burdens on small businesses, but did not
offer any detailed empirical data for the Commission to consider.\627\
---------------------------------------------------------------------------
\627\ PDMI, FTC-2023-0033-0864; ESA, FTC-2023-0033-0867; Joint
Small Business Digital Economy Innovators, FTC-2023-0033-0875; ICA,
FTC-2023-0033-1142.
---------------------------------------------------------------------------
In response, the Commission first notes its sensitivity to small
businesses' concerns. It provides numerous free resources through the
Bureau of Consumer Protection Business Center web page \628\ to assist
businesses of all sizes in complying with the law and will engage in
consumer and business education campaigns about this Rule. Second, in
consideration of comments regarding regulatory burden, the Commission
clarifies or modifies the Rule in several significant ways: (1) it
defines ``material'' and provides several concrete categories of
material facts to ensure businesses have a clear understanding of how
it will interpret materiality under the Rule; (2) it limits the number
of terms that must mandatorily appear ``immediately adjacent'' to the
request for consent to
[[Page 90535]]
the negative option feature; (3) it removes the requirement to obtain
separate affirmative consent to ``the rest of the transaction'' and
modifies the recordkeeping requirement; (4) it removes the saves and
annual reminder requirements, which also should reduce recordkeeping
and compliance burdens. Additionally, the Commission delays the
effective date of the final Rule for 180 days to allow time for
implementation (except for the provisions related to misrepresentations
and other procedural requirements, which should not be an added burden
for businesses already complying with the law and which take effect 60
days after publication of the final Rule).
---------------------------------------------------------------------------
\628\ https://www.ftc.gov/business-guidance.
---------------------------------------------------------------------------
C. The response of the agency to any comments filed by the Chief
Counsel for Advocacy of the Small Business Administration in response
to the proposed Rule, and a detailed statement of any change made to
the proposed rule in the final Rule as a result of the comments.
The Small Business Administration did not file comments in response
to the proposed Rule.
D. A description of and an estimate of the number of small entities
to which the Rule will apply or an explanation of why no such estimate
is available.
The final Rule affects sellers, regardless of industry, engaged in
making negative option offers, defined by the final Rule to mean any
person ``selling, offering, charging for, or otherwise marketing goods
or services with a Negative Option Feature.'' \629\ Small entities in
potentially any industry could incorporate a negative option feature
into a sales transaction.\630\ 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.
Although the NPRM requested comments on the percentage of affected
companies that qualify as small businesses, and some trade association
commenters indicated that some of their members were small businesses,
these comments did not identify either the number or share of their
small business members that sold negative option contracts.
---------------------------------------------------------------------------
\629\ Rule Sec. 425.2(g).
---------------------------------------------------------------------------
E. A description of the projected reporting, recordkeeping, and
other compliance requirements of the Rule, including an estimate of the
classes of small entities which will be subject to the requirement and
the type of professional skills necessary for preparation of the report
or record.
The estimates of the recordkeeping requirements under the final
Rule are set out within the Paperwork Reduction Act analysis in section
XII below. As mentioned above, the Commission preliminarily determined
the impact of the 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.,
all entities selling goods or services through negative option
programs). The professional skills necessary for compliance with the
proposed amendments would include sales and clerical personnel. The
Commission requested comment on these issues.
In the NPRM, The FTC estimated the majority of firms subject to the
recordkeeping requirements already retained these types of records in
the normal course of business. The FTC anticipated many transactions
subject to the final Rule would be conducted via the internet,
minimizing burdens associated with compliance. Additionally, most
entities subject to the final Rule were likely to store data though
automated means, which reduces compliance burdens associated with
record retention. Furthermore, regarding the disclosure requirements,
the Commission stated it was 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 ROSCA and the TSR
and thus subject to similar disclosure requirements.
Commenters provided additional comments, suggesting small
businesses will be significantly impacted, and the Commission
underestimated the burdens. Recordkeeping and disclosure costs
associated with the Rule became one of the issues designated for the
informal hearing, after which the presiding officer determined ``the
issue is not genuinely disputed,'' noting the failure of interested
parties to ``provide any evidence to establish what the costs would
be,'' as opposed to generalized complaints ``costs will be higher than
the NPRM's estimates.'' \631\ As explained in the Paperwork Reduction
Act estimates below and elsewhere in this SBP, the Commission made
changes to the Rule based on the record. Specifically, the Commission
determined to specify and thereby limit the types of disclosures
required, narrow the scope of entities covered (by excluding those
solely involved in ``promoting'' negative option plans), curtail the
length of time for retaining records (to only three years), and
establish an option for sellers to eliminate having to keep records of
consent if they have the requisite processes in place. Because neither
the Commission nor the presiding officer at the informal hearing
received evidence to dispute the recordkeeping and disclosure costs
figures in the NPRM, the Commission adopts the NPRM's analysis. Given
the narrower scope of the final Rule, that analysis should be more
conservative and tend to overstate the burden.
---------------------------------------------------------------------------
\631\ Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-2024-0001-0042 (emphasis in
original).
---------------------------------------------------------------------------
F. A description of the steps the agency has taken to minimize the
significant economic impact on small entities consistent with the
stated objectives of applicable statutes, including a statement of the
factual, policy, and legal reasons for selecting the alternative
adopted in the final Rule and why each one of the other significant
alternatives to the Rule considered by the agency which affect the
impact on small entities was rejected.
In formulating the proposed amendments, the Commission made every
effort to avoid imposing unduly burdensome requirements on sellers. To
that end, the Commission avoided, where possible, proposing specific,
prescriptive requirements that could stifle marketing innovation or
otherwise limit seller options in using new technologies.
As explained above, in response to comments regarding regulatory
burden, the Commission clarifies or modifies the Rule in several
significant ways: (1) it defines ``material'' and provides several
concrete categories of material facts to ensure businesses have a clear
understanding of how it will interpret materiality under the Rule; (2)
it limits the number of terms that must mandatorily appear
``immediately adjacent'' to the request for consent to the negative
option feature; (3) it removes the requirement to obtain separate
affirmative consent to ``the rest of the transaction'' and modifies the
recordkeeping requirement; (4) it removes the saves and annual reminder
requirements, which also should reduce recordkeeping and compliance
burdens. Additionally, the Commission delays the effective date of the
final Rule for 180 days to allow time for implementation (except for
the provisions related to misrepresentations and other procedural
requirements, which should not be an added burden
[[Page 90536]]
for businesses already complying with the law and which take effect 60
days after publication of the final Rule).
XII. Paperwork Reduction Act
The Paperwork Reduction Act (``PRA''), 44 U.S.C. 3501 et seq.,
requires Federal agencies to obtain Office of Management and Budget
(``OMB'') approval before collecting information directed to ten or
more persons. The current Rule contains various provisions that
constitute information collection as defined by 5 CFR 1320.3(c), the
OMB regulations implementing the PRA. In January 2024, OMB approved
continuation of the Rule's existing information collection (OMB Control
No. 3084-0104). The final Rule makes changes in the Rule's
recordkeeping and disclosure requirements that will increase the PRA
burden as detailed below. Accordingly, the Commission is submitting the
final Rule and a Supplemental Supporting Statement to OMB for review
under the PRA.\632\ The associated burden analysis follows.
---------------------------------------------------------------------------
\632\ The PRA analysis for this rulemaking focuses strictly on
the information collection requirements created by and/or otherwise
affected by the amendments.
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A. The Proposed Rule
In the NPRM, the Commission provided time and cost estimates for
the proposed Rule's recordkeeping and disclosure requirements, and
solicited comments about their associated costs, including 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.\633\
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\633\ 88 FR 24734.
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The NPRM also included staff's estimate that the burden for
recordkeeping compliance would be 53,000 hours and the estimated burden
for disclosures would be 212,000 hours, for a total of 265,000 hours.
These estimates are explained below.
Number of Respondents. FTC staff estimated there are 106,000
entities 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.\634\ However, FTC staff estimated 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 estimated
approximately 106,000 business entities (20%) offer negative option
features to consumers.
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\634\ 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. FTC staff estimated the majority of firms
subject to the Rule already retain the types of records in the normal
course of business that would be required by the proposed Rule. Under
such conditions, the time and financial resources needed to comply with
disclosure requirements do not constitute ``burden'' under the
PRA.\635\ Moreover, staff anticipated 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
estimated 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.
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\635\ Under the PRA, the time, effort, and financial resources
necessary to comply with the 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 a
burden under the Rule where the associated recordkeeping is a usual
and customary part of business activities. 5 CFR 1320.3(b)(2).
---------------------------------------------------------------------------
Disclosure Hours. Staff anticipated that the substantial majority
of sellers already routinely provide the disclosures that would be
required by the proposed Rule. 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 TSR and subject to its disclosure
requirements. Accordingly, FTC estimated 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.
Estimated Annual Labor Cost. To estimate labor costs for
recordkeeping requirements, staff multiplied the 53,000 hours to comply
with the proposed Rule's recordkeeping provisions by a clerical wage
rate of $18.75/hour.\636\ The result is an annual cost of approximately
$993,750.
---------------------------------------------------------------------------
\636\ This figure is derived from the mean hourly wage shown for
Information and Record Clerks. See Bureau of Labor Statistics,
``Occupational Employment and Wages--May 2021,'' at Table 1 (Mar.
31, 2022) (National employment and wage data from the Occupational
Employment Statistics survey by occupation, May 2021), https://www.bls.gov/news.release/pdf/ocwage.pdf.
---------------------------------------------------------------------------
To estimate annual labor costs for disclosures for all entities,
staff multiplied the 212,000 hours to comply with the proposed Rule's
disclosure provisions by a sales personnel wage rate of $22.15/
hour.\637\ The result is an annual cost of approximately $4,695,800.
---------------------------------------------------------------------------
\637\ This figure is derived from the mean hourly wage shown for
Sales and related occupations. See id.
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Thus, the estimated annual labor costs were $5,689,550 [($993,750
recordkeeping) + ($4,695,800 disclosure)].
Estimated Annual Non-Labor Cost. The NPRM stated 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.
B. Comments Received and Informal Hearing
The NPRM sought comments on the PRA analysis and stated, ``comments
should provide any available evidence and data that supports their
position, such as empirical data.'' \638\ The Commission did not
receive such evidence. A few commenters from businesses and industry
groups, however, raised generalized concerns
[[Page 90537]]
that the NPRM underestimated PRA-related costs.\639\
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\638\ 88 FR 24730.
\639\ Sirius XM, FTC-2023-0033-0857; SCIC, FTC-2023-0033-0879;
Coalition, FTC-2023-0033-0884; ETA, FTC-2023-0033-1004; Direct
Marketing Companies, FTC-2023-0033-1016. In addition, one commenter
seemingly confused PRA-related costs with full implementation of the
Rule, but still offered only generalized points. See Asurion, FTC-
2023-0033-0878. Another commenter queried whether the Commission's
estimate of the number of firms offering negative option features
include B2B sales with automatic renewal clauses. ETA, FTC-2023-
0033-1004. The staff estimate did not seek to exclude such sellers.
---------------------------------------------------------------------------
As noted earlier, the Commission set an informal hearing, at the
request of interested parties, and appointed Administrative Law Judge
Carol Fox Foelak as the presiding officer.\640\ Based on submissions by
interested parties, and other information in the record, the presiding
officer designated two disputed issues of material fact, including,
``What will the recordkeeping and disclosure costs associated with the
proposed rule be?'' \641\
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\640\ Hr'g Notice, 88 FR 85525.
\641\ Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-2024-0001-0042.
---------------------------------------------------------------------------
Based on the record, the presiding officer concluded, ``There is
insufficient evidence to make a finding concerning the . . .
recordkeeping and disclosure costs associated with the proposed rule,''
and ``in the absence of evidence, the issue is not genuinely
disputed.'' \642\ The presiding officer further explained: ``IAB made a
well-reasoned argument that the costs will be higher than the NPRM's
estimates, generalizing from limited estimates that it, IFA, and NCTA
provided. However, it did not provide any evidence to establish what
the costs would be.'' \643\
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\642\ Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-2024-0001-0042.
\643\ Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-2024-0001-0042.
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C. Final PRA Analysis
As previously discussed, the Commission made changes to the Rule
based on the record. Some of these changes, in turn, affect the PRA
analysis. Specifically, the Commission determined to specify and
thereby limit the types of disclosures required, narrow the scope of
entities covered (by excluding those solely involved in ``promoting''
negative option plans), curtail the length of time for retaining
records (to only three years), and establish an option for sellers to
eliminate having to keep records of consent if they have the requisite
processes in place. Neither the Commission nor the presiding officer at
the informal hearing received evidence to dispute the specific PRA-
related figures in the NPRM. For the final Rule, the Commission adopts
the following PRA analysis.
Number of Respondents. The Commission received no evidence to
dispute the NPRM's statements on the number of entities offering
negative option features to consumers, so the Commission adopts the
NPRM estimate that there are 106,000 such entities. Although the final
Rule is narrower in that it excludes the term ``promote'' from its
scope, the Commission retains the estimate of 106,000 entities for the
purposes of this analysis, which would be more conservative and tend to
overstate the burden.
Recordkeeping Hours. The Commission received no evidence to dispute
the NPRM's statements on recordkeeping under the PRA. As the final Rule
is narrower, the time and financial resources needed to comply with
disclosure requirements still do not constitute ``burden'' under the
PRA.\644\ Accordingly, the Commission adopts the NPRM estimate 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.
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\644\ Under the PRA, the time, effort, and financial resources
necessary to comply with the 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 a
burden under the Rule where the associated recordkeeping is a usual
and customary part of business activities. 5 CFR 1320.3(b)(2).
---------------------------------------------------------------------------
Disclosure Hours. Similarly, the Commission received no evidence to
dispute the NPRM's statements on disclosure hours under the PRA. As the
final Rule narrowed and delineated the types of disclosures required,
the time and financial resources associated with making these
disclosures is even less than under the proposed Rule, which also did
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).
Accordingly, the Commission adopts the NPRM estimate that 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.
Estimated Annual Labor Cost. The Commission received no evidence to
dispute the NPRM's statements on labor costs under the PRA. For the
final Rule, the Commission updates its labor cost estimates by using
more recent wage data. For recordkeeping, staff multiplied the 53,000
estimated hours to comply with the Rule's recordkeeping provisions by a
clerical wage rate of $20.94/hour,\645\ to yield an annual cost of
approximately $1,109,820. For disclosure compliance, staff multiplied
the 212,000 estimated hours by an hourly wage rate for sales personnel
of $25.62,\646\ to yield an annual cost of $5,431,440. Thus, the
estimated total annual labor costs are $6,541,260 [($1,109,820
recordkeeping) + ($5,431,440 disclosure)].
---------------------------------------------------------------------------
\645\ This figure is derived from the mean hourly wage shown for
Information and Record Clerks. See Bureau of Labor Statistics,
``Occupational Employment and Wages, May 2023, 43-9061 Office
Clerks, General,'' https://www.bls.gov/oes/currenT/oes439061.htm.
\646\ This figure is derived from the mean hourly wage shown for
Sales and related occupations. See id.
---------------------------------------------------------------------------
Estimated Annual Non-Labor Cost. The Commission received no
evidence to dispute the NPRM's statements that capital and start-up
costs associated with the Rule's recordkeeping provisions are de
minimis under the PRA. The Commission adopts those findings.
List of Subjects in 16 CFR Part 425
Advertising, Consumer protection, Trade practices.
0
For the reasons stated in the preamble, the Federal Trade Commission
revises 16 CFR part 425 to read as follows:
PART 425--RULE CONCERNING RECURRING SUBSCRIPTIONS AND OTHER
NEGATIVE OPTION PROGRAMS
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 Relation to State laws.
425.8 Exemptions.
425.9 Severability.
Authority: 15 U.S.C. 41 through 58.
Sec. 425.1 Scope.
This Rule contains requirements related to any form of negative
option program in any media, including, but not limited to, Interactive
Electronic Media, telephone, print, and in-person transactions.
Sec. 425.2 Definitions.
Billing Information means any data that enables any person to
access a consumer's account, such as a credit card, checking, savings,
share or similar account, utility bill, mortgage loan account, or debit
card.
[[Page 90538]]
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.
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, mobile application, or software, the disclosure
must be unavoidable.
(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, older adults, or the terminally ill,
``ordinary consumers'' includes members of that group.
Interactive Electronic Medium is any electronic means of
communicating (except via telephone calls), including internet, mobile
application, text, chat, instant message, email, software, or any
online service.
Material means likely to affect a person's choice of, or conduct
regarding, goods or services.
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.
Negative Option Seller means the person selling, offering, charging
for, or otherwise marketing a good or service with 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 part
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,
including any of the following:
(a) The Negative Option Feature or any term of the Negative Option
Feature, including consumer consent, any deadline to prevent or stop a
Charge, or the cancellation of the Negative Option Feature;
(b) Cost;
(c) Purpose or efficacy of the underlying good or service;
(d) Health or safety; or
(e) Any other Material fact.
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 part 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, all Material terms, regardless of whether those terms
directly relate 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) Each deadline (by date or frequency) by which the consumer must
act to prevent or stop the Charges;
(3) The amount (or range of costs) the consumer will be Charged
and, if applicable, the frequency of the Charges a consumer will incur
unless the consumer takes timely steps to prevent or stop those
Charges; and
(4) The information necessary for the consumer to find the simple
cancellation mechanism required pursuant to Sec. 425.6.
(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) The disclosures required by paragraphs (a)(1) through (4) of
this section must appear immediately adjacent to the means of recording
the consumer's consent for the Negative Option Feature; and
(ii) The disclosures required by paragraph (a) of this section
(including, but not limited to, the disclosures required by paragraphs
(a)(1) through (4) of this section) must appear before obtaining the
consent required pursuant to Sec. 425.5.
(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 required by
paragraph (a) of this section.
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 part 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;
and
(3) Keep or maintain verification of the consumer's consent for at
least three years. However, if the seller can
[[Page 90539]]
demonstrate by a preponderance of the evidence that it uses processes
ensuring no consumer can technologically complete the transaction
without consent, such seller does not have to maintain these records
for such transactions.
(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 16 CFR part 310, including, for transactions involving
preacquired account information and a free-to-pay-conversion feature,
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 16 CFR
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)(1) 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; avoid being Charged, or
Charged an increased amount, for the good or service; and immediately
stop any recurring Charges.
(b) Simple mechanism at least as simple as consent. The simple
mechanism required by paragraph (a) of this section must be at least as
easy to use as the mechanism the consumer used to consent to the
Negative Option Feature.
(c) Minimum requirements for simple mechanism. At a minimum, the
Negative Option Seller must provide the simple mechanism required by
paragraphs (a) and (b) of this section through the same medium the
consumer used to consent to the Negative Option Feature, and:
(1) For cancellation by Interactive Electronic Medium, the simple
cancellation mechanism must be easy to find when the consumer seeks to
cancel. Compliance with the disclosure required under Sec. 425.4(a)(4)
does not discharge this obligation. In no event shall a consumer be
required to interact with a live or virtual representative (such as a
chatbot) to cancel if the consumer did not do so to consent to the
Negative Option Feature.
(2) For cancellation by telephone call, the Negative Option Seller
must promptly effectuate cancellations requested by the consumer via a
telephone number that is answered or records messages, made available
during normal business hours, and not more costly to use than the
telephone call the consumer used to consent to the Negative Option
Feature.
(3) For cancellation of consent obtained in person, in addition to
offering cancellation, where practical, via an in-person method similar
to that the consumer used to consent to the Negative Option Feature,
the Negative Option Seller must offer the simple mechanism through an
Interactive Electronic Medium or by providing a telephone number. The
alternate simple mechanism required by this paragraph must satisfy all
requirements of paragraphs (c)(1) and (2) of this section, as
applicable. If the Negative Option Seller offers the alternate
mechanism by providing a telephone number, the seller shall not erect a
cost-barrier to cancellation by imposing any unnecessary or
unreasonable cost for the cancellation call.
Sec. 425.7 Relation to State laws.
(a) In general. This part shall not be construed as superseding,
altering, or affecting any State statute, regulation, order, or
interpretation relating to negative option requirements, except to the
extent it 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 it affords any
consumer greater protection than provided under this part.
Sec. 425.8 Exemptions.
Any person to whom this part applies may petition the Commission
for a partial or full exemption. The Commission may, in response to
petitions or on its own authority, issue partial or full exemptions
from this part if the Commission finds application of this part's
requirements is not necessary to prevent the acts or practices to which
this part relates. The Commission shall resolve petitions using the
procedures provided in 16 CFR 1.31. If appropriate, the Commission may
condition such exemptions on compliance with alternative standards or
requirements to be prescribed by the Commission.
Sec. 425.9 Severability.
The provisions of this part are separate and severable from one
another. If any provision is stayed or determined to be invalid, the
remaining provisions shall continue in effect.
By direction of the Commission, Commissioners Holyoak and
Ferguson dissenting.
April J. Tabor,
Secretary.
Note: The following statements will not appear in the Code of
Federal Regulations.
Statement of Commissioner Rebecca Kelly Slaughter
As is common in rulemaking proceedings, this Final Rule that the
Commission promulgates is somewhat different from what it originally
proposed--clarified, narrowed, and ultimately improved by the
process of grappling with the substantial record of comments
submitted by the public. I extend my heartfelt thanks to everyone
who submitted comments; to the talented staff in our Division of
Enforcement and the East Central Regional Office who diligently
shepherded this proceeding, thoroughly considered all those
comments, and recommended thoughtful revisions; and to my colleagues
for their deep engagement with this issue of great importance,
including former Chairman Joe Simons, under whose leadership the
Commission initiated this rulemaking proceeding.
I write separately to draw attention to the comment record about
a provision that the Commission proposed but ultimately does not
finalize, proposed Sec. 425.7, which would have required annual
reminders of subscriptions that do not involve the delivery of
physical goods.\1\ Americans understand the importance and value of
such a requirement; many have discovered that they or their parents
had been paying for years or even decades for a service wholly
unused, such as a dial-up internet service from the
[[Page 90540]]
1990s.\2\ The reason that the Commission declines to finalize this
proposal is not that it lacks policy merit but that the record in
total does not support its inclusion in the Final Rule as
proposed.\3\ Of course, we are always mindful that our authority
under the FTC Act to issue rules under section 18 has limits;
sometimes, as here, those limits prevent us from codifying in a rule
practices that we might, as a matter of policy, prefer to require
explicitly.
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\1\ See Negative Option Rule, 88 FR 24716, 24736 (proposed Apr.
24, 2023) (``Annual reminders for negative option features not
involving physical goods.'') (to be codified at 16 CFR 425.7),
https://www.federalbregister.gov/documents/2023/04/24/2023-07035/negative-option-rule.
\2\ See, e.g., Cmt. of the Attorneys General of New York,
Pennsylvania, Alabama, Arizona, California, Colorado, Connecticut,
Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Jersey,
North Carolina, North Dakota, Oklahoma, Oregon, Vermont, Washington,
and Wisconsin (June 23, 2023), at 15 (``Subscription management has
become an entire industry; consumers can choose from a variety of
companies that offer to monitor their recurring subscriptions. We
believe that consumers should not have to sign up for yet another
service--one that comes with privacy and security risks, as
subscription monitoring services require sharing financial account
and other sensitive information--in order to effectively manage
their subscriptions.''), https://www.regulations.gov/comment/FTC-2023-0033-0886; Cmt. of Consumer Action, Consumer Federation of
America, Demand Progress Education Fund, National Association of
Consumer Advocates, National Consumer Law Center (on behalf of its
low-income clients), and National Consumer League (June 23, 2023),
at 7 (``Consumers deserve to know when they are about to be charged
automatically, with a chance to opt out.''), https://www.regulations.gov/comment/FTC-2023-0033-0880; Cmt. of Profs.
Caruso, Raghavan, Sovern, Vladeck, Pridgen, Janger, Ondersma, and
Block-Lieb (June 23, 2023), at 7-8 (encouraging the Commission to
adopt the reminder requirement without narrowing it), https://www.regulations.gov/comment/FTC-2023-0033-0861.
\3\ See Fed. Trade Comm'n, Negative Option Rule, Final Rule
Statement of Basis and Purpose (Oct. 16, 2024) (draft as submitted
to the Office of the Federal Register), at 138-44.
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Congress and State legislatures, by contrast, have plenary
authority to require such a reminder. This spring, for example, in a
show of bipartisanship, Virginia Governor Glenn Youngkin signed into
law legislation sponsored by Delegate Michelle Lopes Maldonado, H.B.
744, which requires that subscriptions that renew annually provide
to the consumer a notice of the upcoming renewal and the opportunity
to cancel via between 30 and 60 days before the consumer is charged
for the renewal.\4\ The comment record compiled in this rulemaking
proceeding strongly supports the wisdom of Federal and State
legislators' carefully considering adopting such a law, and the
Final Rule's omission of such a provision should be understood only
as a reflection of the Commission's cautious approach to its
jurisdictional limits and not as related to the merits of a policy
that requires annual reminders for subscription services.
---------------------------------------------------------------------------
\4\ See 2024 Va. Acts, H. 744, Apr. 4, 2024 (to be codified at
section 59.1-207.46(E)), https://legacylis.virginia.gov/cgi-bin/legp604.exe?241+ful+CHAP0452+pdf.
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Dissenting Statement of Commissioner Melissa Holyoak
``Article I of the Constitution vests `all legislative Powers
herein granted' in Congress. `By vesting the lawmaking power in the
people's elected representatives, the Constitution sought to ensure
not only that all power would be derived from the people, but also
that those entrusted with it should be kept in dependence on the
people.' '' \1\ Whenever we engage in rulemaking, the Commission
should recall that Article I of the Constitution vests legislative
powers in Congress, not with agencies. Because of that, it is
elected officials that delineate the boundaries, and set the
requirements, that we as Commissioners must adhere to. I believe the
Commission exceeds those boundaries and requirements in amendments
to the Negative Option Rule, 16 CFR part 425, (``Rule'') it
finalizes today. Instead of pursuing targeted enforcement efforts or
finalizing a rule consistent with the Commission's authority under
section 18 of the FTC Act,\2\ the Commission has used its limited
resources to promulgate a broader regulation that may not survive
legal challenge.\3\
---------------------------------------------------------------------------
\1\ Dissenting Statement of Comm'r Melissa Holyoak, Joined by
Comm'r Andrew N. Ferguson, In the Matter of the Non-Compete Clause
Rule, FTC Matter No. P201200, at 1 (June 28, 2024) (quoting U.S.
Const. Art. I and W. Virginia v. EPA, 597 U.S. 697, 737-38 (2022)
(Gorsuch, J., concurring)) (cleaned up), https://www.ftc.gov/system/files/ftc_gov/pdf/2024-6-28-commissioner-holyoak-nc.pdf.
\2\ 15 U.S.C. 57a.
\3\ Cf. Dissenting Statement of Comm'r Melissa Holyoak, Joined
by Comm'r Andrew N. Ferguson, supra note 1, at 2 (``My dissent
should not, however, be interpreted to mean that I endorse all non-
compete agreements. To the contrary, I would support the
Commission's prosecution of anti-competitive non-compete agreements,
where the facts and law support such enforcement. That is why I am
particularly disappointed that the Commission dedicated the
Commission's limited resources to a broad rulemaking that exceeds
congressional authorization and will likely not survive legal
challenge.'') (citation omitted).
---------------------------------------------------------------------------
The likely unlawful character of the rule is compounded by the
Majority's race to cross the finish line. Why the rush? There is a
simple explanation. Less than a month from election day, the Chair
is hurrying to finish a rule that follows through on a campaign
pledge made by the Chair's favored presidential candidate.\4\
---------------------------------------------------------------------------
\4\ See, e.g., A New Way Forward for the Middle Class: A Plan to
Lower Costs and Create an Opportunity Economy, KamalaHarris.com, at
33 (Sept. 2024) (``Under her leadership as Vice President, the
Administration has launched a historic effort to crack down on junk
fees and save consumers time and money. This includes [a rule] to .
. . make it as easy to cancel a subscription as it is to subscribe.
. . . A Harris-Walz Administration will . . . continue to take on
the everyday hassles that waste Americans' time and money,
[including] subscriptions. . . .'') (citing FTC press release),
https://kamalaharris.com/wp-content/uploads/2024/09/Policy-Book-Economic-Opportunity.pdf.
---------------------------------------------------------------------------
The Majority votes today to approve a final trade regulation
rule amendment to the existing negative option rule. This amendment
greatly expands the prior rule, which had covered now-rare
prenotification plans (e.g., book-of-the-month clubs)--and goes well
beyond what existing laws, such as the Restore Online Shoppers'
Confidence Act (``ROSCA''),\5\ Telemarketing Sales Rule
(``TSR''),\6\ or Regulation E,\7\ require. The now-capacious Rule
creates potential civil penalty liability for: any misrepresentation
of material fact made in connection with the marketing of a product
or service that has a negative option feature (Sec. 425.3); failure
to disclose all material terms before obtaining billing information
in connection with a negative option (Sec. 425.4); failure to
obtain express informed consent before charging in connection with a
negative option (Sec. 425.5); and failure to provide a simple
mechanism for cancelling a negative option (Sec. 425.6). The Rule
also preempts inconsistent State laws (Sec. 425.7).
---------------------------------------------------------------------------
\5\ 15 U.S.C. 8401-8405.
\6\ 16 CFR part 310.
\7\ 12 CFR 1005.10.
---------------------------------------------------------------------------
I respectfully dissent for three reasons. First, this rulemaking
did not follow the FTC Act's section 18 requirements for rulemaking
because: (1) the Rule is much broader than the ``area of inquiry''
proposed by the advance notice of proposed rulemaking (``ANPR'');
(2) the Rule fails to define with specificity acts or practices that
are unfair or deceptive, improperly generalizing from narrow
industry-specific complaints and evidence to the entire American
economy; and (3) the Rule fails to demonstrate that the unfair or
deceptive acts or practices related to negative option billing are
``prevalent.'' \8\ Second, the Rule's breadth incentivizes companies
to avoid negative option features that honest businesses and
consumers find valuable. Third, the Rule represents a missed
opportunity to make useful amendments to the preexisting negative
option rule within the scope of the Commission's authority.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 57a.
---------------------------------------------------------------------------
Such amendments could have provided greater clarity to
businesses about the patchwork of Federal laws pertaining to
negative options and lawfully used our section 18 rulemaking
authority to fill potential gaps including, for example,
cancellation requirements. Indeed, I am very concerned that
consumers are sometimes misled by companies using deceptive negative
option features. The Rule represents a missed opportunity to devote
scarce staff resources to bringing enforcement actions related to
negative option features using the clear tools that Congress gave
us, rather than conducting an overbroad rulemaking that cost years
of staff time to propose and finalize, but will likely not survive
legal challenge.
Today's rulemaking did not need to end this way. Had political
leadership at the Commission taken more time to engage with other
Commissioners to refine and improve the Rule, my vote and statement
would look very different. Instead, less than a month from November
5, the Chair has put political expediency over getting things right.
Unfortunately, pushing politically motivated rulemakings has not
been the exception with the Majority.\9\ Today, I believe we are
seeing another low in our abuse and misuse of the tools Congress has
given us. Rather than engage in blatant electioneering to advance
political ends, the Commission should have
[[Page 90541]]
instead focused on stewarding its resources effectively and in ways
that restore our institutional legitimacy, not further undermine it.
---------------------------------------------------------------------------
\9\ See generally Dissenting Statement of Comm'r Melissa
Holyoak, Joined by Comm'r Andrew N. Ferguson, supra note 1.
---------------------------------------------------------------------------
I. The historical context surrounding Congress's enactment of
rulemaking requirements in section 18 of the FTC Act is important.
Congress passed the Magnuson-Moss Warranty Act in 1975, which
imposed exacting requirements and limitations on rulemaking
regarding unfair or deceptive acts or practices.\10\ In the 1970s,
the Commission tried to use its rulemaking and unfairness authority
aggressively--for example, ``to ban all advertising directed to
children on the grounds that it was `immoral, unscrupulous, and
unethical' and based on generalized public policies to protect
children.'' \11\ In response, Congress refused to fund the
Commission, shutting it down for several days.\12\ Even this harsh
rebuff did not completely cool Congressional ire with the ``National
Nanny'' (as the Washington Post--no bastion of conservative
thought--facetiously dubbed the Commission).\13\ A 1979 Senate
Report found that the agency's rulemaking efforts were filled with
``excessive ambiguity, confusion, and uncertainty.'' \14\ In 1980,
Congress legislated to limit the Commission's authority, by imposing
additional procedural obligations on section 18 rulemaking.\15\
Among other things, Congress created additional procedural rights,
well beyond the Administrative Procedure Act's baseline procedural
requirements, such as requiring the FTC to issue an ANPR with
numerous specific requirements, which the Commission must submit to
Congress, for each rulemaking.\16\
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\10\ Magnuson-Moss Warranty Act of 1975, Public Law 93-637, 88
Stat. 2183.
\11\ See J. Howard Beales III, The Fed. Trade Comm'n's Use of
Unfairness Authority: Its Rise, Fall, and Resurrection, 22 J. of
Pub. Pol'y & Mktg. 192, 193 (2003) (citing FTC Staff Report on
Television Advertising to Children (Feb. 1978); Notice of Proposed
Rulemaking on Television Advertising to Children, 43 FR 17967 (Apr.
27, 1978)). In the 1970s, the Commission aggressively used its
rulemaking authority--so aggressively that it has been called the
``second most powerful legislature in America.'' Timothy J. Muris,
The Consumer Protection Mission: Guiding Principles and Future
Direction, 51 Antitrust L.J. 625, 625 (1982). The approach of
today's Majority threatens to turn back the clock to this earlier,
ill-advised approach.
\12\ Id. at 193.
\13\ Id.
\14\ S. Rep. No. 96-500, at 3 (1979).
\15\ Federal Trade Commission Improvements Act of 1980, Public
Law 96-252, 94 Stat. 374.
\16\ Id.
---------------------------------------------------------------------------
Congress' harsh reaction to the FTC's overreach only makes sense
if we understand that section 18 was created and then expanded not
to give the Commission free-ranging rulemaking authority, but to
curb it. We should be exacting in following the requirements of
section 18, lest we risk repeating history--drawing Congressional
ire that that could further limit our authority and budget. Indeed,
section 18's rulemaking requirements, while demanding, are the means
of assuring that we act within the parameters established by
Congress.
As an initial matter, this Rule's procedural irregularities
begin with how the Rule was finalized in a compressed time frame.
Given the rigorous demands of section 18 rulemaking, historically,
it has taken the Commission, on average, 5.57 years to issue a rule
after the Magnuson-Moss procedures were enacted.\17\ That,
apparently, was too much time and procedure for the Majority. In
2021, during the pendency of this rulemaking, the Commission made
changes to its rules of practice,\18\ over objections from the
Commissioners in the Minority, to limit the efficacy of section 18's
procedural safeguards and compress rulemaking timeframes.\19\ Among
other things, the Commission revised the Rules of Practice so as to
remove selection of the Presiding Officer from an independent judge
and assign that role to the Chair; strip the Presiding Officer of
significant control over the hearing process; and narrow
opportunities for the public to help determine which factual issues
are in dispute.\20\ Then-Commissioners Phillips and Wilson
dissented, noting: ``What the[se] changes--adopted without public
input--in fact do is fast-track regulation at the expense of public
input, objectivity, and a full evidentiary record.'' \21\
---------------------------------------------------------------------------
\17\ Jeffrey S. Lubbers, It's Time To Remove the ``Mossified''
Procedures for Removing FTC Rulemaking, 83 Geo. Wash. L. Rev. 1979,
1997 (2015).
\18\ Press Release, Fed. Trade Comm'n, FTC Votes to Update
Rulemaking Procedures, Sets Stage for Stronger Deterrence of
Corporate Misconduct (July 1, 2021), https://www.ftc.gov/news-events/news/press-releases/2021/07/ftc-votes-update-rulemaking-procedures-sets-stage-stronger-deterrence-corporate-misconduct.
\19\ See Dissenting Statement of Comm'rs Christine S. Wilson and
Noah Joshua Phillips, Regarding the Comm'n Statement On the Adoption
of Revised Section 18 Rulemaking Procedures (July 9, 2021), https://www.ftc.gov/system/files/documents/public_statements/1591702/p210100_wilsonphillips_joint_statement_-_rules_of_practice.pdf.
\20\ Id. at 3-5.
\21\ Id. at 3.
---------------------------------------------------------------------------
Apparently not content with even these procedural shortcuts and
compressed timeframe, political leadership now speeds to the finish
line with minimal opportunity for Commissioner engagement on the
final Rule. There should be ample opportunity for robust
consideration and dialogue leading up to a Commission vote on any
regulation, and especially for a highly consequential rule. Such
opportunity for dialogue may assuage concerns, produce constructive
changes, and ultimately lead to a better result. Indeed, in the past
where political leadership has been willing to engage and make
needed modifications preceding votes, that consideration and
engagement have been very valuable and led to bipartisan support for
Commission actions.
Here, however, the time period for me to review this economy-
wide Rule was a matter of weeks. Those weeks were also packed with
dozens of cases, one other rulemaking, and other policy matters.
(Remarkably, the Chair had this draft final Rule for some time
before it was circulated to the other Commissioners.) Reviewing the
NPRM was no substitute for robust discussion and negotiation related
to the final Rule's language and statement of basis and purpose, as
the final Rule differs in important ways from the rule as proposed.
The push to finalize is inexcusable, particularly because it is a
discretionary rulemaking with no due date (imposed by Congress or
otherwise). For those tracking the Rule and national politics
closely, this rush to the finish line (and less than a month from a
Presidential election) is no surprise. This Rule is connected to the
current administration's efforts relating to so-called junk fees
(which are beginning to make a regular appearance before elections
\22\), and it has been in the spotlight for some time, including at
the White House \23\ and now on the campaign trail.\24\
---------------------------------------------------------------------------
\22\ See generally Betsy Klein et al., Biden Cracks Down on
``Junk Fees'' in New Economic Focus Ahead of Midterms, CNN (Oct. 26,
2022), https://www.cnn.com/2022/10/26/politics/biden-bank-fees-speech/index.html.
\23\ See, e.g., Biden-Harris Administration Announces Broad New
Actions to Protect Consumers from Billions in Junk Fees, The White
House (Oct. 11, 2023) (``The FTC proposed a `click to cancel' rule
in March of 2023, that, if finalized as proposed, would require
sellers to make it as easy for consumers to cancel their enrollment
as it was to sign up. This rule would rescue consumers from
seemingly never-ending struggles to cancel unwanted subscription
payment plans for everything from cosmetics to gym memberships.''),
https://www.whitehouse.gov/briefing-room/statements-releases/2023/10/11/biden-harris-administration-announces-broad-new-actions-to-protect-consumers-from-billions-in-junk-fees/.
\24\ See, e.g., A New Way Forward, KamalaHarris.com, supra note
4.
---------------------------------------------------------------------------
But elevating political goals comes at a high price, harms
policy efforts that might otherwise benefit consumers, and
undermines the Commission's legitimacy. Publicly appearing to refuse
to keep an open mind on a final rule or to prejudge complex policy
questions, along with an apparent unwillingness to reconsider
various aspects of a rulemaking may create PR buzz for the campaign
trail and score political points. But that posture creates real
legal risk for the Rule. Statements from the White House \25\
[[Page 90542]]
and related statements from the Chair \26\ concerning this rule--and
other matters related to her tenure or connected to her party's
campaign efforts \27\--raise the possibility that foreordained
outcomes and political goals curtailed considering the rulemaking
record with an open mind and without prejudgment, as law
requires.\28\ Today's sprint to the finish line has shortchanged the
kind of deliberation and thoughtful engagement Congress deemed
appropriate when it established rulemaking requirements under the
Magnuson-Moss Act.
---------------------------------------------------------------------------
\25\ See, e.g., President Biden (@POTUS), X.com (Aug. 12, 2024)
(``We're making it easier to cancel subscriptions and memberships.
You shouldn't have to navigate a maze just to cancel unwanted
subscriptions and recurring payments. The FTC is hard at work
finalizing its `Click to Cancel' rule that it proposed to make this
process a requirement.''), https://x.com/POTUS/status/1823037212885414107; see also FACT SHEET: Biden-Harris
Administration Launches New Effort to Crack Down on Everyday
Headaches and Hassles That Waste Americans' Time and Money, The
White House (Aug. 12, 2024) (``Today, President Biden and Vice
President Harris are launching `Time Is Money,' a new governmentwide
effort to crack down on all the ways that corporations . . . add
unnecessary headaches and hassles to people's days and degrade their
quality of life. . . . The Federal Trade Commission (FTC) has
proposed a rule that, if finalized as proposed, would require
companies to make it as easy to cancel a subscription or service as
it was to sign up for one. The agency is currently reviewing public
comments about its proposal.''), https://www.whitehouse.gov/briefing-room/statements-releases/2024/08/12/fact-sheet-biden-harris-administration-launches-new-effort-to-crack-down-on-everyday-headaches-and-hassles-that-waste-americans-time-and-money/.
\26\ See, e.g., Lina Khan (@linakhanFTC), X.com (Aug. 12, 2024)
(``As @POTUS notes, @FTC's proposal would require that firms make it
as easy to cancel a subscription as it is to sign up. Too often
people have to jump through endless hoops--or end up stuck paying
for services they don't want. Our rule would end this tax on your
time & money.''), https://x.com/linakhanFTC/status/1823094653962289640. That Tweet came in response to the President
unequivocally saying, ``[w]e're making it easier to cancel
subscriptions and memberships,'' and signaling the proposal would be
finalized consistent with the NPRM. See President Biden (@POTUS),
supra note 25. Other statements are similarly probative of apparent
conclusions being reached about the contours of the final rule. See,
e.g., Chair Lina M. Khan, Remarks at Center for American Progress,
at 3-4 (Sept. 25, 2024) (``We've also unfortunately seen a rise in
subscription traps. We've all been there. Every month, you're paying
for that gym membership you don't really use, or streaming services
you never signed up for in the first place. But it's absurdly
difficult to actually cancel these services. You have to call
customer service and spend an hour on the phone with a bot before
you finally get through to a human being. Customer Service then
transfers you to Memberships. They transfer you to Cancellations.
And then suddenly the call drops and you have to do it all over
again. It can feel like you're stuck in some type of endless doom
loop. And many people understandably just give up--and pay dozens if
not hundreds of dollars for subscriptions they don't want or need.
And of course, that's kind of the point: to wear you down and keep
taking your money, month after month. I'm excited that the
Commission will be considering finalization of a `click to cancel'
rule that would require companies to make it just as easy to cancel
a subscription as it is to sign up for one.''), https://www.ftc.gov/system/files/ftc_gov/pdf/20240925-remarks-chair-khan-center-for-american-progress.pdf; see also Chair Lina M. Khan, Remarks at
Strike Force on Unfair and Illegal Pricing Public Convening, at 2
(Aug. 1, 2024) (``We're currently working toward finalizing our
`click to cancel' rule. Too often, businesses require people to jump
through endless hoops just to cancel a subscription. Customers end
up paying dozens if not hundreds of dollars a month in subscriptions
they want to escape. Our proposed rule would require that companies
make it as easy to cancel a subscription as it is to sign up for
one--ending this tax on people's time and money.''), https://www.ftc.gov/system/files/ftc_gov/pdf/2024.08.01-remarks-chair-khan-strike-force-public-convening.pdf. In light of such statements
unambiguously reflecting a firm belief in the need for regulatory
action--and all but committing to the proposed solution--it is
risible to suggest this rule was not effectively baked well before
the Commission's vote.
\27\ See, e.g., Talmon Joseph Smith, Lina Khan Ends FTC Term.
What's Next for Her?, Seattle Times (Oct. 1, 2024) (``Q: You've not
gotten any whispers, any word that you will not be wanted in a
Harris administration? A. No, I think to the contrary.''), https://www.seattletimes.com/business/lina-khan-ends-ftc-term-whats-next-for-her/; see generally Ben Brody, Lina Khan Hits the Road with
Democrats Ahead of Election, Punchbowl News (Oct. 2, 2024), https://punchbowl.news/article/campaigns/ftc-lina-khan-campaigns-with-democrats/; cf. Letter from James Comer, Chair, Committee on
Oversight and Accountability to Lina Khan, Chair, Fed. Trade Comm'n,
at 1 (Oct. 8, 2024) (``During this election season, you have engaged
in partisan political activities with numerous Democrat
congressional candidates, undermining the FTC's independence and its
mission to protect American consumers regardless of partisan
affiliation''), https://oversight.house.gov/wp-content/uploads/2024/10/FTC-re-Chair-Khan-Campaign-Season-Events_10.8.202423.pdf.
\28\ See generally 15 U.S.C. 57a(b)(1); 5 U.S.C. 553(c); cf. Air
Transport Ass'n of Am. Inc. v. Nat' Mediation Bd., 663 F.3d 476
(D.C. Cir. 2011); Int'l Snowmobile Mfrs. Ass'n v. Norton, 340 F.
Supp. 2d 1249 (D. Wyo. 2004); Nehemiah Corp. of Am. v. Jackson, 546
F. Supp. 2d 830 (E.D. Cal. 2008). The Chair's approach is highly
unusual, given this legal risk and the Commission's responsibility
to keep an open mind--which is why, typically, Commissioners do not
comment on pending rulemakings.
---------------------------------------------------------------------------
In addition to my concern about these irregularities, I am
convinced that this rulemaking has failed to satisfy section 18's
requirements for rulemaking in three ways. First, the Commission is
issuing a broad final rule even though the ANPR was far narrower.
This mismatch means that the Commission failed to provide in its
ANPR the ``brief description of the area of inquiry under
consideration, the objectives which the Commission seeks to achieve,
and possible regulatory alternatives under consideration by the
Commission'' that section 18 requires.\29\ The mismatch is the
result of leadership changes and priorities. The ANPR was voted out
in 2019 by a bipartisan Commission under then-Chair Joseph J.
Simons.\30\ It sought public comments about centralizing existing
legal requirements regarding negative options and filling gaps via
section 18 rulemaking related to disclosures, consent, and
cancellation.\31\ The current Majority took the bipartisan ANPR and
politically supercharged it.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 57a(b)(2)(A).
\30\ Fed. Trade Comm'n, Press Release, FTC Seeks Public Comment
on Ways to Improve Current Requirements for Negative Option
Marketing (Sept. 25, 2019), https://www.ftc.gov/news-events/news/press-releases/2019/09/ftc-seeks-public-comment-ways-improve-current-requirements-negative-option-marketing.
\31\ 84 FR 52393, 52394 (Oct. 2, 2019) (``The Commission seeks
comments on ways to improve its existing regulations for negative
option marketing, a common form of marketing where the absence of
affirmative consumer action constitutes assent to be charged for
goods or services. Negative option offers are widespread in the
marketplace and can provide substantial benefits for sellers and
consumers. However, consumers cannot reap such benefits when
marketers fail to make adequate disclosures, bill consumers without
their consent, or make cancellation difficult or impossible. Over
the years, such problematic negative option practices have remained
a persistent source of consumer harm, often saddling consumers with
recurring payments for products and programs they did not intend to
purchase or did not want. In the past, the Commission has sought to
address such practices through individual law enforcement cases and
a patchwork of regulations. Nevertheless, problems persist, and
consumers continue to submit thousands of complaints to the FTC each
year about negative option marketing. To address these concerns, the
Commission seeks comments on ways to improve existing regulatory
requirements, including whether it should use its rulemaking
authority under the FTC Act to expand the scope and coverage of the
existing Negative Option Rule.'').
---------------------------------------------------------------------------
Importantly, the ANPR did not contemplate broader regulation
prohibiting all misrepresentations of material fact related to
products that have negative option features. The ANPR tailored its
inquiry by ``. . . highlighting five basic section 5 requirements
that negative option marketing must follow to avoid deception'': (1)
disclosure of material terms of a negative option offer; (2) clear
and conspicuous disclosures; (3) pre-purchase disclosures; (4)
consent; (5) cancellation.\32\ Absent from this list is anything
about prohibiting all misrepresentations of material fact related to
any product that happens to have a negative option feature.
Similarly, when the ANPR stated that the Commission was seeking
comment ``to reduce consumer harm created by deceptive or unfair
negative option marketing,'' it specified the Commission's interest
pertained to ``disclosures, consumer consent, and cancellation.''
\33\ Again, absent from that list was anything about prohibiting all
misrepresentations of material fact related to marketing of any
product that has a negative option feature.
---------------------------------------------------------------------------
\32\ Id. at 52395.
\33\ Id. at 52396.
---------------------------------------------------------------------------
When Commission leadership changed in 2021, the ``area of
inquiry'' changed as well. Almost immediately, the Commission under
Chair Khan disrupted this particular rulemaking process to issue an
Enforcement Policy Statement Regarding Negative Option Marketing
\34\--sub-regulatory guidance on the very same topic as the
rulemaking itself. The Commission then issued a Notice of Proposed
Rulemaking (``NPRM'') in 2023 that introduced into the rulemaking--
for the first time--the notion of prohibiting misrepresentations
related to marketing of products with negative option features.\35\
Former Commissioner Christine S. Wilson dissented from the issuance
of the NPRM for this (among other) reasons. In her dissenting
statement, Commissioner Wilson explained: ``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.''
\36\
---------------------------------------------------------------------------
\34\ Fed. Trade Comm'n, Press Release, FTC To Ramp Up
Enforcement Against Illegal Dark Patterns that Trick or Trap
Consumers Into Subscriptions (Oct. 28, 2021), https://www.ftc.gov/news-events/news/press-releases/2021/10/ftc-ramp-enforcement-against-illegal-dark-patterns-trick-or-trap-consumers-subscriptions.
\35\ Fed. Trade Comm'n, Press Release, Federal Trade Comm'n
Proposes Rule Provision Making It Easier for Consumers to ``Click to
Cancel'' Recurring Subscriptions and Memberships (Mar. 23, 2023),
https://www.ftc.gov/news-events/news/press-releases/2023/03/federal-trade-commission-proposes-rule-provision-making-it-easier-consumers-click-cancel-recurring.
\36\ Dissenting Statement of Comm'r Christine S. Wilson, Notice
of Proposed Rulemaking, Negative Option Rule, at 3 (Mar. 23, 2023),
https://www.ftc.gov/system/files/ftc_gov/pdf/p064202_commissioner_wilson_dissent_negative_option_rule_finalrevd_0.pdf.
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[[Page 90543]]
The Statement of Basis and Purpose (``SBP'') accompanying the
final Rule cursorily dismisses concerns about the ANPR's adequacy,
dubiously arguing that section 18 requires no such ``specificity''
in describing the area of inquiry.\37\ But the whole purpose of
section 18's requirement of a description of what the Commission
aims to do is to elicit public comment to inform the Commission
about its choices. Indeed, section 18 requires an ANPR to invite
interested parties to provide ``suggestions or alternative methods
for achieving such objectives.'' \38\ Parties cannot possibly
include alternative methods if the ANPR wholly fails to identify the
objective, i.e., regulating misrepresentations in marketing of
products with negative option features.
---------------------------------------------------------------------------
\37\ SBP at 37-38.
\38\ 15 U.S.C. 57a(b)(2)(A)(ii).
---------------------------------------------------------------------------
It is telling that the ANPR here only elicited 17 comments,\39\
while the NPRM (which made clear that the Commission was
significantly expanding its focus) elicited 16,000 comments.\40\ The
narrowness of the ANPR meant the Commission could not, consistent
with section 18, proceed to a much broader NPRM.\41\ In choosing to
interpret the ANPR (and the 17 comments it elicited) as sufficient
predicate for the much-expanded NPRM, the Commission cut itself off
from valuable public comments at important early stages (especially
as to regulatory alternatives) and ignored the rulemaking guardrails
that Congress carefully established to forestall nondelegation
concerns that might otherwise exist.\42\
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\39\ See Regulations.gov, Negative Option Rule (ANPR), FTC-2019-
0082, https://www.regulations.gov/docket/FTC-2019-0082.
\40\ The Commission published 1,162 unique comments. SBP at 18.
See Regulations.gov, Negative Option Rule (NPRM), FTC-2023-0033-
0001, https://www.regulations.gov/document/FTC-2023-0033-0001.
\41\ 15 U.S.C. 57a(b)(2)(A) (``Prior to the publication of any
notice of proposed rulemaking pursuant to paragraph (1)(A), the
Commission shall publish an advance notice of proposed rulemaking in
the Federal Register.'').
\42\ Cf. Dissenting Statement of Comm'r Andrew N. Ferguson,
Joined by Comm'r Melissa Holyoak, In re Non-Compete Clause Rule, FTC
Matter No. P201200, at 20-22 (June 28, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/ferguson-noncompete-dissent.pdf (describing
nondelegation doctrine).
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The second procedural failing lies in the Commission's failure
to ``prescribe . . . rules which define with specificity acts or
practices which are unfair or deceptive acts or practices'' as
Section 18 requires.\43\ ``Because the prohibitions of section 5 of
the Act are quite broad, trade regulation rules are needed to define
with specificity conduct that violates the statute and to establish
requirements to prevent unlawful conduct.'' \44\ Section 425.3 of
the Rule fails Section 18's specificity requirements. Section 425.3
prohibits any misrepresentation of material fact made in connection
with the sale or promotion of a product that has a negative option
feature.
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\43\ 15 U.S.C. 57a(a)(1)(B).
\44\ S. Rep. No. 93-1408 at 7702, 7755, 7763 (1974) (Conf.
Rep.).
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Unfairness explicitly requires a cost-benefit analysis relating
to the practices at issue.\45\ Meanwhile, deception is a subset of
the broader unfairness authority. With its focus on reasonableness
and materiality, no cost-benefit analysis is required because the
Commission has historically argued that deceptive practices are
always harmful. So far, so good. But both unfairness, and
particularly deception, require the Commission to provide sufficient
evidence for a reviewing court to evaluate whether the Commission
has met the legal predicate for either theory (particularly as it
relates to reasonableness and materiality). While the Rule provides
examples of material misrepresentations, those are merely examples.
Indeed, the Commission ignores the specificity requirement by
generalizing from poorly sampled past agency cases. Whatever the
merits of the past cases, the Majority does not remotely come close
to explaining how the evidence in those limited cases is similar to
the myriad contexts an economy-wide rule would inevitably apply to.
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\45\ 15 U.S.C. 45(n).
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Indeed, the Rule is not limited to misrepresentations relating
to deceptive terms of negative option features (or some other
specific, deceptive conduct), but instead, applies broadly to any
material fact. Nor does the Rule require that the consumer actually
use the negative option feature; the mere presence of a negative
option feature would render any misrepresentation of material fact
subject to the Rule. Taken together, the Rule is nothing more than a
back-door effort at obtaining civil penalties in any industry where
negative option is a method to secure payment. The Rule's
application to any misrepresentation therefore fails to meet Section
18's ``specificity'' requirement,\46\ and will no doubt invite
serious legal challenge on this basis.\47\
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\46\ Cf. Katharine Gibbs School (Inc.) v. FTC, 612 F.2d 658,
661-62 (2d Cir. 1979) (setting aside FTC rule under section 18 that
did not, among other things, define unfair practices with sufficient
specificity).
\47\ See, e.g., id. at 663 (``When Congress provided that the
Commission's rules must define unfair and deceptive acts with
specificity, it clearly intended that the Commission's definition
would be subject to judicial review.'').
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The Supreme Court's decision in AMG, which held the language of
Section 13(b) does not authorize the Commission to obtain equitable
monetary relief,\48\ limited the Commission's ability to seek money
for first-time violations of the FTC Act. The Commission is still
able, however, to seek monetary remedies for violation of rules
issued under Section 18.\49\ Here, the Final Rule effectively
transforms Section 5's broad prohibition on unfair or deceptive
practices into a Section 18 rule, allowing the Commission to expand
its ability to seek money. Indeed, because negative option features
are widely used in a variety of industries, the Rule greatly expands
that ability. While I generally support legislation that would grant
the FTC authority under Section 13(b) to obtain court orders for
redress or disgorgement (with whatever guardrails Congress deems
fit), the Commission should not circumvent legislative prerogative
via improper Section 18 rulemaking.
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\48\ AMG Capital Mgmt., LLC v. FTC, 593 U.S. 67, 70 (2021).
\49\ 15 U.S.C. 57b(a)(1).
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The third significant procedural flaw in this rulemaking is that
the Commission failed to appropriately establish the ``prevalence''
of unfair and deceptive practices related to all negative option
features for all products in all markets and all media (i.e., with
respect to the scope of this rule). According to Section 18, the
Commission may issue an NPRM ``only where it has reason to believe
that the unfair or deceptive acts or practices which are the subject
of the proposed rulemaking are prevalent.'' \50\ Section 18 further
provides:
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\50\ Id. 57a(b)(3).
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The Commission shall make a determination that unfair or
deceptive acts or practices are prevalent under this paragraph only
if--
(A) it has issued cease and desist orders regarding such acts or
practices, or
(B) any other information available to the Commission indicates
a widespread pattern of unfair or deceptive acts or practices.\51\
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\51\ Id.
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In the SBP, the Commission argues that it has satisfied this
standard for its economy-wide rulemaking because it has issued more
than 35 cases ``challenging harmful negative option practices'' and
has received ``tens of thousands of consumers complaints.'' \52\
This evidence may well suggest that some unfair and deceptive acts
related to negative option offers are indeed prevalent. But these
statistics do not establish prevalence of misrepresentations of
material fact related to products with negative option features, any
more than the number of FTC cases and consumer complaints involving
the internet means that the entire internet should be the subject of
a Section 18 rulemaking prohibiting misrepresentations.
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\52\ SBP at 8.
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If similarity among complaints and cases only at the highest
level of generality constitutes the ``prevalence'' sufficient to
ground an economy-wide rulemaking, then a ``prevalence''
determination is in fact no meaningful guardrail on the Commission's
conduct at all, creating precisely the type of non-delegation
concerns that Section 18's guardrails were meant to prevent. Canons
of ``avoidance'' warn us to avoid adopting interpretations that
would render statutes unconstitutional.\53\ To avoid precisely that
fate, ``prevalence'' must require more than what the Commission has
shown here.
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\53\ See Clark v. Martinez, 543 U.S. 371, 381 (2005) (describing
the canon of constitutional avoidance as ``resting on the reasonable
presumption that Congress did not intend the alternative which
raises serious constitutional doubts''); see also Adrian Vermeule,
Saving Constructions, 85 Geo. L. J. 1945, 1949 (1997) (providing
examples of cases in which the Supreme Court construed a statute so
as to avoid a constitutional question).
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A final concern here. The Rule's failure to define with
specificity the acts or practices which are unfair or deceptive,
combined with the rule's preemption of inconsistent
[[Page 90544]]
State laws,\54\ seems likely to create confusion and, ultimately,
may harm consumers. The Second Circuit rebuked the Commission for a
similar approach in a prior rulemaking after the Commission had
``fail[ed] . . . to define with specificity the acts or practices
which are unfair or deceptive.'' \55\ Absent ``a specification of
the acts or practices which the Commission deems deceptive,'' the
Court explained that ``the breadth of the preemption provision is
such that it places in issue an indefinite variety of [S]tate laws
and regulations'' that were relevant to the underlying contractual
relationships. Similarly, here, State laws govern the types of
conduct today's Rule attempts to regulate.\56\ One risk of misguided
Federal regulation is that it can confuse or jeopardize State laws
and enforcement. Given the Rule's lack of specificity, it raises
that concern.
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\54\ 16 CFR 425.7(a) (``Relation to State Laws'') (``In General.
This part shall not be construed as superseding, altering, or
affecting any State statute, regulation, order, or interpretation
relating to negative option requirements, except to the extent it is
inconsistent with the provisions of this part, and then only to the
extent of the inconsistency.'').
\55\ See Katharine Gibbs School, 612 F.2d at 667.
\56\ See, e.g., SBP at 145-46, 214.
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II. The Rule is troubling not only procedurally but also
substantively. By singling out representations made in connection
with negative option billing models and subjecting these
representations to civil penalties or other monetary relief, it
tilts the playing field in ways that are likely to pervert business
incentives. For example, businesses may avoid using negative option
billing models, even when businesses and consumers could derive
significant value from them.
One might argue that no shift in incentives will happen for
honest businesses because the Rule only addresses misrepresentations
of material fact. In other words, all an honest business needs to do
to avoid civil penalties is to tell the truth about products and
services that involve negative option billing. But what constitutes
a misrepresentation can sometimes be in the eye of the beholder
(that is, a Commissioner).\57\ Even honest businesses will have
reason to reconsider the use of negative option billing now that it
means subjecting themselves to potential civil penalties for
misreading Commission tea leaves.\58\ And businesses will also need
to factor in the compliance costs associated with implementing this
Rule's disclosure, consent, and cancellation requirements--
prescriptive requirements that are absent for other billing models
or less prescriptive under existing law, such as ROSCA.
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\57\ Cf. Statement of Comm'r Christine S. Wilson Concurring In
Part and Dissenting In Part, FTC v. Neurometrix, Inc., FTC Matter
No. 1723130 (Feb. 28, 2020), (disagreeing with the majority of the
Commission on claim interpretation and substantiation for certain
claims), https://www.ftc.gov/system/files/ftc_gov/pdf/2024.08.01-remarks-chair-khan-strike-force-public-convening.pdf.
\58\ Some businesses were already subject to disclosure
requirements under existing laws such as ROSCA and the TSR. But
those laws are more limited. For example, ROSCA section 8403 states
that for goods or services sold through a negative option feature,
the seller must ``clearly and conspicuously disclose all material
terms of the transaction before obtaining the consumer's billing
information.'' 15 U.S.C. 8403.
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These shifting incentives matter to consumers because the reason
that honest businesses adopt negative option billing is to lower
transaction costs between consumers and firms. For example, say I
want to watch a particular streaming service at my convenience. I
don't want to be bothered with signing up and paying a fee each
month that I log on; I want negative option billing--a
subscription--to reduce the friction in my streaming experience.
Raising the transaction costs will reduce a business's sales and the
utility consumers derive from these services. In other words, in our
good intentions, we may harm the consumers and competition we are
supposed to protect.\59\
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\59\ Concurring and Dissenting Statement of Comm'r Melissa
Holyoak, Social Media and Video Streaming Services Staff Report, FTC
Matter No. P205402, at 18-19 (Sept. 19, 2024) (``The core of this
agency's mission is to protect consumers. Unfortunately, recent
years have seen some Commissioners take a narrow view of that
mission and where harms emanate from . . . . [W]e should also
protect the American people from harms that follow when we fail to
robustly and comprehensively scrutinize our own policy efforts and
advocacy, including for economic effects, and to anticipate
potential unintended consequence.''), https://www.ftc.gov/system/files/ftc_gov/pdf/commissioner-holyoak-statement-social-media-6b.pdf; cf. Dissenting Statement of Comm'r Melissa Holyoak, Joined
by Comm'r Andrew N. Ferguson, In re Rytr, LLC, FTC Matter No.
2323052, at 5 (Sept. 25, 2024) (``We must protect consumers through
robust enforcement. Indeed, the Commission is at its best when it
does so. But we must also think carefully about the potential harms
to consumers and innovation that attend misguided enforcement.
Today's misguided complaint and its erroneous application of section
5 will likely undermine innovation in the AI space. I therefore
respectfully dissent.''), https://www.ftc.gov/system/files/ftc_gov/pdf/holyoak-rytr-statement.pdf.
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The Rule purports to address any overbreadth by including,
consistent with the Commission's Rules of Practice,\60\ an
``Exemptions'' provision, which provides: ``Any person to whom this
Rule applies may petition the Commission for a partial or full
exemption.'' \61\ In response to such petition, ``[t]he Commission
may . . . issue partial or full exemptions from this part if the
Commission finds application of the Rule's requirements is not
necessary to prevent the acts or practices to which the Rule
relates.'' \62\
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\60\ 16 CFR 1.25, 1.31.
\61\ 16 CFR 425.8.
\62\ Id.
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But the ``Exemptions'' provision does nothing to reduce the
burden on firms from the overbreadth of the Rule's coverage of all
misrepresentations of material fact. Rather, taken together, they
effectively shift the burden of crafting a tailored rule to
regulated entities. And, once again, it appears that the Commission
is tilting the playing field in a manner that is likely to harm both
consumers and competition. Small businesses and new market entrants
are less likely to be able to afford the potentially costly legal
fees needed to petition the Commission to obtain an exemption. Even
for businesses that can afford to use the exemption process, this
process will impose costs on businesses, who will pass on those
costs to consumers. Raising potential costs for consumers through an
improperly promulgated rule is not a desirable outcome at any time,
but especially not in an inflationary economy. Businesses and
consumers will not be alone in bearing increased costs. Conducting
the exemption process will continue to drain FTC staff resources--
reducing the time that our talented staff could devote to enforcing
the clear authorities Congress has given us, such as ROSCA.\63\
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\63\ To be clear, my concern is not with the exemption process
itself (or its inclusion in the Rule), but with the enormous work it
must do to compensate for the overbreadth of the provision regarding
misrepresentations.
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A final point here. I also have concerns about the Commission's
economic analysis of the quantifiable benefits that may result from
the Rule's substantive requirements. For example, the Commission's
estimate related to the upper bound of the Rule's benefits for
consumers who cancel subscriptions with in-person enrollment is
based in part on the complaints of 25 individual consumers in a
single industry,\64\ and a number of other simplifying
assumptions.\65\ But this self-selected group of 25 consumers does
not comprise a random sample, even among people who were not able to
cancel subscriptions with in-person enrollment on their first
attempt.\66\ It is at least possible that other individuals who
cancelled subscriptions in person had different experiences or
expectations than these particular consumers--and therefore did not
voice any complaint. Indeed, given that consumer experiences and
expectations may vary significantly across industries and products,
there is no reason to believe that balancing of harms and benefits
of these consumers can be appropriately extrapolated to the entire
economy. Thus, the Commission's estimated benefits are not based on
what could be characterized as a representative sample. Without
knowing the frequency of consumers having significant difficulty
cancelling in-person subscriptions, it is not possible to assess how
much weight to place on the estimate of the high end of the range of
benefits from the proposed rule. Most of the difference between the
low-end and high-end estimates of benefits is driven by the estimate
of the high end of the benefits for in-person subscriptions.
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\64\ See, e.g., SBP at 171 (``Notwithstanding IHRSA's assertion
that many fitness clubs offer online cancellation, at least 25
individual consumers submitted comments attesting to the
difficulties of canceling gym memberships.'').
\65\ Id. at 173 (``Based on these comments, the Commission makes
the simplifying assumption that the worst gym membership
cancellation experiences involve three failed attempts at
cancellation, each costing one hour of time, and that, because of
those cancellation failures, three unwanted monthly charges were
processed.''); see id. at 169-70 (explaining how, in its economic
analysis for the Rule, ``the Commission proxies the per-cancellation
benefits of an additional, remote, method of cancellation by looking
at those benefits in the context of gym memberships'').
\66\ See id. at 171.
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III. This Rule is particularly disappointing because it
represents two missed opportunities. In 2019, a bipartisan
Commission unanimously voted in favor of
[[Page 90545]]
issuing the ANPR, which was intended to (1) consolidate the
requirements from various laws the FTC enforces, providing
businesses who have to navigate this patchwork with greater clarity,
thereby benefiting both consumers and businesses; and (2) explore
whether a Section 18 rule should fill any gaps ``when marketers fail
to make adequate disclosures, bill consumers without their consent,
or make cancellation difficult or impossible.'' \67\ Today's final
Rule could have stayed that prudent course rather than expanding in
scope and complexity as it has under this Commission.
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\67\ 84 FR 52393, 52394.
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The second missed opportunity has taken place every day since
the Commission expanded the scope of the rulemaking. This Commission
chose to devote scarce staff resources to this overbroad
rulemaking--one that seems likely to be challenged in court, which
will lead to even more taxpayer-funded expenses--rather than direct
our talented staff to draft a rule within the scope of our authority
or bring enforcement actions using clear legal authorities like
ROSCA and TSR. In my time at the Commission, I have voted in support
of numerous ROSCA cases, including NGL,\68\ Care.com,\69\ and Legion
Media,\70\ and numerous TSR cases, including Career Step,\71\
Carshield,\72\ and Panda Benefit Services.\73\ As I have said
elsewhere, I believe the Commission is at its best when it focuses
on enforcing the law, not writing it.\74\ But I am not reflexively
opposed to rulemaking where Congress has delegated the Commission
relevant authority and we act consistent with that authority.\75\
Unfortunately, that is not what today's Rule is. Instead, we have an
ill-disguised political maneuver from the Majority in the form of a
rule, one rushed to publication to advance the prospects of the
Chair's preferred presidential candidate.
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\68\ FTC v. NGL Labs, LLC, No. 2:24-cv-5753 (C.D. Cal.), https://www.ftc.gov/legal-library/browse/cases-proceedings/ngl.
\69\ FTC v. Care.com, Inc., No. 1:24-cv-987 (W.D. Tex.), https://www.ftc.gov/legal-library/browse/cases-proceedings/carecom-inc-ftc-v.
\70\ FTC v. Legion Media LLC, FTC Matter No. 2423034, https://www.ftc.gov/legal-library/browse/cases-proceedings/242-3034-legion-media-llc-et-al-ftc-v.
\71\ FTC v. Career Step, LLC, FTC Matter No. 2323019, https://www.ftc.gov/legal-library/browse/cases-proceedings/232-3019-career-step-llc-ftc-v.
\72\ FTC v. NRRM, LLC, FTC Matter No. 2223031, https://www.ftc.gov/legal-library/browse/cases-proceedings/2223031-carshield.
\73\ FTC v. Panda Benefit Servs., LLC, FTC Matter No. 2423041,
https://www.ftc.gov/legal-library/browse/cases-proceedings/2423041-panda-benefit-services-llc-ftc-v.
\74\ Prepared Statement of Comm'r Melissa Holyoak, Fed. Trade
Comm'n, Before the Subcomm. on Innovation, Data, and Commerce of the
Energy and Commerce Comm., U.S. House of Representatives, Concerning
``The Fiscal Year 2025 Federal Trade Commission Budget,'' at 2-4
(July 9, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/commissioner-holyoak-testimony-7-5-24.pdf.
\75\ Id.
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I dissent.
[FR Doc. 2024-25534 Filed 11-14-24; 8:45 am]
BILLING CODE 6750-01-P