November 4, 2024

Client Alert: FTC Issues Final “Click-to-Cancel” Rule, Imposing New Requirements for Negative Option Programs

On October 16, 2024, the Federal Trade Commission (“FTC”) amended its regulations on subscription plans that automatically renew unless the consumer takes an affirmative action to cancel. The final rule introduces several new restrictions and clarifies existing requirements for sellers.

More information on the final rule is available below. Please reach out to Rose Ehler, Nate Sussman and Michael Wei to learn more.

 
Key Components of the New Rule

The new rule applies to all negative option programs, which include automatic renewals, prenotification plans, continuity plans, and free-trial conversion plans. The new rule contains the following key provisions:

  • Simple Cancellation Mechanism: Sellers must provide a simple mechanism for consumers to cancel the plan. This mechanism must be as easy to use as the method the consumer used to sign up. For online enrollments, an online cancellation method must be provided.
  • Prohibition of Misrepresentations: Sellers are prohibited from misrepresenting any material fact when promoting or offering a good or service that involves a negative option feature. These include facts relating not only to the terms of the negative option feature itself, but also to the underlying good or service, such as cost, purpose or efficacy, health or safety, endorsements, free-trial claims, refunds, use of billing information, and other characteristics.
  • Express Informed Consent: Sellers must obtain the consumer’s express informed consent to the negative option feature before charging them. This consent must be “unambiguously affirmative” and obtained separately from any other portion of the transaction.
  • Clear and Conspicuous Disclosures: Before obtaining a consumer’s billing information, sellers must provide clear and conspicuous disclosures of all material terms relating to a good or service that is sold with a negative option feature. The seller’s marketing cannot otherwise interfere with, detract from, contradict, or undermine these disclosures. Additionally, the new rule lists several specific disclosures that must appear “immediately adjacent” to the seller’s means of obtaining the consumer’s express consent to the negative option feature:

    • That the consumer will be charged, or that charges will increase after any applicable trial period ends;
    • That the charges will occur on a recurring basis (if applicable) unless the consumer takes timely steps to stop the charges;
    • The deadline by which the consumer must act to stop the charges, which may be expressed by date or frequency;
    • The amount or range of costs the consumer will be charged, and the frequency (if applicable) of the charges; and
    • The information necessary for the consumer to find the simple cancellation mechanism.
  • Recordkeeping Requirement: Sellers must maintain records of consumer consent for three years after the initial transaction, unless they can demonstrate compliance through a technological exemption.

Differences from Proposed Rule

The new rule originated with a proposed rule issued by the FTC in 2023, which was subject to a public comment period and generated over 16,000 comments from industry stakeholders. The new rule differs from the proposed rule in two significant ways:

  • Removal of Annual Reminder Requirement: The proposed rule included a requirement for sellers to provide annual reminders to consumers about their negative option subscriptions. This provision was removed from the final rule.
  • Removal of “Saves” Prohibition: The proposed rule would have prohibited sellers from presenting additional offers or modifications (known as “saves”) when a consumer attempts to cancel a negative option feature. This provision was also removed from the final rule, though the FTC reiterated that this removal is not a license to “erect unreasonable and unnecessary barriers” to cancellation.

Comparison with California’s Auto-Renewal Law

While California already imposes stringent requirements on sellers who promote or offer auto-renewing subscriptions, the FTC’s final rule differs with respect to several requirements:

  • Simple Cancellation Mechanism: The FTC’s final rule mandates that the cancellation mechanism be as easy to use as the enrollment method. This may impose a different standard, in some scenarios, than California’s requirement for a “cost-effective, timely, and easy-to-use” method of cancellation.
  • Recordkeeping: The FTC’s final rule includes a general requirement to maintain records of consumer consent for three years. There is no internal record-retention requirement imposed on sellers under California’s statute.
  • Price Changes: California’s rule requires sellers to include a clear and conspicuous disclosure if the amount of a recurring charge may change in the future, even if the specific amount is not yet known, when obtaining the consumer’s affirmative consent. This is not included in the list of specific disclosures that are required be made “immediately adjacent” to the method of obtaining the consumer’s consent under the FTC’s final rule.

Challenges to the Rule

On October 22, 2024, the U.S. Chamber of Commerce and the Georgia Chamber of Commerce filed a challenge to the new rule in the United States Court of Appeals for the Eleventh Circuit. On October 23, 2024, the Internet & Television Association, along with groups representing the online advertising and home security industries, filed a separate challenge in the United States Court of Appeals for the Fifth Circuit. Both petitions seek to enjoin and vacate the new regulation.