26 State AGs Endorse FTC's Changes to Negative Option Rule on Sub Renewals

California Attorney General Rob Bonta (D) joined 25 state AGs supporting the FTC’s proposed improvements to its Negative Option Rule that’s designed to simplify consumers' process when canceling unwanted subscriptions.

Bonta joined the effort to curb “negative option offers,” a business tactic of interpreting a consumer’s silence -- or failure to take affirmative action -- as acceptance of an offer, “often in the form of a recurring, unwanted subscription that is difficult or impossible to cancel.” The deceptive practices “have been a source of consumer harm for decades,” Bonta said.

The FTC issued a proposed rule in March requiring companies to “make it as easy to cancel” a subscription "as it was to sign up.” The proposed “click to cancel provision” would help consumers avoid the “struggles to cancel unwanted subscription payment plans for everything from cosmetics to newspapers to gym memberships,” the agency said. The commission voted 3-1 along party lines to issue a notice of proposed rulemaking that would modify the Negative Option Rule, which regulates how companies interpret a consumer’s failure to act as the acceptance of an offer. States have been moving forward on their own with laws targeting subscription renewal policies due to the rise in streaming and online services.

The FTC proposal calls for companies to have a “simple cancellation mechanism” so consumers could cancel on the same websites where they subscribed in the same number of steps. Companies would have to ask consumers for consent to make additional offers when a user tries to cancel. “In other words, a seller must take ‘no’ for an answer and upon hearing ‘no’ must immediately implement the cancellation process,” the rule said. The rule also contemplates requiring companies to provide annual reminders “to consumers enrolled in negative option programs involving anything other than physical goods, before they are automatically renewed.”

The AGs’ supportive comment letter is in response to the FTC’s request for public comment to help inform its decision-making. The AGs agree with the FTC’s observation that the proposed rule is consistent with existing laws governing negative options and the FTC’s interpretation of those laws, and they agree that the proposed rule provides more guidance and specificity on how negative option sellers can comply with the existing legal framework, thus benefitting consumers, the letter said.

State AGs “commend and support” the FTC for proposing a common set of requirements applicable to all types of negative option marketing, including prenotification and continuity plans, automatic renewals and free trial offers. The new rule will “enhance law enforcement’s ability to protect consumers from ‘widespread deceptive or unfair practices,’ as well as remain relevant in ever-changing markets,” it said.

The proposed rule prohibits any material fact regarding the entire agreement, not just facts related to a negative option feature, an approach the AGs support. That gives the FTC “authority to seek civil penalties and consumer redress for material representations in all types of media,” they said.

AGs support the FTC's proposed requirements that marketers, before obtaining consumer’s billing information, will be required to disclose that consumer payments will recur by a certain date, along with information about cancellation. They added two amendments that sellers be required to disclose all material policies concerning cancellation, such as penalties for early cancellation, and that they're required to disclose “all the information necessary for the consumers to effectively cancel the negative option feature.” Disclosures such as “click-here-to-cancel” icons that lead to “terms and conditions pages, confusing cancellation flows, or do not otherwise explain how to cancel online, should not be permitted.”

On a provision stipulating that consumers shouldn’t be charged for a negative option feature without their express consent, AGs concurred. They also encouraged the FTC to require sellers offering free trials to obtain an additional round of consent before charging a consumer at the end of the trial.

The AGs “strongly endorse” the FTC’s efforts to ensure it’s simple for consumers to cancel a negative option feature. The proposed rule that cancellation should be at least as easy as the sign-up process should be a “floor, not a ceiling,” they said. They cited negative option sellers that defend burdensome cancellation procedures by invoking their burdensome sign-up procedures. Cancellation processes must be simple and efficient, they said.

In addition to their strong endorsement of the proposed rule’s requirement for “unambiguously affirmative consent to receive a Save prior to cancellation,” the AGs said the rule should make clear negative option sellers can’t obtain such consent “prospectively” during enrollment. They also cited instances where companies use “dark patterns” to steer consumers “unwittingly” toward “save” offers, when the option to cancel is also available. They recommended that the option to consent to receive a save must be presented in a manner “that is no more prominent than the option to decline” and be “unambiguously clear.”

The proposed rule requires negative option sellers whose services don’t involve automatic delivery to provide consumers reminders, at least annually, identifying the product or service, the frequency and amount of charges, plus the means to cancel. The reminders must be provided through the same medium a consumer used for consent. AGs “strongly endorse” that requirement, citing a study saying consumers underestimate how much they pay to maintain subscriptions by an average $133 per month; 42% had forgotten about a subscription they were paying for. AGs suggest reminders should be included with each billing cycle, “prior to the charge being applied.”

The AGs agree the FTC Act doesn’t preempt state law: “It is essential that states retain the ability and flexibility to address unfair and deceptive negative option sales practices, just as many of our states have done in recent years," they said. In addition to Bonta, the letter was signed by AGs from Alabama, Arizona, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Vermont, Washington and Wisconsin.