Yesterday, the Federal Trade Commission (FTC or Commission) announced a proposed update to its rules governing automatic renewals. If adopted, the revised rules would enhance the FTC’s authority to prosecute companies—as well as their owners and officers—in the automatic renewal space. The proposed update would, among other things:
- Institute a new “click to cancel” provision, requiring sellers to make it as easy for consumers to cancel their enrollment as it was to sign up
- Require sellers who receive cancellation requests to obtain express consent before making additional sweetening offers to retain the customer
- Force sellers to provide annual reminders of the automatic renewal of customers’ subscriptions for or enrollments in any nonphysical goods
- Allow the FTC to obtain civil penalties for violations of the updated rules
These rules, regulating what the FTC calls “Negative Option Programs,” would be applicable to “negative optioning” marketing in all media, including telephone, internet and print, and in-person transactions. Thus, if adopted, the rules would effectively require all companies touching the automatic renewal space to overhaul their current renewal and cancellation structures.
Commissioner Christine Wilson’s dissenting statement notes that the updated rules would encompass many services “wholly unrelated to the negative option feature” (emphasis in original) and expand the FTC’s reach far beyond the automatic renewal space, allowing the Commission to prosecute companies using negative option programs for any misrepresentation regarding product efficacy or any other material fact—even those unrelated to automatic renewals. Commissioner Wilson also notes that, as drafted, the rules would allow the FTC to obtain civil penalties, or consumer redress under Section 19 of the FTC Act, if a marketer using a negative option feature made misrepresentations regarding product efficacy or any other material fact. Companies operating in or adjacent to the automatic renewal space should be aware that, if adopted, this provision—hidden in a proposal to regulate hidden fees—would allow the Commission to prosecute them for virtually any perceived misrepresentation.
Comments regarding the proposed rules are due 60 days following their publication in the Federal Register. If you would like assistance with submitting comments, please contact Christine Reilly or Bez Stern.