FTC Finalizes Click-To-Cancel Rule

The Federal Trade Commission (FTC) recently finalized and issued a new rule governing negative option features, like subscription or membership agreements with automatic renewal and recurring payment options. The rule, nicknamed “click-to-cancel,” requires that companies make canceling a subscription as easy as it is to sign up, and allow cancellation in the “same medium” offered to sign up. The rule took effect on Jan. 14, however, regulated entities have until May 14 to comply.

This will have a far-reaching impact on businesses that utilize electronic forms to automatically enroll and/or subscribe, use “check boxes” to sign up, and electronically process recurring payments. From gym or tanning salon memberships to music streaming or recurring food service subscriptions, these transactions commonly include some negative option features. Negative option sellers (in both business-to-individual and business-to-business transactions) should carefully evaluate their current contracting practices to ensure compliance with the rule. The below provides information on the rule and guidance on ensuring compliance for businesses.

Scope

The requirements of the click-to-cancel rule apply to any form of negative option program in any media, including, but not limited to, internet, telephone, print, and in-person transactions.

A 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/service or to cancel the agreement) is interpreted by the seller as acceptance or continuing acceptance of the offer. Four types of negative option features are covered by the rule:

1. An automatic renewal
   • Sellers automatically renew consumers’ subscriptions when they expire, unless consumers affirmatively cancel the subscriptions.
2. A continuity plan
   • Consumers agree in advance to receive periodic shipments of goods or provision of services which they continue to receive until they cancel the agreement.
3. A free-to-pay conversion or fee-to-pay conversion
   • 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.
4. A pre-notification negative option plan
   • 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.

Key Compliance Requirements

Disclosures

• Marketers must disclose the material terms of a negative option offer including the existence of the negative option offer and how to cancel the offer.
• Sellers must disclose: (1) that consumers will be charged for the 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 which the consumer must act to prevent or stop the charges; (3) the amount 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 required “simple cancellation mechanism” required.
• These disclosures must be clear and conspicuous and the required disclosures must appear immediately adjacent to the means of recording the consumer’s consent for the negative option feature.

Misrepresentations

• Sellers cannot make any material misrepresentation regarding any portion of the transaction.

Consent

• Sellers must obtain the consumer’s “unambiguously affirmative consent” to the negative option feature separately from any other portion of the transaction.
  • A negative option seller will be deemed in compliance with the consent requirement if that seller obtains 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.
  • Sellers must keep or maintain verification of the consumer’s consent for at least three years.

Cancellation

• Sellers must offer a simple mechanism for a consumer to: (1) cancel the negative option feature (“click-to-cancel”); (2) avoid being charged, or charged an increased amount, for the good or service and; (3) immediately stop any recurring charges.
• The mechanism must be at least as easy to use as the mechanism the consumer used to consent to the negative option feature.
  • At a minimum, the negative option seller must provide a simple mechanism through the same medium the consumer used to consent to the negative option feature. For cancellation by interactive electronic medium, the simple cancellation mechanism must be easy to find when the consumer seeks to cancel.  In no event shall a consumer be required to interact with a live or virtual representative to cancel if the consumer did not do so to consent to the negative option feature.
• Sellers must not interfere with the customer’s effective operation of promised cancellation procedures.

Clark Hill Can Help Get Your Business in Compliance

Failure to comply with the rule could result in civil penalties, making it critical to ensure your business aligns with these new regulations. If you need assistance in evaluating whether your business is subject to these new FTC regulations or how to ensure compliance, Clark Hill can help.

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