Rule Concerning the Use of Prenotification Negative Option Plans, 44271-44276 [2014-17978]
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Federal Register / Vol. 79, No. 147 / Thursday, July 31, 2014 / Rules and Regulations
Lind Avenue SW., Renton, WA 98057;
telephone (425) 203–4518.
SUPPLEMENTARY INFORMATION:
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History
On December 26, 2013, the FAA
published in the Federal Register a
notice of proposed rulemaking (NPRM)
to establish controlled airspace at
Needles, CA (78 FR 78296). Interested
parties were invited to participate in
this rulemaking effort by submitting
written comments on the proposal to the
FAA. One comment was received from
National Business Aviation Association
in support of the proposal.
Class E airspace designations are
published in paragraph 6006, of FAA
Order 7400.9X dated August 7, 2013,
and effective September 15, 2013, which
is incorporated by reference in 14 CFR
71.1. The Class E airspace designations
listed in this document will be
published subsequently in that Order.
The Rule
This action amends Title 14 Code of
Federal Regulations (14 CFR) Part 71 by
establishing Class E en route domestic
airspace extending upward from 1,200
feet above the surface, the Needles VHF
Omni-Directional Radio Range Tactical
Air Navigation Aid (VORTAC), Needles,
CA, to accommodate IFR aircraft under
control of Los Angeles Air Route Traffic
Control Center (ARTCC) by vectoring
aircraft from en route airspace to
terminal areas. This action is necessary
for the safety and management of IFR
operations.
The FAA has determined this
regulation only involves an established
body of technical regulations for which
frequent and routine amendments are
necessary to keep them operationally
current. Therefore, this regulation: (1) Is
not a ‘‘significant regulatory action’’
under Executive Order 12866; (2) is not
a ‘‘significant rule’’ under DOT
Regulatory Policies and Procedures (44
FR 11034; February 26, 1979); and (3)
does not warrant preparation of a
regulatory evaluation as the anticipated
impact is so minimal. Since this is a
routine matter that only affects air traffic
procedures and air navigation, it is
certified this rule, when promulgated,
does not have a significant economic
impact on a substantial number of small
entities under the criteria of the
Regulatory Flexibility Act. The FAA’s
authority to issue rules regarding
aviation safety is found in Title 49 of the
U.S. Code. Subtitle 1, Section 106
discusses the authority of the FAA
Administrator. Subtitle VII, Aviation
Programs, describes in more detail the
scope of the agency’s authority. This
rulemaking is promulgated under the
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authority described in Subtitle VII, Part
A, Subpart I, Section 40103. Under that
section, the FAA is charged with
prescribing regulations to assign the use
of airspace necessary to ensure the
safety of aircraft and the efficient use of
airspace. This regulation is within the
scope of that authority as it establishes
controlled airspace the Needles VHF
Omni-Directional Radio Range Tactical
Air Navigation Aid (VORTAC), Needles,
CA.
Environmental Review
The FAA has determined that this
action qualifies for categorical exclusion
under the National Environmental
Policy Act in accordance with FAA
Order 1050.1E, ‘‘Environmental
Impacts: Policies and Procedures,’’
paragraph 311a. This airspace action is
not expected to cause any potentially
significant environmental impacts, and
no extraordinary circumstances exist
that warrant preparation of an
environmental assessment.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference,
Navigation (air).
Adoption of the Amendment
In consideration of the foregoing, the
Federal Aviation Administration
amends 14 CFR part 71 as follows:
PART 71—DESIGNATION OF CLASS A,
B, C, D AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND
REPORTING POINTS
1. The authority citation for 14 CFR
part 71 continues to read as follows:
■
Authority: 49 U.S.C. 106(g), 40103, 40113,
40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959–
1963 Comp., p. 389.
§ 71.1
[Amended]
2. The incorporation by reference in
14 CFR 71.1 of the Federal Aviation
Administration Order 7400.9X, Airspace
Designations and Reporting Points,
dated August 7, 2013, and effective
September 15, 2013 is amended as
follows:
■
Paragraph 6006
areas.
En route domestic airspace
*
*
*
*
*
AWP CA E6 Needles, CA [New]
Needles VORTAC, CA
(Lat. 34°45′58″ N., long. 114°28′27″ W.)
That airspace extending upward from
1,200 feet above the surface within an area
bounded by lat. 35°01′00″ N., long.
114°07′00″ W.; to lat. 34°56′00″ N., long.
113°38′00″ W.; to lat. 35°05′00″ N., long.
113°20′00″ W.; to lat. 35°04′30″ N., long.
113°18′00″ W.; to lat. 34°54′00″ N., long.
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113°39′00″ W.; to lat. 34°40′00″ N., long.
114°00′00″ W.; to lat. 33°37′00″ N., long.
114°00′00″ W.; to lat. 33°36′00″ N., long.
114°10′00″ W.; to lat. 33°51′00″ N., long.
114°32′00″ W.; to lat. 34°05′00″ N., long.
114°32′00″ W.; to lat. 34°10′00″ N., long.
114°13′00″ W.; to lat. 34°24′00″ N., long.
114°18′00″ W.; to lat. 34°58′00″ N., long.
114°13′00″ W., thence to the point of
beginning.
Issued in Seattle, Washington, on July 21,
2014.
Clark Desing,
Manager, Operations Support Group, Western
Service Center.
[FR Doc. 2014–17803 Filed 7–30–14; 8:45 am]
BILLING CODE 4910–13–P
FEDERAL TRADE COMMISSION
16 CFR Part 425
Rule Concerning the Use of
Prenotification Negative Option Plans
Federal Trade Commission.
Confirmation of rule.
AGENCY:
ACTION:
The Federal Trade
Commission has completed its
regulatory review of the Trade
Regulation Rule Concerning Use of
Prenotification Negative Option Plans as
part of the Commission’s systematic
review of all current Commission
regulations and guides, and has
determined to retain the Rule in its
current form.
DATES: This action is effective as of
August 1, 2014.
ADDRESSES: This document also is
available on the Internet at the
Commission’s Web site, https://
www.ftc.gov.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
Robert M. Frisby, (202) 326–2098,
Attorney, Division of Enforcement,
Bureau of Consumer Protection, Federal
Trade Commission, 600 Pennsylvania
Avenue NW., Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
I. Introduction
In May 2009, the Federal Trade
Commission (‘‘FTC’’ or ‘‘Commission’’)
requested comments on its Rule
Concerning the Use of Prenotification
Negative Option Plans (‘‘Negative
Option Rule’’ or ‘‘Rule’’), as part of its
comprehensive regulatory review
program.1 Specifically, the Commission
1 The Commission schedules its regulations and
guides for review on a ten-year cycle; i.e., all rules
and guides are scheduled to be reviewed ten years
after implementation and ten years after the
completion of each review. The Commission
publishes this schedule annually, with adjustments
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sought comments on the Rule’s costs
and benefits, and on whether it should
expand the Rule’s scope to cover
negative option features other than
prenotification offers involving
merchandise.
After considering the comments and
recent legislative developments, the
Commission has determined to retain
the Rule without amendment. All
commenters who addressed the issue
support the Rule’s current provisions.
Furthermore, although commenters
presented evidence of abusive negative
option marketing beyond prenotification
offers, the Restore Online Shoppers’
Confidence Act (‘‘ROSCA’’) 2 and the
Commission’s proposed amendments to
the Telemarketing Sales Rule (‘‘TSR’’),3
discussed in section III.D below, likely
address many of those abuses. Because
the Commission has not seen the full
effects ROSCA will have on the
marketplace, and has yet to adopt and
observe the effects of its proposed
amendments to the TSR, it would be
imprudent to expand the Rule’s
coverage at this time.4
This document provides background,
analyzes the comments, and further
explains the Commission’s decision.
II. Background
This section provides background on
the Commission’s Negative Option Rule,
its activities regarding the Rule, and
ROSCA.
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A. The Negative Option Rule
A ‘‘negative option’’ is any type of
sales term or condition that allows a
seller to interpret the customer’s silence,
or failure to take an affirmative action,
as acceptance of an offer. The Rule
regulates a specific type of negative
option, the prenotification negative
option plan for the sale of goods. In
prenotification plans, consumers receive
periodic announcements of upcoming
merchandise shipments and have a set
period to decline the shipment.
Otherwise, the company sends them the
merchandise. The periodic
announcements and shipments can
continue for an indefinite duration.
The Commission first promulgated
the Rule (then titled the ‘‘Negative
in response to public input, changes in the
marketplace, and resource demands. For more
information, see www.ftc.gov/opa/2011/07/
regreview.shtm.
2 Public Law 111–345 (Dec. 29, 2010).
3 Federal Trade Commission: Telemarketing Sales
Rule; Notice of Proposed Rulemaking, 78 FR 41200
(July 9, 2013).
4 E.g., it may take time for firms to adjust to
ROSCA’s requirements and find a way to operate
profitably, and for consumer complaints or reports
regarding ROSCA violations to reach the
Commission.
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Option Rule’’) in 1973 under the FTC
Act, 15 U.S.C. 41 et seq., after finding
that prenotification negative option
marketers had committed unfair and
deceptive marketing practices violative
of Section 5 of the Act, 15 U.S.C. 45.
The Rule became effective on June 4,
1974.
For prenotification plans, the Rule
requires sellers to clearly and
conspicuously disclose the plan’s
material terms before consumers
subscribe.5 In addition, the Rule
requires sellers to follow certain
procedures, including: abiding by
particular time periods during which
sellers must send introductory
merchandise and announcements
identifying merchandise the seller plans
to send; giving consumers a specified
time period to respond to
announcements; providing instructions
for rejecting merchandise in
announcements; and promptly honoring
written requests to cancel from
consumers who have met any minimum
purchase requirements.6
The Rule does not cover continuity
plans or automatic renewals, and only
covers trial conversions to the extent
that they also qualify as prenotification
plans. In continuity plans, consumers
receive regular merchandise shipments
or access to services until they cancel
the agreement. In trial conversions,
consumers receive products or services
for a trial period at no charge or for a
reduced price. If the consumers do not
cancel before the end of the trial period,
the product shipments or provision of
services continue and consumers incur
charges. In automatic renewals, a
magazine seller, for example, may
automatically renew consumers’
subscriptions when they expire, unless
consumers cancel their subscriptions.
B. Commission Activity Relating to
Regulation of Negative Options
In January 2007, the Commission
hosted a workshop to analyze the
marketing of goods and services through
5 The Rule enumerates seven material terms that
sellers must disclose clearly and conspicuously.
These terms are: the aspect of the plan under which
subscribers must notify the seller if they do not
wish to purchase the selection; any minimum
purchase obligations; the subscribers’ right to
cancel; whether billing charges include postage and
handling; that subscribers have at least ten days to
reject a selection; 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
the frequency with which announcements and
forms will be sent, and the maximum number
subscribers should expect to receive during a
twelve month period. 16 CFR 425.1(a)(1)(i)–(vii).
6 16 CFR 425.1(a)(2) and (3); 425.1(b).
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negative option offers.7 The workshop
featured consumer representatives,
academics, and industry leaders who
discussed the pros and cons of negative
option offers and explored ways to make
effective disclosures on the Internet.
Based on the workshop, in January
2009, the Commission issued a staff
report.8 Among other things, the report
set forth five principles to guide
industry in complying with Section 5 of
the Federal Trade Commission Act
(‘‘FTC Act’’) 9 when making online
negative option offers. They address: (1)
The disclosure of material terms; (2) the
appearance of disclosures; (3) the timing
of disclosures; (4) obtaining consumers’
affirmative consent; and (5) cancellation
procedures.
In May 2009, the Commission
published an Advance Notice of
Proposed Rulemaking (‘‘ANPR’’) seeking
comment on the Rule as part of the
Commission’s ongoing comprehensive
regulatory review program.10 The ANPR
sought comment on the Rule’s overall
costs, benefits, necessity, and regulatory
and economic impact. The ANPR also
asked for comment on whether the
Commission should expand the Rule to
cover other types of negative option
offers.11
C. ROSCA
After the Commission’s second
comment period closed, Congress
enacted ROSCA in December 2010 to
address ongoing problems with online
negative option marketing. This statute
prohibits any person from charging or
attempting to charge any consumer for
goods or services sold in an Internet
transaction through any negative option
feature,12 including trial conversions,
continuity plans, and automatic
renewals, unless the person: (1)
Provides text that clearly and
conspicuously discloses all material
terms of the transaction before obtaining
the consumer’s billing information; (2)
obtains a consumer’s express informed
7 For materials and the agenda for the workshop,
see https://www.ftc.gov/bcp/workshops/
negativeoption/index.shtml.
8 For the report, see https://www.ftc.gov/os/2009/
02/P064202negativeoptionreport.pdf.
9 15 U.S.C. 45.
10 Federal Trade Commission: Rule Concerning
the Use of Prenotification Negative Option Plans:
Advance Notice of Proposed Rulemaking; Request
for Comments, 74 FR 22720 (May 14, 2009).
11 At the request of several commenters, in
August 2009 the Commission reopened the
comment period for sixty days until October 13,
2009. Federal Trade Commission: Rule Concerning
the Use of Prenotification Negative Option Plan; Reopening the record for submission of public
comments, 74 FR 40121 (Aug. 11, 2009).
12 ROSCA incorporates the definition of ‘‘negative
option feature’’ from the Commission’s
Telemarketing Sales Rule, 16 CFR 310.2(u).
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consent before charging the consumer’s
account; and (3) provides simple
mechanisms for a consumer to stop
recurring charges.13
Another ROSCA provision addresses
offers made by, or on behalf of, a thirdparty seller during, or immediately
following, a transaction with an initial
merchant.14 In connection with these
transactions, ROSCA prohibits posttransaction third party sellers from
charging or attempting to charge any
consumer’s financial account unless (1)
before obtaining billing information, the
seller clearly and conspicuously
discloses the material terms of the offer;
and (2) the seller receives the
consumer’s express informed consent by
(A) obtaining from the consumer the full
account number of the account to be
charged and the consumer’s name and
address and a means to contact the
consumer; and (B) requiring the
consumer to perform an additional
affirmative action indicating consent.15
The Act also prohibits initial merchants
from disclosing billing information to
any post-transaction third party seller
for use in any Internet-based sale of
goods or services.16
ROSCA provides that a violation of
the Act shall be treated as a violation of
a Commission trade regulation rule
under Section 18 of the FTC Act.17
Thus, the Commission may seek a wide
variety of remedies for violations of
ROSCA, including civil penalties under
Section 5(m)(1)(A) of the FTC Act; 18
injunctive and equitable monetary relief
under Section 13(b) of the Act; 19 and
consumer redress, damages, and other
relief under Section 19 of the Act.20
States can enforce ROSCA as well.21
Although Congress charged the
Commission with enforcing ROSCA, it
did not provide rulemaking authority
under the Administrative Procedure
Act.22 Hence, the Commission would
have to rely on its existing authority
under Section 18 of the FTC Act to
amend the Negative Option Rule. As the
Commission has noted, ‘‘the current
rulemaking procedures prescribed by
13 15
U.S.C. 8403.
defines ‘‘post-transaction third party
seller’’ as a person other than the initial merchant
who sells any good or service on the Internet and
solicits the purchase on the Internet through an
initial merchant after the consumer has initiated a
transaction with the initial merchant. 15 U.S.C.
8402(d)(2).
15 15 U.S.C. 8402(a).
16 15 U.S.C. 8402(b).
17 15 U.S.C. 8404. Section 18 of the FTC Act is
15 U.S.C. 57a.
18 15 U.S.C. 45(m)(1)(A).
19 15 U.S.C. 53(b).
20 15 U.S.C. 57b(a)(1) and (b).
21 15 U.S.C. 8405.
22 5 U.S.C. 552 et seq.
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14 ROSCA
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Section 18 (often referred to as
‘Magnuson-Moss’ rulemaking) are
complex, cumbersome, and timeconsuming, resulting in rulemaking
proceedings lasting many years.’’ 23
III. Regulatory Review Comments and
Analysis
The Commission received 14
comments in response to the ANPR
during the initial comment period and
an additional 99 after the Commission
reopened the comment period.24 Most
were filed by individuals and firms, but
the Commission also received
comments from state and local law
enforcement agencies as well as trade
associations. Specifically, the
Commission received comments from
the Attorneys General of Colorado,
Florida, Pennsylvania, Washington, and
Vermont (Vermont also filed on behalf
of 18 other states 25); as well as the
Permitting, Licensing, and Consumer
Protection Division of Broward County,
Florida (‘‘Broward County’’). The
Commission also received comments
from the American Association of Law
Libraries (‘‘AALL’’),26 Direct Marketing
Association (‘‘DMA’’),27 Electronic
Retailing Association (‘‘ERA’’),28
Promotion Marketing Association
(‘‘PMA’’),29 and Magazine Publishers of
America (‘‘MPA’’).30 Commenters
agreed that the Commission should
retain the current Rule, but differed on
whether it should expand the Rule’s
scope. Notwithstanding the evidence
provided by law enforcement agencies,
23 See Prepared Statement of the Federal Trade
Commission on Financial Services and Products:
The Role of the Federal Trade Commission in
Protecting Consumers, Before the Senate Committee
on Commerce, Science, and Transportation (Feb. 4,
2010), available at https://www.ftc.gov/os/testimony/
P064814financial-services.pdf.
24 The comments are available on the
Commission’s Web site at https://www.ftc.gov/os/
comments/prenotnegativeoprule/index.shtm and
https://www.ftc.gov/os/comments/negoprulereopen/
index.shtm.
25 Vermont filed on behalf of Arkansas, Illinois,
Kansas, Maine, Maryland, Massachusetts,
Minnesota, Nevada, New Mexico, Ohio, Oregon,
Tennessee, and West Virginia. Vermont, 543809–
00098. Later Connecticut, Delaware, Louisiana,
Mississippi, and New Jersey joined Vermont’s
comment. Vermont, 543809–00105.
26 AALL is a non-profit organization with nearly
5,000 members. AALL, 543809–00102, at 1.
27 DMA represents more than 3,500 companies,
including a majority of the Fortune 100 companies.
DMA, 541909–00011, at 2.
28 ERA is the leading trade association
representing the electronic retailing industry. ERA,
541909–00010, at 2.
29 PMA is a not-for-profit organization and
resource for research, education, and collaboration
for marketing professionals. PMA, 543809–00097, at
1.
30 MPA represents hundreds of domestic
publishing companies, international publishers,
and associate members that publish over a 1,000
different titles. MPA, 541909–00008, at 1.
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the Commission declines to expand the
Rule because the intervening passage of
ROSCA may sufficiently address the
unfair and deceptive negative option
practices described in the comments.
Law enforcement agencies and one trade
association supported expansion to
cover other types of negative option
features, presenting evidence of
significant abuses that the Rule does not
cover. Conversely, most trade
associations argued against expansion,
asserting that laws and guidance
currently in place sufficiently protect
consumers. To the extent ROSCA does
not cover unfair and deceptive negative
option marketing practices, the
Commission can and will continue to
address such practices using its other
enforcement tools. In addition, the
Commission will continue to look at
negative option practices as the effects
of ROSCA become clear.31
A. Support for Retaining the Rule
All the commenters addressing the
issue supported the Rule’s current
provisions. Indeed, none of the
commenters advocated repealing the
Rule or narrowing its scope. For
example, Broward County stated that
the Rule protects consumers by
requiring disclosures that make them
aware of their financial obligations and
imposes only nominal costs.32 The trade
associations concurred. For example,
DMA ‘‘believes that the current Negative
Option Rule and the broader regulatory
framework are working effectively, and
strike the right balance between
consumer protection and commerce.’’ 33
Similarly, ERA ‘‘strongly believes that
the current regulatory structure for
offers with an advance consent feature
adequately balances the concerns of
businesses, federal and state regulators,
and consumers.’’ 34
In light of these comments, the
Commission concludes that a
continuing need exists for the Rule, and
that costs imposed on businesses are
reasonable.
B. Proposals To Expand the Rule
The comments diverged sharply,
however, on whether to expand the
31 The Commission notes that 46 states and the
District of Columbia recently announced a $30
million settlement resolving allegations that
Affinion Group, Inc., Trilegiant Corp., and
Webloyalty.com engaged in deceptive negative
option marketing practices. See https://
www.illinoisattorneygeneral.gov/pressroom/2013_
10/20131010.html. The defendants are required to
comply with ROSCA. See https://
www.oag.state.tx.us/newspubs/releases/2013/
AFJPI12.PDF.
32 Broward County comment, 543809–00007, at 1
and 6.
33 DMA, 541909–00011, at 3.
34 ERA, 541909–00010, at 4.
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Rule. All of the state and local law
enforcement agencies as well as AALL
advocated expanding the Rule, while
the rest of the trade associations
opposed expansion as explained in
section III.C below.35
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1. State and Local Law Enforcement
The state law enforcement agencies
urged the Commission to expand the
Rule to cover additional types of
negative options, particularly trial
conversion offers. They also favored
covering the marketing of services and
not just merchandise.
Mainly to expand the Rule to address
all types of negative option marketing,
each of these agencies also proposed
adding a variety of new requirements
and prohibitions, most of which would
help ensure that sellers (1) disclose
materials terms clearly and
conspicuously; 36 (2) obtain informed,
affirmative consent before charging or
continuing to charge consumers; 37 or
(3) maintain practices and procedures
facilitating easy cancellation so that
consumers can avoid charges for
unwanted merchandise or services.38
35 Pennsylvania filed a one page comment
indicating that the Commission should extend the
Rule to cover additional types of negative option
offers. Pennsylvania, 541909–00012.
36 Florida, 543809–00099, at 10; and Washington,
541909–00009, at 1. Broward County proposed
defining ‘‘clearly and conspicuously’’ and requiring
a standardized format for disclosing the terms of
negative option offers and obtaining billing
information from consumers on the Internet.
Broward County, 543809–00007, at 7–9.
37 Vermont and the 18 states joining its comment
favored (1) prohibiting charges following a ‘‘free’’
trial without receiving the consumer’s affirmative
consent at the end of the trial; (2) mandating
periodic notification of charges in trial conversions;
and (3) limiting to 18 months the duration of the
time period a consumer may be charged, and
requiring an affirmative ‘‘opt in’’ to exceed that time
limit. Vermont, 543809–00098, at 7–8. Colorado
favored (1) and (2) above. Colorado, 543809–00096,
at 7. Florida favored requiring sellers to obtain
consent at the end of the free trial and before
imposing any renewal charges on a recurring term
subscription. Florida, 543809–00099, at 8–9.
Washington proposed requiring sellers to (1) obtain
billing information directly from consumers during
the transaction; (2) obtain verifiable authorization
from the consumer to be billed; and (3) obtain
acceptance through an affirmative act by the
consumer. Washington also proposed limiting the
number of months a seller can charge a consumer
before obtaining new authorization to continue
imposing charges. Washington suggested a limit of
18 months. Washington, 541909–00009, at 7–8.
Florida favored requiring express, informed consent
of the offer, and tightening requirements for thirdparty billing mechanisms. Florida, 543809–00099,
at 1–2 and 7–9. It also favored requiring disclosure
in confirmation notices following the sale at no less
than six month intervals. Florida, 543809–00099, at
10.
38 Colorado, Vermont and the 18 states joining
Vermont’s comment supported requiring sellers to
permit consumers to cancel in the same method of
communication as the solicitation to the consumer.
Colorado, 543809–00096, at 7; Vermont, 543809–
00098, at 8. Florida favored this too, and argued
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The specific proposals of the agencies
vary, but with a few exceptions 39 fall
into the three categories above. In
addition, several individual comments
advocated for similar proposals, such as
expanding the Rule to cover other types
of negative options and adding
disclosure and notice requirements.40
In support of their proposals, the
agencies cited thousands of consumer
complaints regarding negative
options,41 their own experience,42 and
consumer survey evidence 43 showing
that cancellation should be acknowledged with a
cancellation number. Florida also supported
disclosing the requirements for cancellation in
written confirmation of the offer and periodic
disclosures, and providing sufficient time to cancel
after the consumer receives acknowledgment of the
offer and accepts the charges. Florida, 543809–
00099, at 9–11. Washington proposed requiring
sellers to: (1) Identify themselves on billing
statements; and (2) provide for easy cancellation—
at a minimum by allowing consumers to cancel
using the same means they used to accept the offer.
Washington, 541909–00009, at 8.
39 Broward County proposed some requirements
beyond those categories for trial periods: Requiring
trial periods to start on the date the consumer
receives the product and prohibiting sellers from
billing consumers prior to the expiration of the trial
period. Broward County, 543809–00007, at 12. In
addition, Florida proposed prohibiting the
marketing of negative option contracts to minors.
Florida, 543809–00099, at 11.
40 See, e.g., comments 541909–00001, 541909–
00007, and 543809–00004. A total of 98 individuals
submitted comments. Most did not comment on any
specific Rule provisions. Instead, these comments
generally either complained about the practices of
a particular firm or urged greater regulation of
negative option offers. Some proposed changes that
the Commission lacks authority to adopt, such as
requiring licenses to make negative option offers
(e.g., comment 541909–00003). A few individual
and business comments urged the Commission not
to expand the Rule (e.g., comments 543809–00101
and 541909–00014).
41 The agencies reported receiving thousands of
complaints. For example, Florida reported over
2,000 complaints in four of its pending negative
option investigations alone. Florida, 543809–00099,
at 2.
42 The agencies reported that they have
investigated or taken enforcement action against
sellers engaged in negative option marketing. For
example, Florida reported handling nearly 50
investigations involving negative option marketing
since 1998, the overwhelming majority of which
involve free-to-pay conversions with automatic
renewal or continuity features. Florida, 543809–
00099, at 2 and Appendix A.
43 Several states reported survey results
underscoring that many consumers incur charges
for memberships in negative option plans of which
they are unaware and do not want. In May 2006,
the Iowa Attorney General announced the results of
a survey of consumers enrolled in negative option
plans run by Memberworks, Inc., now known as
Vertrue, Inc. Vermont, 543809–00098, at 6;
Colorado, 543809–00096, at 5–6. Four hundred
surveys were mailed to consumers. Of the 88
consumers who responded, 67% were unaware of
their membership in the negative option plan.
Almost all of the remaining consumers had never
used the plan, or believed they had cancelled their
membership. None expressed satisfaction with the
membership. In 2007, Vermont surveyed state
residents who had been billed for discount plan
memberships involving a trial conversion negative
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that many consumers are not aware of
their enrollment in negative option
plans. According to the agencies,
consumers experience problems,
including inadequate disclosures, the
imposition of charges without the
consumers’ informed consent, difficult
cancellation procedures, failure to
honor cancellation requests, and trial
offers where consumers forget they have
consented to future charges.44 The
agencies argued that this evidence
demonstrates a need for an expanded
Rule to better protect consumers.
In addition, many agencies noted the
increasing frequency of Internet
negative option marketing. For example,
Florida provided information about 47
negative option investigations from
1997 to 2009. Most of these involved
Internet negative option marketing,
including 18 that involved solely
Internet marketing. In addition, 25 of
the 28 investigations since 2005
involved Internet marketing. Sixteen of
the 25 involved solely Internet
marketing.45 Washington noted that
sellers frequently make free-to-pay
offers on the Internet, and that
previously such offers were made most
frequently in telemarketing and direct
mail.46 Similarly, Broward County
stated that most free trial conversion
negative option sales transactions occur
on the Internet.47
2. AALL Proposals
AALL advocated expanding the scope
of the Rule in several respects and
adding a number of prohibitions and
requirements, many of which resemble
the proposals described above. Like the
law enforcement agencies, it supported
expanding the Rule to cover other types
of negative option offers. It also
advocated expanding the Rule to protect
institutional consumers, such as law
libraries, as well as individuals, and to
option. Vermont, 543809–00098, at 6; Colorado,
543809–00096, at 6. Of the 100 respondents, 67 did
not recall signing up for the plan and 53 answered
expressly that they did not agree to be billed. Only
six responded that they had ever used the plan. Id.
44 Colorado, Vermont, and the 18 states joining
Vermont’s comment contended that the problem
with trial conversions stems less from the failure to
make up-front disclosures and obtain consent than
from the fact that consumers enticed by a free trial
offer are unlikely to remember their spur-of-themoment assent to periodic charges and therefore
unlikely to scrutinize their accounts for unwanted
charges. Colorado, 543809–00096, at 6; Vermont,
543809–00098, at 7. Florida agreed that free trial
offers can lure consumers into a state of
forgetfulness. Florida, 543809–00099, at 9.
45 Florida, 543809–00099, at Appendix A. Florida
reported that this appendix is not an exhaustive list
of its negative option investigations. For example,
it does not include non-public investigations. Id. at
2.
46 Washington, 541909–00009, at 5.
47 Broward County, 543809–00007, at 13.
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cover online subscriptions and digital
materials, such as e-books, podcasts,
and applications.
AALL favored adding some of the
same prohibitions and requirements
favored by the state and local law
enforcement agencies as well as a host
of others to address negative option
marketing by firms selling legal
publications. For example, AALL urged
the Commission to impose a maximum
duration of no more than five years on
negative option plans.48 It also proposed
a number of provisions to address the
shipment of unordered publications and
facilitate cancellation of unwanted
negative option plans.49
In support of its numerous proposals,
AALL cited the experience of its
members who have received unordered
and unwanted legal publications. It also
cited two Florida law enforcement
actions involving negative option
marketing practices affecting libraries.
C. Opposition To Expanding the Rule
Unlike AALL, the other four trade
associations opposed any expansion. All
argued that existing Commission
authority and guidance, along with
industry guidance, protect consumers
adequately. They also argued that
prescriptive regulation would harm
consumers.
DMA urged the Commission ‘‘to avoid
unnecessary regulation that would limit
consumers’ ability to learn about
valuable goods and services, hinder
innovation, or inhibit commerce,
especially during these challenging
economic times.’’ 50 It stated that robust
industry self-regulation, coupled with
existing FTC enforcement authority,
effectively meets the needs of both
consumers and businesses in this area.
DMA also explained that its members
are required to comply with Article 12
of its Guidelines for Ethical Business
Practice, which addresses negative
option marketing in detail. Noncomplying members that fail to come
into compliance face expulsion and may
be reported to government regulators.51
Similarly, ERA and PMA contended
that (1) the Commission already
possesses the enforcement tools
necessary to protect consumers,
including Section 5 of the FTC Act, the
Postal Reorganization Act of 1970
48 AALL,
543809–00102, at 5.
example, AALL proposed that the
Commission prohibit sellers from: (1) Sending
unordered books unless they are clearly marked as
such; (2) sending invoices or dunning notices for
unordered books; and (3) commanding payment for
or the return of unordered books. These practices
violate the Postal Reorganization Act of 1970, 39
U.S.C. 3009. AALL, 543809–00102, at 4.
50 DMA, 541909–00011, at 1.
51 Id. at 4–5.
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(‘‘PRA’’),52 the Electronic Fund Transfer
Act (‘‘EFTA’’),53 the Negative Option
Rule, and the TSR; (2) guidance
documents published by the
Commission provide adequate concrete
guidance and direction to the industry;
(3) the Commission should avoid a
prescriptive approach that will deprive
marketers of the flexibility to adapt to
the rapidly evolving marketplace; and
(4) the record does not indicate that
deception results from advertising that
complies with the above laws and
guidance.54 They also noted the
existence of various industry selfregulatory programs that help prevent
deception.55 ERA pointed to its
Advance Consent Guidelines, which
cover the full range of negative option
programs currently offered in the
marketplace, including free trial offers,
continuity plans, and automatic
renewals.56
Finally, MPA argued that the
Commission’s current guidance and
enforcement ability sufficiently protect
consumers.57 Like DMA and ERA, MPA
has developed guidance for its members
on negative option marketing.58 It too
touted the benefits of negative option
plans and the need for flexibility in
responding to a rapidly changing
marketplace.
D. Analysis
The comments advocating expansion
of the Rule 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.
Indeed, negative option arrangements
not covered by the Rule, such as trial
conversions and continuity plans, have
accounted for most of the Commission’s
recent enforcement activity in this
area.59 The record also indicates that
U.S.C. 3009.
U.S.C. 1693–1693r.
54 ERA, 541909–00010, at 3–4; PMA, 543809–
00097, at 3.
55 PMA, 543809–0097, at 10.
56 ERA, 541909–00010, at 13–14.
57 MPA, 541909–00008, at 1.
58 Id. at 5–6.
59 Over the last few years, the Commission has
filed a number of law enforcement actions
challenging negative option marketing practices,
including, for example, FTC v. Process America,
Inc., No. 14–0386–PSG–VBKx (C.D. Cal. Jan. 16,
2014) (processing of unauthorized charges relating
to negative option marketing), https://www.ftc.gov/
news-events/press-releases/2013/11/ftc-settlementscrack-down-payment-processing-operation-enabled;
FTC v. Willms, No 2:11–cv–00828 (W.D. Wash. May
16, 2011) (Internet free trials and continuity plans),
https://www.ftc.gov/opa/2011/05/jessewillms.shtm;
FTC v. Moneymaker, No. 2:11–cv–00461–JCM–RJJ
(D. Nev. Mar. 28, 2011) (Internet trial offers and
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Internet marketing represents a large
and growing share of negative option
marketing, particularly that involving
free trial conversions.60
Congress reached the same conclusion
and, as a result, enacted ROSCA to
protect consumers from deceptive
online negative option practices. The
additional enforcement tools provided
by ROSCA likely will assist the
Commission in stopping unlawful
negative option practices in the
significant and growing slice of the
market involving the Internet. Due to
the availability of these promising new
tools and uncertainty regarding how
ROSCA will affect the marketplace, the
Commission declines to propose
amendments to the Negative Option
Rule at this time.
ROSCA addresses many of the
concerns raised in the comments by
requiring Internet sellers of any negative
option type, including trial conversions,
to disclose material terms, obtain
informed consent, and provide simple
mechanisms for consumers to stop
recurring charges.61 ROSCA also
provides the Commission with civil
penalty authority, thereby bolstering the
Commission’s enforcement tools in this
area.62
Furthermore, ROSCA provides
additional protections for consumers
who receive an offer from a third-party
seller immediately after making an
Internet purchase. Specifically, it
requires that third-party sellers provide
adequate disclosures and obtain
affirmative consent and billing
information directly from the consumer
before imposing charges rather than
charging the consumer using billing
continuity programs), https://www.ftc.gov/opa/2011/
04/moneymaker.shtm; FTC v. Johnson, No. 2:10–
cv–02203–RLH–GWF (D. Nev. Dec. 21, 2010),
(Internet trial offers), https://www.ftc.gov/opa/2010/
12/iworks.shtm; and FTC v. John Beck Amazing
Profits, LLC, No. 2:09–cv–04719 (C.D. Cal. June 30,
2009) (infomercial and telemarketing trial offers and
continuity programs), https://www.ftc.gov/opa/2009/
07/shortchange.shtm; see also ‘‘An Overview of the
FTC’s Enforcement Actions Concerning Negative
Option Marketing,’’ a presentation delivered during
the Commission’s 2007 ‘‘Negative Options: An FTC
Workshop Analyzing Negative Option Marketing,’’
available at www.ftc.gov/bcp/workshops/
negativeoption/presentations/Ashe.pdf.
60 See discussion in section III.B.1 above.
61 ROSCA also furthers the principles to guide
negative option marketers set forth in the
Commission’s 2009 report on its negative option
workshop, including adequate disclosures,
informed consent, and reasonable cancellation
procedures.
62 Civil penalty authority is particularly useful in
cases where it is difficult to calculate consumer
injury, administer a redress program, or prove that
the violator made substantial gains from its
unlawful conduct.
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information obtained from the initial
seller.63
The Commission recognizes that
ROSCA does not apply to negative
option marketing in media other than
the Internet. However, as noted above,
the record indicates that Internet
marketing represents a large and
growing share of negative option
marketing. Accordingly, the
Commission can and will continue to
challenge deceptive or unfair negative
option practices as needed under the
Negative Option Rule, Section 5 of the
FTC Act, the TSR, EFTA,64 and the
PRA,65 and will consider whether
changes in the marketplace warrant
reevaluation of the Commission’s rules
as they apply to negative option
marketing in specific contexts.
The TSR, like ROSCA, addresses
many of the negative option abuses
identified by the comments. For
example, the Commission previously
addressed trial conversions and other
negative option marketing in the context
of outbound telemarketing by amending
the TSR in 2003.66 In addition, the
Commission recently proposed
amending the TSR to prohibit the use of
payment methods often used in
deceptive marketing, including of
negative options, such as unsigned
checks and remotely created ‘‘payment
orders.’’ 67 Furthermore, in May 2013,
the Commission announced that it plans
to initiate a regulatory review of the
TSR.68 Commenters in that review can
raise issues related to negative option
marketing.
If the Commission concludes that
ROSCA and its other enforcement tools
do not provide adequate protection for
consumers, it can then consider, based
on a more complete record, whether and
how to amend the Rule. The
Commission can also consider whether
to recommend that Congress amend
ROSCA or take some other action.69
63 This provision applies to all Internet
marketing, including negative option marketing.
64 Among other things, EFTA prohibits imposing
recurring charges on a consumer’s bank account
without written authorization. EFTA provides that
the Commission shall enforce its requirements,
except to the extent that enforcement is specifically
committed to some other 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 the same
injunctive and monetary equitable relief for EFTA
violations that it can seek for other Section 5
violations.
65 The PRA provides that mailing unordered
merchandise, or a bill or dunning communications
for such merchandise, constitutes an unfair method
of competition and an unfair trade practice in
violation of Section 5 of the FTC Act. Accordingly,
the Commission has authority to seek the same
remedies for PRA violations that it can seek for
other Section 5 violations. For example, 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.
66 See Federal Trade Commission: Telemarketing
Sales Rule; Final Amended Rule, 68 FR 4580, 4594–
97 (Jan. 29, 2003) (codified at 16 CFR 310.2(p),
310.2(u), 310.3(a)(1)(vii), and 310.6(b)(4)–(6))
(telemarketers must disclose all material terms and
conditions of negative option offers, including
‘‘free-to-pay conversion’’ offers, in outbound
telemarketing calls and upsells).
67 Federal Trade Commission: Telemarketing
Sales Rule; Notice of Proposed Rulemaking, 78 FR
41200 (July 9, 2013). The TSR Notice of Proposed
Rulemaking noted negative option cases where the
defendants used unauthorized remotely created
checks. E.g., FTC v. FTN Promotions, Inc., Civ. No.
SUMMARY:
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By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2014–17978 Filed 7–30–14; 8:45 am]
BILLING CODE 6750–01–P
SOCIAL SECURITY ADMINISTRATION
20 CFR Part 405
[Docket No. SSA–2014–0034]
RIN 0960–AH67
Extension of Expiration Date for
Temporary Pilot Program Setting the
Time and Place for a Hearing Before an
Administrative Law Judge; Correction
Social Security Administration.
Correction amendment.
AGENCY:
ACTION:
The Social Security
Administration published a final rule
document in the Federal Register on
July 18, 2014 (79 FR 41881), extending
the expiration date for the Temporary
Pilot Program Setting the Time and
Place for a Hearing Before an
Administrative Law Judge. That
document inadvertently had a timing
issue with § 405.315(e) not being
codified by the July 18, 2014
publication. Section 405.315(e) was
codified on July 25, 2014. This
document corrects the final regulation
by revising the now codified
§ 405.315(e).
Effective on July 31, 2014, and
applicable beginning July 25, 2014.
FOR FURTHER INFORMATION CONTACT:
Brian J. Rudick, Office of Regulations
and Reports Clearance, Social Security
DATES:
8:07–1279 (M.D. Fla. Dec. 30, 2008) (Stip. Perm.
Inj.) (defendants allegedly caused more than $171
million in unauthorized charges to consumers
accounts for bogus travel and buyers’ clubs in part
by using unauthorized remotely created checks).
68 Federal Trade Commission: Notice of Intent to
Request Public Comments, 78 FR 30798 (May 23,
2013).
69 For example, the Commission could seek
authority to conduct a rulemaking using more
expeditious procedures than those set forth in
Section 18.
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Administration, 6401 Security
Boulevard, Baltimore, MD 21235–6401,
(410) 965–7102. For information on
eligibility or filing for benefits, call our
national toll-free number, 1–800–772–
1213, or TTY 1–800–325–0778, or visit
our Internet site, Social Security Online,
at https://www.socialsecurity.gov.
SUPPLEMENTARY INFORMATION: We
published a final rule document in the
Federal Register of July 18, 2014, (79 FR
41883) extending the expiration date for
the Temporary Pilot Program Setting the
Time and Place for a Hearing Before an
Administrative Law Judge in our
regulations. In this final rule, we
inadvertently had a timing issue with
section 405.315(e) not being codified by
the July 18, 2014 publication. Section
405.315(e) was codified on July 25,
2014. This document corrects the final
regulation by revising the now codified
section 405.315(e).
List of Subjects in 20 CFR Part 405
Administrative practice and
procedure, Blind, Disability benefits,
Old-Age, Survivors, and Disability
Insurance, Public assistance programs,
Reporting and recordkeeping
requirements, Social Security,
Supplemental Security Income (SSI).
Accordingly, 20 CFR chapter III, part
405 is corrected by making the
following correcting amendment:
PART 405—ADMINISTRATIVE REVIEW
PROCESS FOR ADJUDICATING
INITIAL DISABILITY CLAIMS
1. The authority citation for part 405
continues to read as follows:
■
Authority: Secs. 201(j), 205(a)–(b), (d)–(h),
and (s), 221, 223(a)–(b), 702(a)(5), 1601, 1602,
1631, and 1633 of the Social Security Act (42
U.S.C. 401(j), 405(a)–(b), (d)–(h), and (s), 421,
423(a)–(b), 902(a)(5), 1381, 1381a, 1383, and
1383b).
Subpart D—[Amended]
2. In § 405.315, revise the second
sentence in paragraph (e) to read as
follows:
■
§ 405.315 Time and place for a hearing
before an administrative law judge.
*
*
*
*
*
(e) Pilot program. * * * These
provisions will no longer be effective on
August 10, 2015, unless we terminate
them earlier or extend them beyond that
date by notice of a final rule in the
Federal Register.
Paul Kryglik,
Director, Office of Regulations and Reports
Clearance.
[FR Doc. 2014–17976 Filed 7–30–14; 8:45 am]
BILLING CODE 4191–02–P
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]]>Agencies
[Federal Register Volume 79, Number 147 (Thursday, July 31, 2014)]
[Rules and Regulations]
[Pages 44271-44276]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-17978]
=======================================================================
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FEDERAL TRADE COMMISSION
16 CFR Part 425
Rule Concerning the Use of Prenotification Negative Option Plans
AGENCY: Federal Trade Commission.
ACTION: Confirmation of rule.
-----------------------------------------------------------------------
SUMMARY: The Federal Trade Commission has completed its regulatory
review of the Trade Regulation Rule Concerning Use of Prenotification
Negative Option Plans as part of the Commission's systematic review of
all current Commission regulations and guides, and has determined to
retain the Rule in its current form.
DATES: This action is effective as of August 1, 2014.
ADDRESSES: This document also is available on the Internet at the
Commission's Web site, https://www.ftc.gov.
FOR FURTHER INFORMATION CONTACT: Robert M. Frisby, (202) 326-2098,
Attorney, Division of Enforcement, Bureau of Consumer Protection,
Federal Trade Commission, 600 Pennsylvania Avenue NW., Washington, DC
20580.
SUPPLEMENTARY INFORMATION:
I. Introduction
In May 2009, the Federal Trade Commission (``FTC'' or
``Commission'') requested comments on its Rule Concerning the Use of
Prenotification Negative Option Plans (``Negative Option Rule'' or
``Rule''), as part of its comprehensive regulatory review program.\1\
Specifically, the Commission
[[Page 44272]]
sought comments on the Rule's costs and benefits, and on whether it
should expand the Rule's scope to cover negative option features other
than prenotification offers involving merchandise.
---------------------------------------------------------------------------
\1\ The Commission schedules its regulations and guides for
review on a ten-year cycle; i.e., all rules and guides are scheduled
to be reviewed ten years after implementation and ten years after
the completion of each review. The Commission publishes this
schedule annually, with adjustments in response to public input,
changes in the marketplace, and resource demands. For more
information, see www.ftc.gov/opa/2011/07/regreview.shtm.
---------------------------------------------------------------------------
After considering the comments and recent legislative developments,
the Commission has determined to retain the Rule without amendment. All
commenters who addressed the issue support the Rule's current
provisions. Furthermore, although commenters presented evidence of
abusive negative option marketing beyond prenotification offers, the
Restore Online Shoppers' Confidence Act (``ROSCA'') \2\ and the
Commission's proposed amendments to the Telemarketing Sales Rule
(``TSR''),\3\ discussed in section III.D below, likely address many of
those abuses. Because the Commission has not seen the full effects
ROSCA will have on the marketplace, and has yet to adopt and observe
the effects of its proposed amendments to the TSR, it would be
imprudent to expand the Rule's coverage at this time.\4\
---------------------------------------------------------------------------
\2\ Public Law 111-345 (Dec. 29, 2010).
\3\ Federal Trade Commission: Telemarketing Sales Rule; Notice
of Proposed Rulemaking, 78 FR 41200 (July 9, 2013).
\4\ E.g., it may take time for firms to adjust to ROSCA's
requirements and find a way to operate profitably, and for consumer
complaints or reports regarding ROSCA violations to reach the
Commission.
---------------------------------------------------------------------------
This document provides background, analyzes the comments, and
further explains the Commission's decision.
II. Background
This section provides background on the Commission's Negative
Option Rule, its activities regarding the Rule, and ROSCA.
A. The Negative Option Rule
A ``negative option'' is any type of sales term or condition that
allows a seller to interpret the customer's silence, or failure to take
an affirmative action, as acceptance of an offer. The Rule regulates a
specific type of negative option, the prenotification negative option
plan for the sale of goods. In prenotification plans, consumers receive
periodic announcements of upcoming merchandise shipments and have a set
period to decline the shipment. Otherwise, the company sends them the
merchandise. The periodic announcements and shipments can continue for
an indefinite duration.
The Commission first promulgated the Rule (then titled the
``Negative Option Rule'') in 1973 under the FTC Act, 15 U.S.C. 41 et
seq., after finding that prenotification negative option marketers had
committed unfair and deceptive marketing practices violative of Section
5 of the Act, 15 U.S.C. 45. The Rule became effective on June 4, 1974.
For prenotification plans, the Rule requires sellers to clearly and
conspicuously disclose the plan's material terms before consumers
subscribe.\5\ In addition, the Rule requires sellers to follow certain
procedures, including: abiding by particular time periods during which
sellers must send introductory merchandise and announcements
identifying merchandise the seller plans to send; giving consumers a
specified time period to respond to announcements; providing
instructions for rejecting merchandise in announcements; and promptly
honoring written requests to cancel from consumers who have met any
minimum purchase requirements.\6\
---------------------------------------------------------------------------
\5\ The Rule enumerates seven material terms that sellers must
disclose clearly and conspicuously. These terms are: the aspect of
the plan under which subscribers must notify the seller if they do
not wish to purchase the selection; any minimum purchase
obligations; the subscribers' right to cancel; whether billing
charges include postage and handling; that subscribers have at least
ten days to reject a selection; 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 the frequency with which announcements
and forms will be sent, and the maximum number subscribers should
expect to receive during a twelve month period. 16 CFR
425.1(a)(1)(i)-(vii).
\6\ 16 CFR 425.1(a)(2) and (3); 425.1(b).
---------------------------------------------------------------------------
The Rule does not cover continuity plans or automatic renewals, and
only covers trial conversions to the extent that they also qualify as
prenotification plans. In continuity plans, consumers receive regular
merchandise shipments or access to services until they cancel the
agreement. In trial conversions, consumers receive products or services
for a trial period at no charge or for a reduced price. If the
consumers do not cancel before the end of the trial period, the product
shipments or provision of services continue and consumers incur
charges. In automatic renewals, a magazine seller, for example, may
automatically renew consumers' subscriptions when they expire, unless
consumers cancel their subscriptions.
B. Commission Activity Relating to Regulation of Negative Options
In January 2007, the Commission hosted a workshop to analyze the
marketing of goods and services through negative option offers.\7\ The
workshop featured consumer representatives, academics, and industry
leaders who discussed the pros and cons of negative option offers and
explored ways to make effective disclosures on the Internet.
---------------------------------------------------------------------------
\7\ For materials and the agenda for the workshop, see https://www.ftc.gov/bcp/workshops/negativeoption/index.shtml.
---------------------------------------------------------------------------
Based on the workshop, in January 2009, the Commission issued a
staff report.\8\ Among other things, the report set forth five
principles to guide industry in complying with Section 5 of the Federal
Trade Commission Act (``FTC Act'') \9\ when making online negative
option offers. They address: (1) The disclosure of material terms; (2)
the appearance of disclosures; (3) the timing of disclosures; (4)
obtaining consumers' affirmative consent; and (5) cancellation
procedures.
---------------------------------------------------------------------------
\8\ For the report, see https://www.ftc.gov/os/2009/02/P064202negativeoptionreport.pdf.
\9\ 15 U.S.C. 45.
---------------------------------------------------------------------------
In May 2009, the Commission published an Advance Notice of Proposed
Rulemaking (``ANPR'') seeking comment on the Rule as part of the
Commission's ongoing comprehensive regulatory review program.\10\ The
ANPR sought comment on the Rule's overall costs, benefits, necessity,
and regulatory and economic impact. The ANPR also asked for comment on
whether the Commission should expand the Rule to cover other types of
negative option offers.\11\
---------------------------------------------------------------------------
\10\ Federal Trade Commission: Rule Concerning the Use of
Prenotification Negative Option Plans: Advance Notice of Proposed
Rulemaking; Request for Comments, 74 FR 22720 (May 14, 2009).
\11\ At the request of several commenters, in August 2009 the
Commission reopened the comment period for sixty days until October
13, 2009. Federal Trade Commission: Rule Concerning the Use of
Prenotification Negative Option Plan; Re-opening the record for
submission of public comments, 74 FR 40121 (Aug. 11, 2009).
---------------------------------------------------------------------------
C. ROSCA
After the Commission's second comment period closed, Congress
enacted ROSCA in December 2010 to address ongoing problems with online
negative option marketing. This statute prohibits any person from
charging or attempting to charge any consumer for goods or services
sold in an Internet transaction through any negative option
feature,\12\ including trial conversions, continuity plans, and
automatic renewals, unless the person: (1) Provides text that clearly
and conspicuously discloses all material terms of the transaction
before obtaining the consumer's billing information; (2) obtains a
consumer's express informed
[[Page 44273]]
consent before charging the consumer's account; and (3) provides simple
mechanisms for a consumer to stop recurring charges.\13\
---------------------------------------------------------------------------
\12\ ROSCA incorporates the definition of ``negative option
feature'' from the Commission's Telemarketing Sales Rule, 16 CFR
310.2(u).
\13\ 15 U.S.C. 8403.
---------------------------------------------------------------------------
Another ROSCA provision addresses offers made by, or on behalf of,
a third-party seller during, or immediately following, a transaction
with an initial merchant.\14\ In connection with these transactions,
ROSCA prohibits post-transaction third party sellers from charging or
attempting to charge any consumer's financial account unless (1) before
obtaining billing information, the seller clearly and conspicuously
discloses the material terms of the offer; and (2) the seller receives
the consumer's express informed consent by (A) obtaining from the
consumer the full account number of the account to be charged and the
consumer's name and address and a means to contact the consumer; and
(B) requiring the consumer to perform an additional affirmative action
indicating consent.\15\ The Act also prohibits initial merchants from
disclosing billing information to any post-transaction third party
seller for use in any Internet-based sale of goods or services.\16\
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\14\ ROSCA defines ``post-transaction third party seller'' as a
person other than the initial merchant who sells any good or service
on the Internet and solicits the purchase on the Internet through an
initial merchant after the consumer has initiated a transaction with
the initial merchant. 15 U.S.C. 8402(d)(2).
\15\ 15 U.S.C. 8402(a).
\16\ 15 U.S.C. 8402(b).
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ROSCA provides that a violation of the Act shall be treated as a
violation of a Commission trade regulation rule under Section 18 of the
FTC Act.\17\ Thus, the Commission may seek a wide variety of remedies
for violations of ROSCA, including civil penalties under Section
5(m)(1)(A) of the FTC Act; \18\ injunctive and equitable monetary
relief under Section 13(b) of the Act; \19\ and consumer redress,
damages, and other relief under Section 19 of the Act.\20\ States can
enforce ROSCA as well.\21\
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\17\ 15 U.S.C. 8404. Section 18 of the FTC Act is 15 U.S.C. 57a.
\18\ 15 U.S.C. 45(m)(1)(A).
\19\ 15 U.S.C. 53(b).
\20\ 15 U.S.C. 57b(a)(1) and (b).
\21\ 15 U.S.C. 8405.
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Although Congress charged the Commission with enforcing ROSCA, it
did not provide rulemaking authority under the Administrative Procedure
Act.\22\ Hence, the Commission would have to rely on its existing
authority under Section 18 of the FTC Act to amend the Negative Option
Rule. As the Commission has noted, ``the current rulemaking procedures
prescribed by Section 18 (often referred to as `Magnuson-Moss'
rulemaking) are complex, cumbersome, and time-consuming, resulting in
rulemaking proceedings lasting many years.'' \23\
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\22\ 5 U.S.C. 552 et seq.
\23\ See Prepared Statement of the Federal Trade Commission on
Financial Services and Products: The Role of the Federal Trade
Commission in Protecting Consumers, Before the Senate Committee on
Commerce, Science, and Transportation (Feb. 4, 2010), available at
https://www.ftc.gov/os/testimony/P064814financial-services.pdf.
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III. Regulatory Review Comments and Analysis
The Commission received 14 comments in response to the ANPR during
the initial comment period and an additional 99 after the Commission
reopened the comment period.\24\ Most were filed by individuals and
firms, but the Commission also received comments from state and local
law enforcement agencies as well as trade associations. Specifically,
the Commission received comments from the Attorneys General of
Colorado, Florida, Pennsylvania, Washington, and Vermont (Vermont also
filed on behalf of 18 other states \25\); as well as the Permitting,
Licensing, and Consumer Protection Division of Broward County, Florida
(``Broward County''). The Commission also received comments from the
American Association of Law Libraries (``AALL''),\26\ Direct Marketing
Association (``DMA''),\27\ Electronic Retailing Association
(``ERA''),\28\ Promotion Marketing Association (``PMA''),\29\ and
Magazine Publishers of America (``MPA'').\30\ Commenters agreed that
the Commission should retain the current Rule, but differed on whether
it should expand the Rule's scope. Notwithstanding the evidence
provided by law enforcement agencies, the Commission declines to expand
the Rule because the intervening passage of ROSCA may sufficiently
address the unfair and deceptive negative option practices described in
the comments. Law enforcement agencies and one trade association
supported expansion to cover other types of negative option features,
presenting evidence of significant abuses that the Rule does not cover.
Conversely, most trade associations argued against expansion, asserting
that laws and guidance currently in place sufficiently protect
consumers. To the extent ROSCA does not cover unfair and deceptive
negative option marketing practices, the Commission can and will
continue to address such practices using its other enforcement tools.
In addition, the Commission will continue to look at negative option
practices as the effects of ROSCA become clear.\31\
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\24\ The comments are available on the Commission's Web site at
https://www.ftc.gov/os/comments/prenotnegativeoprule/index.shtm and
https://www.ftc.gov/os/comments/negoprulereopen/index.shtm.
\25\ Vermont filed on behalf of Arkansas, Illinois, Kansas,
Maine, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, Ohio,
Oregon, Tennessee, and West Virginia. Vermont, 543809-00098. Later
Connecticut, Delaware, Louisiana, Mississippi, and New Jersey joined
Vermont's comment. Vermont, 543809-00105.
\26\ AALL is a non-profit organization with nearly 5,000
members. AALL, 543809-00102, at 1.
\27\ DMA represents more than 3,500 companies, including a
majority of the Fortune 100 companies. DMA, 541909-00011, at 2.
\28\ ERA is the leading trade association representing the
electronic retailing industry. ERA, 541909-00010, at 2.
\29\ PMA is a not-for-profit organization and resource for
research, education, and collaboration for marketing professionals.
PMA, 543809-00097, at 1.
\30\ MPA represents hundreds of domestic publishing companies,
international publishers, and associate members that publish over a
1,000 different titles. MPA, 541909-00008, at 1.
\31\ The Commission notes that 46 states and the District of
Columbia recently announced a $30 million settlement resolving
allegations that Affinion Group, Inc., Trilegiant Corp., and
Webloyalty.com engaged in deceptive negative option marketing
practices. See https://www.illinoisattorneygeneral.gov/pressroom/2013_10/20131010.html. The defendants are required to comply with
ROSCA. See https://www.oag.state.tx.us/newspubs/releases/2013/AFJPI12.PDF.
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A. Support for Retaining the Rule
All the commenters addressing the issue supported the Rule's
current provisions. Indeed, none of the commenters advocated repealing
the Rule or narrowing its scope. For example, Broward County stated
that the Rule protects consumers by requiring disclosures that make
them aware of their financial obligations and imposes only nominal
costs.\32\ The trade associations concurred. For example, DMA
``believes that the current Negative Option Rule and the broader
regulatory framework are working effectively, and strike the right
balance between consumer protection and commerce.'' \33\ Similarly, ERA
``strongly believes that the current regulatory structure for offers
with an advance consent feature adequately balances the concerns of
businesses, federal and state regulators, and consumers.'' \34\
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\32\ Broward County comment, 543809-00007, at 1 and 6.
\33\ DMA, 541909-00011, at 3.
\34\ ERA, 541909-00010, at 4.
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In light of these comments, the Commission concludes that a
continuing need exists for the Rule, and that costs imposed on
businesses are reasonable.
B. Proposals To Expand the Rule
The comments diverged sharply, however, on whether to expand the
[[Page 44274]]
Rule. All of the state and local law enforcement agencies as well as
AALL advocated expanding the Rule, while the rest of the trade
associations opposed expansion as explained in section III.C below.\35\
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\35\ Pennsylvania filed a one page comment indicating that the
Commission should extend the Rule to cover additional types of
negative option offers. Pennsylvania, 541909-00012.
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1. State and Local Law Enforcement
The state law enforcement agencies urged the Commission to expand
the Rule to cover additional types of negative options, particularly
trial conversion offers. They also favored covering the marketing of
services and not just merchandise.
Mainly to expand the Rule to address all types of negative option
marketing, each of these agencies also proposed adding a variety of new
requirements and prohibitions, most of which would help ensure that
sellers (1) disclose materials terms clearly and conspicuously; \36\
(2) obtain informed, affirmative consent before charging or continuing
to charge consumers; \37\ or (3) maintain practices and procedures
facilitating easy cancellation so that consumers can avoid charges for
unwanted merchandise or services.\38\ The specific proposals of the
agencies vary, but with a few exceptions \39\ fall into the three
categories above. In addition, several individual comments advocated
for similar proposals, such as expanding the Rule to cover other types
of negative options and adding disclosure and notice requirements.\40\
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\36\ Florida, 543809-00099, at 10; and Washington, 541909-00009,
at 1. Broward County proposed defining ``clearly and conspicuously''
and requiring a standardized format for disclosing the terms of
negative option offers and obtaining billing information from
consumers on the Internet. Broward County, 543809-00007, at 7-9.
\37\ Vermont and the 18 states joining its comment favored (1)
prohibiting charges following a ``free'' trial without receiving the
consumer's affirmative consent at the end of the trial; (2)
mandating periodic notification of charges in trial conversions; and
(3) limiting to 18 months the duration of the time period a consumer
may be charged, and requiring an affirmative ``opt in'' to exceed
that time limit. Vermont, 543809-00098, at 7-8. Colorado favored (1)
and (2) above. Colorado, 543809-00096, at 7. Florida favored
requiring sellers to obtain consent at the end of the free trial and
before imposing any renewal charges on a recurring term
subscription. Florida, 543809-00099, at 8-9. Washington proposed
requiring sellers to (1) obtain billing information directly from
consumers during the transaction; (2) obtain verifiable
authorization from the consumer to be billed; and (3) obtain
acceptance through an affirmative act by the consumer. Washington
also proposed limiting the number of months a seller can charge a
consumer before obtaining new authorization to continue imposing
charges. Washington suggested a limit of 18 months. Washington,
541909-00009, at 7-8. Florida favored requiring express, informed
consent of the offer, and tightening requirements for third-party
billing mechanisms. Florida, 543809-00099, at 1-2 and 7-9. It also
favored requiring disclosure in confirmation notices following the
sale at no less than six month intervals. Florida, 543809-00099, at
10.
\38\ Colorado, Vermont and the 18 states joining Vermont's
comment supported requiring sellers to permit consumers to cancel in
the same method of communication as the solicitation to the
consumer. Colorado, 543809-00096, at 7; Vermont, 543809-00098, at 8.
Florida favored this too, and argued that cancellation should be
acknowledged with a cancellation number. Florida also supported
disclosing the requirements for cancellation in written confirmation
of the offer and periodic disclosures, and providing sufficient time
to cancel after the consumer receives acknowledgment of the offer
and accepts the charges. Florida, 543809-00099, at 9-11. Washington
proposed requiring sellers to: (1) Identify themselves on billing
statements; and (2) provide for easy cancellation--at a minimum by
allowing consumers to cancel using the same means they used to
accept the offer. Washington, 541909-00009, at 8.
\39\ Broward County proposed some requirements beyond those
categories for trial periods: Requiring trial periods to start on
the date the consumer receives the product and prohibiting sellers
from billing consumers prior to the expiration of the trial period.
Broward County, 543809-00007, at 12. In addition, Florida proposed
prohibiting the marketing of negative option contracts to minors.
Florida, 543809-00099, at 11.
\40\ See, e.g., comments 541909-00001, 541909-00007, and 543809-
00004. A total of 98 individuals submitted comments. Most did not
comment on any specific Rule provisions. Instead, these comments
generally either complained about the practices of a particular firm
or urged greater regulation of negative option offers. Some proposed
changes that the Commission lacks authority to adopt, such as
requiring licenses to make negative option offers (e.g., comment
541909-00003). A few individual and business comments urged the
Commission not to expand the Rule (e.g., comments 543809-00101 and
541909-00014).
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In support of their proposals, the agencies cited thousands of
consumer complaints regarding negative options,\41\ their own
experience,\42\ and consumer survey evidence \43\ showing that many
consumers are not aware of their enrollment in negative option plans.
According to the agencies, consumers experience problems, including
inadequate disclosures, the imposition of charges without the
consumers' informed consent, difficult cancellation procedures, failure
to honor cancellation requests, and trial offers where consumers forget
they have consented to future charges.\44\ The agencies argued that
this evidence demonstrates a need for an expanded Rule to better
protect consumers.
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\41\ The agencies reported receiving thousands of complaints.
For example, Florida reported over 2,000 complaints in four of its
pending negative option investigations alone. Florida, 543809-00099,
at 2.
\42\ The agencies reported that they have investigated or taken
enforcement action against sellers engaged in negative option
marketing. For example, Florida reported handling nearly 50
investigations involving negative option marketing since 1998, the
overwhelming majority of which involve free-to-pay conversions with
automatic renewal or continuity features. Florida, 543809-00099, at
2 and Appendix A.
\43\ Several states reported survey results underscoring that
many consumers incur charges for memberships in negative option
plans of which they are unaware and do not want. In May 2006, the
Iowa Attorney General announced the results of a survey of consumers
enrolled in negative option plans run by Memberworks, Inc., now
known as Vertrue, Inc. Vermont, 543809-00098, at 6; Colorado,
543809-00096, at 5-6. Four hundred surveys were mailed to consumers.
Of the 88 consumers who responded, 67% were unaware of their
membership in the negative option plan. Almost all of the remaining
consumers had never used the plan, or believed they had cancelled
their membership. None expressed satisfaction with the membership.
In 2007, Vermont surveyed state residents who had been billed for
discount plan memberships involving a trial conversion negative
option. Vermont, 543809-00098, at 6; Colorado, 543809-00096, at 6.
Of the 100 respondents, 67 did not recall signing up for the plan
and 53 answered expressly that they did not agree to be billed. Only
six responded that they had ever used the plan. Id.
\44\ Colorado, Vermont, and the 18 states joining Vermont's
comment contended that the problem with trial conversions stems less
from the failure to make up-front disclosures and obtain consent
than from the fact that consumers enticed by a free trial offer are
unlikely to remember their spur-of-the-moment assent to periodic
charges and therefore unlikely to scrutinize their accounts for
unwanted charges. Colorado, 543809-00096, at 6; Vermont, 543809-
00098, at 7. Florida agreed that free trial offers can lure
consumers into a state of forgetfulness. Florida, 543809-00099, at
9.
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In addition, many agencies noted the increasing frequency of
Internet negative option marketing. For example, Florida provided
information about 47 negative option investigations from 1997 to 2009.
Most of these involved Internet negative option marketing, including 18
that involved solely Internet marketing. In addition, 25 of the 28
investigations since 2005 involved Internet marketing. Sixteen of the
25 involved solely Internet marketing.\45\ Washington noted that
sellers frequently make free-to-pay offers on the Internet, and that
previously such offers were made most frequently in telemarketing and
direct mail.\46\ Similarly, Broward County stated that most free trial
conversion negative option sales transactions occur on the
Internet.\47\
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\45\ Florida, 543809-00099, at Appendix A. Florida reported that
this appendix is not an exhaustive list of its negative option
investigations. For example, it does not include non-public
investigations. Id. at 2.
\46\ Washington, 541909-00009, at 5.
\47\ Broward County, 543809-00007, at 13.
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2. AALL Proposals
AALL advocated expanding the scope of the Rule in several respects
and adding a number of prohibitions and requirements, many of which
resemble the proposals described above. Like the law enforcement
agencies, it supported expanding the Rule to cover other types of
negative option offers. It also advocated expanding the Rule to protect
institutional consumers, such as law libraries, as well as individuals,
and to
[[Page 44275]]
cover online subscriptions and digital materials, such as e-books,
podcasts, and applications.
AALL favored adding some of the same prohibitions and requirements
favored by the state and local law enforcement agencies as well as a
host of others to address negative option marketing by firms selling
legal publications. For example, AALL urged the Commission to impose a
maximum duration of no more than five years on negative option
plans.\48\ It also proposed a number of provisions to address the
shipment of unordered publications and facilitate cancellation of
unwanted negative option plans.\49\
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\48\ AALL, 543809-00102, at 5.
\49\ For example, AALL proposed that the Commission prohibit
sellers from: (1) Sending unordered books unless they are clearly
marked as such; (2) sending invoices or dunning notices for
unordered books; and (3) commanding payment for or the return of
unordered books. These practices violate the Postal Reorganization
Act of 1970, 39 U.S.C. 3009. AALL, 543809-00102, at 4.
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In support of its numerous proposals, AALL cited the experience of
its members who have received unordered and unwanted legal
publications. It also cited two Florida law enforcement actions
involving negative option marketing practices affecting libraries.
C. Opposition To Expanding the Rule
Unlike AALL, the other four trade associations opposed any
expansion. All argued that existing Commission authority and guidance,
along with industry guidance, protect consumers adequately. They also
argued that prescriptive regulation would harm consumers.
DMA urged the Commission ``to avoid unnecessary regulation that
would limit consumers' ability to learn about valuable goods and
services, hinder innovation, or inhibit commerce, especially during
these challenging economic times.'' \50\ It stated that robust industry
self-regulation, coupled with existing FTC enforcement authority,
effectively meets the needs of both consumers and businesses in this
area. DMA also explained that its members are required to comply with
Article 12 of its Guidelines for Ethical Business Practice, which
addresses negative option marketing in detail. Non-complying members
that fail to come into compliance face expulsion and may be reported to
government regulators.\51\
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\50\ DMA, 541909-00011, at 1.
\51\ Id. at 4-5.
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Similarly, ERA and PMA contended that (1) the Commission already
possesses the enforcement tools necessary to protect consumers,
including Section 5 of the FTC Act, the Postal Reorganization Act of
1970 (``PRA''),\52\ the Electronic Fund Transfer Act (``EFTA''),\53\
the Negative Option Rule, and the TSR; (2) guidance documents published
by the Commission provide adequate concrete guidance and direction to
the industry; (3) the Commission should avoid a prescriptive approach
that will deprive marketers of the flexibility to adapt to the rapidly
evolving marketplace; and (4) the record does not indicate that
deception results from advertising that complies with the above laws
and guidance.\54\ They also noted the existence of various industry
self-regulatory programs that help prevent deception.\55\ ERA pointed
to its Advance Consent Guidelines, which cover the full range of
negative option programs currently offered in the marketplace,
including free trial offers, continuity plans, and automatic
renewals.\56\
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\52\ 39 U.S.C. 3009.
\53\ 15 U.S.C. 1693-1693r.
\54\ ERA, 541909-00010, at 3-4; PMA, 543809-00097, at 3.
\55\ PMA, 543809-0097, at 10.
\56\ ERA, 541909-00010, at 13-14.
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Finally, MPA argued that the Commission's current guidance and
enforcement ability sufficiently protect consumers.\57\ Like DMA and
ERA, MPA has developed guidance for its members on negative option
marketing.\58\ It too touted the benefits of negative option plans and
the need for flexibility in responding to a rapidly changing
marketplace.
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\57\ MPA, 541909-00008, at 1.
\58\ Id. at 5-6.
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D. Analysis
The comments advocating expansion of the Rule 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. Indeed, negative option arrangements not covered
by the Rule, such as trial conversions and continuity plans, have
accounted for most of the Commission's recent enforcement activity in
this area.\59\ The record also indicates that Internet marketing
represents a large and growing share of negative option marketing,
particularly that involving free trial conversions.\60\
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\59\ Over the last few years, the Commission has filed a number
of law enforcement actions challenging negative option marketing
practices, including, for example, FTC v. Process America, Inc., No.
14-0386-PSG-VBKx (C.D. Cal. Jan. 16, 2014) (processing of
unauthorized charges relating to negative option marketing), https://www.ftc.gov/news-events/press-releases/2013/11/ftc-settlements-crack-down-payment-processing-operation-enabled; FTC v. Willms, No
2:11-cv-00828 (W.D. Wash. May 16, 2011) (Internet free trials and
continuity plans), https://www.ftc.gov/opa/2011/05/jessewillms.shtm;
FTC v. Moneymaker, No. 2:11-cv-00461-JCM-RJJ (D. Nev. Mar. 28, 2011)
(Internet trial offers and continuity programs), https://www.ftc.gov/opa/2011/04/moneymaker.shtm; FTC v. Johnson, No. 2:10-cv-02203-RLH-
GWF (D. Nev. Dec. 21, 2010), (Internet trial offers), https://www.ftc.gov/opa/2010/12/iworks.shtm; and FTC v. John Beck Amazing
Profits, LLC, No. 2:09-cv-04719 (C.D. Cal. June 30, 2009)
(infomercial and telemarketing trial offers and continuity
programs), https://www.ftc.gov/opa/2009/07/shortchange.shtm; see also
``An Overview of the FTC's Enforcement Actions Concerning Negative
Option Marketing,'' a presentation delivered during the Commission's
2007 ``Negative Options: An FTC Workshop Analyzing Negative Option
Marketing,'' available at www.ftc.gov/bcp/workshops/negativeoption/presentations/Ashe.pdf.
\60\ See discussion in section III.B.1 above.
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Congress reached the same conclusion and, as a result, enacted
ROSCA to protect consumers from deceptive online negative option
practices. The additional enforcement tools provided by ROSCA likely
will assist the Commission in stopping unlawful negative option
practices in the significant and growing slice of the market involving
the Internet. Due to the availability of these promising new tools and
uncertainty regarding how ROSCA will affect the marketplace, the
Commission declines to propose amendments to the Negative Option Rule
at this time.
ROSCA addresses many of the concerns raised in the comments by
requiring Internet sellers of any negative option type, including trial
conversions, to disclose material terms, obtain informed consent, and
provide simple mechanisms for consumers to stop recurring charges.\61\
ROSCA also provides the Commission with civil penalty authority,
thereby bolstering the Commission's enforcement tools in this area.\62\
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\61\ ROSCA also furthers the principles to guide negative option
marketers set forth in the Commission's 2009 report on its negative
option workshop, including adequate disclosures, informed consent,
and reasonable cancellation procedures.
\62\ Civil penalty authority is particularly useful in cases
where it is difficult to calculate consumer injury, administer a
redress program, or prove that the violator made substantial gains
from its unlawful conduct.
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Furthermore, ROSCA provides additional protections for consumers
who receive an offer from a third-party seller immediately after making
an Internet purchase. Specifically, it requires that third-party
sellers provide adequate disclosures and obtain affirmative consent and
billing information directly from the consumer before imposing charges
rather than charging the consumer using billing
[[Page 44276]]
information obtained from the initial seller.\63\
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\63\ This provision applies to all Internet marketing, including
negative option marketing.
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The Commission recognizes that ROSCA does not apply to negative
option marketing in media other than the Internet. However, as noted
above, the record indicates that Internet marketing represents a large
and growing share of negative option marketing. Accordingly, the
Commission can and will continue to challenge deceptive or unfair
negative option practices as needed under the Negative Option Rule,
Section 5 of the FTC Act, the TSR, EFTA,\64\ and the PRA,\65\ and will
consider whether changes in the marketplace warrant reevaluation of the
Commission's rules as they apply to negative option marketing in
specific contexts.
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\64\ Among other things, EFTA prohibits imposing recurring
charges on a consumer's bank account without written authorization.
EFTA provides that the Commission shall enforce its requirements,
except to the extent that enforcement is specifically committed to
some other 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 the same
injunctive and monetary equitable relief for EFTA violations that it
can seek for other Section 5 violations.
\65\ The PRA provides that mailing unordered merchandise, or a
bill or dunning communications for such merchandise, constitutes an
unfair method of competition and an unfair trade practice in
violation of Section 5 of the FTC Act. Accordingly, the Commission
has authority to seek the same remedies for PRA violations that it
can seek for other Section 5 violations. For example, 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.
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The TSR, like ROSCA, addresses many of the negative option abuses
identified by the comments. For example, the Commission previously
addressed trial conversions and other negative option marketing in the
context of outbound telemarketing by amending the TSR in 2003.\66\ In
addition, the Commission recently proposed amending the TSR to prohibit
the use of payment methods often used in deceptive marketing, including
of negative options, such as unsigned checks and remotely created
``payment orders.'' \67\ Furthermore, in May 2013, the Commission
announced that it plans to initiate a regulatory review of the TSR.\68\
Commenters in that review can raise issues related to negative option
marketing.
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\66\ See Federal Trade Commission: Telemarketing Sales Rule;
Final Amended Rule, 68 FR 4580, 4594-97 (Jan. 29, 2003) (codified at
16 CFR 310.2(p), 310.2(u), 310.3(a)(1)(vii), and 310.6(b)(4)-(6))
(telemarketers must disclose all material terms and conditions of
negative option offers, including ``free-to-pay conversion'' offers,
in outbound telemarketing calls and upsells).
\67\ Federal Trade Commission: Telemarketing Sales Rule; Notice
of Proposed Rulemaking, 78 FR 41200 (July 9, 2013). The TSR Notice
of Proposed Rulemaking noted negative option cases where the
defendants used unauthorized remotely created checks. E.g., FTC v.
FTN Promotions, Inc., Civ. No. 8:07-1279 (M.D. Fla. Dec. 30, 2008)
(Stip. Perm. Inj.) (defendants allegedly caused more than $171
million in unauthorized charges to consumers accounts for bogus
travel and buyers' clubs in part by using unauthorized remotely
created checks).
\68\ Federal Trade Commission: Notice of Intent to Request
Public Comments, 78 FR 30798 (May 23, 2013).
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If the Commission concludes that ROSCA and its other enforcement
tools do not provide adequate protection for consumers, it can then
consider, based on a more complete record, whether and how to amend the
Rule. The Commission can also consider whether to recommend that
Congress amend ROSCA or take some other action.\69\
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\69\ For example, the Commission could seek authority to conduct
a rulemaking using more expeditious procedures than those set forth
in Section 18.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2014-17978 Filed 7-30-14; 8:45 am]
BILLING CODE 6750-01-P
