Rule Concerning the Use of Prenotification Negative Option Plans, 52393-52398 [2019-21265]
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Federal Register / Vol. 84, No. 191 / Wednesday, October 2, 2019 / Proposed Rules
from public disclosure. If your
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Background
On July 3, 2019, the FAA published
the NPRM entitled ‘‘Interior Parts and
Components Fire Protection for
Transport Category Airplanes,’’ Notice
No. 19–09, in the Federal Register (84
FR 31747). Commenters were instructed
to provide comments on or before
October 1, 2019. Since publication, 11
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commenters 1 have requested an
extension of the comment period, citing
the magnitude of changes and
restructuring of existing flammability
regulations. Two commenters requested
an additional 90 days, 6 commenters an
additional 120 days, and 3 others an
additional 180 days. The commenters
stated a longer timeframe is necessary to
properly assess and coordinate the
potential impact to design, materials,
certification implementation, and to
develop constructive feedback. In
addition, the commenters stated that
certain test methods being developed by
the FAA are not yet fully developed or
validated.
The FAA agrees with the petitioners’
request for an extension of the comment
period. The FAA recognizes that, given
the scope of proposed changes is
extensive and the subject complex, an
extension of the comment period would
help commenters craft complete and
thoughtful responses. Although the
minimum requested extension was 90
days, which is the length of the original
comment period, such an extension
would delay any action of the final rule
until 2020. A 60-day extension (in this
case 62 days to avoid a weekend) would
be consistent with similar actions in the
past and would allow the FAA to begin
dispositioning comments in 2019.
Therefore, the FAA agrees to extend the
comment period an additional 62 days.
With this extension, the comment
period will now close on December 2,
2019. This will provide the public with
a total of 152 days to conduct its review.
The FAA does not anticipate any further
extension of the comment period for
this rulemaking.
Extension of Comment Period
In accordance with 14 CFR 11.47(c),
the FAA has reviewed the petitions for
extension of the comment period for
Notice No. 19–09. The petitioners have
shown a substantive interest in the
proposed rule and good cause for an
extension of the comment period. The
FAA has determined that an extension
of the comment period for an additional
62 days to December 2, 2019, is in the
public interest. Accordingly, in
accordance with § 11.47 of title 14, Code
of Federal Regulations, the comment
period for Notice No. 19–09 is extended
until December 2, 2019.
1 The commenters are Airbus SAS, The Boeing
Company, Bombardier Aviation, Embraer S.A.,
F.List GmbH (F/List), General Aviation
Manufacturers Association (GAMA), Gulfstream
Aerospace Corporation, International Coordinating
Council of Aerospace Industries Associations—
Cabin Safety Working Group, Nitto ATP Finals,
Safran Cabin Inc., and SEKISUI Polymer
Innovations, LLC.
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52393
Issued under the authority provided by 49
U.S.C. 106(f), 44701(a), and 44703 in
Washington, DC, on September 24, 2019.
Forest Rawls III,
Acting Deputy Executive Director, Office of
Rulemaking.
[FR Doc. 2019–21060 Filed 10–1–19; 8:45 am]
BILLING CODE 4910–13–P
FEDERAL TRADE COMMISSION
16 CFR Part 425
RIN 3084–AB54
Rule Concerning the Use of
Prenotification Negative Option Plans
Federal Trade Commission.
Advance notice of proposed
rulemaking; request for public
comment.
AGENCY:
ACTION:
The Federal Trade
Commission (‘‘FTC’’ or ‘‘Commission’’)
seeks public comment on the need for
amendments to the Commission’s ‘‘Rule
Concerning the Use of Prenotification
Negative Option Plans’’ (i.e., ‘‘Negative
Option Rule’’ or ‘‘Rule’’) to help
consumers avoid recurring payments for
products and services they did not
intend to order and to allow them to
cancel such payments without
unwarranted obstacles.
DATES: Comments must be received on
or before December 2, 2019.
ADDRESSES: Interested parties may file a
comment online or on paper, by
following the instructions in the
Request for Comment part of the
SUPPLEMENTARY INFORMATION section
below. Write ‘‘16 CFR part 425—
Negative Option Rule, Project No.
P064202’’ on your comment, and file
your comment online at https://
www.regulations.gov/, by following the
instructions on the web-based form. If
you prefer to file your comment on
paper, write ‘‘Negative Option Rule (16
CFR part 425) (Project No. P064202)’’ on
your comment and on the envelope, and
mail it to the following address: Federal
Trade Commission, Office of the
Secretary, 600 Pennsylvania Avenue
NW, Suite CC–5610 (Annex J),
Washington, DC 20580; or deliver your
comment to the following address:
Federal Trade Commission, Office of the
Secretary, Constitution Center, 400 7th
Street SW, 5th Floor, Suite 5610 (Annex
J), Washington, DC 20024. If possible,
submit your paper comment to the
Commission by courier or overnight
service.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
Hampton Newsome (202–326–2889),
Attorney, Division of Enforcement,
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Federal Register / Vol. 84, No. 191 / Wednesday, October 2, 2019 / Proposed Rules
Bureau of Consumer Protection, Federal
Trade Commission, 600 Pennsylvania
Avenue NW, Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
I. Overview
The Commission seeks comments on
ways to improve its existing regulations
for negative option marketing, a
common form of marketing where the
absence of affirmative consumer action
constitutes assent to be charged for
goods or services. Negative option offers
are widespread in the marketplace and
can provide substantial benefits for
sellers and consumers. However,
consumers cannot reap such benefits
when marketers fail to make adequate
disclosures, bill consumers without
their consent, or make cancellation
difficult or impossible. Over the years,
such problematic negative option
practices have remained a persistent
source of consumer harm, often
saddling consumers with recurring
payments for products and programs
they did not intend to purchase or did
not want. In the past, the Commission
has sought to address such practices
through individual law enforcement
cases and a patchwork of regulations.
Nevertheless, problems persist, and
consumers continue to submit
thousands of complaints to the FTC
each year about negative option
marketing. To address these concerns,
the Commission seeks comments on
ways to improve existing regulatory
requirements, including whether it
should use its rulemaking authority
under the FTC Act to expand the scope
and coverage of the existing Negative
Option Rule.1
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II. Negative Option Marketing
A ‘‘negative option’’ is any type of
sales term or condition that allows a
seller to interpret a customer’s silence,
or failure to take an affirmative action,
as acceptance of an offer.2 Negative
option marketing generally falls into
four categories: Prenotification negative
option plans, continuity plans,
automatic renewals, and free-to-pay or
nominal-fee-to-pay conversion offers.
Prenotification plans are the only
negative option practice currently
covered by the Commission’s Negative
1 Section 18 of the FTC Act authorizes the
Commission to promulgate rules specifying acts or
practices in or affecting commerce which are unfair
or deceptive. 15 U.S.C. 57a(a)(2).
2 The Commission’s Telemarking Sales Rule
defines a negative option feature as a provision in
an offer or agreement to sell or provide any goods
or services ‘‘under which the customer’s silence or
failure to take an affirmative action to reject goods
or services or to cancel the agreement is interpreted
by the seller as acceptance of the offer.’’ 16 CFR
310.2(w).
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Option Rule. Under such plans (e.g.,
book-of-the-month clubs), sellers send
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. The periodic
announcements and shipments can
continue indefinitely. In continuity
plans, consumers agree in advance to
receive periodic shipments of goods or
provision of services (e.g., bottled water
delivery), which they continue to
receive until they cancel the agreement.
In automatic renewals, sellers (e.g., a
magazine publisher) automatically
renew consumers’ subscriptions when
they expire and charge for them, unless
consumers affirmatively cancel the
subscriptions. Finally, in free-to-pay or
nominal-fee-to-pay plans, 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.
Some negative option offers include
upsell or bundled offers, where sellers
use consumers’ billing data for
additional products from the same seller
or pass consumers’ billing data to a
third party for additional offers. An
upsell occurs when a consumer
completes a first transaction and then
receives a solicitation for an additional
product or service. A bundled offer
occurs when a seller packages two
products or services together so that
they cannot be purchased separately.
III. FTC’s Negative Option Rule
The Commission first promulgated
the Rule in 1973 pursuant to the FTC
Act, 15 U.S.C. 41 et seq., after finding
that some negative option marketers had
committed unfair and deceptive
marketing practices that violated
Section 5 of the Act, 15 U.S.C. 45. As
discussed above, the Rule only applies
to prenotification plans for the sale of
goods and does not reach most modern
negative option marketing.3
The Rule requires prenotification plan
sellers to clearly and conspicuously
disclose their plan’s material terms
before consumers subscribe. It
enumerates seven material terms sellers
must disclose clearly and conspicuously
including: (1) How subscribers must
notify the seller if they do not wish to
purchase the selection; (2) any
minimum purchase obligations; (3) the
subscribers’ right to cancel; (4) whether
billing charges include postage and
handling; (5) that subscribers have at
least ten days to reject a selection; (6)
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 (7) the
frequency with which announcements
and forms will be sent.4 In addition,
sellers must 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 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.5
IV. Existing Regulatory Requirements
In addition to the Negative Option
Rule, several other statutes and
regulations address harmful negative
option practices. First, Section 5 of the
FTC Act, which prohibits unfair or
deceptive acts or practices, has
traditionally served as the Commission’s
primary mechanism for addressing these
types of cases. Additionally, the Restore
Online Shoppers’ Confidence Act
(‘‘ROSCA’’) (15 U.S.C. 8401–8405), the
Telemarketing Sales Rule (16 CFR part
310), the Postal Reorganization Act
(‘‘PRA’’) (i.e., the Unordered
Merchandise Statute) (39 U.S.C. 3009),
and the Electronic Fund Transfer Act
(‘‘EFTA’’) (15 U.S.C. 1693–1693r) all
address various aspects of negative
option marketing. ROSCA, however, is
the only law primarily designed to do
so.
A. Section 5 of the FTC Act
The basic consumer protection statute
enforced by the Commission is Section
5(a) of the FTC Act (15 U.S.C. 45(a)(1)).
This provision states that ‘‘unfair or
deceptive acts or practices in or
affecting commerce . . . are . . .
declared unlawful.’’ 6 In past guidance
4 16
3 The
Rule defines ‘‘negative option plan’’
narrowly to apply only to prenotification plans. 16
CFR 425.1(c)(1). The Rule covers prenotification
plan marketing in all media. In 1998, the
Commission clarified that the Rule ‘‘covers all
promotional materials that contain a means for
consumers to subscribe to prenotification negative
option plans, including those that are disseminated
through newer technologies . . . .’’ 63 FR 44555,
44561 (Aug. 20, 1998).
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CFR 425.1(a)(1)(i)–(vii).
CFR 425.1(a)(2) and (3); 425.1(b).
6 The FTC Act defines ‘‘unfair or deceptive acts
or practices’’ to include such acts or practices
involving foreign commerce that cause or are likely
to cause reasonably foreseeable injury within the
United States or involve material conduct occurring
within the United States (15 U.S.C. 45(a)(4)(A)). It
also defines ‘‘unfair’’ practices as those that cause
or are likely ‘‘to cause substantial injury to
consumers which is not reasonably avoidable by
5 16
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and cases, the FTC has highlighted five
basic Section 5 requirements that
negative option marketing must follow
to avoid deception.7 First, marketers
must disclose the material terms of a
negative option offer including, at a
minimum, the following key terms: The
existence of the negative option offer;
the offer’s total cost; the transfer of a
consumer’s billing information to a
third party, if applicable; and how to
cancel the offer. Second, Section 5
requires that disclosures be clear and
conspicuous. Third, sellers must
disclose the material terms of the
negative option offer before consumers
agree to the purchase. Fourth, marketers
must obtain consumers’ consent to such
offers. Finally, marketers must not
impede the effective operation of
promised cancellation procedures, and
should honor cancellation requests that
comply with such procedures.
Although adherence to these five
principles should minimize the
likelihood of non-compliance with
Section 5, the legality of a particular
negative option depends on an
individualized assessment of the
advertisement’s net impression and the
marketer’s business practices. In
addition to these deception-related
requirements, the Commission has
indicated that billing consumers
without consumers’ express informed
consent is an unfair act under the FTC
Act.8
consumers themselves and not outweighed by
countervailing benefits to consumers or to
competition’’ (15 U.S.C. 45(n)).
7 See Negative Options: A Report By the Staff of
the FTC’s Division of Enforcement, 26–29 (Jan.
2009), https://www.ftc.gov/sites/default/files/
documents/reports/negative-options-federal-tradecommission-workshop-analyzing-negative-optionmarketing-report-staff/p064202negativeoption
report.pdf. In discussing the five principal Section
5 requirements related to negative options, the
report cites to the following pre-ROSCA cases, FTC
v. JAB Ventures, No. CV08–04648 (C.D. Cal. 2008);
FTC v. Complete Weightloss Center, No.
1:08cv00053 (D.N.D. 2008); FTC v. Berkeley
Premium Nutraceuticals, No. 1:06cv00051 (S.D.
Ohio 2006); FTC v. Think All Publ’g, No. 4:07cv11
(E.D. Tex. 2006); FTC v. Hispanexo, No. 1:06cv424
(E.D. Va. 2006); FTC v. Consumerinfo.com, No.
SACV05–801 (C.D. Cal. 2005); FTC v. Conversion
Mktg., No. SACV04–1264 (C.D. Cal. 2004); FTC v.
Mantra Films, No. CV03–9184 (C.D. Cal. 2003); FTC
v. Preferred Alliance, No. 103–CV0405 (N.D. Ga.
2003); United States v. Prochnow, No. 102–CV–917
(N.D. Ga. 2002); FTC v. Ultralife Fitness, Inc., No.
2:08–cv–07655–DSF–PJW (C.D. Cal. 2008); In the
Matter of America Isuzu Motors, FTC Docket No. C–
3712 (1996); FTC v. Universal Premium Services,
No. CV06–0849 (C.D. Cal. 2006); FTC v. Remote
Response, No. 06–20168 (S.D. Fla. 2006); and FTC’s
Dot Com Disclosures guidance.
8 Courts have found unauthorized billing to be
unfair under the FTC Act. See, e.g., FTC. v. Neovi,
Inc., 604 F.3d 1150, 1157–59 (9th Cir. 2010),
amended by 2010 WL 2365956 (9th Cir. June 15,
2010); FTC v. Amazon.com, Inc., No. C14–1038–
JCC, 2016 WL 10654030, at *8 (W.D. Wash. Apr. 26,
2016); FTC v. Ideal Fin. Sols., Inc., No. 2:13–CV–
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B. ROSCA
Enacted by Congress in 2010 to
address ongoing problems with online
negative option marketing, ROSCA
contains general provisions related to
disclosures, consent, and cancellation.9
ROSCA prohibits charging or attempting
to charge consumers for goods or
services sold on the internet through
any negative option feature unless the
marketer: (1) Clearly and conspicuously
discloses all material terms of the
transaction before obtaining the
consumer’s billing information; (2)
obtains a consumer’s express informed
consent before charging the consumer’s
account; and (3) provides simple
mechanisms for the consumer to stop
recurring charges.10 ROSCA, however,
provides no details regarding steps
marketers must follow to comply with
these provisions.
ROSCA also addresses offers made by,
or on behalf of, third-party sellers
during, or immediately following, a
transaction with an initial merchant.11
In connection with these offers, ROSCA
prohibits post-transaction, third-party
sellers from charging or attempting to
charge consumers unless the seller: (1)
Before obtaining billing information,
clearly and conspicuously discloses the
offer’s material terms; and (2) receives
the consumer’s express informed
consent by obtaining the consumer’s
name, address, contact information, as
well as the full account number to be
charged, and requiring the consumer to
perform an additional affirmative action
indicating consent.12 ROSCA 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.13
ROSCA provides that a violation of
that Act shall be treated as a violation
of a Commission trade regulation rule
under Section 18 of the FTC Act.14
Thus, the Commission may seek a
variety of remedies for violations of
ROSCA, including civil penalties under
00143–JAD, 2015 WL 4032103, at *8 (D. Nev. June
30, 2015).
9 15 U.S.C. 8401–8405.
10 15 U.S.C. 8403. ROSCA incorporates the
definition of ‘‘negative option feature’’ from the
Commission’s Telemarketing Sales Rule, 16 CFR
310.2(w).
11 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).
12 15 U.S.C. 8402(a).
13 15 U.S.C. 8402(b).
14 15 U.S.C. 8404. Section 18 of the FTC Act is
15 U.S.C. 57a.
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Section 5(m)(1)(A) of the FTC Act; 15
injunctive and equitable monetary relief
under Section 13(b) of the FTC Act; 16
and consumer redress, damages, and
other relief under Section 19 of the FTC
Act.17 Although Congress charged the
Commission with enforcing ROSCA, it
did not specifically direct the FTC to
promulgate implementing regulations.18
C. Telemarketing Sales Rule
The Telemarketing Sales Rule
(‘‘TSR’’) (16 CFR part 310) prohibits
deceptive telemarketing acts or
practices, including those involving
negative option offers, and certain types
of payment methods common in
deceptive marketing. The TSR only
applies to negative option offers made
over the telephone. Specifically, the
TSR requires that telemarketers disclose
all material terms and conditions of the
negative option feature, including the
need for affirmative consumer action to
avoid the charges, the date (or dates) the
charges will be submitted for payment,
and the specific steps the customer must
take to avoid the charges. It also
prohibits telemarketers from
misrepresenting such information and
contains specific requirements related to
payment authorization.19 The
Commission recently amended the TSR
to prohibit the use of payment methods
often used in deceptive marketing,
including negative options, such as
remotely created checks.20
D. Other Relevant Requirements
The Electronic Fund Transfer Act
(‘‘EFTA’’) 21 and the Postal
Reorganization Act (‘‘PRA’’) (i.e.,
Unordered Merchandise Statute) also
contain provisions that address negative
option marketing.22 EFTA prohibits
sellers from imposing recurring charges
on a consumer’s debit cards or bank
accounts without written
15 15
U.S.C. 45(m)(1)(A).
U.S.C. 53(b).
17 15 U.S.C. 57b(a)(1) and (b).
18 ROSCA states that a violation ‘‘of this chapter
or any regulation prescribed under this chapter
shall be treated as a violation of a rule under section
18 of the Federal Trade Commission Act (15 U.S.C.
57a) regarding unfair or deceptive acts or practices.
15 U.S.C. 8404(a).
19 16 CFR 310.3(a).
20 80 FR 77520 (Dec. 14, 2015). The TSR Notice
of Proposed Rulemaking (78 FR 41200 (July 9,
2013)) 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).
21 15 U.S.C. 1693–1693r.
22 39 U.S.C. 3009.
16 15
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Federal Register / Vol. 84, No. 191 / Wednesday, October 2, 2019 / Proposed Rules
authorization.23 The PRA provides that
mailing unordered merchandise, or a
bill for such merchandise, constitutes an
unfair method of competition and an
unfair trade practice in violation of
Section 5 of the FTC Act.24
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V. Limitations of Existing Regulatory
Requirements
The existing patchwork of laws and
regulations does not provide industry
and consumers with a consistent legal
framework across different media and
types of plans. For instance, as
discussed above, the current Rule does
not cover common practices such as
continuity plans, automatic renewals,
and trial conversions.25 In addition,
ROSCA and the TSR do not address
negative option plans in all media—
ROSCA’s general statutory prohibitions
on deceptive negative option marketing
only apply to internet sales, and the
TSR’s more specific provisions only
apply to telemarketing. Furthermore,
harmful negative option practices that
fall outside of ROSCA and the TSR’s
coverage still occur.26 Therefore, under
the current framework, different rules
apply depending on whether a negative
option offer is made online, over the
phone, or in some other medium (e.g.,
in print, through the mail, etc.).
Additionally, the current framework
does not provide clarity about how to
avoid deceptive negative option
disclosures and procedures. For
example, ROSCA lacks specificity about
cancellation procedures and the
placement, content, and timing of
cancellation-related disclosures.
Instead, the statute requires marketers to
provide a ‘‘simple mechanism’’ for the
23 EFTA provides that the Commission shall
enforce its requirements, except to the extent that
enforcement is specifically committed to some
other federal 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.
24 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.
25 Indeed, the prenotification plans covered by
the Rule represent only a small fraction of negative
option marketing. In 2017, for instance, the
Commission estimated that fewer than 100 sellers
(‘‘clubs’’) were subject to the current Rule’s
requirements. 82 FR 38907, 38908 (Aug. 16, 2017).
26 For instance, the Commission recently brought
two cases under Section 5 involving negative option
plans that did not involve either internet sales or
telemarketing. FTC and State of Maine v. Health
Research Laboratories, LLC, No. 2:17–cv–00467–
JDL (D. Me. 2018); and FTC and State of Maine v.
Marketing Architects, No. 2:18–cv–00050 (D. Me.
2018).
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consumer to stop recurring charges, but
does not specify what methods would
satisfy this requirement.
VI. Past FTC Rulemaking Efforts
The Commission initiated its last
regulatory review of the Negative
Option Rule in 2009 (74 FR 22720 (May
14, 2009)), following a 2007 FTC
workshop and subsequent Staff
Report.27 The Commission completed
the review in 2014 (79 FR 44271 (July
31, 2014)). At the time, the Commission
found the comments supporting the
Rule’s expansion ‘‘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.’’ 28
It also noted that practices not covered
by the Rule (e.g., trial conversions and
continuity plans) accounted for most of
its enforcement activity in this area.
Despite these findings, the Commission
declined to expand or enhance the Rule,
concluding that amendments were not
warranted because the enforcement
tools provided by the TSR and,
especially, ROSCA, which had only
recently become effective, might prove
adequate to address the persistent
problems generated by deceptive and
unfair negative option marketing.
However, the Commission also
explained that, if ROSCA and its other
enforcement tools do not adequately
protect consumers, the Commission
could consider, based on a more
complete record, whether and how to
amend the Rule.29
27 See Negative Options: A Report By the Staff of
the FTC’s Division of Enforcement 26–29, https://
www.ftc.gov/sites/default/files/documents/reports/
negative-options-federal-trade-commissionworkshop-analyzing-negative-option-marketingreport-staff/p064202negativeoptionreport.pdf.
28 The Commission cited a number of its law
enforcement actions challenging negative option
marketing practices, including, for example, FTC v.
Process America, Inc., No. 14–0386–PSG–VBKx
(C.D. Cal. 2014) (processing of unauthorized charges
relating to negative option marketing); FTC v.
Willms, No 2:11–cv–00828 (W.D. Wash. 2011)
(internet free trials and continuity plans); FTC v.
Moneymaker, No. 2:11–cv–00461–JCM–RJJ (D. Nev.
2012) (internet trial offers and continuity programs);
FTC v. Johnson, No. 2:10–cv–02203–RLH–GWF (D.
Nev. 2010), (internet trial offers); and FTC v. John
Beck Amazing Profits, LLC, No. 2:09–cv–04719
(C.D. Cal. 2009) (infomercial and telemarketing trial
offers and continuity programs); 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,’’ https://
www.ftc.gov/news-events/events-calendar/2007/01/
negative-options-workshop-analyzing-negativeoption-marketing.
29 79 FR at 44276.
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VII. Ongoing Problems With Negative
Option Marketing
Since the conclusion of the last
regulatory review of the Negative
Option Rule, evidence strongly suggests
that negative option marketing
continues to harm consumers. The
Commission and the states continue to
regularly bring cases challenging
negative option practices, including
more than 20 recent FTC cases. These
matters involved a range of deceptive
and unfair practices, including
inadequate disclosures for ‘‘free’’ offers
and other products or programs,
enrollment without consumer consent,
and inadequate or overly burdensome
cancellation and refund procedures.30
In addition, the Commission continues
to receive thousands of complaints each
year related to negative option
marketing. The recent cases and the
high volume of ongoing complaints
suggests there is prevalent, unabated
consumer harm in the marketplace. As
discussed below, the Commission seeks
comments on these issues.
VIII. Request for Comments
The Commission seeks comments on
the current Rule as well as possible
regulatory measures to reduce consumer
harm created by deceptive or unfair
negative option marketing. In
considering ways to meet this objective,
as detailed below, the Commission
seeks comment on various alternatives,
including amendments to existing rules
to further address disclosures, consumer
consent, and cancellation. In particular,
the Commission requests input on
whether and how it should use its
authority under Section 18 of the FTC
Act to expand the Negative Option Rule
to address prevalent unfair or deceptive
practices involving negative option
marketing.31 It also seeks comment on
30 Examples of these matters include: FTC v.
Credit Bureau Center, LLC, No. 17–cv–00194 (N.D.
Ill. 2018); FTC v. JDI Dating, Ltd., No. 1:14–cv–
08400 (N.D. Ill. 2018); FTC, State of Illinois, and
State of Ohio v. One Technologies, LP, No. 3:14–
cv–05066 (N.D. Cal. 2014); FTC v. Health Formulas,
LLC, No. 2:14–cv–01649–RFB–GWF (D. Nev. 2016);
FTC v. Nutraclick LLC, No. 2:16–cv–06819–DMG
(C.D. Cal. 2016); FTC v. XXL Impressions, No. 1:17–
cv–00067–NT (D. Me. 2018); FTC v. AAFE Products
Corporation, NO. 3:17–cv–00575 (S.D. Cal. 2017);
FTC v. Pact Inc., No. 2:17–cv–1429 (W.D. Wash.
2017); FTC v. Tarr, No. 3:17–cv–02024–LAB–KSC
(S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 1:17–
cv–09083 (S.D.N.Y 2017); FTC v.
DOTAuthority.com, Inc., No. 0:16–cv–62186–WJZ
(S.D. Fla. 2018); FTC v. Bunzai Media Group, Inc.,
No. CV15–04527–GW(PLAx) (C.D. Cal. 2018); and
FTC v. RevMountain, LLC, No. 2:17–cv–02000–
APG–GWF (D. Nev. 2018).
31 Section 202 of the Magnuson-Moss WarrantyFTC Improvements Act authorizes the Commission
to promulgate rules that define with specificity acts
or practices in or affecting commerce which are
unfair or deceptive. FTC Act Section 18(a)(1)(B) (15
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other approaches, such as the
publication of additional consumer and
business education. The Commission
seeks any suggestions or alternative
methods for improving current
requirements. In their replies,
commenters should provide any
available evidence and data that
supports their position, such as
empirical data, consumer perception
studies, and consumer complaints.
General Questions About the Current
Rule
khammond on DSKJM1Z7X2PROD with PROPOSALS
(1) Is there a continuing need for the
Rule as currently promulgated? Why or
why not?
(2) What benefits has the Rule
provided to consumers? What evidence
supports the asserted benefits?
(3) What modifications, if any, should
the Commission make to the Rule to
increase its benefits to consumers?
(a) What evidence supports your
proposed modifications?
(b) How would these modifications
affect the costs and benefits of the Rule
for consumers?
(c) How would these modifications
affect the costs and benefits of the Rule
for businesses, particularly small
businesses?
(4) What, if any, impact has the Rule
had on the flow of truthful information
to consumers and on the flow of
deceptive information to consumers?
What evidence supports the asserted
impact?
(5) What, if any, significant costs has
the Rule imposed on consumers? What
evidence supports the asserted costs?
(6) Are any of the Rule’s requirements
no longer needed? If so, explain. Please
provide supporting evidence.
(7) What benefits, if any, has the Rule
provided to businesses, and in
particular to small businesses? What
evidence supports the asserted benefits?
(8) What modifications, if any, should
the Commission make to the Rule to
increase its benefits to businesses,
particularly small businesses?
(a) What evidence supports your
proposed modifications?
(b) How would these modifications
affect the costs and benefits of the Rule
for consumers?
U.S.C. 57a(a)(1)(B)). Under FTC Act Section
18(b)(3), the Commission may issue regulations
‘‘where it has reason to believe that the unfair or
deceptive acts or practices which are the subject of
the proposed rulemaking are prevalent.’’ The
Commission may make such a prevalence finding
if it has issued cease and desist orders regarding
such acts or practices, or any other available
information indicates a widespread pattern of
unfair or deceptive acts or practices. Rules under
Section 18 ‘‘may include requirements prescribed
for the purpose of preventing such acts or
practices.’’
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(c) How would these modifications
affect the costs and benefits of the Rule
for businesses?
(9) What, if any, significant costs,
including costs of compliance, has the
Rule imposed on businesses,
particularly small businesses? What
evidence supports the asserted costs?
(10) What modifications, if any,
should the Commission make to the
Rule to reduce the costs imposed on
businesses, particularly small
businesses?
(11) Should the Rule define ‘‘clearly
and conspicuously,’’ given that it
requires marketers to make certain
disclosures clearly and conspicuously?
If so, why, and how? If not, why not?
(12) What evidence is available
concerning the degree of compliance
with the Rule? Does this evidence
indicate that the Commission should
modify the Rule? If so, why, and how?
If not, why not?
(13) Does the Rule overlap or conflict
with other federal, state, or local laws or
regulations? If so, how? Should the Rule
be modified to address any such
overlaps or conflicts? If so, why, and
how? If not, why not? Please provide
supporting evidence.
Questions About Negative Option
Practices and the Existing Legal
Framework
(14) How widespread is the marketing
of products or services through negative
option plans, including, but not limited
to, plans covered by the current Rule?
What percentage of these negative
option plans are offered through the
internet, telemarketing, the mail, or
through some other means? What data
sources did you rely upon in
formulating your answer?
(15) Are there potentially unfair or
deceptive practices concerning the
marketing of negative option plans, not
covered by the Rule, occurring in the
marketplace? If so, what types of
negative option plans does such
marketing involve? What evidence, such
as empirical data, consumer perception
studies, or consumer complaints,
demonstrates whether there is
widespread existence of such practices?
Please provide this evidence.
(16) Does current marketing of
negative option plans cause consumer
injury? If so, what evidence
demonstrates that such practices cause
consumer injury do so? Please provide
this evidence.
(17) Please provide any evidence that
has become available over the last
several years concerning consumer
perception of, or experience with,
negative option offers, including offers
for prenotification negative option
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52397
plans, continuity plans, trial
conversions, or automatic renewals.
(18) How do the existing laws and
regulations covering negative options
affect consumers? What evidence
supports your answer?
(19) Do existing laws and regulations
covering negative options affect
businesses, particularly small
businesses? If so, how? What evidence
supports your answer?
(20) Is there a need for new regulatory
provisions to prevent deception by
addressing negative option plans not
covered by the Rule? If yes, why? If no,
why not? If new regulations are needed
to address the marketing of negative
option plans not covered by the existing
Rule, should the Rule be amended, or
should a new Rule or Rules be created?
Should all forms of negative option
marketing be addressed in a single Rule
or by new, separate Rules? What
evidence supports your answer? What
are the benefits and costs to consumers
and businesses under either approach?
What evidence supports your answer?
(21) If new regulatory provisions are
necessary, should they treat various
types of negative option marketing
differently? Why or why not? Would
there be any adverse consequences if
different forms of negative option
marketing were addressed under
separate Rules? Why or why not? What,
if any, evidence supports your answer?
(22) What specific modifications, if
any, should be added to the Rule to
better address prenotification negative
option marketing, continuity plans, trial
conversions, and/or automatic
renewals? What evidence supports your
proposed modification?
(23) Do current or impending changes
in technology or market practices affect
whether and how the Rule should be
modified? If so, what are such changes
and how do they affect whether the Rule
should be modified?
(24) Are there foreign or international
laws, regulations, or standards
addressing negative option plans that
the Commission should consider as it
reviews the Rule? If so, what are they?
Should the Commission consider
adopting, or avoiding, any of these? If
so, why? If not, why not?
(a) Should the Rule be modified to
harmonize with these international
laws, regulations, or standards? If so,
why, and how? If not, why not?
(b) How would such harmonization
affect the costs and benefits of the Rule
for consumers and businesses,
particularly small businesses?
(25) Should the Commission consider
additional consumer and business
education to reduce consumer harm
associated with negative option
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khammond on DSKJM1Z7X2PROD with PROPOSALS
marketing? If so, what should such
education materials include, and how
should the Commission communicate
that information to consumers and
businesses?
IX. Comment Submissions
You can file a comment online or on
paper. For the FTC to consider your
comment, we must receive it on or
before December 2, 2019. Write
‘‘Negative Option Rule (16 CFR part
425) (Project No. P064202)’’ on your
comment. Postal mail addressed to the
Commission is subject to delay due to
heightened security screening. As a
result, we encourage you to submit your
comments online, or to send them to the
Commission by courier or overnight
service. To make sure that the
Commission considers your online
comment, you must file it through the
https://www.regulations.gov website by
following the instructions on the webbased form provided. Your comment—
including your name and your state—
will be placed on the public record of
this proceeding, including the https://
www.regulations.gov website. As a
matter of discretion, the Commission
tries to remove individuals’ home
contact information from comments
before placing them on the
regulations.gov site.
If you file your comment on paper,
write ‘‘Negative Option Rule (16 CFR
part 425) (Project No. P064202)’’ on
your comment and on the envelope, and
mail it to the following address: Federal
Trade Commission, Office of the
Secretary, 600 Pennsylvania Avenue
NW, Suite CC–5610 (Annex J),
Washington, DC 20580, or deliver your
comment to the following address:
Federal Trade Commission, Office of the
Secretary, Constitution Center, 400 7th
Street SW, 5th Floor, Suite 5610 (Annex
J), Washington, DC 20024. If possible,
submit your paper comment to the
Commission by courier or overnight
service.
Because your comment will be placed
on the publicly accessible website at
www.regulations.gov, you are solely
responsible for making sure that your
comment does not include any sensitive
or confidential information. In
particular, your comment should not
include any sensitive personal
information, such as your or anyone
else’s Social Security number; date of
birth; driver’s license number or other
state identification number, or foreign
country equivalent; passport number;
financial account number; or credit or
debit card number. You are also solely
responsible for making sure that your
comment does not include any sensitive
health information, such as medical
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16:10 Oct 01, 2019
Jkt 250001
records or other individually
identifiable health information. In
addition, your comment should not
include any ‘‘trade secret or any
commercial or financial information
which . . . is privileged or
confidential’’—as provided by Section
6(f) of the FTC Act, 15 U.S.C. 46(f), and
FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2)—
including in particular competitively
sensitive information such as costs,
sales statistics, inventories, formulas,
patterns, devices, manufacturing
processes, or customer names.
Comments containing material for
which confidential treatment is
requested must be filed in paper form,
must be clearly labeled ‘‘Confidential,’’
and must comply with FTC Rule 4.9(c).
In particular, the written request for
confidential treatment that accompanies
the comment must include the factual
and legal basis for the request, and must
identify the specific portions of the
comment to be withheld from the public
record. See FTC Rule 4.9(c). Your
comment will be kept confidential only
if the General Counsel grants your
request in accordance with the law and
the public interest. Once your comment
has been posted publicly at
www.regulations.gov, we cannot redact
or remove your comment unless you
submit a confidentiality request that
meets the requirements for such
treatment under FTC Rule 4.9(c), and
the General Counsel grants that request.
The FTC Act and other laws that the
Commission administers permit the
collection of public comments to
consider and use in this proceeding as
appropriate. The Commission will
consider all timely and responsive
public comments that it receives on or
before December 2, 2019. For
information on the Commission’s
privacy policy, including routine uses
permitted by the Privacy Act, see
https://www.ftc.gov/site-information/
privacy-policy.
By direction of the Commission.
April J. Tabor,
Acting Secretary.
[FR Doc. 2019–21265 Filed 10–1–19; 8:45 am]
BILLING CODE 6750–01–P
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–104223–18]
RIN 1545–B052
Ownership Attribution Under Section
958 Including for Purposes of
Determining Status as Controlled
Foreign Corporation or United States
Shareholder
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
This document contains
proposed regulations relating to the
modification of section 958(b) of the
Internal Revenue Code (‘‘Code’’) by the
Tax Cuts and Jobs Act, which was
enacted on December 22, 2017. The
proposed regulations affect United
States persons that have ownership
interests in or that make or receive
payments to or from certain foreign
corporations.
SUMMARY:
Written or electronic comments
and requests for a public hearing must
be received by December 2, 2019.
ADDRESSES: Send electronic
submissions via the Federal
eRulemaking Portal at
www.regulations.gov (indicate IRS and
REG–104223–18) by following the
online instructions for submitting
comments. Once submitted to the
Federal eRulemaking Portal, comments
cannot be edited or withdrawn. The
Department of the Treasury (the
‘‘Treasury Department’’) and the IRS
will publish for public availability any
comment received to its public docket,
whether submitted electronically or in
hard copy. Send hard copy submissions
to: CC:PA:LPD:PR (REG–104223–18),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand delivered Monday through
Friday between the hours of 8 a.m. and
4 p.m. to CC:PA:LPD:PR (REG–104223–
18), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue NW,
Washington, DC 20224.
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
Jorge M. Oben, (202) 317–6934;
concerning submissions of comments
and requests for a public hearing,
Regina Johnson at (202) 317–6901 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
DATES:
E:\FR\FM\02OCP1.SGM
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]]>Agencies
[Federal Register Volume 84, Number 191 (Wednesday, October 2, 2019)]
[Proposed Rules]
[Pages 52393-52398]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21265]
=======================================================================
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FEDERAL TRADE COMMISSION
16 CFR Part 425
RIN 3084-AB54
Rule Concerning the Use of Prenotification Negative Option Plans
AGENCY: Federal Trade Commission.
ACTION: Advance notice of proposed rulemaking; request for public
comment.
-----------------------------------------------------------------------
SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') seeks
public comment on the need for amendments to the Commission's ``Rule
Concerning the Use of Prenotification Negative Option Plans'' (i.e.,
``Negative Option Rule'' or ``Rule'') to help consumers avoid recurring
payments for products and services they did not intend to order and to
allow them to cancel such payments without unwarranted obstacles.
DATES: Comments must be received on or before December 2, 2019.
ADDRESSES: Interested parties may file a comment online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write ``16 CFR part 425--
Negative Option Rule, Project No. P064202'' on your comment, and file
your comment online at https://www.regulations.gov/, by following the
instructions on the web-based form. If you prefer to file your comment
on paper, write ``Negative Option Rule (16 CFR part 425) (Project No.
P064202)'' on your comment and on the envelope, and mail it to the
following address: Federal Trade Commission, Office of the Secretary,
600 Pennsylvania Avenue NW, Suite CC-5610 (Annex J), Washington, DC
20580; or deliver your comment to the following address: Federal Trade
Commission, Office of the Secretary, Constitution Center, 400 7th
Street SW, 5th Floor, Suite 5610 (Annex J), Washington, DC 20024. If
possible, submit your paper comment to the Commission by courier or
overnight service.
FOR FURTHER INFORMATION CONTACT: Hampton Newsome (202-326-2889),
Attorney, Division of Enforcement,
[[Page 52394]]
Bureau of Consumer Protection, Federal Trade Commission, 600
Pennsylvania Avenue NW, Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
I. Overview
The Commission seeks comments on ways to improve its existing
regulations for negative option marketing, a common form of marketing
where the absence of affirmative consumer action constitutes assent to
be charged for goods or services. Negative option offers are widespread
in the marketplace and can provide substantial benefits for sellers and
consumers. However, consumers cannot reap such benefits when marketers
fail to make adequate disclosures, bill consumers without their
consent, or make cancellation difficult or impossible. Over the years,
such problematic negative option practices have remained a persistent
source of consumer harm, often saddling consumers with recurring
payments for products and programs they did not intend to purchase or
did not want. In the past, the Commission has sought to address such
practices through individual law enforcement cases and a patchwork of
regulations. Nevertheless, problems persist, and consumers continue to
submit thousands of complaints to the FTC each year about negative
option marketing. To address these concerns, the Commission seeks
comments on ways to improve existing regulatory requirements, including
whether it should use its rulemaking authority under the FTC Act to
expand the scope and coverage of the existing Negative Option Rule.\1\
---------------------------------------------------------------------------
\1\ Section 18 of the FTC Act authorizes the Commission to
promulgate rules specifying acts or practices in or affecting
commerce which are unfair or deceptive. 15 U.S.C. 57a(a)(2).
---------------------------------------------------------------------------
II. Negative Option Marketing
A ``negative option'' is any type of sales term or condition that
allows a seller to interpret a customer's silence, or failure to take
an affirmative action, as acceptance of an offer.\2\ Negative option
marketing generally falls into four categories: Prenotification
negative option plans, continuity plans, automatic renewals, and free-
to-pay or nominal-fee-to-pay conversion offers.
---------------------------------------------------------------------------
\2\ The Commission's Telemarking Sales Rule defines a negative
option feature as a provision in an offer or agreement to sell or
provide any goods or services ``under which the customer's silence
or failure to take an affirmative action to reject goods or services
or to cancel the agreement is interpreted by the seller as
acceptance of the offer.'' 16 CFR 310.2(w).
---------------------------------------------------------------------------
Prenotification plans are the only negative option practice
currently covered by the Commission's Negative Option Rule. Under such
plans (e.g., book-of-the-month clubs), sellers send 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. The periodic announcements and shipments can continue
indefinitely. In continuity plans, consumers agree in advance to
receive periodic shipments of goods or provision of services (e.g.,
bottled water delivery), which they continue to receive until they
cancel the agreement. In automatic renewals, sellers (e.g., a magazine
publisher) automatically renew consumers' subscriptions when they
expire and charge for them, unless consumers affirmatively cancel the
subscriptions. Finally, in free-to-pay or nominal-fee-to-pay plans,
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.
Some negative option offers include upsell or bundled offers, where
sellers use consumers' billing data for additional products from the
same seller or pass consumers' billing data to a third party for
additional offers. An upsell occurs when a consumer completes a first
transaction and then receives a solicitation for an additional product
or service. A bundled offer occurs when a seller packages two products
or services together so that they cannot be purchased separately.
III. FTC's Negative Option Rule
The Commission first promulgated the Rule in 1973 pursuant to the
FTC Act, 15 U.S.C. 41 et seq., after finding that some negative option
marketers had committed unfair and deceptive marketing practices that
violated Section 5 of the Act, 15 U.S.C. 45. As discussed above, the
Rule only applies to prenotification plans for the sale of goods and
does not reach most modern negative option marketing.\3\
---------------------------------------------------------------------------
\3\ The Rule defines ``negative option plan'' narrowly to apply
only to prenotification plans. 16 CFR 425.1(c)(1). The Rule covers
prenotification plan marketing in all media. In 1998, the Commission
clarified that the Rule ``covers all promotional materials that
contain a means for consumers to subscribe to prenotification
negative option plans, including those that are disseminated through
newer technologies . . . .'' 63 FR 44555, 44561 (Aug. 20, 1998).
---------------------------------------------------------------------------
The Rule requires prenotification plan sellers to clearly and
conspicuously disclose their plan's material terms before consumers
subscribe. It enumerates seven material terms sellers must disclose
clearly and conspicuously including: (1) How subscribers must notify
the seller if they do not wish to purchase the selection; (2) any
minimum purchase obligations; (3) the subscribers' right to cancel; (4)
whether billing charges include postage and handling; (5) that
subscribers have at least ten days to reject a selection; (6) 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 (7) the frequency with
which announcements and forms will be sent.\4\ In addition, sellers
must 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 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.\5\
---------------------------------------------------------------------------
\4\ 16 CFR 425.1(a)(1)(i)-(vii).
\5\ 16 CFR 425.1(a)(2) and (3); 425.1(b).
---------------------------------------------------------------------------
IV. Existing Regulatory Requirements
In addition to the Negative Option Rule, several other statutes and
regulations address harmful negative option practices. First, Section 5
of the FTC Act, which prohibits unfair or deceptive acts or practices,
has traditionally served as the Commission's primary mechanism for
addressing these types of cases. Additionally, the Restore Online
Shoppers' Confidence Act (``ROSCA'') (15 U.S.C. 8401-8405), the
Telemarketing Sales Rule (16 CFR part 310), the Postal Reorganization
Act (``PRA'') (i.e., the Unordered Merchandise Statute) (39 U.S.C.
3009), and the Electronic Fund Transfer Act (``EFTA'') (15 U.S.C. 1693-
1693r) all address various aspects of negative option marketing. ROSCA,
however, is the only law primarily designed to do so.
A. Section 5 of the FTC Act
The basic consumer protection statute enforced by the Commission is
Section 5(a) of the FTC Act (15 U.S.C. 45(a)(1)). This provision states
that ``unfair or deceptive acts or practices in or affecting commerce .
. . are . . . declared unlawful.'' \6\ In past guidance
[[Page 52395]]
and cases, the FTC has highlighted five basic Section 5 requirements
that negative option marketing must follow to avoid deception.\7\
First, marketers must disclose the material terms of a negative option
offer including, at a minimum, the following key terms: The existence
of the negative option offer; the offer's total cost; the transfer of a
consumer's billing information to a third party, if applicable; and how
to cancel the offer. Second, Section 5 requires that disclosures be
clear and conspicuous. Third, sellers must disclose the material terms
of the negative option offer before consumers agree to the purchase.
Fourth, marketers must obtain consumers' consent to such offers.
Finally, marketers must not impede the effective operation of promised
cancellation procedures, and should honor cancellation requests that
comply with such procedures.
---------------------------------------------------------------------------
\6\ The FTC Act defines ``unfair or deceptive acts or
practices'' to include such acts or practices involving foreign
commerce that cause or are likely to cause reasonably foreseeable
injury within the United States or involve material conduct
occurring within the United States (15 U.S.C. 45(a)(4)(A)). It also
defines ``unfair'' practices as those that cause or are likely ``to
cause substantial injury to consumers which is not reasonably
avoidable by consumers themselves and not outweighed by
countervailing benefits to consumers or to competition'' (15 U.S.C.
45(n)).
\7\ See Negative Options: A Report By the Staff of the FTC's
Division of Enforcement, 26-29 (Jan. 2009), https://www.ftc.gov/sites/default/files/documents/reports/negative-options-federal-trade-commission-workshop-analyzing-negative-option-marketing-report-staff/p064202negativeoptionreport.pdf. In discussing the five
principal Section 5 requirements related to negative options, the
report cites to the following pre-ROSCA cases, FTC v. JAB Ventures,
No. CV08-04648 (C.D. Cal. 2008); FTC v. Complete Weightloss Center,
No. 1:08cv00053 (D.N.D. 2008); FTC v. Berkeley Premium
Nutraceuticals, No. 1:06cv00051 (S.D. Ohio 2006); FTC v. Think All
Publ'g, No. 4:07cv11 (E.D. Tex. 2006); FTC v. Hispanexo, No.
1:06cv424 (E.D. Va. 2006); FTC v. Consumerinfo.com, No. SACV05-801
(C.D. Cal. 2005); FTC v. Conversion Mktg., No. SACV04-1264 (C.D.
Cal. 2004); FTC v. Mantra Films, No. CV03-9184 (C.D. Cal. 2003); FTC
v. Preferred Alliance, No. 103-CV0405 (N.D. Ga. 2003); United States
v. Prochnow, No. 102-CV-917 (N.D. Ga. 2002); FTC v. Ultralife
Fitness, Inc., No. 2:08-cv-07655-DSF-PJW (C.D. Cal. 2008); In the
Matter of America Isuzu Motors, FTC Docket No. C-3712 (1996); FTC v.
Universal Premium Services, No. CV06-0849 (C.D. Cal. 2006); FTC v.
Remote Response, No. 06-20168 (S.D. Fla. 2006); and FTC's Dot Com
Disclosures guidance.
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Although adherence to these five principles should minimize the
likelihood of non-compliance with Section 5, the legality of a
particular negative option depends on an individualized assessment of
the advertisement's net impression and the marketer's business
practices. In addition to these deception-related requirements, the
Commission has indicated that billing consumers without consumers'
express informed consent is an unfair act under the FTC Act.\8\
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\8\ Courts have found unauthorized billing to be unfair under
the FTC Act. See, e.g., FTC. v. Neovi, Inc., 604 F.3d 1150, 1157-59
(9th Cir. 2010), amended by 2010 WL 2365956 (9th Cir. June 15,
2010); FTC v. Amazon.com, Inc., No. C14-1038-JCC, 2016 WL 10654030,
at *8 (W.D. Wash. Apr. 26, 2016); FTC v. Ideal Fin. Sols., Inc., No.
2:13-CV-00143-JAD, 2015 WL 4032103, at *8 (D. Nev. June 30, 2015).
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B. ROSCA
Enacted by Congress in 2010 to address ongoing problems with online
negative option marketing, ROSCA contains general provisions related to
disclosures, consent, and cancellation.\9\ ROSCA prohibits charging or
attempting to charge consumers for goods or services sold on the
internet through any negative option feature unless the marketer: (1)
Clearly and conspicuously discloses all material terms of the
transaction before obtaining the consumer's billing information; (2)
obtains a consumer's express informed consent before charging the
consumer's account; and (3) provides simple mechanisms for the consumer
to stop recurring charges.\10\ ROSCA, however, provides no details
regarding steps marketers must follow to comply with these provisions.
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\9\ 15 U.S.C. 8401-8405.
\10\ 15 U.S.C. 8403. ROSCA incorporates the definition of
``negative option feature'' from the Commission's Telemarketing
Sales Rule, 16 CFR 310.2(w).
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ROSCA also addresses offers made by, or on behalf of, third-party
sellers during, or immediately following, a transaction with an initial
merchant.\11\ In connection with these offers, ROSCA prohibits post-
transaction, third-party sellers from charging or attempting to charge
consumers unless the seller: (1) Before obtaining billing information,
clearly and conspicuously discloses the offer's material terms; and (2)
receives the consumer's express informed consent by obtaining the
consumer's name, address, contact information, as well as the full
account number to be charged, and requiring the consumer to perform an
additional affirmative action indicating consent.\12\ ROSCA 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.\13\
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\11\ 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).
\12\ 15 U.S.C. 8402(a).
\13\ 15 U.S.C. 8402(b).
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ROSCA provides that a violation of that Act shall be treated as a
violation of a Commission trade regulation rule under Section 18 of the
FTC Act.\14\ Thus, the Commission may seek a variety of remedies for
violations of ROSCA, including civil penalties under Section 5(m)(1)(A)
of the FTC Act; \15\ injunctive and equitable monetary relief under
Section 13(b) of the FTC Act; \16\ and consumer redress, damages, and
other relief under Section 19 of the FTC Act.\17\ Although Congress
charged the Commission with enforcing ROSCA, it did not specifically
direct the FTC to promulgate implementing regulations.\18\
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\14\ 15 U.S.C. 8404. Section 18 of the FTC Act is 15 U.S.C. 57a.
\15\ 15 U.S.C. 45(m)(1)(A).
\16\ 15 U.S.C. 53(b).
\17\ 15 U.S.C. 57b(a)(1) and (b).
\18\ ROSCA states that a violation ``of this chapter or any
regulation prescribed under this chapter shall be treated as a
violation of a rule under section 18 of the Federal Trade Commission
Act (15 U.S.C. 57a) regarding unfair or deceptive acts or practices.
15 U.S.C. 8404(a).
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C. Telemarketing Sales Rule
The Telemarketing Sales Rule (``TSR'') (16 CFR part 310) prohibits
deceptive telemarketing acts or practices, including those involving
negative option offers, and certain types of payment methods common in
deceptive marketing. The TSR only applies to negative option offers
made over the telephone. Specifically, the TSR requires that
telemarketers disclose all material terms and conditions of the
negative option feature, including the need for affirmative consumer
action to avoid the charges, the date (or dates) the charges will be
submitted for payment, and the specific steps the customer must take to
avoid the charges. It also prohibits telemarketers from misrepresenting
such information and contains specific requirements related to payment
authorization.\19\ The Commission recently amended the TSR to prohibit
the use of payment methods often used in deceptive marketing, including
negative options, such as remotely created checks.\20\
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\19\ 16 CFR 310.3(a).
\20\ 80 FR 77520 (Dec. 14, 2015). The TSR Notice of Proposed
Rulemaking (78 FR 41200 (July 9, 2013)) 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).
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D. Other Relevant Requirements
The Electronic Fund Transfer Act (``EFTA'') \21\ and the Postal
Reorganization Act (``PRA'') (i.e., Unordered Merchandise Statute) also
contain provisions that address negative option marketing.\22\ EFTA
prohibits sellers from imposing recurring charges on a consumer's debit
cards or bank accounts without written
[[Page 52396]]
authorization.\23\ The PRA provides that mailing unordered merchandise,
or a bill for such merchandise, constitutes an unfair method of
competition and an unfair trade practice in violation of Section 5 of
the FTC Act.\24\
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\21\ 15 U.S.C. 1693-1693r.
\22\ 39 U.S.C. 3009.
\23\ EFTA provides that the Commission shall enforce its
requirements, except to the extent that enforcement is specifically
committed to some other federal 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.
\24\ 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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V. Limitations of Existing Regulatory Requirements
The existing patchwork of laws and regulations does not provide
industry and consumers with a consistent legal framework across
different media and types of plans. For instance, as discussed above,
the current Rule does not cover common practices such as continuity
plans, automatic renewals, and trial conversions.\25\ In addition,
ROSCA and the TSR do not address negative option plans in all media--
ROSCA's general statutory prohibitions on deceptive negative option
marketing only apply to internet sales, and the TSR's more specific
provisions only apply to telemarketing. Furthermore, harmful negative
option practices that fall outside of ROSCA and the TSR's coverage
still occur.\26\ Therefore, under the current framework, different
rules apply depending on whether a negative option offer is made
online, over the phone, or in some other medium (e.g., in print,
through the mail, etc.).
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\25\ Indeed, the prenotification plans covered by the Rule
represent only a small fraction of negative option marketing. In
2017, for instance, the Commission estimated that fewer than 100
sellers (``clubs'') were subject to the current Rule's requirements.
82 FR 38907, 38908 (Aug. 16, 2017).
\26\ For instance, the Commission recently brought two cases
under Section 5 involving negative option plans that did not involve
either internet sales or telemarketing. FTC and State of Maine v.
Health Research Laboratories, LLC, No. 2:17-cv-00467-JDL (D. Me.
2018); and FTC and State of Maine v. Marketing Architects, No. 2:18-
cv-00050 (D. Me. 2018).
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Additionally, the current framework does not provide clarity about
how to avoid deceptive negative option disclosures and procedures. For
example, ROSCA lacks specificity about cancellation procedures and the
placement, content, and timing of cancellation-related disclosures.
Instead, the statute requires marketers to provide a ``simple
mechanism'' for the consumer to stop recurring charges, but does not
specify what methods would satisfy this requirement.
VI. Past FTC Rulemaking Efforts
The Commission initiated its last regulatory review of the Negative
Option Rule in 2009 (74 FR 22720 (May 14, 2009)), following a 2007 FTC
workshop and subsequent Staff Report.\27\ The Commission completed the
review in 2014 (79 FR 44271 (July 31, 2014)). At the time, the
Commission found the comments supporting the Rule's expansion ``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.'' \28\ It also noted that practices not
covered by the Rule (e.g., trial conversions and continuity plans)
accounted for most of its enforcement activity in this area. Despite
these findings, the Commission declined to expand or enhance the Rule,
concluding that amendments were not warranted because the enforcement
tools provided by the TSR and, especially, ROSCA, which had only
recently become effective, might prove adequate to address the
persistent problems generated by deceptive and unfair negative option
marketing. However, the Commission also explained that, if ROSCA and
its other enforcement tools do not adequately protect consumers, the
Commission could consider, based on a more complete record, whether and
how to amend the Rule.\29\
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\27\ See Negative Options: A Report By the Staff of the FTC's
Division of Enforcement 26-29, https://www.ftc.gov/sites/default/files/documents/reports/negative-options-federal-trade-commission-workshop-analyzing-negative-option-marketing-report-staff/p064202negativeoptionreport.pdf.
\28\ The Commission cited a number of its law enforcement
actions challenging negative option marketing practices, including,
for example, FTC v. Process America, Inc., No. 14-0386-PSG-VBKx
(C.D. Cal. 2014) (processing of unauthorized charges relating to
negative option marketing); FTC v. Willms, No 2:11-cv-00828 (W.D.
Wash. 2011) (internet free trials and continuity plans); FTC v.
Moneymaker, No. 2:11-cv-00461-JCM-RJJ (D. Nev. 2012) (internet trial
offers and continuity programs); FTC v. Johnson, No. 2:10-cv-02203-
RLH-GWF (D. Nev. 2010), (internet trial offers); and FTC v. John
Beck Amazing Profits, LLC, No. 2:09-cv-04719 (C.D. Cal. 2009)
(infomercial and telemarketing trial offers and continuity
programs); 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,'' https://www.ftc.gov/news-events/events-calendar/2007/01/negative-options-workshop-analyzing-negative-option-marketing.
\29\ 79 FR at 44276.
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VII. Ongoing Problems With Negative Option Marketing
Since the conclusion of the last regulatory review of the Negative
Option Rule, evidence strongly suggests that negative option marketing
continues to harm consumers. The Commission and the states continue to
regularly bring cases challenging negative option practices, including
more than 20 recent FTC cases. These matters involved a range of
deceptive and unfair practices, including inadequate disclosures for
``free'' offers and other products or programs, enrollment without
consumer consent, and inadequate or overly burdensome cancellation and
refund procedures.\30\ In addition, the Commission continues to receive
thousands of complaints each year related to negative option marketing.
The recent cases and the high volume of ongoing complaints suggests
there is prevalent, unabated consumer harm in the marketplace. As
discussed below, the Commission seeks comments on these issues.
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\30\ Examples of these matters include: FTC v. Credit Bureau
Center, LLC, No. 17-cv-00194 (N.D. Ill. 2018); FTC v. JDI Dating,
Ltd., No. 1:14-cv-08400 (N.D. Ill. 2018); FTC, State of Illinois,
and State of Ohio v. One Technologies, LP, No. 3:14-cv-05066 (N.D.
Cal. 2014); FTC v. Health Formulas, LLC, No. 2:14-cv-01649-RFB-GWF
(D. Nev. 2016); FTC v. Nutraclick LLC, No. 2:16-cv-06819-DMG (C.D.
Cal. 2016); FTC v. XXL Impressions, No. 1:17-cv-00067-NT (D. Me.
2018); FTC v. AAFE Products Corporation, NO. 3:17-cv-00575 (S.D.
Cal. 2017); FTC v. Pact Inc., No. 2:17-cv-1429 (W.D. Wash. 2017);
FTC v. Tarr, No. 3:17-cv-02024-LAB-KSC (S.D. Cal. 2017); FTC v.
AdoreMe, Inc., No. 1:17-cv-09083 (S.D.N.Y 2017); FTC v.
DOTAuthority.com, Inc., No. 0:16-cv-62186-WJZ (S.D. Fla. 2018); FTC
v. Bunzai Media Group, Inc., No. CV15-04527-GW(PLAx) (C.D. Cal.
2018); and FTC v. RevMountain, LLC, No. 2:17-cv-02000-APG-GWF (D.
Nev. 2018).
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VIII. Request for Comments
The Commission seeks comments on the current Rule as well as
possible regulatory measures to reduce consumer harm created by
deceptive or unfair negative option marketing. In considering ways to
meet this objective, as detailed below, the Commission seeks comment on
various alternatives, including amendments to existing rules to further
address disclosures, consumer consent, and cancellation. In particular,
the Commission requests input on whether and how it should use its
authority under Section 18 of the FTC Act to expand the Negative Option
Rule to address prevalent unfair or deceptive practices involving
negative option marketing.\31\ It also seeks comment on
[[Page 52397]]
other approaches, such as the publication of additional consumer and
business education. The Commission seeks any suggestions or alternative
methods for improving current requirements. In their replies,
commenters should provide any available evidence and data that supports
their position, such as empirical data, consumer perception studies,
and consumer complaints.
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\31\ Section 202 of the Magnuson-Moss Warranty-FTC Improvements
Act authorizes the Commission to promulgate rules that define with
specificity acts or practices in or affecting commerce which are
unfair or deceptive. FTC Act Section 18(a)(1)(B) (15 U.S.C.
57a(a)(1)(B)). Under FTC Act Section 18(b)(3), the Commission may
issue regulations ``where it has reason to believe that the unfair
or deceptive acts or practices which are the subject of the proposed
rulemaking are prevalent.'' The Commission may make such a
prevalence finding if it has issued cease and desist orders
regarding such acts or practices, or any other available information
indicates a widespread pattern of unfair or deceptive acts or
practices. Rules under Section 18 ``may include requirements
prescribed for the purpose of preventing such acts or practices.''
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General Questions About the Current Rule
(1) Is there a continuing need for the Rule as currently
promulgated? Why or why not?
(2) What benefits has the Rule provided to consumers? What evidence
supports the asserted benefits?
(3) What modifications, if any, should the Commission make to the
Rule to increase its benefits to consumers?
(a) What evidence supports your proposed modifications?
(b) How would these modifications affect the costs and benefits of
the Rule for consumers?
(c) How would these modifications affect the costs and benefits of
the Rule for businesses, particularly small businesses?
(4) What, if any, impact has the Rule had on the flow of truthful
information to consumers and on the flow of deceptive information to
consumers? What evidence supports the asserted impact?
(5) What, if any, significant costs has the Rule imposed on
consumers? What evidence supports the asserted costs?
(6) Are any of the Rule's requirements no longer needed? If so,
explain. Please provide supporting evidence.
(7) What benefits, if any, has the Rule provided to businesses, and
in particular to small businesses? What evidence supports the asserted
benefits?
(8) What modifications, if any, should the Commission make to the
Rule to increase its benefits to businesses, particularly small
businesses?
(a) What evidence supports your proposed modifications?
(b) How would these modifications affect the costs and benefits of
the Rule for consumers?
(c) How would these modifications affect the costs and benefits of
the Rule for businesses?
(9) What, if any, significant costs, including costs of compliance,
has the Rule imposed on businesses, particularly small businesses? What
evidence supports the asserted costs?
(10) What modifications, if any, should the Commission make to the
Rule to reduce the costs imposed on businesses, particularly small
businesses?
(11) Should the Rule define ``clearly and conspicuously,'' given
that it requires marketers to make certain disclosures clearly and
conspicuously? If so, why, and how? If not, why not?
(12) What evidence is available concerning the degree of compliance
with the Rule? Does this evidence indicate that the Commission should
modify the Rule? If so, why, and how? If not, why not?
(13) Does the Rule overlap or conflict with other federal, state,
or local laws or regulations? If so, how? Should the Rule be modified
to address any such overlaps or conflicts? If so, why, and how? If not,
why not? Please provide supporting evidence.
Questions About Negative Option Practices and the Existing Legal
Framework
(14) How widespread is the marketing of products or services
through negative option plans, including, but not limited to, plans
covered by the current Rule? What percentage of these negative option
plans are offered through the internet, telemarketing, the mail, or
through some other means? What data sources did you rely upon in
formulating your answer?
(15) Are there potentially unfair or deceptive practices concerning
the marketing of negative option plans, not covered by the Rule,
occurring in the marketplace? If so, what types of negative option
plans does such marketing involve? What evidence, such as empirical
data, consumer perception studies, or consumer complaints, demonstrates
whether there is widespread existence of such practices? Please provide
this evidence.
(16) Does current marketing of negative option plans cause consumer
injury? If so, what evidence demonstrates that such practices cause
consumer injury do so? Please provide this evidence.
(17) Please provide any evidence that has become available over the
last several years concerning consumer perception of, or experience
with, negative option offers, including offers for prenotification
negative option plans, continuity plans, trial conversions, or
automatic renewals.
(18) How do the existing laws and regulations covering negative
options affect consumers? What evidence supports your answer?
(19) Do existing laws and regulations covering negative options
affect businesses, particularly small businesses? If so, how? What
evidence supports your answer?
(20) Is there a need for new regulatory provisions to prevent
deception by addressing negative option plans not covered by the Rule?
If yes, why? If no, why not? If new regulations are needed to address
the marketing of negative option plans not covered by the existing
Rule, should the Rule be amended, or should a new Rule or Rules be
created? Should all forms of negative option marketing be addressed in
a single Rule or by new, separate Rules? What evidence supports your
answer? What are the benefits and costs to consumers and businesses
under either approach? What evidence supports your answer?
(21) If new regulatory provisions are necessary, should they treat
various types of negative option marketing differently? Why or why not?
Would there be any adverse consequences if different forms of negative
option marketing were addressed under separate Rules? Why or why not?
What, if any, evidence supports your answer?
(22) What specific modifications, if any, should be added to the
Rule to better address prenotification negative option marketing,
continuity plans, trial conversions, and/or automatic renewals? What
evidence supports your proposed modification?
(23) Do current or impending changes in technology or market
practices affect whether and how the Rule should be modified? If so,
what are such changes and how do they affect whether the Rule should be
modified?
(24) Are there foreign or international laws, regulations, or
standards addressing negative option plans that the Commission should
consider as it reviews the Rule? If so, what are they? Should the
Commission consider adopting, or avoiding, any of these? If so, why? If
not, why not?
(a) Should the Rule be modified to harmonize with these
international laws, regulations, or standards? If so, why, and how? If
not, why not?
(b) How would such harmonization affect the costs and benefits of
the Rule for consumers and businesses, particularly small businesses?
(25) Should the Commission consider additional consumer and
business education to reduce consumer harm associated with negative
option
[[Page 52398]]
marketing? If so, what should such education materials include, and how
should the Commission communicate that information to consumers and
businesses?
IX. Comment Submissions
You can file a comment online or on paper. For the FTC to consider
your comment, we must receive it on or before December 2, 2019. Write
``Negative Option Rule (16 CFR part 425) (Project No. P064202)'' on
your comment. Postal mail addressed to the Commission is subject to
delay due to heightened security screening. As a result, we encourage
you to submit your comments online, or to send them to the Commission
by courier or overnight service. To make sure that the Commission
considers your online comment, you must file it through the https://www.regulations.gov website by following the instructions on the web-
based form provided. Your comment--including your name and your state--
will be placed on the public record of this proceeding, including the
https://www.regulations.gov website. As a matter of discretion, the
Commission tries to remove individuals' home contact information from
comments before placing them on the regulations.gov site.
If you file your comment on paper, write ``Negative Option Rule (16
CFR part 425) (Project No. P064202)'' on your comment and on the
envelope, and mail it to the following address: Federal Trade
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite
CC-5610 (Annex J), Washington, DC 20580, or deliver your comment to the
following address: Federal Trade Commission, Office of the Secretary,
Constitution Center, 400 7th Street SW, 5th Floor, Suite 5610 (Annex
J), Washington, DC 20024. If possible, submit your paper comment to the
Commission by courier or overnight service.
Because your comment will be placed on the publicly accessible
website at www.regulations.gov, you are solely responsible for making
sure that your comment does not include any sensitive or confidential
information. In particular, your comment should not include any
sensitive personal information, such as your or anyone else's Social
Security number; date of birth; driver's license number or other state
identification number, or foreign country equivalent; passport number;
financial account number; or credit or debit card number. You are also
solely responsible for making sure that your comment does not include
any sensitive health information, such as medical records or other
individually identifiable health information. In addition, your comment
should not include any ``trade secret or any commercial or financial
information which . . . is privileged or confidential''--as provided by
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2),
16 CFR 4.10(a)(2)--including in particular competitively sensitive
information such as costs, sales statistics, inventories, formulas,
patterns, devices, manufacturing processes, or customer names.
Comments containing material for which confidential treatment is
requested must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular,
the written request for confidential treatment that accompanies the
comment must include the factual and legal basis for the request, and
must identify the specific portions of the comment to be withheld from
the public record. See FTC Rule 4.9(c). Your comment will be kept
confidential only if the General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted publicly at www.regulations.gov, we cannot redact or remove
your comment unless you submit a confidentiality request that meets the
requirements for such treatment under FTC Rule 4.9(c), and the General
Counsel grants that request.
The FTC Act and other laws that the Commission administers permit
the collection of public comments to consider and use in this
proceeding as appropriate. The Commission will consider all timely and
responsive public comments that it receives on or before December 2,
2019. For information on the Commission's privacy policy, including
routine uses permitted by the Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.
By direction of the Commission.
April J. Tabor,
Acting Secretary.
[FR Doc. 2019-21265 Filed 10-1-19; 8:45 am]
BILLING CODE 6750-01-P
