Enforcement Policy Statement Regarding Negative Option Marketing, 60822-60827 [2021-24094]
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Federal Register / Vol. 86, No. 211 / Thursday, November 4, 2021 / Notices
Generally, information collected as
part of the New Hire Information
Collection may be kept confidential
from the public under exemption 6 of
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constitute a clearly unwarranted
invasion of personal privacy.’’ 3
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which is compatible with the purpose
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Such routine uses are listed in
specific systems of records notices,
which apply to this information
collection and which can be found in:
(1) The System of Records Notice for
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(2) the System of Records Notice for
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Current actions: On May 25, 2021, the
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Register (86 FR 28107) requesting
(such as continuing health insurance benefits for
the child or spouse of a new employee who is
transferring from another federal agency).
3 5 U.S.C. 552(b)(6).
4 5 U.S.C. 552a(b).
5 5 U.S.C. 552a(a)(7) and (b)(3)).
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public comment for 60 days on the
extension with revision, of the New Hire
Information Collection (FR 27). The
revisions remove certain fields from the
information collected on this form
regarding direct deposits. The comment
period for this notice expired on July 26,
2021.The Board did not receive any
comments. The revisions will be
implemented as proposed.
Board of Governors of the Federal Reserve
System, October 27, 2021.
Michele Taylor Fennell,
Deputy Associate Secretary of the Board.
[FR Doc. 2021–23804 Filed 11–3–21; 8:45 am]
BILLING CODE 6210–01–P
FEDERAL TRADE COMMISSION
Enforcement Policy Statement
Regarding Negative Option Marketing
Federal Trade Commission.
Commission policy statement.
AGENCY:
ACTION:
The Federal Trade
Commission (‘‘FTC’’ or ‘‘Commission’’)
has issued a policy statement to provide
guidance regarding its enforcement of
various statutes and FTC regulations
addressing negative option marketing
and operating. This Statement is
intended to assist the business
community and practitioners by
providing specific guidance on the
Commission’s interpretation of existing
law as it applies to negative option
practices. This Statement may also
assist the courts in developing an
appropriate framework for interpreting
and applying the various statutes and
regulations addressing negative option
marketing discussed herein.
DATES: The Commission announced the
issuance of the Statement on October
29, 2021.
FOR FURTHER INFORMATION CONTACT: Tom
Dahdouh (202–326–2552), Federal
Trade Commission, 600 Pennsylvania
Avenue NW, Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
SUMMARY:
I. Introduction and Background
The Federal Trade Commission
(‘‘FTC’’ or ‘‘Commission’’) issues this
Policy Statement to provide guidance
regarding its enforcement of various
statutes and FTC regulations addressing
negative option marketing and
operating.1 This Statement is intended
1 This Policy Statement elaborates on principles
annunciated by the Commission in individual cases
and rules issued over the course of many years.
This Policy Statement does not confer any rights on
any person and does not operate to bind the FTC
or the public. In any enforcement action, the
Commission must prove the challenged act or
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to assist the business community and
practitioners by providing specific
guidance on the Commission’s
interpretation of existing law as it
applies to negative option practices.
This Statement may also assist the
courts in developing an appropriate
framework for interpreting and applying
the various statutes and regulations
addressing negative option marketing
discussed herein.
Negative option offers come in a
variety of forms, but all share a central
feature: Each contains a term or
condition under which the seller may
interpret a consumer’s silence or failure
to take affirmative action to reject a good
or service or to cancel the agreement as
acceptance or continuing acceptance of
the offer.2 Typically, negative option
arrangements include, but are not
limited to, automatic renewals,
continuity plans, free-to-pay or fee-topay conversions, and prenotification
plans. Automatic renewals allow sellers
(e.g., a magazine publisher) to
unilaterally renew consumers’
subscriptions when they expire, unless
consumers affirmatively cancel their
subscriptions by a certain date.
Continuity plans allow consumers to
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. Free trial
marketing (e.g., free-to-pay conversions)
provides consumers the opportunity to
receive goods or services for free (or at
a nominal fee) for a trial period. After
the trial period, sellers can
automatically begin charging a fee (or
higher fee) unless consumers
affirmatively cancel or return the goods
or services. Finally, under
prenotification plans 3 (e.g., book-of-themonth clubs), sellers provide periodic
notices offering goods to participating
consumers and then send—and charge
for—those goods only if the consumers
practice violates one or more existing statutory or
regulatory requirements. In addition, this Policy
Statement does not preempt federal, state, or local
laws. Compliance with those laws, however, will
not necessarily preclude Commission law
enforcement action under the FTC Act or other
statutes. Pursuant to the Congressional Review Act
(5 U.S.C. 801 et seq.), the Office of Information and
Regulatory Affairs designated this Policy Statement
as not a ‘‘major rule,’’ as defined by 5 U.S.C. 804(2).
2 The Commission’s Telemarking Sales Rule (16
CFR part 310) 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).
3 The Commission’s Rule on the ‘‘Use of
Prenotification Negative Option Plans’’ (16 CFR part
425) only covers this type of negative option
marketing.
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take no action to decline the offer. The
periodic announcements and shipments
can continue indefinitely.4
Negative option programs are
widespread in the marketplace and can
provide substantial benefits for sellers
and consumers. At the same time,
consumers suffer costs when marketers
fail to make adequate disclosures, bill
consumers without their consent, or
make cancellation difficult or
impossible. Over the years, unfair or
deceptive negative option practices have
remained a persistent source of
consumer harm, often saddling
shoppers with recurring payments for
products and services they did not
intend to purchase or did not want to
continue to purchase.5 To address this
problem, the Commission and states
regularly bring cases challenging a
variety of harmful negative option
practices. These matters involve a range
of deceptive or unfair practices,
including inadequate disclosures of
hidden charges in ostensibly ‘‘free’’
offers and other products or services,
enrollment without consumer consent,
and inadequate or overly burdensome
cancellation and refund procedures.6 In
addition, the Commission receives
thousands of complaints each year
related to negative option marketing.
The number of ongoing cases and high
volume of complaints demonstrate there
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4 In
addition, some negative option offers include
upsell or bundled offers, where sellers use
consumers’ billing data to sell additional products
from the same seller or pass consumers’ billing data
to a third party for their sales. An upsell occurs
when a consumer completes a first transaction and
then receives a second solicitation for an additional
product or service. A bundled offer occurs when a
seller packages two or more products or services
together so they cannot be purchased separately.
5 See, e.g., n. 6 infra.
6 Recent examples of these matters include: FTC
v. JDI Dating, Ltd., No. 1:14–cv–08400 (N.D. Ill.
2014); 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. BunZai
Media Group, Inc., No. 2:15–cv–04527–GW–PLA
(C.D. Cal. 2015); FTC v. NutraClick LLC, No. 2:16–
cv–06819–DMG–JPR (C.D. Cal. 2016) (NutraClick I);
FTC v. DOTAuthority.com, Inc., No. 0:16–cv–
62186–WJZ (S.D. Fla. 2016); FTC v. XXL
Impressions, No. 1:17–cv–00067–NT (D. Me. 2017);
FTC v. AAFE Products Corp., No. 3:17–cv–00575
(S.D. Cal. 2017); FTC v. RevMountain, LLC, No.
2:17–cv–02000–APG–GWF (D. Nev. 2017); FTC v.
Pact, Inc., No. 2:17–cv–01429 (W.D. Wash. 2017);
FTC v. Tarr, No. 3:17–cv–02024–LAB–KSC (S.D.
Cal. 2017); FTC v. Credit Bureau Center, LLC, No.
17–cv–00194 (N.D. Ill. 2017); FTC v. AdoreMe, Inc.,
No. 1:17–cv–09083 (S.D.N.Y. 2017); FTC v. Triangle
Media Corp., No. 3:18–cv–01388–LAB–LL (S.D. Cal.
2018); In re: UrthBox, Inc., No. C–4676 (FTC 2019);
FTC v. Elite IT Partners, Inc., No. 2:19–cv–00125–
RJS (D. Utah 2019); FTC v. Apex Capital Group,
LLC, No. 2:18–cv–09573–JFW–JPR (C.D. Cal. 2018);
FTC v. AH Media, No. 3:19–cv–04022–JD (N.D. Cal.
2019); FTC v. Age of Learning, Inc., No. 2:20–cv–
07996 (C.D. Cal. 2020); FTC v. NutraClick, LLC, No.
2:20–cv–08612 (C.D. Cal. 2020) (NutraClick II).
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is prevalent, unabated consumer harm
in the marketplace.
The FTC’s enforcement actions
primarily rely on Section 5 of the FTC
Act (15 U.S.C. 45(a)), the Restore Online
Shoppers’ Confidence Act (‘‘ROSCA’’)
(15 U.S.C. 8401 through 8405), and the
Telemarketing Sales Rule (16 CFR part
310). However, the Rule on the Use of
Prenotification Negative Option Plans
(16 CFR part 425), the Electronic Fund
Transfer Act (‘‘EFTA’’) (15 U.S.C. 1693
through 1693r), and the Postal
Reorganization Act (i.e., the Unordered
Merchandise Statute) (39 U.S.C. 3009)
also address various aspects of negative
option marketing.
Section 5 of the FTC Act: Section 5 of
the FTC Act, which prohibits unfair or
deceptive acts or practices, is the core
consumer protection statute enforced by
the Commission, and therefore, has
traditionally served as the primary
mechanism for addressing deceptive
negative option claims.7 In its guidance
and cases, the FTC has highlighted four
basic Section 5 requirements negative
option marketing must follow to comply
with Section 5.8 First, marketers must
clearly and conspicuously disclose the
material terms of a negative option offer
including, at a minimum, key terms
such as the existence of the negative
option offer, the offer’s total cost, and
7 Section 5 specifically states ‘‘unfair or deceptive
acts or practices in or affecting commerce . . . are
. . . declared unlawful.’’ 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)).
8 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/p064202negative
optionreport.pdf. In discussing the 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. 1:02–CV–
0917 (N.D. Ga. 2002); FTC v. Ultralife Fitness, Inc.,
No. 2:08–cv–07655–DSF–PJW (C.D. Cal. 2008); In
the Matter of American Isuzu Motors, No. C–3712
(FTC 1997); 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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how to cancel the offer.9 Second, sellers
must disclose these material terms
before consumers agree to the
purchase.10 Third, marketers must
obtain consumers’ express informed
consent to such offers.11 Finally,
marketers must not erect unreasonable
barriers to cancellation or impede the
effective operation of promised
cancellation procedures, and must
honor cancellation requests that comply
with such procedures.12 Although these
basic guidelines are useful, the legality
of a particular negative option depends
on an individualized assessment of the
advertisement’s net impression and the
marketer’s business practices.13
ROSCA: Enacted by Congress in 2010
to address ongoing problems with
online negative option marketing,
ROSCA prohibits charging or attempting
to charge consumers for goods or
services sold on the internet through
any negative option feature 14 unless the
marketer: (1) Clearly and conspicuously
discloses all material terms of the
transaction 15 before obtaining the
consumer’s billing information; (2)
obtains a consumer’s express informed
9 See, e.g., FTC v. JAB Ventures; FTC v. Complete
Weightloss Center; FTC v. NutraClick, LLC I.
10 See, e.g., FTC v. JAB Ventures; Complete
Weightloss Center; FTC v. Berkeley Premium
Nutraceutical; FTC v. Think All Publ’g. Disclosures
earlier in the transaction may be necessary to avoid
deception. See e.g., FTC’s Dot Com Disclosures
guidance.
11 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 29, 2015); FTC v. BunZai Media
Group, Inc.
12 See, e.g., FTC v. Universal Premium Services;
FTC v. Remote Response; FTC v. Berkeley Premium
Nutraceuticals; FTC v. Hispanexo; FTC v. Age of
Learning, Inc.
13 See, e.g., Negative Options: A Report by the
Staff of the FTC’s Division of Enforcement, 28.
14 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). ROSCA also contains a finding that
‘‘Third party sellers used a free trial period to enroll
members, after which they periodically charged
consumers until consumers affirmatively canceled
the memberships. This use of ‘‘free-to-pay
conversion’’ and ‘‘negative option’’ sales took
advantage of consumers’ expectations that they
would have an opportunity to accept or reject the
membership club offer at the end of the trial
period.’’ 15 U.S.C. 8401(8). Finally, in addition to
addressing negative option marketing, ROSCA
contains provisions related to third party ‘‘post
transaction’’ offers. See, e.g., 15 U.S.C. 8402.
15 The Commission has brought several cases
alleging a failure to disclose adequately the terms
of the negative option feature. See, e.g., FTC v.
NutraClick II; FTC v. Triangle Media Corporation;
FTC v. AAFE Products Corp. The Commission
recently alleged failure to disclose a material term
of the underlying service that was necessary to
prevent deception violated this provision of
ROSCA. In re: MoviePass, Inc., No. C–4751 (October
5, 2021).
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consent before charging the consumer’s
account; 16 and (3) provides simple
mechanisms for the consumer to stop
recurring charges.17
ROSCA also addresses offers made by,
or on behalf of, third-party sellers
during, or immediately following, a
transaction with an initial merchant.
Specifically, ROSCA prohibits posttransaction, third-party sellers 18 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.19 ROSCA also prohibits initial
merchants from disclosing billing
information to any post-transaction
third-party seller for use in any internetbased sale of goods or services.20
Furthermore, ROSCA provides a
violation of that Act is a violation of a
Commission trade regulation rule under
Section 18 of the FTC Act.21 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; 22 injunctive
relief under Section 13(b) of the FTC
Act; 23 and consumer redress, such as
damages, and other relief under Section
19 of the FTC Act.24 Although Congress
charged the Commission with enforcing
ROSCA, it did not direct the FTC to
promulgate implementing regulations.25
Telemarketing Sales Rule: The TSR
prohibits deceptive telemarketing acts
or practices, including those involving
negative option offers, and certain types
of payment methods common in
16 See, e.g., FTC v. BunZai Media Group, Inc.;
FTC v. Health Formulas, LLC; and FTC v. JDI
Dating, Ltd.
17 See, e.g., FTC v. Age of Learning, Inc.; FTC v.
AdoreMe, Inc.; and FTC, State of Illinois, and State
of Ohio v. One Technologies.
18 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).
19 15 U.S.C. 8402(a).
20 15 U.S.C. 8402(b).
21 15 U.S.C. 8404. Section 18 of the FTC Act is
15 U.S.C. 57a.
22 15 U.S.C. 45(m)(1)(A).
23 15 U.S.C. 53(b).
24 15 U.S.C. 57b(a)(1) and (b).
25 ROSCA states 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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deceptive negative option marketing.
Specifically, the TSR requires
telemarketers to 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.26 Finally, the TSR
prohibits the use of payment methods
often used in deceptive marketing,
including negative options, such as
remotely created checks.27 The rule,
however, only applies to negative
option offers made over the telephone.
Prenotification Plan Rule: The
Commission promulgated the ‘‘Use of
Prenotification Negative Option Plans’’
Rule (‘‘Prenotification Plan Rule’’) (16
CFR part 425).28 The Prenotification
Plan Rule requires sellers of such plans
to clearly and conspicuously disclose
their plan’s material terms before
consumers subscribe. It enumerates
seven material terms sellers must
disclose: (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.29 In addition,
sellers must provide particular periods
during which they will send
introductory merchandise, give
consumers a specified period to respond
to announcements, provide instructions
for rejecting merchandise in
announcements, and promptly honor
written cancellation requests.30
26 16
CFR part 310.3(a).
FR 77520 (December 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).
28 The Commission issued the rule after finding
some negative option marketers committed unfair
and deceptive practices that violated Section 5 of
the Act, 15 U.S.C. 45.
29 16 CFR 425.1(a)(1)(i) through 425.1(a)(1)(vii).
30 16 CFR 425.1(a)(2) and (3); § 425.1(b).
27 80
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The Prenotification Plan Rule applies
only to plans like book-of-the-month
clubs in which sellers provide periodic
notices offering goods to participating
consumers and then send—and charge
for—those goods only if the consumers
take no action to decline the offer. These
types of plans, however, account for
only a small fraction of current negative
option marketing. Therefore, the rule
does not reach most modern negative
option marketing.31
Other Relevant Requirements:
EFTA 32 and the Unordered
Merchandise Statute 33 also contain
provisions relevant to negative option
marketing. EFTA prohibits sellers from
imposing recurring charges on a
consumer’s debit cards or bank accounts
without written authorization. The
Unordered Merchandise Statute
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.
II. Principles for Negative Option
Marketing
Given the number of applicable
statutory and regulatory requirements
and the ongoing problems in the
marketplace, the Commission now
issues the following enforcement
guidance based on its enforcement
history.34 This guidance covers three
areas commonly addressed by the
Commission in its negative option cases:
Disclosures, consent, and cancellation.
These principles convey the
Commission’s current views on the
application of relevant statutes and
regulations to negative option marketing
31 The Prenotification Plan Rule defines ‘‘negative
option plan’’ narrowly to apply only to
prenotification plans. 16 CFR 425.1(c)(1). In 1998,
the Commission clarified the rule’s application to
such plans in all media, stating it ‘‘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). In 2017, the Commission
estimated fewer than 100 sellers (‘‘clubs’’) were
subject to the current rule’s requirements. 82 FR
38907, 38908 (Aug. 16, 2017).
32 15 U.S.C. 1693 through 1693r.
33 39 U.S.C. 3009.
34 In an October 2, 2019 document (84 FR 52393),
the Commission sought comment on the need for
amendments to the ‘‘Rule Concerning the Use of
Prenotification Negative Option Plans’’ (i.e.,
‘‘Negative Option Rule’’ (16 CFR part 425)) 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. The Commission will
continue to closely monitor compliance with the
rules and laws applicable to negative option
marketing, and is still considering various options
in the rule review proceeding for the Negative
Option Rule.
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and, as such, should help marketers in
their compliance efforts and better
understand how the Commission
enforces the law.
Disclosures: ROSCA 35 requires
marketers to clearly and conspicuously
disclose the material terms of the
transaction.36 Pursuant to longstanding
precedent, any express claim or
deliberately implied claim is presumed
to be material.37 Moreover, the FTC’s
cases for failure to disclose under
Section 5 of the FTC Act are generally
consistent with ROSCA.38 Those terms
at minimum should include:
• Any material terms related to the
underlying product or service that are
necessary to prevent deception,
regardless of whether that term directly
relates to the terms of the negative
option offer; 39
• That consumers will be charged 40
for the good or service, or that those
charges will increase after any
applicable trial period ends, and, if
applicable, that the charges will be on
a recurring basis, unless the consumer
timely takes steps to prevent or stop
such charges;
• Each deadline (by date or
frequency) by which the consumer must
act in order to stop the charges;
• The amount (or range of costs) the
consumer will be charged or billed and,
if applicable, the frequency of such
charges a consumer will incur unless
the consumer takes timely steps to
prevent or stop those charges;
• The date (or dates) each charge will
be submitted for payment; and
35 Any reference to ROSCA in these principles
applies only to internet transactions, consistent
with that statute’s coverage.
36 Of course, sellers fail to disclose adequately
material terms if the disclosed terms are not truthful
and substantiated.
37 See, e.g., FTC Statement on Deception, 103
F.T.C. 174, 182 (1984) (appended to Cliffdale
Assocs., Inc., 103 F.T.C. 110 (1984)); Thompson
Medical Co., 104 F.T.C. 648, 816 (1984).
38 The Commission has consistently brought cases
for deceptive and pure omissions of material fact.
See, e.g., FTC v. Roca Labs, Inc., 345 F. Supp. 3d
1375, 1390 (M.D. Fla. 2018); FTC v. NPB Advert.,
Inc., 218 F. Supp. 3d 1352, 1361 (M.D. Fla. 2016);
FTC v. Am. Standard Credit Sys., Inc., 874 F. Supp.
1080, 1088 (C.D. Cal. 1994); FTC v. BlueHippo
Funding, LLC, 762 F.3d 238, 241 (2d Cir. 2014). But
see, In re International Harvester, 104 F.T.C. 949,
1059 (1984) (Not all omissions are deceptive or
unfair. ‘‘The number of facts that may be material
to consumers—and on which they may have prior
misconceptions—is literally infinite.’’)
39 The Commission recently alleged a negative
option seller’s failure to disclose it was impeding
access to its movie subscription service violates
ROSCA. In the Matter of MoviePass, Inc.
40 ‘‘Charge,’’ ‘‘Charged,’’ or ‘‘Charging,’’ for the
purposes of this Policy Statement, means any
attempt to collect money or other consideration
from a consumer, including but not limited to
causing Billing Information to be submitted for
payment, including against the consumer’s credit
card, debit card, bank account, telephone bill, or
other account.
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• All information necessary to cancel
the contract.
These disclosures must be clear and
conspicuous.41 To meet this standard,
offers should be difficult to miss (i.e.,
easily noticeable) or unavoidable and
easily understandable by ordinary
consumers, including:
• In any communication that is solely
visual or solely audible, the disclosure
should be made through the same
means through which the
communication is presented. In any
communication made through both
visual and audible means, such as a
television advertisement, the disclosure
should be presented simultaneously in
both the visual and audible portions of
the communication even if the
representation requiring the disclosure
is made in only one means.
• A visual disclosure, by its size,
contrast, location, the length of time it
appears, and other characteristics,
should stand out from any
accompanying text or other visual
elements so it is easily noticed, read,
and understood.
• An audible disclosure, including by
telephone or streaming video, should be
delivered in a volume, speed, and
cadence sufficient for ordinary
consumers to easily hear and
understand it.
• In any communication using an
interactive electronic medium, such as
the internet or software, the disclosure
should be unavoidable. A disclosure is
not clear and conspicuous if a consumer
needs to take any action, such as
clicking on a hyperlink or hovering over
an icon, to see it.
• The disclosure should use diction
and syntax understandable to ordinary
consumers and should appear in each
language in which the representation
that requires the disclosure appears.
• The disclosure should comply with
these requirements in each medium
through which it is received, including
all electronic devices and face-to face
communications.
• The disclosure should not be
contradicted or mitigated by, or
inconsistent with, anything else in the
communication.42
• When the representation or sales
practice targets a specific audience,
41 Supra
at nn. 9 and 15.
example of an inadequate disclosure is one
where the consumer sees an offer upfront, in an
electronic or written advertisement or on the
landing page of a website, which is materially
different from the terms of the offer presented in
later stages, such as later web pages, of the ordering
process. See, e.g., FTC v. E.M.A. Nationwide, Inc.,
767 F.3d 611, 633 (6th Cir. 2014); FTC v. Fed. Loan
Modification Law Ctr., LLP, No. SA–CV–09–401–
CJC (MLGx) (C.D. Cal. 2010); FTC v. Grant Connect,
LLC, 827 F. Supp. 2d 1199, 1214 (D. Nev. 2011).
42 An
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60825
such as children, the elderly, or the
terminally ill, ‘‘ordinary consumers’’
includes reasonable members of that
group.
Additionally, if the disclosures are in
writing (including on the internet), they
should:
• if related to the negative option
feature, appear immediately adjacent to
the means of recording the consumer’s
consent for the negative option feature;
• if not related to the negative option
feature, appear before consumers make
a decision to buy (e.g., before they ‘‘add
to shopping cart’’); and
• not contain any other information
that interferes with, detracts from,
contradicts, or otherwise undermines
the ability of consumers to read and
understand the disclosures, including
any information not directly related to
the material terms and conditions of any
negative option feature.
For all telephone and other oral offers,
the disclosures should not contain any
other information that interferes with,
detracts from, contradicts, or otherwise
undermines the ability of consumers to
understand the disclosures, including
any information not directly related to
the material terms and conditions of any
negative option feature.
Consent: 43 ROSCA, judicial decisions
applying Section 5, and cases brought
by the Commission under those laws
make clear marketers should obtain the
consumer’s express informed consent
before charging the consumer.44 To
attain express informed consent, the
negative option seller should:
• obtain the consumer’s acceptance of
the negative option feature offer
separately from any other portion of the
entire transaction;
• not include any information that
interferes with, detracts from,
contradicts, or otherwise undermines
the ability of consumers to provide their
express informed consent to the
negative option feature; 45
• obtain the consumer’s
unambiguously affirmative consent to
the negative option feature; 46
43 Negative option sellers covered by the
Telemarketing Sales Rule should also ensure they
are complying with the consent requirements in 16
CFR 310.4 specifically applicable to transactions
involving a free-to-pay conversion and preacquired
account information.
44 Supra at nn. 11 and 16.
45 Such information could appear on the product
page itself (e.g., extraneous language that interferes
with the consumer’s ability to provide consent) or
in another location (e.g., a separate web page
containing information materially contradicting the
information on the consent page).
46 A ‘‘pre-checked box’’ does not constitute
affirmative consent. In addition, the seller should
clearly disclose the name of the billing entity
authorized by the consumer’s consent.
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• obtain the consumer’s
unambiguously affirmative consent to
the entire transaction; and
• be able to verify the consumer’s
consent.
Cancellation: ROSCA requires
negative option sellers to provide a
simple, reasonable means for consumers
to cancel their contracts.47 To meet this
standard, negative option sellers should
provide cancellation mechanisms at
least as easy to use as the method the
consumer used to initiate the negative
option feature. For example, to ensure
compliance with this simple
cancellation mechanism requirement,
negative option sellers should not
subject consumers to new offers or
similar attempts to save the negative
option arrangement that impose
unreasonable delays on consumers’
cancellation efforts.48 In addition,
negative option sellers should provide
their cancellation mechanisms at least
through the same medium (such as
website or mobile application) the
consumer used to consent to the
negative option feature. The negative
option seller should provide, at a
minimum, the simple mechanism over
the same website or web-based
application the consumer used to
purchase the negative option feature. If
the seller also provides for telephone
cancellation, it should provide, at a
minimum, a telephone number, and
answer all calls to this number during
normal business hours, within a short
time frame, and ensure the calls are not
lengthier or otherwise more burdensome
than the telephone call the consumer
used to consent to the negative option
feature.
Finally, to comply with Section 5, a
seller’s cancellation procedures for
negative option features should be
effective. Sellers should not impede the
effective operation of promised
cancellation procedures, and should
honor cancellation requests that comply
with such procedures. In implementing
effective cancellation procedures,
marketers should not, among other
things: Hang up on consumers who call
to cancel; place them on hold for an
unreasonably long time; provide false
information about how to cancel; or
misrepresent the reasons for delays in
processing consumers’ cancellation
47 Supra
at 17.
48 While a request to consider an offer or discount
would not amount to an unreasonable delay,
multiple requests for a consumer to listen to
additional offers, lengthy pitches, or ignoring a
consumer’s request to decline further offers could
amount to an unreasonable delay.
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requests.49 If ROSCA applies, sellers
must comply with both that statute and
Section 5 of the FTC Act.
By direction of the Commission,
Commissioner Wilson dissenting.
April J. Tabor,
Secretary.
Concurring Statement of Commissioner
Noah Joshua Phillips
I support the Commission’s decision
to issue an enforcement policy regarding
negative option marketing. Negative
option marketing—a ubiquitous feature
of businesses from newspapers to water
bottle delivery to video streaming—is
currently covered by a patchwork of
laws and regulations: Section 5 of the
FTC Act, the Restore Online Shoppers’
Confidence Act, the Telemarketing Sales
Rule, the Rule on the Use of
Prenotification Negative Option Plans,
the Electronic Fund Transfer Act, and
the Unordered Merchandise Statute.
This policy statement sets forth a
framework to explain what the
Commission expects of participants in
this space, apprising marketers of their
obligations and informing consumers of
their rights.
Drawing upon decisions by federal
courts and the Commission about
negative options, the policy statement
lays out expectations concerning
disclosures, consent from consumers,
and how marketers must handle the
consumer’s ability to cancel. ROSCA,
for example, requires a seller to provide
‘‘simple mechanisms for a consumer to
stop recurring charges’’.1 The policy
statement explains how the Commission
interprets that, including a cancellation
mechanism that is as easy to accomplish
as signing up, whilst preserving the
opportunity for a business to make an
offer to induce a consumer to stay.2 If
you have ever signed up for something
online but had to wait on hold on the
telephone to cancel, this policy is for
you.
Commissioner Wilson takes no issue
with the substance of the policy
statement itself, but instead is
concerned about superseding the
rulemaking process. Where the issuance
of a statement supplants the rulemaking
process effectively to declare a new
‘‘rule’’ solely by guidance and without
notice and comment, I share that
49 See, e.g., FTC v. Universal Premium Services;
FTC v. Remote Response; FTC v. Hispanexo; FTC
v. Berkeley Premium Nutraceuticals.
1 15 U.S.C. 8403.
2 The moment at which a consumer is about to
cancel may be the moment when they can get the
best deal. Cf. A.O. Hirschman, Exit, Voice, and
Loyalty (1970).
PO 00000
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Fmt 4703
Sfmt 4703
reservation.3 Where, as here, the
Commission is explaining its view of
obligations under existing authorities, I
think it better to pursue a lighter, less
‘‘regulatory’’ touch in the first instance.
The Commission can pursue rulemaking
later, if, and when, we determine a rule
change is necessary.
Negative option marketing rulemaking
implicates the requirements of the
Magnuson-Moss Warranty-Federal
Trade Commission Improvement Act.
Even though the Commission has begun
this process,4 this kind of rulemaking
sensibly includes regulatory guardrails
that have certain timing constraints and
could require the consumption of
substantial agency resources. The policy
statement provides immediate guidance
to industry, without the wait. If
followed, there may be no need for a
new rule. Apprising industry of its
obligations, and saving consumers
money they might otherwise lose
because of problematic negative option
marketing practices, is a win for both.
Dissenting Statement of Commissioner
Christine S. Wilson
Today the Commission issues a Policy
Statement Regarding Negative Option
Marketing to ‘‘provide guidance
regarding its enforcement of various
statutes and FTC regulations addressing
negative option marketing and
operating.’’ The Commission takes this
step even though we have an open
rulemaking on precisely the topics
covered in the Policy Statement.1 Prior
to the arrival of new agency leadership,
the FTC had issued policy guidance
during the pendency of a related
rulemaking on only one occasion, and
3 See Dissenting Statement of Commissioner Noah
Joshua Phillips Regarding the Policy Statement on
Breaches by Health Apps and Other Connected
Devices (Sept. 15, 2021), at https://www.ftc.gov/
public-statements/2021/09/dissenting-statementcommissioner-noah-joshua-phillips-regardingpolicy. The Health Breach Notification Rule is
governed by Administrative Procedures Act
rulemaking requirements, and the FTC’s ongoing
rulemaking efforts are directed to an existing rule.
The policy statement subverted the rulemaking
process by declaring something illegal where the
Commission had never done so before, in a
situation where I do not believe the underlying
statute applies. The circumstances here are
different, in part because, in the negative option
marketing space, there is no comprehensive rule
that covers all marketing in all media. In the HBNR
context, my concern was heightened by a policy
statement that, inter alia, undermined two
rulemaking processes and contradicted standing
guidance from the agency.
4 Advance Notice of Proposed Rulemaking, 84 FR
52393 (Oct. 2, 2019) (seeking comment on need for
amendments to the Rule Concerning the Use of
Prenotification Negative Option Plans (16 CFR part
425)) 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).
1 See 84 FR 52393 (Oct. 2, 2019).
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in that instance noted its intention to
refrain from enforcement actions in the
area.2 But today’s initiative marks the
third time in as many months new
agency leadership has issued expansive
policy directives while related
rulemakings proceed.3 Publishing
guidance during the pendency of a
related rulemaking short-circuits the
receipt of public input and conveys
disdain for our stakeholders. I believe
this practice does not constitute good
government, so I dissent.
The FTC currently enforces several
statutes that address negative option
marketing,4 including the Restore
Online Shoppers’ Confidence Act,5 the
Telemarketing Sales Rule,6 the Use of
Prenotification Negative Plans Rule,7
the Postal Reorganization Act (also
known as the Unordered Merchandise
Rule),8 and the Electronic Funds
Transfer Act.9 In addition, the FTC has
brought numerous cases challenging
negative option practices not covered by
these statutes using Section 5 of the FTC
Act.10 Thus, there is a significant body
of law in the form of FTC consents and
litigated cases involving negative option
practices.
In 2019, the Commission published a
Federal Register Notice seeking
comment on whether the Commission
should expand its Prenotification
Negative Option Rule to cover all types
of negative option marketing, noting
2 See Enforcement Policy Statement Regarding
Certain Imported Textile, Wool, and Fur Products
(Jan. 3, 2013), https://www.ftc.gov/news-events/
press-releases/2013/01/ftc-announces-enforcementpolicy-statementretailersdirectly; see also 76 FR
68690 (Nov. 7, 2001); Press Release, FTC Seeks
Public Input in Review of Textile Labeling Rules
(Nov. 1, 2011), https://wwwftc.gov/news-events/
press-releases/2011/11/ftc-seeks-publicinputreviewtextile-labeling-rules.
3 See Christine S. Wilson, FTC Comm’r,
Dissenting Statement of Commissioner Christine S.
Wilson Regarding the Policy Statement on Breaches
by Health Apps and Other Connected Devices at 6
(Sept. 15, 2021), https://www.ftc.gov/publicstatements/2021/09/dissenting-statementcommissioner-christine-s-wilson-regardingpolicy
(describing issuance of Policy Statement on
Breaches by Health Apps and Other Connected
Devices during a related rulemaking; also
describing rescission of agency guidance on
treatment of debt in premerger notification context
during a rulemaking covering precisely that issue).
4 The Enforcement Policy Statement Regarding
Negative Option Marketing explains that while
negative options can take various forms, the central
feature is ‘‘each contains a term or condition under
which the seller may interpret a consumer’s silence
or failure to take affirmative action to reject a good
or service or to cancel the agreement as acceptance
or continuing acceptance of the offer.’’
5 15 U.S.C. 8401 through 8405.
6 16 CFR 310.
7 16 CFR 425.
8 39 U.S.C. 3009.
9 15 U.S.C. 1693 through 1693r.
10 See 84 FR 52393, 52395–96 (Oct. 2, 2019)
(ANPRM describing the cases the Commission has
brought under Section 5 of the FTC Act).
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deceptive practices persist and the
current regulatory patchwork does not
provide a consistent framework for
businesses.11 We received 17 comments
from business groups, consumer groups,
and state attorneys general in response
to that request for comment,
representing a range of views and
containing substantive and insightful
information.
The Policy Statement acknowledges
the ongoing rulemaking and states the
Commission ‘‘will continue to closely
monitor compliance with the rules and
laws applicable to negative option
marketing, and is still considering
various options in the rule review
proceeding for the Negative Option
Rule.’’ A good government approach
would be to publish this proposed
guidance in the Federal Register with a
discussion of how it comports with or
differs from the comments we received
in the rulemaking and seek comment on
the proposed guidance.
Particularly given Chair Khan’s stated
goal of ‘‘democratizing’’ the FTC, one
could be forgiven for viewing this as the
best way in which to proceed.
Alternatively, we could assimilate the
feedback we received, close the
rulemaking, and then publish this
guidance. But the former approach is
preferable—having determined as a
unanimous Commission to embark on
this rulemaking, rendering it moot at
this early stage is akin to the elimination
of opportunities for public input that
the majority undertook in its changes to
the Rules of Practice.12
There is no question the Commission
has the authority to issue policy
statements explaining its interpretation
of the rules and laws it enforces.
Moreover, this practice is a beneficial
one: The FTC’s business guidance
facilitates transparency with respect to
agency priorities and policy preferences,
educates the business community, and
drives compliance with the law. Our
Division of Consumer and Business
Education has received numerous
awards for its publications, and I found
FTC guidance documents helpful for
client counseling purposes when I was
in private practice.13 Here, I agree this
11 84
FR 52393, 52394 (Oct. 2, 2019).
FR 38542 (July 22, 2021); see also Press
Release, FTC Votes to Update Rulemaking
Procedures, Sets Stage for Stronger Deterrence of
Corporate Misconduct (July 1, 2021), https://
www.ftc.gov/news-events/pressreleases/2021/07/ftcvotes-update-rulemaking-procedures-sets-stagestronger.
13 While in private practice, I also found
informative the business guidance provided by
expert FTC staff during speeches and panels.
Unfortunately, our staff has been prohibited from
delivering public remarks since Chair Khan’s arrival
in June.
12 86
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60827
Policy Statement provides information
that will be useful to businesses, and I
largely support the guidance contained
in the document. I believe, however, the
Commission should either provide this
guidance within the context of the open
rulemaking or close the rulemaking and
then issue the guidance.
For these reasons, I dissent.
[FR Doc. 2021–24094 Filed 11–3–21; 8:45 am]
BILLING CODE 6750–01–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
[Docket No. FDA–2020–E–2124]
Determination of Regulatory Review
Period for Purposes of Patent
Extension; SEVENFACT
Food and Drug Administration,
Health and Human Services (HHS).
ACTION: Notice.
AGENCY:
The Food and Drug
Administration (FDA or the Agency) has
determined the regulatory review period
for SEVENFACT and is publishing this
notice of that determination as required
by law. FDA has made the
determination because of the
submission of an application to the
Director of the U.S. Patent and
Trademark Office (USPTO), Department
of Commerce, for the extension of a
patent which claims that human
biological product.
DATES: Anyone with knowledge that any
of the dates as published (see
SUPPLEMENTARY INFORMATION) are
incorrect may submit either electronic
or written comments and ask for a
redetermination by January 3, 2022.
Furthermore, any interested person may
petition FDA for a determination
regarding whether the applicant for
extension acted with due diligence
during the regulatory review period by
May 3, 2022. See ‘‘Petitions’’ in the
SUPPLEMENTARY INFORMATION section for
more information.
ADDRESSES: You may submit comments
as follows. Please note that late,
untimely filed comments will not be
considered. Electronic comments must
be submitted on or before January 3,
2022. The https://www.regulations.gov
electronic filing system will accept
comments until 11:59 p.m. Eastern Time
at the end of January 3, 2022. Comments
received by mail/hand delivery/courier
(for written/paper submissions) will be
considered timely if they are
postmarked or the delivery service
SUMMARY:
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]]>Agencies
[Federal Register Volume 86, Number 211 (Thursday, November 4, 2021)]
[Notices]
[Pages 60822-60827]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-24094]
=======================================================================
-----------------------------------------------------------------------
FEDERAL TRADE COMMISSION
Enforcement Policy Statement Regarding Negative Option Marketing
AGENCY: Federal Trade Commission.
ACTION: Commission policy statement.
-----------------------------------------------------------------------
SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') has
issued a policy statement to provide guidance regarding its enforcement
of various statutes and FTC regulations addressing negative option
marketing and operating. This Statement is intended to assist the
business community and practitioners by providing specific guidance on
the Commission's interpretation of existing law as it applies to
negative option practices. This Statement may also assist the courts in
developing an appropriate framework for interpreting and applying the
various statutes and regulations addressing negative option marketing
discussed herein.
DATES: The Commission announced the issuance of the Statement on
October 29, 2021.
FOR FURTHER INFORMATION CONTACT: Tom Dahdouh (202-326-2552), Federal
Trade Commission, 600 Pennsylvania Avenue NW, Washington, DC 20580.
SUPPLEMENTARY INFORMATION:
I. Introduction and Background
The Federal Trade Commission (``FTC'' or ``Commission'') issues
this Policy Statement to provide guidance regarding its enforcement of
various statutes and FTC regulations addressing negative option
marketing and operating.\1\ This Statement is intended to assist the
business community and practitioners by providing specific guidance on
the Commission's interpretation of existing law as it applies to
negative option practices. This Statement may also assist the courts in
developing an appropriate framework for interpreting and applying the
various statutes and regulations addressing negative option marketing
discussed herein.
---------------------------------------------------------------------------
\1\ This Policy Statement elaborates on principles annunciated
by the Commission in individual cases and rules issued over the
course of many years. This Policy Statement does not confer any
rights on any person and does not operate to bind the FTC or the
public. In any enforcement action, the Commission must prove the
challenged act or practice violates one or more existing statutory
or regulatory requirements. In addition, this Policy Statement does
not preempt federal, state, or local laws. Compliance with those
laws, however, will not necessarily preclude Commission law
enforcement action under the FTC Act or other statutes. Pursuant to
the Congressional Review Act (5 U.S.C. 801 et seq.), the Office of
Information and Regulatory Affairs designated this Policy Statement
as not a ``major rule,'' as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------
Negative option offers come in a variety of forms, but all share a
central feature: Each contains a term or condition under which the
seller may interpret a consumer's silence or failure to take
affirmative action to reject a good or service or to cancel the
agreement as acceptance or continuing acceptance of the offer.\2\
Typically, negative option arrangements include, but are not limited
to, automatic renewals, continuity plans, free-to-pay or fee-to-pay
conversions, and prenotification plans. Automatic renewals allow
sellers (e.g., a magazine publisher) to unilaterally renew consumers'
subscriptions when they expire, unless consumers affirmatively cancel
their subscriptions by a certain date. Continuity plans allow consumers
to 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. Free trial marketing (e.g.,
free-to-pay conversions) provides consumers the opportunity to receive
goods or services for free (or at a nominal fee) for a trial period.
After the trial period, sellers can automatically begin charging a fee
(or higher fee) unless consumers affirmatively cancel or return the
goods or services. Finally, under prenotification plans \3\ (e.g.,
book-of-the-month clubs), sellers provide periodic notices offering
goods to participating consumers and then send--and charge for--those
goods only if the consumers
[[Page 60823]]
take no action to decline the offer. The periodic announcements and
shipments can continue indefinitely.\4\
---------------------------------------------------------------------------
\2\ The Commission's Telemarking Sales Rule (16 CFR part 310)
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).
\3\ The Commission's Rule on the ``Use of Prenotification
Negative Option Plans'' (16 CFR part 425) only covers this type of
negative option marketing.
\4\ In addition, some negative option offers include upsell or
bundled offers, where sellers use consumers' billing data to sell
additional products from the same seller or pass consumers' billing
data to a third party for their sales. An upsell occurs when a
consumer completes a first transaction and then receives a second
solicitation for an additional product or service. A bundled offer
occurs when a seller packages two or more products or services
together so they cannot be purchased separately.
---------------------------------------------------------------------------
Negative option programs are widespread in the marketplace and can
provide substantial benefits for sellers and consumers. At the same
time, consumers suffer costs when marketers fail to make adequate
disclosures, bill consumers without their consent, or make cancellation
difficult or impossible. Over the years, unfair or deceptive negative
option practices have remained a persistent source of consumer harm,
often saddling shoppers with recurring payments for products and
services they did not intend to purchase or did not want to continue to
purchase.\5\ To address this problem, the Commission and states
regularly bring cases challenging a variety of harmful negative option
practices. These matters involve a range of deceptive or unfair
practices, including inadequate disclosures of hidden charges in
ostensibly ``free'' offers and other products or services, enrollment
without consumer consent, and inadequate or overly burdensome
cancellation and refund procedures.\6\ In addition, the Commission
receives thousands of complaints each year related to negative option
marketing. The number of ongoing cases and high volume of complaints
demonstrate there is prevalent, unabated consumer harm in the
marketplace.
---------------------------------------------------------------------------
\5\ See, e.g., n. 6 infra.
\6\ Recent examples of these matters include: FTC v. JDI Dating,
Ltd., No. 1:14-cv-08400 (N.D. Ill. 2014); 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. BunZai Media Group, Inc., No. 2:15-cv-04527-
GW-PLA (C.D. Cal. 2015); FTC v. NutraClick LLC, No. 2:16-cv-06819-
DMG-JPR (C.D. Cal. 2016) (NutraClick I); FTC v. DOTAuthority.com,
Inc., No. 0:16-cv-62186-WJZ (S.D. Fla. 2016); FTC v. XXL
Impressions, No. 1:17-cv-00067-NT (D. Me. 2017); FTC v. AAFE
Products Corp., No. 3:17-cv-00575 (S.D. Cal. 2017); FTC v.
RevMountain, LLC, No. 2:17-cv-02000-APG-GWF (D. Nev. 2017); FTC v.
Pact, Inc., No. 2:17-cv-01429 (W.D. Wash. 2017); FTC v. Tarr, No.
3:17-cv-02024-LAB-KSC (S.D. Cal. 2017); FTC v. Credit Bureau Center,
LLC, No. 17-cv-00194 (N.D. Ill. 2017); FTC v. AdoreMe, Inc., No.
1:17-cv-09083 (S.D.N.Y. 2017); FTC v. Triangle Media Corp., No.
3:18-cv-01388-LAB-LL (S.D. Cal. 2018); In re: UrthBox, Inc., No. C-
4676 (FTC 2019); FTC v. Elite IT Partners, Inc., No. 2:19-cv-00125-
RJS (D. Utah 2019); FTC v. Apex Capital Group, LLC, No. 2:18-cv-
09573-JFW-JPR (C.D. Cal. 2018); FTC v. AH Media, No. 3:19-cv-04022-
JD (N.D. Cal. 2019); FTC v. Age of Learning, Inc., No. 2:20-cv-07996
(C.D. Cal. 2020); FTC v. NutraClick, LLC, No. 2:20-cv-08612 (C.D.
Cal. 2020) (NutraClick II).
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The FTC's enforcement actions primarily rely on Section 5 of the
FTC Act (15 U.S.C. 45(a)), the Restore Online Shoppers' Confidence Act
(``ROSCA'') (15 U.S.C. 8401 through 8405), and the Telemarketing Sales
Rule (16 CFR part 310). However, the Rule on the Use of Prenotification
Negative Option Plans (16 CFR part 425), the Electronic Fund Transfer
Act (``EFTA'') (15 U.S.C. 1693 through 1693r), and the Postal
Reorganization Act (i.e., the Unordered Merchandise Statute) (39 U.S.C.
3009) also address various aspects of negative option marketing.
Section 5 of the FTC Act: Section 5 of the FTC Act, which prohibits
unfair or deceptive acts or practices, is the core consumer protection
statute enforced by the Commission, and therefore, has traditionally
served as the primary mechanism for addressing deceptive negative
option claims.\7\ In its guidance and cases, the FTC has highlighted
four basic Section 5 requirements negative option marketing must follow
to comply with Section 5.\8\ First, marketers must clearly and
conspicuously disclose the material terms of a negative option offer
including, at a minimum, key terms such as the existence of the
negative option offer, the offer's total cost, and how to cancel the
offer.\9\ Second, sellers must disclose these material terms before
consumers agree to the purchase.\10\ Third, marketers must obtain
consumers' express informed consent to such offers.\11\ Finally,
marketers must not erect unreasonable barriers to cancellation or
impede the effective operation of promised cancellation procedures, and
must honor cancellation requests that comply with such procedures.\12\
Although these basic guidelines are useful, the legality of a
particular negative option depends on an individualized assessment of
the advertisement's net impression and the marketer's business
practices.\13\
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\7\ Section 5 specifically states ``unfair or deceptive acts or
practices in or affecting commerce . . . are . . . declared
unlawful.'' 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)).
\8\ 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
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. 1:02-CV-0917 (N.D. Ga. 2002); FTC v. Ultralife
Fitness, Inc., No. 2:08-cv-07655-DSF-PJW (C.D. Cal. 2008); In the
Matter of American Isuzu Motors, No. C-3712 (FTC 1997); 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.
\9\ See, e.g., FTC v. JAB Ventures; FTC v. Complete Weightloss
Center; FTC v. NutraClick, LLC I.
\10\ See, e.g., FTC v. JAB Ventures; Complete Weightloss Center;
FTC v. Berkeley Premium Nutraceutical; FTC v. Think All Publ'g.
Disclosures earlier in the transaction may be necessary to avoid
deception. See e.g., FTC's Dot Com Disclosures guidance.
\11\ 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 29, 2015); FTC v.
BunZai Media Group, Inc.
\12\ See, e.g., FTC v. Universal Premium Services; FTC v. Remote
Response; FTC v. Berkeley Premium Nutraceuticals; FTC v. Hispanexo;
FTC v. Age of Learning, Inc.
\13\ See, e.g., Negative Options: A Report by the Staff of the
FTC's Division of Enforcement, 28.
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ROSCA: Enacted by Congress in 2010 to address ongoing problems with
online negative option marketing, ROSCA prohibits charging or
attempting to charge consumers for goods or services sold on the
internet through any negative option feature \14\ unless the marketer:
(1) Clearly and conspicuously discloses all material terms of the
transaction \15\ before obtaining the consumer's billing information;
(2) obtains a consumer's express informed
[[Page 60824]]
consent before charging the consumer's account; \16\ and (3) provides
simple mechanisms for the consumer to stop recurring charges.\17\
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\14\ 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). ROSCA also contains a finding that
``Third party sellers used a free trial period to enroll members,
after which they periodically charged consumers until consumers
affirmatively canceled the memberships. This use of ``free-to-pay
conversion'' and ``negative option'' sales took advantage of
consumers' expectations that they would have an opportunity to
accept or reject the membership club offer at the end of the trial
period.'' 15 U.S.C. 8401(8). Finally, in addition to addressing
negative option marketing, ROSCA contains provisions related to
third party ``post transaction'' offers. See, e.g., 15 U.S.C. 8402.
\15\ The Commission has brought several cases alleging a failure
to disclose adequately the terms of the negative option feature.
See, e.g., FTC v. NutraClick II; FTC v. Triangle Media Corporation;
FTC v. AAFE Products Corp. The Commission recently alleged failure
to disclose a material term of the underlying service that was
necessary to prevent deception violated this provision of ROSCA. In
re: MoviePass, Inc., No. C-4751 (October 5, 2021).
\16\ See, e.g., FTC v. BunZai Media Group, Inc.; FTC v. Health
Formulas, LLC; and FTC v. JDI Dating, Ltd.
\17\ See, e.g., FTC v. Age of Learning, Inc.; FTC v. AdoreMe,
Inc.; and FTC, State of Illinois, and State of Ohio v. One
Technologies.
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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. Specifically, ROSCA prohibits post-transaction, third-party
sellers \18\ 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.\19\ 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.\20\
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\18\ 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).
\19\ 15 U.S.C. 8402(a).
\20\ 15 U.S.C. 8402(b).
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Furthermore, ROSCA provides a violation of that Act is a violation
of a Commission trade regulation rule under Section 18 of the FTC
Act.\21\ 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; \22\ injunctive relief under Section 13(b) of the FTC
Act; \23\ and consumer redress, such as damages, and other relief under
Section 19 of the FTC Act.\24\ Although Congress charged the Commission
with enforcing ROSCA, it did not direct the FTC to promulgate
implementing regulations.\25\
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\21\ 15 U.S.C. 8404. Section 18 of the FTC Act is 15 U.S.C. 57a.
\22\ 15 U.S.C. 45(m)(1)(A).
\23\ 15 U.S.C. 53(b).
\24\ 15 U.S.C. 57b(a)(1) and (b).
\25\ ROSCA states 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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Telemarketing Sales Rule: The TSR prohibits deceptive telemarketing
acts or practices, including those involving negative option offers,
and certain types of payment methods common in deceptive negative
option marketing. Specifically, the TSR requires telemarketers to
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.\26\ Finally, the TSR prohibits the use of payment
methods often used in deceptive marketing, including negative options,
such as remotely created checks.\27\ The rule, however, only applies to
negative option offers made over the telephone.
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\26\ 16 CFR part 310.3(a).
\27\ 80 FR 77520 (December 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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Prenotification Plan Rule: The Commission promulgated the ``Use of
Prenotification Negative Option Plans'' Rule (``Prenotification Plan
Rule'') (16 CFR part 425).\28\ The Prenotification Plan Rule requires
sellers of such plans to clearly and conspicuously disclose their
plan's material terms before consumers subscribe. It enumerates seven
material terms sellers must disclose: (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.\29\ In addition, sellers
must provide particular periods during which they will send
introductory merchandise, give consumers a specified period to respond
to announcements, provide instructions for rejecting merchandise in
announcements, and promptly honor written cancellation requests.\30\
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\28\ The Commission issued the rule after finding some negative
option marketers committed unfair and deceptive practices that
violated Section 5 of the Act, 15 U.S.C. 45.
\29\ 16 CFR 425.1(a)(1)(i) through 425.1(a)(1)(vii).
\30\ 16 CFR 425.1(a)(2) and (3); Sec. 425.1(b).
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The Prenotification Plan Rule applies only to plans like book-of-
the-month clubs in which sellers provide periodic notices offering
goods to participating consumers and then send--and charge for--those
goods only if the consumers take no action to decline the offer. These
types of plans, however, account for only a small fraction of current
negative option marketing. Therefore, the rule does not reach most
modern negative option marketing.\31\
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\31\ The Prenotification Plan Rule defines ``negative option
plan'' narrowly to apply only to prenotification plans. 16 CFR
425.1(c)(1). In 1998, the Commission clarified the rule's
application to such plans in all media, stating it ``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). In 2017, the Commission estimated
fewer than 100 sellers (``clubs'') were subject to the current
rule's requirements. 82 FR 38907, 38908 (Aug. 16, 2017).
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Other Relevant Requirements: EFTA \32\ and the Unordered
Merchandise Statute \33\ also contain provisions relevant to negative
option marketing. EFTA prohibits sellers from imposing recurring
charges on a consumer's debit cards or bank accounts without written
authorization. The Unordered Merchandise Statute 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.
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\32\ 15 U.S.C. 1693 through 1693r.
\33\ 39 U.S.C. 3009.
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II. Principles for Negative Option Marketing
Given the number of applicable statutory and regulatory
requirements and the ongoing problems in the marketplace, the
Commission now issues the following enforcement guidance based on its
enforcement history.\34\ This guidance covers three areas commonly
addressed by the Commission in its negative option cases: Disclosures,
consent, and cancellation. These principles convey the Commission's
current views on the application of relevant statutes and regulations
to negative option marketing
[[Page 60825]]
and, as such, should help marketers in their compliance efforts and
better understand how the Commission enforces the law.
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\34\ In an October 2, 2019 document (84 FR 52393), the
Commission sought comment on the need for amendments to the ``Rule
Concerning the Use of Prenotification Negative Option Plans'' (i.e.,
``Negative Option Rule'' (16 CFR part 425)) 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. The Commission will continue to closely monitor
compliance with the rules and laws applicable to negative option
marketing, and is still considering various options in the rule
review proceeding for the Negative Option Rule.
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Disclosures: ROSCA \35\ requires marketers to clearly and
conspicuously disclose the material terms of the transaction.\36\
Pursuant to longstanding precedent, any express claim or deliberately
implied claim is presumed to be material.\37\ Moreover, the FTC's cases
for failure to disclose under Section 5 of the FTC Act are generally
consistent with ROSCA.\38\ Those terms at minimum should include:
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\35\ Any reference to ROSCA in these principles applies only to
internet transactions, consistent with that statute's coverage.
\36\ Of course, sellers fail to disclose adequately material
terms if the disclosed terms are not truthful and substantiated.
\37\ See, e.g., FTC Statement on Deception, 103 F.T.C. 174, 182
(1984) (appended to Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984));
Thompson Medical Co., 104 F.T.C. 648, 816 (1984).
\38\ The Commission has consistently brought cases for deceptive
and pure omissions of material fact. See, e.g., FTC v. Roca Labs,
Inc., 345 F. Supp. 3d 1375, 1390 (M.D. Fla. 2018); FTC v. NPB
Advert., Inc., 218 F. Supp. 3d 1352, 1361 (M.D. Fla. 2016); FTC v.
Am. Standard Credit Sys., Inc., 874 F. Supp. 1080, 1088 (C.D. Cal.
1994); FTC v. BlueHippo Funding, LLC, 762 F.3d 238, 241 (2d Cir.
2014). But see, In re International Harvester, 104 F.T.C. 949, 1059
(1984) (Not all omissions are deceptive or unfair. ``The number of
facts that may be material to consumers--and on which they may have
prior misconceptions--is literally infinite.'')
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Any material terms related to the underlying product or
service that are necessary to prevent deception, regardless of whether
that term directly relates to the terms of the negative option offer;
\39\
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\39\ The Commission recently alleged a negative option seller's
failure to disclose it was impeding access to its movie subscription
service violates ROSCA. In the Matter of MoviePass, Inc.
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That consumers will be charged \40\ for the good or
service, or that those charges will increase after any applicable trial
period ends, and, if applicable, that the charges will be on a
recurring basis, unless the consumer timely takes steps to prevent or
stop such charges;
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\40\ ``Charge,'' ``Charged,'' or ``Charging,'' for the purposes
of this Policy Statement, means any attempt to collect money or
other consideration from a consumer, including but not limited to
causing Billing Information to be submitted for payment, including
against the consumer's credit card, debit card, bank account,
telephone bill, or other account.
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Each deadline (by date or frequency) by which the consumer
must act in order to stop the charges;
The amount (or range of costs) the consumer will be
charged or billed and, if applicable, the frequency of such charges a
consumer will incur unless the consumer takes timely steps to prevent
or stop those charges;
The date (or dates) each charge will be submitted for
payment; and
All information necessary to cancel the contract.
These disclosures must be clear and conspicuous.\41\ To meet this
standard, offers should be difficult to miss (i.e., easily noticeable)
or unavoidable and easily understandable by ordinary consumers,
including:
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\41\ Supra at nn. 9 and 15.
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In any communication that is solely visual or solely
audible, the disclosure should be made through the same means through
which the communication is presented. In any communication made through
both visual and audible means, such as a television advertisement, the
disclosure should be presented simultaneously in both the visual and
audible portions of the communication even if the representation
requiring the disclosure is made in only one means.
A visual disclosure, by its size, contrast, location, the
length of time it appears, and other characteristics, should stand out
from any accompanying text or other visual elements so it is easily
noticed, read, and understood.
An audible disclosure, including by telephone or streaming
video, should be delivered in a volume, speed, and cadence sufficient
for ordinary consumers to easily hear and understand it.
In any communication using an interactive electronic
medium, such as the internet or software, the disclosure should be
unavoidable. A disclosure is not clear and conspicuous if a consumer
needs to take any action, such as clicking on a hyperlink or hovering
over an icon, to see it.
The disclosure should use diction and syntax
understandable to ordinary consumers and should appear in each language
in which the representation that requires the disclosure appears.
The disclosure should comply with these requirements in
each medium through which it is received, including all electronic
devices and face-to face communications.
The disclosure should not be contradicted or mitigated by,
or inconsistent with, anything else in the communication.\42\
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\42\ An example of an inadequate disclosure is one where the
consumer sees an offer upfront, in an electronic or written
advertisement or on the landing page of a website, which is
materially different from the terms of the offer presented in later
stages, such as later web pages, of the ordering process. See, e.g.,
FTC v. E.M.A. Nationwide, Inc., 767 F.3d 611, 633 (6th Cir. 2014);
FTC v. Fed. Loan Modification Law Ctr., LLP, No. SA-CV-09-401-CJC
(MLGx) (C.D. Cal. 2010); FTC v. Grant Connect, LLC, 827 F. Supp. 2d
1199, 1214 (D. Nev. 2011).
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When the representation or sales practice targets a
specific audience, such as children, the elderly, or the terminally
ill, ``ordinary consumers'' includes reasonable members of that group.
Additionally, if the disclosures are in writing (including on the
internet), they should:
if related to the negative option feature, appear
immediately adjacent to the means of recording the consumer's consent
for the negative option feature;
if not related to the negative option feature, appear
before consumers make a decision to buy (e.g., before they ``add to
shopping cart''); and
not contain any other information that interferes with,
detracts from, contradicts, or otherwise undermines the ability of
consumers to read and understand the disclosures, including any
information not directly related to the material terms and conditions
of any negative option feature.
For all telephone and other oral offers, the disclosures should not
contain any other information that interferes with, detracts from,
contradicts, or otherwise undermines the ability of consumers to
understand the disclosures, including any information not directly
related to the material terms and conditions of any negative option
feature.
Consent: \43\ ROSCA, judicial decisions applying Section 5, and
cases brought by the Commission under those laws make clear marketers
should obtain the consumer's express informed consent before charging
the consumer.\44\ To attain express informed consent, the negative
option seller should:
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\43\ Negative option sellers covered by the Telemarketing Sales
Rule should also ensure they are complying with the consent
requirements in 16 CFR 310.4 specifically applicable to transactions
involving a free-to-pay conversion and preacquired account
information.
\44\ Supra at nn. 11 and 16.
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obtain the consumer's acceptance of the negative option
feature offer separately from any other portion of the entire
transaction;
not include any information that interferes with, detracts
from, contradicts, or otherwise undermines the ability of consumers to
provide their express informed consent to the negative option feature;
\45\
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\45\ Such information could appear on the product page itself
(e.g., extraneous language that interferes with the consumer's
ability to provide consent) or in another location (e.g., a separate
web page containing information materially contradicting the
information on the consent page).
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obtain the consumer's unambiguously affirmative consent to
the negative option feature; \46\
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\46\ A ``pre-checked box'' does not constitute affirmative
consent. In addition, the seller should clearly disclose the name of
the billing entity authorized by the consumer's consent.
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[[Page 60826]]
obtain the consumer's unambiguously affirmative consent to
the entire transaction; and
be able to verify the consumer's consent.
Cancellation: ROSCA requires negative option sellers to provide a
simple, reasonable means for consumers to cancel their contracts.\47\
To meet this standard, negative option sellers should provide
cancellation mechanisms at least as easy to use as the method the
consumer used to initiate the negative option feature. For example, to
ensure compliance with this simple cancellation mechanism requirement,
negative option sellers should not subject consumers to new offers or
similar attempts to save the negative option arrangement that impose
unreasonable delays on consumers' cancellation efforts.\48\ In
addition, negative option sellers should provide their cancellation
mechanisms at least through the same medium (such as website or mobile
application) the consumer used to consent to the negative option
feature. The negative option seller should provide, at a minimum, the
simple mechanism over the same website or web-based application the
consumer used to purchase the negative option feature. If the seller
also provides for telephone cancellation, it should provide, at a
minimum, a telephone number, and answer all calls to this number during
normal business hours, within a short time frame, and ensure the calls
are not lengthier or otherwise more burdensome than the telephone call
the consumer used to consent to the negative option feature.
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\47\ Supra at 17.
\48\ While a request to consider an offer or discount would not
amount to an unreasonable delay, multiple requests for a consumer to
listen to additional offers, lengthy pitches, or ignoring a
consumer's request to decline further offers could amount to an
unreasonable delay.
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Finally, to comply with Section 5, a seller's cancellation
procedures for negative option features should be effective. Sellers
should not impede the effective operation of promised cancellation
procedures, and should honor cancellation requests that comply with
such procedures. In implementing effective cancellation procedures,
marketers should not, among other things: Hang up on consumers who call
to cancel; place them on hold for an unreasonably long time; provide
false information about how to cancel; or misrepresent the reasons for
delays in processing consumers' cancellation requests.\49\ If ROSCA
applies, sellers must comply with both that statute and Section 5 of
the FTC Act.
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\49\ See, e.g., FTC v. Universal Premium Services; FTC v. Remote
Response; FTC v. Hispanexo; FTC v. Berkeley Premium Nutraceuticals.
By direction of the Commission, Commissioner Wilson dissenting.
April J. Tabor,
Secretary.
Concurring Statement of Commissioner Noah Joshua Phillips
I support the Commission's decision to issue an enforcement policy
regarding negative option marketing. Negative option marketing--a
ubiquitous feature of businesses from newspapers to water bottle
delivery to video streaming--is currently covered by a patchwork of
laws and regulations: Section 5 of the FTC Act, the Restore Online
Shoppers' Confidence Act, the Telemarketing Sales Rule, the Rule on the
Use of Prenotification Negative Option Plans, the Electronic Fund
Transfer Act, and the Unordered Merchandise Statute. This policy
statement sets forth a framework to explain what the Commission expects
of participants in this space, apprising marketers of their obligations
and informing consumers of their rights.
Drawing upon decisions by federal courts and the Commission about
negative options, the policy statement lays out expectations concerning
disclosures, consent from consumers, and how marketers must handle the
consumer's ability to cancel. ROSCA, for example, requires a seller to
provide ``simple mechanisms for a consumer to stop recurring
charges''.\1\ The policy statement explains how the Commission
interprets that, including a cancellation mechanism that is as easy to
accomplish as signing up, whilst preserving the opportunity for a
business to make an offer to induce a consumer to stay.\2\ If you have
ever signed up for something online but had to wait on hold on the
telephone to cancel, this policy is for you.
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\1\ 15 U.S.C. 8403.
\2\ The moment at which a consumer is about to cancel may be the
moment when they can get the best deal. Cf. A.O. Hirschman, Exit,
Voice, and Loyalty (1970).
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Commissioner Wilson takes no issue with the substance of the policy
statement itself, but instead is concerned about superseding the
rulemaking process. Where the issuance of a statement supplants the
rulemaking process effectively to declare a new ``rule'' solely by
guidance and without notice and comment, I share that reservation.\3\
Where, as here, the Commission is explaining its view of obligations
under existing authorities, I think it better to pursue a lighter, less
``regulatory'' touch in the first instance. The Commission can pursue
rulemaking later, if, and when, we determine a rule change is
necessary.
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\3\ See Dissenting Statement of Commissioner Noah Joshua
Phillips Regarding the Policy Statement on Breaches by Health Apps
and Other Connected Devices (Sept. 15, 2021), at https://www.ftc.gov/public-statements/2021/09/dissenting-statement-commissioner-noah-joshua-phillips-regarding-policy. The Health
Breach Notification Rule is governed by Administrative Procedures
Act rulemaking requirements, and the FTC's ongoing rulemaking
efforts are directed to an existing rule. The policy statement
subverted the rulemaking process by declaring something illegal
where the Commission had never done so before, in a situation where
I do not believe the underlying statute applies. The circumstances
here are different, in part because, in the negative option
marketing space, there is no comprehensive rule that covers all
marketing in all media. In the HBNR context, my concern was
heightened by a policy statement that, inter alia, undermined two
rulemaking processes and contradicted standing guidance from the
agency.
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Negative option marketing rulemaking implicates the requirements of
the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act.
Even though the Commission has begun this process,\4\ this kind of
rulemaking sensibly includes regulatory guardrails that have certain
timing constraints and could require the consumption of substantial
agency resources. The policy statement provides immediate guidance to
industry, without the wait. If followed, there may be no need for a new
rule. Apprising industry of its obligations, and saving consumers money
they might otherwise lose because of problematic negative option
marketing practices, is a win for both.
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\4\ Advance Notice of Proposed Rulemaking, 84 FR 52393 (Oct. 2,
2019) (seeking comment on need for amendments to the Rule Concerning
the Use of Prenotification Negative Option Plans (16 CFR part 425))
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).
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Dissenting Statement of Commissioner Christine S. Wilson
Today the Commission issues a Policy Statement Regarding Negative
Option Marketing to ``provide guidance regarding its enforcement of
various statutes and FTC regulations addressing negative option
marketing and operating.'' The Commission takes this step even though
we have an open rulemaking on precisely the topics covered in the
Policy Statement.\1\ Prior to the arrival of new agency leadership, the
FTC had issued policy guidance during the pendency of a related
rulemaking on only one occasion, and
[[Page 60827]]
in that instance noted its intention to refrain from enforcement
actions in the area.\2\ But today's initiative marks the third time in
as many months new agency leadership has issued expansive policy
directives while related rulemakings proceed.\3\ Publishing guidance
during the pendency of a related rulemaking short-circuits the receipt
of public input and conveys disdain for our stakeholders. I believe
this practice does not constitute good government, so I dissent.
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\1\ See 84 FR 52393 (Oct. 2, 2019).
\2\ See Enforcement Policy Statement Regarding Certain Imported
Textile, Wool, and Fur Products (Jan. 3, 2013), https://www.ftc.gov/news-events/press-releases/2013/01/ftc-announces-enforcement-policy-statementretailersdirectly; see also 76 FR 68690 (Nov. 7, 2001);
Press Release, FTC Seeks Public Input in Review of Textile Labeling
Rules (Nov. 1, 2011), https://wwwftc.gov/news-events/press-releases/2011/11/ftc-seeks-publicinputreview-textile-labeling-rules.
\3\ See Christine S. Wilson, FTC Comm'r, Dissenting Statement of
Commissioner Christine S. Wilson Regarding the Policy Statement on
Breaches by Health Apps and Other Connected Devices at 6 (Sept. 15,
2021), https://www.ftc.gov/public-statements/2021/09/dissenting-statement-commissioner-christine-s-wilson-regardingpolicy
(describing issuance of Policy Statement on Breaches by Health Apps
and Other Connected Devices during a related rulemaking; also
describing rescission of agency guidance on treatment of debt in
premerger notification context during a rulemaking covering
precisely that issue).
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The FTC currently enforces several statutes that address negative
option marketing,\4\ including the Restore Online Shoppers' Confidence
Act,\5\ the Telemarketing Sales Rule,\6\ the Use of Prenotification
Negative Plans Rule,\7\ the Postal Reorganization Act (also known as
the Unordered Merchandise Rule),\8\ and the Electronic Funds Transfer
Act.\9\ In addition, the FTC has brought numerous cases challenging
negative option practices not covered by these statutes using Section 5
of the FTC Act.\10\ Thus, there is a significant body of law in the
form of FTC consents and litigated cases involving negative option
practices.
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\4\ The Enforcement Policy Statement Regarding Negative Option
Marketing explains that while negative options can take various
forms, the central feature is ``each contains a term or condition
under which the seller may interpret a consumer's silence or failure
to take affirmative action to reject a good or service or to cancel
the agreement as acceptance or continuing acceptance of the offer.''
\5\ 15 U.S.C. 8401 through 8405.
\6\ 16 CFR 310.
\7\ 16 CFR 425.
\8\ 39 U.S.C. 3009.
\9\ 15 U.S.C. 1693 through 1693r.
\10\ See 84 FR 52393, 52395-96 (Oct. 2, 2019) (ANPRM describing
the cases the Commission has brought under Section 5 of the FTC
Act).
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In 2019, the Commission published a Federal Register Notice seeking
comment on whether the Commission should expand its Prenotification
Negative Option Rule to cover all types of negative option marketing,
noting deceptive practices persist and the current regulatory patchwork
does not provide a consistent framework for businesses.\11\ We received
17 comments from business groups, consumer groups, and state attorneys
general in response to that request for comment, representing a range
of views and containing substantive and insightful information.
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\11\ 84 FR 52393, 52394 (Oct. 2, 2019).
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The Policy Statement acknowledges the ongoing rulemaking and states
the Commission ``will continue to closely monitor compliance with the
rules and laws applicable to negative option marketing, and is still
considering various options in the rule review proceeding for the
Negative Option Rule.'' A good government approach would be to publish
this proposed guidance in the Federal Register with a discussion of how
it comports with or differs from the comments we received in the
rulemaking and seek comment on the proposed guidance.
Particularly given Chair Khan's stated goal of ``democratizing''
the FTC, one could be forgiven for viewing this as the best way in
which to proceed. Alternatively, we could assimilate the feedback we
received, close the rulemaking, and then publish this guidance. But the
former approach is preferable--having determined as a unanimous
Commission to embark on this rulemaking, rendering it moot at this
early stage is akin to the elimination of opportunities for public
input that the majority undertook in its changes to the Rules of
Practice.\12\
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\12\ 86 FR 38542 (July 22, 2021); see also Press Release, FTC
Votes to Update Rulemaking Procedures, Sets Stage for Stronger
Deterrence of Corporate Misconduct (July 1, 2021), https://www.ftc.gov/news-events/pressreleases/2021/07/ftc-votes-update-rulemaking-procedures-sets-stage-stronger.
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There is no question the Commission has the authority to issue
policy statements explaining its interpretation of the rules and laws
it enforces. Moreover, this practice is a beneficial one: The FTC's
business guidance facilitates transparency with respect to agency
priorities and policy preferences, educates the business community, and
drives compliance with the law. Our Division of Consumer and Business
Education has received numerous awards for its publications, and I
found FTC guidance documents helpful for client counseling purposes
when I was in private practice.\13\ Here, I agree this Policy Statement
provides information that will be useful to businesses, and I largely
support the guidance contained in the document. I believe, however, the
Commission should either provide this guidance within the context of
the open rulemaking or close the rulemaking and then issue the
guidance.
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\13\ While in private practice, I also found informative the
business guidance provided by expert FTC staff during speeches and
panels. Unfortunately, our staff has been prohibited from delivering
public remarks since Chair Khan's arrival in June.
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For these reasons, I dissent.
[FR Doc. 2021-24094 Filed 11-3-21; 8:45 am]
BILLING CODE 6750-01-P
