Negative Option Rule, 90476-90545 [2024-25534]

Download as PDF 90476 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations FEDERAL TRADE COMMISSION 16 CFR Part 425 RIN 3084–AB60 Negative Option Rule Federal Trade Commission. Final rule. AGENCY: ACTION: The Federal Trade Commission (‘‘FTC’’ or ‘‘Commission’’) issues final amendments to the Commission’s trade regulation ‘‘Rule Concerning Use of Prenotification Negative Option Plans,’’ retitled the ‘‘Rule Concerning Recurring Subscriptions and Other Negative Option Programs’’ (‘‘Rule,’’ ‘‘final Rule’’ or ‘‘Negative Option Rule’’). The final Rule now applies to all negative option programs in any media. This document also contains the text of the final Rule, the Rule’s Statement of Basis and Purpose (‘‘SBP’’), and a final regulatory analysis. DATES: Effective date: This rule is effective January 14, 2025. Compliance date: Regulated entities have until May 14, 2025 to comply with §§ 425.4 through 425.6. ADDRESSES: Relevant portions of the record of this proceeding, including this document, are available at https:// www.ftc.gov. SUMMARY: FOR FURTHER INFORMATION CONTACT: Katherine Johnson, Attorney, (202) 326– 2185, kjohnson3@ftc.gov, Division of Enforcement, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Ave. NW, Washington, DC 20580. SUPPLEMENTARY INFORMATION: khammond on DSKJM1Z7X2PROD with RULES3 I. Overview The Commission commenced this proceeding because it had reason to believe unfair and deceptive negative option practices are widespread in the marketplace. Negative option programs can provide substantial benefits for sellers and consumers. However, consumers cannot realize these benefits when sellers make material misrepresentations to induce consumers to enroll in such programs, fail to provide important information, bill consumers without their consent, or make cancellation difficult or impossible. Unfair and deceptive negative option practices have been a persistent source of consumer harm for decades, saddling shoppers with recurring payments for products and services they never intended to purchase nor wanted to continue buying. In the past, the Commission VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 sought to address these practices through individual law enforcement actions and a patchwork of laws and regulations. Nevertheless, problems persist, as demonstrated by both a steady stream of State and Federal law enforcement actions and thousands of consumer complaints each year. To address these practices, the Commission proposed amending the current Negative Option Rule to establish clear, enforceable performance-based requirements for all negative option features in all media. The Commission solicited comments first in an advance notice of proposed rulemaking (‘‘ANPR’’) and then on proposed amendments in a notice of proposed rulemaking (‘‘NPRM’’). The Commission designed these amendments to ensure consumers understand what they are purchasing and allow them to cancel their participation without undue burden. Among other things, this final Rule (1) prohibits misrepresentations of any material fact made while marketing using negative option features; (2) requires sellers to provide important information prior to obtaining consumers’ billing information and charging consumers; (3) requires sellers to obtain consumers’ unambiguously affirmative consent to the negative option feature prior to charging them; and (4) requires sellers to provide consumers with simple cancellation mechanisms to immediately halt all recurring charges. The Commission now promulgates a final Rule. Pursuant to 15 U.S.C. 57a(a)(1)(B), the Rule, inter alia, defines the following acts and practices as unfair or deceptive within the meaning of section 5 of the FTC Act: • to misrepresent any material fact made while marketing using a negative option feature (§ 425.3); • to fail to clearly and conspicuously disclose material terms prior to obtaining a consumer’s billing information in connection with a negative option feature (§ 425.4); • to fail to obtain a consumer’s express informed consent to the negative option feature before charging the consumer (§ 425.5); and • to fail to provide a simple mechanism to cancel the negative option feature and immediately halt charges (§ 425.6). Further, the Rule, consistent with the final sentence of 15 U.S.C. 57a(a)(1)(B) includes requirements prescribed for the purpose of preventing such acts or practices. The final Rule differs from the proposed Rule in two significant ways. First, the proposed Rule would have PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 required sellers to provide annual reminders to consumers of the negative option feature. Second, the proposed Rule would have prohibited sellers from forcing consumers to receive saves 1 without first obtaining consumers’ unambiguously affirmative consent. The Commission has considered comments both supporting and opposing these proposed provisions. As explained in the section-by-section analysis, the Commission declines to adopt these provisions of the proposed Rule at this time. Instead, the Commission plans to seek further comment through a supplemental NPRM (‘‘SNPRM’’), and therefore, keeps the record open on these issues.2 Finally, in response to the comments, the Commission adds two definitions and two provisions to the final Rule for clarity. The final Rule explicitly defines the terms ‘‘material’’ and ‘‘interactive electronic medium’’ consistent with how they were defined and discussed in the NPRM. Additionally, the final Rule includes a severability provision and a provision allowing requests for exemptions from the final Rule consistent with the Commission’s Rules of Practice.3 II. Background A. Statutory Authority The Commission promulgates the final Negative Option Rule, 16 CFR part 425 pursuant to section 18 of the FTC Act, 15 U.S.C. 57a, the Administrative Procedure Act (‘‘APA’’), 5 U.S.C. 533; and part 1, subpart B of the Commission’s Rules of Practice, 16 CFR 1.7–1.20. Section 18 permits the Commission to promulgate, amend, and repeal trade regulation rules that define with specificity acts or practices that are unfair or deceptive within the meaning of section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1); and allows the Commission to prescribe requirements for the purpose of preventing these unfair or deceptive acts and practices. B. Negative Option Marketing 1. Negative Option Programs Negative option programs come in a variety of forms, but all share a central feature: each contain a term or condition that allows a seller to interpret a customer’s silence, or failure to take an 1 Save was defined in the proposed Rule to mean an attempt by a seller to present any additional offers, modifications to the existing agreement, reasons to retain the existing offer, or similar information when a consumer attempts to cancel a negative option feature. Proposed Rule § 425.2(f). 2 See 16 CFR 1.11 (‘‘Commission’s Rules of Practice’’ or ‘‘Commission Rules’’); cf. Impersonation Rule, 89 FR 15072 (Feb. 29, 2024). 3 See 16 CFR 1.16. E:\FR\FM\15NOR3.SGM 15NOR3 khammond on DSKJM1Z7X2PROD with RULES3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations affirmative action, as acceptance of an offer.4 Negative option programs generally fall into four categories: prenotification plans, continuity plans, automatic renewals, and free trial (i.e., free-to-pay or nominal-fee-to-pay) conversion offers. Prenotification plans are the only negative option practice currently covered by the Commission’s current Negative Option Rule, originally promulgated in 1973. Under such plans (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 take no action to decline the offer. The periodic announcements and shipments can continue indefinitely. In continuity plans, consumers agree in advance to receive periodic shipments of goods or provision of services (e.g., bottled water delivery), which they continue to receive until they cancel the agreement. In automatic renewals, sellers (e.g., a magazine publisher, credit monitoring service provider, etc.) automatically renew consumers’ subscriptions when they expire, unless consumers affirmatively cancel the subscriptions. Finally, in free-to-pay plans, consumers receive goods or services for free (or at a nominal fee) for a trial period. After the trial period, sellers automatically begin charging a fee (or higher fee) unless consumers affirmatively cancel or return the goods or services. Some negative option offers include upsell or bundled offers, where sellers use consumers’ billing data to sell additional products from the same seller or pass consumers’ billing data to a third party for their sales. An upsell occurs, e.g., when a consumer completes a first transaction and then receives a second solicitation for an additional product or service. A bundled offer occurs, e.g., when a seller packages two or more products or services together. Importantly, negative option programs are distinct from other continuing agreements such as installment contracts. In an installment contract, consumers are obligated for the entire contractual period for the entire contract. A prime example of this type of transaction is a contract for purchasing a vehicle, which outlines terms, such as price, interest rate, and 4 The Commission’s Telemarking Sales Rule defines a negative option feature as a provision in an offer or agreement to sell or provide any goods or services ‘‘under which the customer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.’’ 16 CFR 310.2(w). VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 payment schedule. The contract thus allows the consumer to pay the purchase price of the vehicle over time. Consumers’ failure to pay amounts due under an installment agreement may bring the total balance due, and may trigger halting performance, or provide the seller with other contractual rights. A negative option, in contrast, merely determines whether a seller may continue to send, and charge for, goods or provide services without the consumer’s further action. Notably, a contract could have both installment and negative option features. Take, for instance, a software license agreement. A consumer may purchase a software license for a year, in which the consumer is obligated for the entire year, payable monthly, to renew automatically at the conclusion of the year unless the consumer cancels the agreement.5 Canceling the agreement during the first year does not void a consumer’s obligation to pay for the whole first year, but it does terminate the consumer’s responsibility for the next year. 2. Prevalence of Deceptive or Unfair Negative Option Acts and Practices Negative option programs are widespread in the marketplace and can provide substantial benefits for sellers and consumers. For businesses, the benefits of negative option marketing include ‘‘greater revenue predictability, customer base continuity, and the ability to better plan in advance.’’ 6 For consumers, such benefits may include opportunities to explore new products prior to purchase (e.g., free trials),7 broader selections at lower prices and transaction costs,8 and the convenience of uninterrupted products or services.9 However, consumers cannot reap these benefits when marketers misrepresent 5 See, e.g., United States v. Adobe, Inc., No. 5:24– cv–03630 (N.D. Cal. 2024). 6 News/Media Alliance (‘‘N/MA’’), FTC–2023– 0033–0873; see also Association of National Advertisers (‘‘ANA’’), FTC–2023–0033–1001; National Retail Federation (‘‘NRF’’), FTC–2023– 0033–1005. Citations herein to comments are cited as the name of commenter and unique identifier (e.g., FTC–2023–0033–ll). Comments are available online at regulations.gov, Negative Option Rule (NPRM), FTC–2023–0033–0001, https:// www.regulations.gov/document/FTC-2023-00330001. 7 N/MA, FTC–2023–0033–0873; Sirius XM Radio Inc. (‘‘Sirius XM’’), FTC–2023–0033–0857; NCTA— The Internet & Television Association (‘‘NCTA’’), FTC–2023–0033–0858; Interactive Advertising Bureau (‘‘IAB’’), FTC–2023–0033–1000. 8 See IAB, FTC–2023–0033–1000; Sirius XM, FTC–2023–0033–0857; Joint Comment from Entertainment Software Association, Digital Media Association, and Motion Picture Association (‘‘ESA’’), FTC–2023–0033–0867. 9 N/MA, FTC 2023–0033–0873; NRF, FTC–2023– 0033–1005; ANA, FTC–2023–0033–1001. PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 90477 material facts, fail to make adequate disclosures, bill consumers without their consent, or make cancellation difficult or impossible. Over the years, such problematic practices have remained a persistent source of consumer harm, saddling consumers with recurring payments for products and services they never intended to purchase nor wanted to continue buying. The Commission tried to address these practices through individual law enforcement cases and a patchwork of regulations (see discussion at sections III–IV). Nevertheless, problems persist, as demonstrated in part by the tens of thousands of complaints consumers submit about these practices to the FTC each year. Moreover, the Commission and States continue to regularly bring cases challenging harmful negative option practices, including more than 35 recent FTC cases.10 These matters involved a range of deceptive or unfair practices, including inadequate disclosures for ‘‘free’’ offers and other products or services, enrollment without consumer consent, and inadequate or overly burdensome cancellation and refund procedures.11 As discussed further below, the continuing stream of cases; the high volume of ongoing complaints; and comments on the record all demonstrate prevalent unfair and deceptive practices and unabated consumer harm. III. The FTC’S Existing Regulatory Scheme A. The FTC’s Current Negative Option Rule The Commission first promulgated the Rule in 1973 pursuant to the FTC Act, 15 U.S.C. 41 et seq., finding some negative option marketers committed 10 See, e.g., FTC v. FloatMe Corp., No. 5:24–cv– 00001 (W.D. Tex. 2024); United States v. Adobe, Inc., No. 5:24–cv–03630 (N.D. Cal. 2024); FTC v. WealthPress, Inc., No. 3:23–cv–00046 (M.D. Fla. 2023); FTC v. Bridge It, Inc., No. 1:23–cv–09651 (S.D.N.Y. 2023); FTC v. Amazon.com, Inc., No. 2:23–cv–0932 (W.D. Wash. 2023); see also n.60. 11 E.g., FTC v. Triangle Media Corp., No. 3:18–cv– 01388 (S.D. Cal. 2018); FTC v. Credit Bureau Ctr., LLC, No. 1:17–cv–00194 (N.D. Ill. 2017); FTC v. JDI Dating, Ltd., No. 1:14–cv–08400 (N.D. Ill. 2014); FTC v. One Techs., LP, No. 3:14–cv–05066 (N.D. Cal. 2014); FTC v. Health Formulas, LLC, No. 2:14– cv–01649 (D. Nev. 2014); FTC v. NutraClick, LLC, No. 2:16–cv–06819 (C.D. Cal. 2016); FTC v. XXL Impressions, LLC, No. 1:17–cv–00067 (D. Me. 2017); FTC v. AAFE Prods. Corp., No. 3:17–cv–00575 (S.D. Cal. 2017); FTC v. Pact, Inc., No. 2:17–cv–1429 (W.D. Wash. 2017); FTC v. Tarr, No. 3:17–cv–02024 (S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 1:17– cv–09083 (S.D.N.Y. 2017); FTC v. DOTAuthority.com, Inc., No. 0:16–cv–62186 (S.D. Fla. 2016); FTC v. BunZai Media Grp., Inc., No. 2:15–cv–04527 (C.D. Cal. 2015); FTC v. RevMountain, LLC, No. 2:17–cv–02000 (D. Nev. 2017). E:\FR\FM\15NOR3.SGM 15NOR3 90478 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations unfair and deceptive practices that violated section 5 of the Act, 15 U.S.C. 45. Based on practices at the time, however, the Rule only applied to prenotification plans for the sale of goods, and therefore, does not reach the vast majority of modern negative option programs.12 Specifically, the Rule required prenotification plan sellers to disclose their plans’ material terms clearly and conspicuously before consumers subscribe. To do so, it required sellers to disclose seven material terms: (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.13 In addition, sellers had to disclose the specific periods during which they would 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.14 khammond on DSKJM1Z7X2PROD with RULES3 B. Other Current Regulatory Requirements Several other statutes and regulations also address harmful negative option practices. First, section 5 of the FTC Act has served as the Commission’s primary mechanism for addressing deceptive negative option claims. Additionally, the Restore Online Shoppers’ Confidence Act (‘‘ROSCA’’), 15 U.S.C. 8401–8405, the Telemarketing Sales Rule (‘‘TSR’’), 16 CFR part 310, the Postal Reorganization Act (i.e., the Unordered Merchandise Statute), 39 U.S.C. 3009, and the Electronic Fund Transfer Act (‘‘EFTA’’), 15 U.S.C. 1693– 1693r, all address various aspects of negative option marketing. ROSCA, however, is the only law primarily designed to do so, but only for online transactions. 12 The 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 that 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). 13 16 CFR 425.1(a)(1)(i)–(vii). 14 16 CFR 425.1(a)(2) and (3); id. 425.1(b). VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 1. Section 5 of the FTC Act Section 5(a) of the FTC Act, 15 U.S.C. 45(a), is the core consumer protection statute enforced by the Commission. That statute broadly prohibits ‘‘unfair or deceptive acts or practices’’ but does not specifically address negative option marketing.15 Therefore, in guidance and cases, the FTC has highlighted six basic requirements negative option marketing must follow to avoid deceptive and unfair practices.16 First, marketers must disclose the material terms of a negative option offer including, at a minimum: the existence of the negative option offer; the offer’s total cost; the transfer of a consumer’s billing information to a third party, if applicable; and how to cancel the offer. Second, section 5 requires these disclosures to be clear and conspicuous. Third, sellers must disclose the material terms of the negative option offer before consumers agree to the purchase. Fourth, marketers must obtain consumers’ consent to such offers. Fifth, marketers must not impede the effective operation of promised cancellation procedures and must honor cancellation requests that comply with those procedures. Finally, marketers cannot make any material 15 Under the FTC Act, ‘‘unfair or deceptive acts or practices’’ include 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). Section 5(n) of the FTC Act provides that ‘‘unfair’’ practices are 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). 16 See Negative Options: A Report by the Staff of the FTC’s Division of Enforcement, 26–29 (Jan. 2009) (‘‘Staff Report’’), https://www.ftc.gov/reports/ negative-options-federal-trade-commissionworkshop-analyzing-negative-option-marketingreport-staff. In discussing the principal Section 5 requirements related to negative options, the report cites the following pre-ROSCA cases, FTC v. JAB Ventures, LLC, No. 2:08–cv–04648 (C.D. Cal. 2008); FTC v. Complete Weightloss Ctr., No. 1:08–cv– 00053 (D.N.D. 2008); FTC v. Berkeley Premium Nutraceuticals, No. 1:06–cv–00051 (S.D. Ohio 2006); FTC v. Think All Publ’g, LLC, No. 4:07–cv– 00011 (E.D. Tex. 2006); FTC v. HispaNexo, Inc., No. 1:06–cv–424 (E.D. Va. 2006); FTC v. Consumerinfo.com, No. 8:05–cv–00801 (C.D. Cal. 2005); FTC v. Conversion Mktg., No. 8:04–cv–01264 (C.D. Cal. 2004); United States v. Mantra Films, Inc., No. 2:03–cv–9184 (C.D. Cal. 2003); FTC v. Preferred Alliance, Inc., No. 1:03–cv–0405 (N.D. Ga. 2003); United States v. Prochnow, No. 1:02–cv–917 (N.D. Ga. 2002); FTC v. Ultralife Fitness, Inc., No. 2:08– cv–07655 (C.D. Cal. 2008); In re America Isuzu Motors, FTC Docket No. C–3712 (1996); FTC v. Universal Premium Servs., No. 2:06–cv–00849 (C.D. Cal. 2006); FTC v. Remote Response Corp., No. 1:06–cv–20168 (S.D. Fla. 2006). The report also cited the FTC’s previously issued guidance, Dot Com Disclosures (2002), archived at https:// www.ftc.gov/sites/default/files/attachments/pressreleases/ftc-staff-issues-guidelines-internetadvertising/0005dotcomstaffreport.pdf. See also nn.245–252. PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 misrepresentation regarding any portion of the transaction. In addition to these deception-based requirements, the Commission has repeatedly stated billing consumers without consumers’ express informed consent is an unfair act under the FTC Act.17 2. ROSCA Enacted by Congress in 2010 to address, in part, ongoing problems with online negative option marketing, ROSCA contains general provisions related to disclosures, consent, and cancellation.18 Specifically, ROSCA prohibits charging or attempting to charge consumers for goods or services sold on the internet through any negative option feature unless the marketer: (1) clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information, regardless of whether a material term directly relates to the terms of the negative option offer; 19 (2) obtains a consumer’s express informed consent before charging the consumer’s account; and (3) provides simple mechanisms for the consumer to stop recurring charges.20 ROSCA, however, does not prescribe specific steps marketers must follow to comply with these provisions and is limited to online transactions. Furthermore, pursuant to the statute, a violation of ROSCA is treated as 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, damages, and other relief under section 19 of the FTC Act.24 3. Telemarketing Sales Rule The TSR prohibits deceptive telemarketing acts or practices, 17 Courts have found unauthorized billing to be unfair under the FTC Act. See, e.g., FTC. v. Neovi, Inc., 604 F.3d 1150, 1157–59 (9th Cir. 2010), amended by 2010 WL 2365956 (9th Cir. June 15, 2010); FTC v. Amazon.com, Inc., No. 2:14–cv–1038, 2016 WL 10654030, at *8 (W.D. Wash. Apr. 26, 2016); FTC v. Ideal Fin. Sols., Inc., No. 2:13–cv– 00143, 2015 WL 4032103, at *8 (D. Nev. June 30, 2015). 18 15 U.S.C. 8401–8405. 19 ROSCA, 15 U.S.C. 8403(1); see also In re MoviePass, Inc., FTC Docket No. C–4751 (2021). 20 15 U.S.C. 8403. ROSCA incorporates the definition of ‘‘negative option feature’’ from the TSR, 16 CFR 310.2(w). 21 15 U.S.C. 8404 (citing section 18 of the FTC Act, 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), (b). E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations 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.25 The TSR, however, only applies to negative option offers made over the telephone. 4. Other Relevant Requirements EFTA 26 and the Unordered Merchandise Statute 27 also contain provisions relevant to unfair and deceptive negative option marketing. EFTA prohibits sellers from imposing recurring charges on a consumer’s debit cards or bank accounts without written authorization.28 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.29 IV. Limitations of Existing Regulatory Requirements The existing patchwork of laws and regulations does not provide industry and consumers with a consistent legal framework across media and offers. For instance, as discussed above, the current Rule does not cover common practices such as continuity plans, automatic renewals, and free-to-pay conversions.30 In addition, ROSCA and the TSR do not 25 16 CFR 310.3(a). U.S.C. 1693–1693r. 27 39 U.S.C. 3009. 28 EFTA provides that the Commission shall enforce its requirements, except to the extent that enforcement is specifically committed to some other Federal government agency, and that a violation of any of its requirements shall be deemed a violation of the FTC Act. Accordingly, the Commission has authority to seek injunctive relief for EFTA violations, just as it can seek injunctive relief for other section 5 violations. 29 The Commission has authority to seek the same remedies for violations of the Unordered Merchandise Statute that it can seek for other section 5 violations. The Commission can seek civil penalties pursuant to section 5(m)(1)(B) of the FTC Act from violators who have actual knowledge that the Commission has found mailing unordered merchandise unfair. 15 U.S.C. 45(m)(1)(B). 30 Indeed, the prenotification plans covered by the Rule represent only a small fraction of negative option marketing. In 2017, for instance, the Commission estimated that fewer than 100 sellers (‘‘clubs’’) were subject to the current Rule’s requirements. 82 FR 38907, 38908 (Aug. 16, 2017). khammond on DSKJM1Z7X2PROD with RULES3 26 15 VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 address negative option programs in all media. Yet, harmful negative option practices that fall outside of ROSCA and the TSR’s coverage still occur.31 Additionally, ROSCA lacks specificity about cancellation procedures and the placement, content, and timing of cancellation-related disclosures. Instead, the statute requires marketers to provide ‘‘simple mechanisms’’ for the consumer to stop recurring charges without guidance about what is simple. While the statute provides more than adequate specificity to avoid blatant violations, it makes law enforcement actions much more difficult for closer calls, even when these practices cause significant harm. V. Negative Option Rulemaking and Enforcement Efforts The Commission initiated its last regulatory review of the Negative Option Rule in 2009,32 following a 2007 FTC workshop and subsequent Staff Report.33 The Commission completed the review in 2014.34 At the time, the Commission found the comments supporting the Rule’s expansion ‘‘argue convincingly that unfair, deceptive, and otherwise problematic negative option marketing practices continue to cause substantial consumer injury, despite determined enforcement efforts by the Commission and other law enforcement agencies.’’ 35 It also noted practices not covered by the Rule (e.g., trial conversions and continuity plans) accounted for most of the Commission’s enforcement activity in this area. Nevertheless, the Commission declined 31 See, e.g., In re Dun & Bradstreet, Inc., FTC Docket No. C–4761 (2022); FTC v. Nobetes Corp., No. 2:18–cv–10068 (C.D. Cal. 2018); FTC v. Dill, No. 2:16–cv–00023 (D. Me. 2016); FTC v. Shopper Sys., LLC, No. 1:12–cv–23919 (S.D. Fla. 2012); FTC v. XXL Impressions, LLC, No. 1:17–cv–00067 (D. Me. 2017); FTC v. Health Rsch. Labs., LLC, No. 2:17–cv– 00467 (D. Me. 2017); FTC v. Mktg. Architects, No. 2:18–cv–00050 (D. Me. 2018); see also Individual commenter, FTC–2023–0033–0007 (discussing deceptive and unfair negative option practices for in-person enrollment); Individual commenter, FTC– 2023–0033–0129 (gym membership in-person enrollment); Individual commenter, FTC–2023– 0033–0299 (same). 32 74 FR 22720 (May 14, 2009). 33 See Staff Report, n.16. 34 79 FR 44271 (July 31, 2014). 35 79 FR 44275. The Commission cited a number of its law enforcement actions challenging negative option marketing practices, including, for example, FTC v. Process Am., Inc., No. 2:14–cv–00386 (C.D. Cal. 2014) (processing of unauthorized charges relating to negative option marketing); FTC v. Willms, No. 2:11–cv–00828 (W.D. Wash. 2011) (internet free trials and continuity plans); FTC v. Moneymaker, No. 2:11–cv–00461 (D. Nev. 2011) (internet trial offers and continuity programs); FTC v. Johnson, No. 2:10–cv–02203 (D. Nev. 2010) (internet trial offers); and FTC v. John Beck Amazing Profits, LLC, No. 2:09–cv–04719 (C.D. Cal. 2009) (infomercial and telemarketing trial offers and continuity programs). PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 90479 to expand or modify the Rule because the enforcement tools provided by the TSR and, especially, ROSCA, which had only recently become effective, might prove adequate to address the extant problems. The Commission emphasized, however, if ROSCA and its other enforcement tools failed to protect consumers, the Commission would consider whether and how to amend the Rule.36 Since that review, the problems with negative options have persisted.37 VI. Rule Review and Request for Comment A. 2019 Advance Notice of Proposed Rulemaking Given the persistence of unfair and deceptive practices despite significant law enforcement attention at both the Federal and State level, the Commission published its 2019 advance notice of proposed rulemaking (‘‘ANPR’’) seeking comments on the current Rule, as well as possible new measures to reduce consumer harm created by deceptive or unfair negative option marketing.38 Specifically, the Commission sought comment on various alternatives, including amendments to existing rules to further address disclosures, consumer consent, and cancellation. The Commission also requested input on whether and how it should use its authority under section 18 of the FTC Act to expand the Negative Option Rule to address prevalent unfair or deceptive practices involving negative option marketing.39 In response, the Commission received 17 comments.40 B. 2021 Enforcement Policy Statement On November 4, 2021, the Commission published an ‘‘Enforcement Policy Statement Regarding Negative Option Marketing’’ (‘‘2021 Enforcement Policy Statement’’ or ‘‘EPS’’) to provide guidance regarding its enforcement of 36 79 FR 44275–76. sections VI–VII of this SBP. 38 ANPR, 84 FR 52393 (Oct. 2, 2019). 39 Section 18 of the FTC Act authorizes the Commission to promulgate rules that define with specificity acts or practices in or affecting commerce which are unfair or deceptive. 15 U.S.C. 57a(a)(1)(B). The Commission may issue regulations ‘‘where it has reason to believe that the unfair or deceptive acts or practices which are the subject of the proposed rulemaking are prevalent.’’ 15 U.S.C. 57a(b)(3). The Commission may make such a prevalence finding if it has issued cease and desist orders regarding such acts or practices, or any other available information indicates a widespread pattern of unfair or deceptive acts or practices. Rules under section 18 ‘‘may include requirements prescribed for the purpose of preventing such acts or practices.’’ 40 The comments are available online. See Regulations.gov, Negative Option Rule (ANPR), FTC–2019–0082, https://www.regulations.gov/ docket/FTC-2019-0082. 37 See E:\FR\FM\15NOR3.SGM 15NOR3 90480 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations various statutes and FTC regulations.41 The 2021 Enforcement Policy Statement enunciated various principles rooted in FTC case law and restated previous guidance related to the provision of information to consumers, consent, and cancellations. Among these principles, the Statement emphasized ROSCA’s requirement that sellers disclose all material terms related to the underlying product or service that are necessary to prevent deception, regardless of whether that term relates directly to the terms of the negative option offer.42 In addition, consistent with ROSCA, judicial decisions applying section 5, and cases brought by the Commission, the 2021 Enforcement Policy Statement reiterated sellers should obtain consumers’ acceptance of the negative option feature separately from any other portion of the transaction. Finally, the Statement explained sellers should provide cancellation mechanisms at least as easy to use as the method the consumer employed to initiate the negative option feature. C. 2023 Notice of Proposed Rulemaking After reviewing the comments received in response to the ANPR and issuing the 2021 Enforcement Policy Statement, the Commission issued a notice of proposed rulemaking (‘‘NPRM’’) on April 23, 2023 (88 FR 24716). In the NPRM, the Commission proposed amending the existing Rule to prohibit material misrepresentations and to require sellers to provide important information to consumers, obtain consumers’ express informed consent, and ensure consumers can easily cancel negative option programs if they choose. All these proposed changes would be applicable to all forms of negative option marketing across all media (e.g., telephone, internet, traditional print media, and inperson transactions).43 41 EPS, 86 FR 60822 (Nov. 4, 2021). Commission recently alleged a negative option seller’s failure to disclose it was impeding access to its movie subscription service violates ROSCA. In re MoviePass, Inc., FTC Docket No. C– 4751 (2021). 43 The Commission proposed to issue such amendments pursuant to section 18 of the FTC Act, which authorizes it to promulgate rules specifying acts or practices in or affecting commerce which are unfair or deceptive. 15 U.S.C. 57a(a)(1)(B). Several commenters raised concerns the Commission failed to follow section 18’s procedures for two reasons. First, commenters argued the Commission’s proposed Rule went beyond the scope of the ANPR. See, e.g., ESA, FTC–2023–0033–0867; USTelecomThe Broadband Association (‘‘USTelecom’’), FTC– 2023–0033–0876; Retail Industry Leaders Association (‘‘RILA’’), FTC–2023–0033–0883; U.S. Chamber of Commerce (‘‘Chamber’’), FTC–2023– 0033–0885; The Computer & Communications Industry Association (‘‘CCIA’’), FTC–2023–0033– 0984; IAB, FTC–2023–0033–1000; National Retail khammond on DSKJM1Z7X2PROD with RULES3 42 The VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 The Commission designed the proposed amendments to curb deceptive or unfair practices occurring in negative option marketing. The Commission sought public comment on ‘‘all aspects’’ of the proposal, ‘‘including the likely effectiveness of the proposed Rule in helping the Commission combat unfair or deceptive practices in negative option marketing.’’ 44 The Commission further identified specific questions and areas where it solicited available data and evidence, including data and evidence supporting alternatives to the proposed regulations.45 The Commission did not identify any disputed issues of material fact that needed to be resolved at an informal hearing.46 The comment period closed on June 23, 2023. In response, the Commission received more than 16,000 comments, and published the 1,162 unique comments from stakeholders representing a wide range of viewpoints.47 Although some commenters raised concerns and recommended specific modifications or additions to the proposed Rule (some of which the Commission adopts as Federation (‘‘NRF’’), FTC–2023–0033–1005). Second, they argued the Commission’s proposed Rule did not satisfy the specificity and prevalence requirements of section 18. The Commission addresses these comments in section VII.A. 44 NPRM, 88 FR 24730. 45 See NPRM, 88 FR 24728 (inviting comments on free trials); id. at 24729 (requesting comments on proposed annual reminder provision); id. at 24730 (inviting comments on conflicts with existing state requirements; id. (seeking comments on proposed material changes provision and exempted activities or entities); id. (inviting submissions of ‘‘data, views, and arguments on the proposed amendments’’); id. at 24732–33 (inviting comments on the impacts on small businesses, including any modifications to reduce costs or burdens for small entities); id. at 24734 (inviting comments on the Paperwork Reduction Act analysis). See also id. at 24730 (NPRM section XIII, Request for Comments). 46 See 16 CFR 1.11(e). 47 Unique public comments to the NPRM are available online. See regulations.gov, Negative Option Rule (NPRM), FTC–2023–0033–0001, https://www.regulations.gov/document/FTC-20230033-0001. The Commission published 1,162 unique comments. As explained at regulations.gov, agencies may withhold duplicate/near duplicate examples of a mass-mail campaign. See Gen. Servs. Admin., Regulations.gov Frequently Asked Questions, Find Dockets, Documents, and Comments FAQs, ‘‘How are comments counted and posted to Regulations.gov?,’’ https:// www.regulations.gov/faq. The Commission cannot quantify the number of individuals or entities represented by the comments. The number of comments undercounts the number of individuals or entities represented by the comments because many comments, including those from different types of organizations, jointly represent the opinions or interests of many. Overall, the Commission received 16,612 comments. Of those, 15,449 were not posted online for various reasons (i.e., 14 unrelated, 23 duplicates, and 15,412 that appear to be non-unique responses to mass media campaigns) and one comment was withdrawn. The Commission has considered all timely and responsive public comments it received in response to its NPRM. PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 discussed herein), the majority generally supported the Rule. The Commission discusses these comments in section VII below. D. Informal Hearing and Recommended Decision Section 18 of the Federal Trade Commission Act, 15 U.S.C. 57a, and the Commission’s Rules of Practice, 16 CFR 1.11(e),48 provide interested persons the opportunity to make an oral statement at an informal hearing upon request.49 The Commission received six 50 such requests. Additionally, although the Commission did not designate any disputed issues of material fact in the NPRM, two interested commenters, IAB and NCTA, proposed the Commission consider several potential disputed issues of material fact.51 On December 8, 2023, the Commission published an Initial Notice of Informal Hearing (88 FR 85525, ‘‘Hearing Notice’’). The Hearing Notice designated the Honorable Carol Fox Foelak, Administrative Law Judge for the Securities Exchange Commission, to serve as the presiding officer of the informal hearing and scheduled the informal hearing for January 16, 2024. In the Hearing Notice, the Commission again did not designate any disputed issues of material fact, finding the issues raised by IAB and NCTA did not need to be resolved at the informal hearing through cross-examination.52 On January 16, 2024, Judge Foelak commenced the informal hearing, at which IAB, NCTA, Performance Driven Marketing Institute (‘‘PDMI’’), TechFreedom, and the International Franchise Association (‘‘IFA’’) appeared and made oral submissions subject to cross-examination.53 Included in their oral and written submissions, IAB and 48 The FTC Act provides that ‘‘an interested person is entitled to present his position orally or by documentary submission (or both).’’ 15 U.S.C. 57a(c)(2)(A). 49 16 CFR 1.11(e). 50 The six requesters were (1) International Franchise Association; (2) TechFreedom; (3) Performance Driven Marketing Institute; (4) NCTA—The Internet & Television Association; (5) Frontdoor; and (6) Interactive Advertising Bureau. All but one—TechFreedom—identified their interest in the proceeding either as industry groups or private companies. 51 See Notice of Informal Hearing (‘‘Hearing Notice’’), 88 FR 85525, 85526 (Dec. 8, 2023). 52 88 FR 85526–27. 53 The Hearing Notice also allowed interested persons to make additional written submissions. The following interested parties timely filed additional written submissions on December 22, 2023: (1) BSA—The Software Alliance; (2) PDMI; (3) U.S. Chamber of Commerce; (4) IAB; (5) NCTA; and two individuals. All filings related to the Hearing Notice are available online at regulations.gov at https://www.regulations.gov/ document/FTC-2023-0073-0001. E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations NCTA renewed their requests to have the presiding officer designate disputed issues of material fact.54 Following the hearing, Judge Foelak designated two disputed issues: (1) will the proposed rule have an annual effect on the national economy of $100 million or more?; and (2) what will the recordkeeping and disclosure costs associated with the proposed rule be? Judge Foelak held subsequent hearings on January 31, 2024, and February 14, 2024. She allowed post-hearing briefs filed by February 22, and February 28, 2024, respectively, and issued her recommended decision on April 12, 2024. Based on the evidence, the presiding officer found: (1) the proposed Rule will have an annual effect on the national economy of $100 million or more; and (2) there is insufficient evidence to make a finding regarding the size of the recordkeeping and disclosure costs associated with the proposed Rule.55 VII. Discussion of Final Rule A. Legal Standard for Promulgating the Final Rule As explained above in section II, the Commission promulgates the final Rule, 16 CFR part 425, pursuant to section 18 of the FTC Act, also known as Magnuson-Moss rulemaking (‘‘Magnuson-Moss’’). Under section 18 and the Commission Rules,56 to promulgate a rule the Commission must: (1) issue a SBP with statements detailing: (a) the prevalence of the acts or practices treated by the rule; (b) the manner and context in which such acts or practices are unfair or deceptive; and (c) the economic effect of the rule, taking into account the effect on small business and consumers; and (2) ‘‘define with specificity acts or practices which are unfair or deceptive.’’ The Commission addresses these requirements in part A.1–2. In part A.3, the Commission addresses additional legal issues, including the ANPR’s scope and the ‘‘major questions’’ doctrine. khammond on DSKJM1Z7X2PROD with RULES3 1. Statements Required Under Section 18(d) of the FTC Act (a) Statement Regarding Prevalence of the Acts and Practices Treated by the Rule Under the Magnuson-Moss statute, the Commission may promulgate rules if 54 Subsequently, IFA also asserted there were disputed issues of material fact regarding the impact to both small businesses and their consumers. IFA, FTC–2024–0001–0009. 55 Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-20240001-0042. 56 15 U.S.C. 57a and 16 CFR 1.14(a)(1). VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 it ‘‘has reason to believe that the unfair or deceptive acts or practices which are the subject of the proposed rulemaking are prevalent.’’ 57 An act or practice is ‘‘prevalent’’ if the FTC has previously issued cease and desist orders regarding the act or practice, or if ‘‘any other information available to the Commission indicates a widespread pattern of unfair or deceptive acts or practices.’’ 58 Based on the rulemaking record, the Commission has more than sufficient reason to believe unfair or deceptive acts and practices in the negative option marketplace are prevalent. These practices include: (1) material misrepresentations made while marketing using negative option features to induce consumers to enter into negative option programs; (2) failure to provide important information about material terms prior to billing consumers; (3) lack of informed consumer consent; and (4) failure to provide consumers with a simple cancellation method, including failure to honor cancellation requests, refusal to provide refunds to consumers who unknowingly enrolled in programs, denying consumers refunds, forcing them to pay to return the unordered goods, requiring consumers to cancel using a more difficult method than the one used to sign up for the program, and forcing consumers to contend with multiple upsells before allowing cancellation.59 These practices cause consumer harm by luring consumers into purchasing goods and services they do not want, or ensnaring consumers into unwanted recurring payments that are difficult or impossible to cancel. The Commission relies on substantial evidence in the record showing a widespread pattern of unfair or deceptive conduct in the negative option marketplace. This evidence generally falls into three categories: State, private, and Federal actions (including administrative and Federal court FTC law enforcement actions); consumer complaints and comments; and studies. The Commission discusses each in turn below. Federal, State, and Private Actions. As discussed in the ANPR and NPRM, the volume of enforcement efforts in recent years seeking to stem illegal negative option marketing is significant. These matters involve a range of deceptive and unfair practices, including: failure to adequately disclose the existence of negative options, 57 15 U.S.C. 57a(b)(3). U.S.C. 57a(b)(3)(A)–(B); see also Compassion Over Killing v. FDA, 849 F.3d 849, 855 (9th Cir. 2017). 59 NPRM, 88 FR 24725. 58 15 PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 90481 including after the expiration of free trials; enrollment without consumer consent; and inadequate or unnecessarily burdensome cancellation and refund procedures. The FTC itself has brought at least 35 such cases in the years since ROSCA was enacted.60 The Consumer Financial Protection Bureau (‘‘CFPB’’) also has brought many of its own negative option cases.61 Truth in Advertising, Inc. (‘‘TINA’’),62 a consumer advocacy organization, stated in 2019 that more than 100 Federal class actions involving various negative option terms and conditions have been filed since 2014. Notwithstanding these actions, according to TINA, ‘‘the incidence of deceptive negative option 60 In the NPRM, the Commission cited a number of its law enforcement actions challenging negative option marketing practices, including, for example, FTC v. Process Am., Inc., No. 1:14–cv–00386 (C.D. Cal. 2014) (processing of unauthorized charges relating to negative option marketing); FTC v. Willms, No. 2:11–cv–00828 (W.D. Wash. 2011) (internet free trials and continuity plans); FTC v. Moneymaker, No. 2:11–cv–00461 (D. Nev. 2011) (internet trial offers and continuity programs); FTC v. Johnson, No. 2:10–cv–02203 (D. Nev. 2010) (internet trial offers); and FTC v. John Beck Amazing Profits, LLC, No. 2:09–cv–04719 (C.D. Cal. 2009) (infomercial and telemarketing trial offers and continuity programs). Further examples of these matters include: FTC v. Triangle Media Corp., No. 3:18–cv–01388 (S.D. Cal. 2018); FTC v. Credit Bureau Ctr., LLC, No. 1:17–cv–00194 (N.D. Ill. 2017); FTC v. JDI Dating, Ltd., No. 1:14–cv–08400 (N.D. Ill. 2014); FTC v. One Techs., LP, No. 3:14– cv–05066 (N.D. Cal. 2014); FTC v. Health Formulas, LLC, No. 2:14–cv–01649 (D. Nev. 2014); FTC v. NutraClick, LLC, No. 2:16–cv–06819 (C.D. Cal. 2016); FTC v. XXL Impressions, LLC, No. 1:17–cv– 00067 (D. Me. 2017); FTC v. AAFE Prods. Corp., No. 3:17–cv–00575 (S.D. Cal. 2017); FTC v. Pact, Inc., No. 2:17–cv–1429 (W.D. Wash. 2017); FTC v. Tarr, No. 3:17–cv–02024 (S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 1:17–cv–09083 (S.D.N.Y. 2017); FTC v. DOTAuthority.com, Inc., No. 0:16–cv–62186 (S.D. Fla. 2016); FTC v. BunZai Media Grp., Inc., No. 2:15–cv–04527 (C.D. Cal. 2015); and FTC v. RevMountain, LLC, No. 2:17–cv–02000 (D. Nev. 2017); see also FTC v. WealthPress, Inc., No. 3:23– cv–00046 (M.D. Fla. 2023); FTC v. Bridge It, Inc., No. 1:23–cv–09651 (S.D.N.Y. 2023); FTC v. Amazon.com, Inc., No. 2:23–cv–0932 (W.D. Wash. 2023); FTC v. FloatMe Corp., No. 5:24–cv–00001 (W.D. Tex. 2024); United States v. Adobe, Inc., No. 5:24–cv–03630 (N.D. Cal. 2024). 61 See, e.g., CFPB v. Transunion, No. 1:22–cv– 01880 (N.D. Ill. 2022); CFPB v. ACTIVE Network, LLC, No. 4:22–cv–00898 (E.D. Tex. 2022); CFPB v. Sterling Jewelers, Inc., No. 1:19–cv–00448 (S.D.N.Y. 2019); In re Equifax Inc., et al., CFPB No. 2017– CFPB–0001, 2017 WL 1036710 (Jan. 3, 2017) (consent order); CFPB v. Prime Mktg. Holdings, LLC, No. 2:16–cv–07111 (C.D. Cal. 2016); In re Transunion Interactive, Inc., et al., CFPB No. 2017– CFPB–0002, 2017 WL 1036711 (Jan. 3, 2017) (consent order); CFPB v. Student Financial Aid Servs., Inc., No. 2:15–cv–00821 (E.D. Cal. 2015); CFPB v. Affinion Group Holdings, Inc., No. 5:15– cv–01005 (D. Conn. 2015); CFPB v. Intersections Inc., No. 1:15–cv–835 (E.D. Va. 2015). Notably, the CFPB has independent authority to enforce FTC rules, and both agencies share some overlapping jurisdiction. See 12 U.S.C. 5581(b)(5)(B)(ii). 62 TINA, FTC–2019–0082–0014 (cmt. to ANPR, https://www.regulations.gov/comment/FTC-20190082-0014) and FTC–2023–0033–1139 (cmt. to NPRM). E:\FR\FM\15NOR3.SGM 15NOR3 90482 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations offers continues to rise.’’ 63 TINA also reports that deceptive negative options ‘‘have only continued to grow’’ since its 2019 comment.64 Several state Attorneys General 65 also referenced dozens of enforcement actions taken in recent years to address the proliferation of deceptive negative option practices they regularly encounter, including the ‘‘lack of informed consumer consent, lack of clear and conspicuous disclosures, failure to honor cancellation requests and/or refusal to provide refunds to consumers who unknowingly enrolled in plans.’’ 66 These agencies explained their actions ‘‘demonstrate that problems persist in this area and that additional regulatory action is needed.’’ 67 For example, over the last decade, New York alone has reached 23 negative option settlements involving a variety of products and services such as membership programs, credit monitoring, dietary supplements, and apparel.68 They also described several multi- and individual state law enforcement actions involving negative option offers for products and services such as satellite radio, social networking services, language learning programs, security monitoring, and dietary supplements. They further recounted numerous, illustrative complaints from consumers who ordered what they thought were free, no-obligation samples but then found themselves 63 NPRM, 88 FR 24720. FTC–2023–0033–1139. 65 Several State Attorneys General offered comments to the ANPR (FTC–2019–0082–0012 (State Attorneys General cmt. to ANPR, https:// www.regulations.gov/comment/FTC-2019-00820012)), and additionally 26 Attorneys General for the States of Alabama, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Vermont, Washington, and Wisconsin (‘‘State AGs’’) filed comments in response to the NPRM. See State AGs, FTC–2023–0033–0886 (cmt. to NPRM). 66 NPRM, 88 FR 24720; State Attorneys General (ANPR), FTC–2019–0082–0012. They further explained the nature of the underlying products often fails to alert consumers of their enrollment in a negative option program. For instance, many offers involve credit monitoring or anti-virus computer programs costing less than $20 a month and have no tangible presence for consumers. The State AGs explained consumers are often unaware of having ordered these products, never use them, and never notice them on their bills. The State AGs further explained these transactions often pull consumers into a stream of recurring payments by obtaining credit card information to ostensibly pay for a small shipping charge. Consequently, they commented many consumers have been billed for such services for years before discovering the unauthorized charges. Id. 67 NPRM, 88 FR 24721. 68 State Attorneys General (ANPR), FTC–2019– 0082–0012. khammond on DSKJM1Z7X2PROD with RULES3 64 TINA, VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 enrolled in costly continuity programs.69 Additionally, the State AGs outlined several ongoing investigations into deceptive or unfair negative option programs since 2019. These investigations include allegations of misrepresenting offers as free when they were not; and failure to clearly and conspicuously disclose negative option features.70 Additionally, consumer advocacy organizations and others explained that the widespread prevalence of deceptive acts and practices underscores the ‘‘ongoing need for [S]tate engagement to limit negative option abuses.’’ 71 Several commenters observed that more than half of States specifically regulate some aspect of negative option marketing.72 A group of law professors explain this ‘‘ongoing engagement just shows that unscrupulous negative-option business models remain such a problem that [S]tates increasingly find themselves needing to step in.’’ 73 Consumer Complaints and Comments. The FTC receives tens of thousands of complaints about negative options each year through its Sentinel complaint database, and marketers receive many more as demonstrated by 69 Id. 70 State AGs, FTC–2023–0033–0886. e.g., Joint comment from Professor Kaitlin Caruso (U. of Maine School of Law), Professor Jeff Sovern (St. John’s U. School of Law), Professor Dee Pridgen (U. of Wyoming College of Law), Professor Chrystin Ondersma (Rutgers Law School), Professor Vijay Raghavan (Brooklyn Law School), Professor David Vladeck (Georgetown U. Law Center), Professor Edward Janger (Brooklyn Law School), and Professor Susan Block-Lieb (Fordham U. School of Law) (collectively, ‘‘Law Professors’’), FTC–2023–0033–0861. 72 See, e.g., PDMI, FTC–2023–0033–0864 (stating over 27 states regulate negative option marketing); N/MA, FTC–2023–0033–0873 (stating 35 states and the District of Columbia now have automatic renewal laws, and at least 20 address all forms of automatic renewals); Service Contract Industry Council (‘‘SCIC’’), FTC–2023–0033–0879 (noting about half of U.S. states enacted auto-renewal laws); NRF, FTC–2023–0033–1005 (stating at least half of all states have statutes governing free-trial, negativeoption, and/or automatic-renewal programs); see also Law Professors, FTC–2323–0033–0861 (stating the ‘‘number of states that have recently adopted specific laws targeting negative option marketing, on top of their general prohibitions on unfair and deceptive practices and ability to enforce ROSCA, is particularly noteworthy.’’); IHRSA, The Global Health & Fitness Association (‘‘IHRSA’’), FTC– 2023–0033–0863 (noting many states have laws on negative options). But see The Center for Consumer Law and Economic Justice at UC Berkeley School of Law (‘‘Berkeley Consumer Law Center’’), FTC– 2023–0033–0855 (stating that ‘‘fewer than half the states have a law specifically addressing negative option marketing’’). 73 Law Professors, FTC–2023–0033–0861. This group also points out that private industry, too, has felt the need for more action in this area, noting that VISA and Mastercard have their own requirements for businesses that bill using a negative option model. 71 See, PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 evidence in FTC cases.74 Additionally, TINA explained that negative options are one of its top complaint categories. These complaints usually involve consumers who unwittingly enroll in programs and then find it difficult or impossible to cancel.75 Moreover, hundreds of consumer comments detailed specific practices (discussed more thoroughly in connection with the section-by-section analysis below) demonstrating the prevalence of unfair or deceptive negative option practices. Likewise, comments from public interest and consumer advocacy groups further describe existing deceptive or unfair practices prevalent in the negative option marketplace. For example, Berkeley Consumer Law Center explained businesses regularly use dark patterns 76 to facilitate enrollment in subscription-based products and inhibit cancellation, and provided numerous examples of these activities.77 A group of law professors referenced the burgeoning industry offering to help consumers identify and cancel their unwanted subscriptions. As they explained: ‘‘One might expect that, if consumers experienced the marketplace as one in which they are adequately informed of recurring payments and readily able to cancel them, there would not be an emerging industry to help them do just that.’’ 78 Members of Congress also detailed ongoing problems in this area. Citing the increase in consumer complaints and consumer harm in recent years, Representative Takano stated, ‘‘deceptive online marketing and unclear recurring payment plans are leaving too many consumers on the hook for products they may not want or even know they purchased.’’ 79 Representatives Schiff and Norton noted their constituents’ desire for greater protections in the negative option marketplace, stating the ‘‘proposed updates will help put the consumers 74 See, e.g., United States v. Adobe, Inc., No. 5:24–cv–03630 (N.D. Cal. 2024) (ECF No. 40, Amd. Compl.); FTC v. Amazon.com, Inc., No. 2:23–cv– 0932 (W.D. Wash. 2023) (ECF No. 67, Amd. Compl.). 75 TINA, FTC–2023–0033–1139. 76 The term ‘‘dark patterns’’ has been used to describe design practices that trick or manipulate users into making choices they would not otherwise have made and that may cause harm See Bringing Dark Patterns to Light, FTC Staff Report (Sept. 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/ P214800%20Dark%20Patterns%20Report%209.14. 2022%20-%20FINAL.pdf. 77 Berkeley Consumer Law Center, FTC–2023– 0033–0855. 78 Law Professors, FTC–2023–0033–0861. 79 NPRM, 88 FR 24720–21. E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations back in control of their purchases and subscriptions.’’ 80 Studies. Finally, ‘‘studies cited by commenters confirm a pattern of consumer ensnarement in unwanted recurring payments.’’ 81 A Better Business Bureau study of FTC data, titled ‘‘Subscription Traps and Deceptive Free Trials Scam Millions with Misleading Ads and Fake Celebrity Endorsements,’’ demonstrated complaints about free trials doubled between 2015 and 2017, with complaints during the period reaching nearly 37,000.82 The BBB study shows consumer losses in FTC ‘‘free trial offer’’ cases exceeded $1.3 billion (over the ten years covered by the study).83 A group of consumer and public interest advocacy organizations, including the National Consumers League 84 stated that, according to the BBB, the average consumer loss for a free trial is $186.85 Referring to another survey conducted in 2016, TINA noted unwanted fees associated with trial offers and automatically renewing subscriptions ranked as ‘‘the biggest financial complaint of consumers.’’ 86 Similarly, TINA noted the FBI’s internet Crime Complaint Center recorded a rise in complaints about free trial offers, growing from 1,738 in 2015 to 2,486 in 2017.87 A 2019 Bankrate.com survey cited by NCL found that 59% of 80 Schiff and Norton, FTC–2023–0033–0868. 88 FR 24725. 82 Steve Baker, Subscription Traps and Deceptive Free Trials Scam Millions with Misleading Ads and Fake Celebrity Endorsements, Better Business Bureau (Dec. 2018), https://www.bbb.org/article/ investigations/18929-subscription-traps-anddeceptive-free-trials-scammillions-with-misleadingads-and-fake-celebrity-endorsements. 83 Id.; see also Better Business Bureau, BBB Investigation Update: Free Trial Offer Scams (Apr. 2020), https://www.bbb.org/article/news-releases/ 22040-bbb-update-free-trial-offerscams (reporting the total has risen to nearly $1.4 billion since the 2018 BBB study); id. (observing that while celebrities, credit card companies and government agencies have increased their efforts to fight deceptive free trial offer scams, victims continue to lose millions of dollars to fraudsters after the release of a December 2018 BBB study about the shady practices). 84 The six public interest and consumer advocacy groups are: Consumer Action, Consumer Federation of America, Demand Progress Education Fund, National Association of Consumer Advocates, Nation Consumer Law Center (on behalf of its low income clients,) and National Consumers League (‘‘NCL’’) (collectively, the ‘‘Public Interest Groups’’). 85 Steve Baker, Subscription Traps and Deceptive Free Trials Scam Millions with Misleading Ads and Fake Celebrity Endorsements, Better Business Bureau (Dec. 2018). 86 NPRM, 88 FR 24720 (citing Rebecca Lake, ‘‘Report: Hidden Fees Are #1 Consumer Complaint,’’ mybanktracker.com (updated Oct. 16, 2018), https://www.mybanktracker.com/moneytips/money/hidden-fees-consumercomplaint253387.) 87 NPRM, 88 FR 24721. khammond on DSKJM1Z7X2PROD with RULES3 81 NPRM, VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 consumers have been signed up ‘‘against their will’’ for ‘‘free trials’’ that automatically converted into a recurring payment.88 NCL and others also cited a 2017 national telephone survey commissioned by CreditCards.com finding 35% of U.S. consumers have enrolled in at least one automatically renewing contract without realizing it.89 In response to the NPRM, the Public Interest Groups cited more recent studies confirming the continued prevalence of harms from deceptive and unfair negative option practices. For instance, consumer groups referenced a 2022 study, which concluded ‘‘on average, consumers pay two-and-a-half times what they originally estimated on monthly subscriptions, likely due to the lack of adequate notice from sellers.’’ 90 They also noted burdensome cancellation procedures remain rampant. ‘‘One survey found that more than half of respondents reported it took an average of three months to cancel unwanted recurring payments.’’ 91 That same study reported 71% of individuals lost more than $50 a month in unwanted subscriptions. Another study concluded consumers underestimate how much they pay to maintain their subscriptions by an average of $133/ month (or $1,596 per year), and 42% of the consumers had forgotten about a subscription for which they continued to pay.92 Finally, TINA also noted a consumer survey by the Washington Attorney General’s office finding ‘‘59% of Washingtonians (3.5 million residents) may have been unintentionally enrolled in a subscription plan or service when they thought they were making a onetime purchase.’’ 93 TINA contended this is ‘‘consistent with’’ the 2022 Bankrate 88 Bankrate, ‘‘Despite safety concerns, 64% of U.S. debit or credit cardholders save their information online’’ (Oct. 24, 2019), at https:// www.bankrate.com/pdfs/pr/20191024-onlineshopping-survey.pdf (as cited by Civil Society Organizations, FTC–2023–0033–0870). 89 NPRM, 88 FR 24720. 90 Public Interest Groups, FTC–2023–0033–0880 (citing ‘‘Subscription Service Statistics and Costs,’’ C+R Research Blog (May 18, 2022)). 91 Public Interest Groups, FTC–2023–0033–0880 (citing Chase, ‘‘Survey from Chase Reveals That Two-Thirds of Consumers Have Forgotten About At Least One Recurring Payment In The Last Year’’ (Apr. 1, 2021), https://media.chase.com/news/ survey-from-chase-reveals). 92 State AGs, FTC–2023–0033–00866 (citing Sarah Brady and Korrena Bailie, ‘‘5 Tools To Help You Cancel Unwanted Subscriptions,’’ Forbes (July 13, 2022), https://www.forbes.com/advisor/ personal-finance/manage-subscriptions). See also Einav, Liran, et al., ‘‘Selling Subscriptions’’ (Dec. 1, 2023), https://nmahoney.people.stanford.edu/sites/ g/files/sbiybj23976/files/media/file/mahoney_ subscriptions.pdf. 93 TINA, FTC–2023–0033–1139. PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 90483 survey finding more than half of U.S. adults experience unwanted charges from a subscription or membership.94 These findings are further supported by a Chase Bank study in 2021 finding nearly three-quarters of Americans waste more than $50 a month on unwanted subscription fees.95 Despite the robust evidence that unfair or deceptive practices are exceedingly prevalent, several trade organizations challenged the Commission’s proposed prevalence determination. However, their arguments, as discussed below, are not persuasive. First, they argued the Commission must show prevalence in a specific industry in order to regulate negative option practices in that industry, but the Commission failed to do so. For instance, NCTA asserted there is no evidence of widespread deceptive negative option practices in the broadband, cable, or voice industries warranting regulation.96 Other commenters argued the Commission must identify the prevalence of a specific deceptive or unfair act to warrant regulating that specific act or practice under Section 18. For instance, IAB, NCTA, TechNet, and TechFreedom argued the Commission failed to show prevalence of misrepresentations about the underlying product or service in connection with negative option contracts. Similarly, three commenters argued the Commission should limit the scope of the Rule to business-toconsumer transactions and exclude business-to-business (‘‘B2B’’) transactions, in part, because the Commission failed to show ‘‘the prevalence of harms created by automatically-renewing subscriptions entered into in the business-to-business context.’’ 97 As demonstrated above, however, there is ample evidence in the record demonstrating the prevalence of the specific unfair and deceptive practices across numerous sectors of the economy, which the Commission now addresses in an industry-neutral fashion.98 Moreover, nothing in Section 18 requires the Commission to find prevalence regarding a specific industry or group.99 The Commission need only 94 Id. 95 See n.91. FTC–2023–0033–0858; see also SCIC, FTC–2023–0033–0879. 97 BSA, FTC–2023–0033–1015; see also Anonymous commenter, FTC–2023–0033–1007; NCTA, FTC–2023–0033–0858. 98 See sections VII.A.1.a–b and section II.A.1.b of this SBP. 99 See generally 15 U.S.C. 57a. 96 NCTA, E:\FR\FM\15NOR3.SGM 15NOR3 90484 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 find ‘‘some basis or evidence’’ demonstrating the practice the Commission seeks to regulate ‘‘does indeed occur.’’ 100 Such evidence exists here in abundance. As NCTA itself pointed out, individual consumers complained of deceptive and unfair practices in its members’ industries.101 Further, ‘‘consumer subscription models are rapidly growing in popularity,’’ 102 and there is evidence of the proliferation of negative option features in virtually every industry.103 The 100 Pennsylvania Funeral Dirs. Ass’n, Inc. v. FTC, 41 F.3d 81, 87–88 (3d Cir. 1994) (holding the FTC did not need ‘‘substantial, rigorous, quantitative studies’’ or to show the practice occurs in a certain percentage of transactions through the country to find prevalence). ‘‘Further, even where there is a limited record as to the prevalence of a practice on a nationwide basis or where the data reviewed only relates to a few states, the practice can be found to be prevalent enough to warrant a regulation.’’ Id. at 87. 101 NCTA, FTC–2023–0073–0008. 102 CTA, FTC–2023–0033–0997. CTA reports that a 2022 study found the global subscription ecommerce market is expected to reach $904.2 billion by 2026, and between 2021 and 2022, existing subscription brands grew their customer bases by 31 percent. 103 According to a 2018 McKinsey & Company study, the subscription e-commerce market increased more than 100% over a five-year period prior to the study’s publication. Tony Chen, Ken Fenyo, Sylvia Yang, and Jessica Zhang, ‘‘Thinking Inside the Subscription Box: New Research on ECommerce Consumers,’’ McKinsey & Company (February 2018) (as cited by, e.g., TechNet, FTC– 2023–0033–0869 and Individual commenter, FTC– 2023–0033–0800). PDMI also observed that negative options are offered in a wide array of product and services from major brands including media services, meal preparation kits, shaving and beauty products, beer and wine, contacts and ordinary household consumables. FTC–2023–0033–0864. Digital Content Next (‘‘DCN’’), FTC–2023–0033– 0983, reports the United States had more than one billion paid subscriptions in Q1 2023 across the digital media landscape, indicating almost all online U.S. households subscribe to one or more digital media subscription services. See also, e.g., Individual commenter, FTC–2023–0033–0137 (detailing difficulty cancelling recurring subscriptions for newspaper, mobile, and other businesses); Individual commenter, FTC–2023– 0033–0217 (reported spending hours on the phone and online to cancel mobile account); Individual commenter, FTC–2023–0033–0465 (reported difficulty cancelling rewards program subscription); Individual commenter, FTC–2023–0033–0674 (complaint reporting difficulty canceling mobile device protection subscription); Individual commenter, FTC–2023–0033–0965 (trying to cancel mobile phone service because they bill for different amount every month); Individual commenter, FTC– 2023–0033–0003 (difficulty cancelling ‘‘home warranty’’ subscription); Individual commenter, FTC–2023–0033–0004 (full cost and refund policy for gym contract not clearly disclosed); Individual commenter, FTC–2023–0033–0006 (‘‘2 attempts and far too much time’’ to cancel radio subscription); Individual commenter, FTC–2023–0033–0008 (discussing how ‘‘subscription services in particular pervade the market. Even long-standing ‘buy-itonce’ products such as certain software suits have moved to subscription models’’); Anonymous commenter, FTC–2023–0033–0013 (difficulty canceling home security monitoring contract, including hearing unwanted upsells); Anonymous commenter, FTC–2023–0033–0023 (webhosting VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 harms outlined here resulted from the negative option transaction itself, and many businesses, regardless of industry, are incentivized to continue to leverage negative options to the possible detriment of consumers.104 The Commission also declines to limit the scope of the final Rule by excluding business-to-business transactions. As explained in Section VII.B.1, the Commission has a long history of protecting businesses, particularly small business, in their role as consumers; the practices and harms described here impact these consumers, as well. (b) The Manner and Context in Which the Acts or Practices Are Unfair or Deceptive Pursuant to Section 18 and the Commission’s Rules, the Commission must also state the manner and context in which the prevalent acts or practices are unfair or deceptive. The record demonstrates consumers are often lured into enrolling in negative option programs through seller misrepresentations about material facts—for instance, when a seller offers a product for ‘‘free’’ when it is not.105 Additionally, sellers misrepresent other aspects of the deal, such as product features, processing or shipping fees, billing information use, deadlines, consumer authorization, refunds, cancellations, among other facts.106 Sellers also often fail to disclose important information about the offer prior to billing the consumer. As detailed in the comments from, inter alia, State AGs and TINA, sellers fail to service); Anonymous commenter, FTC–2023–0033– 0024 (cable service); Individual commenter, FTC– 2023–0033–0039 (language learning app); Anonymous commenter, FTC–2023–0033–0046 (software); Individual commenter, FTC–2023–0033– 0049 (cannot cancel streaming service); Individual commenter, FTC–2023–0033–0050 (virus protection software and charity); Individual commenter, FTC– 2023–0033–0052 (e-news service subscription); Individual commenter, FTC–2023–0033–0057 (magazine subscription service); Individual commenter, FTC–2023–00330061 (newspaper); Individual commenter, FTC–2023–0033–0063 (big box retailer membership); Individual commenter, FTC–2023–0033–0064 (cosmetics); Anonymous commenter, FTC–2023–0033–0066 (home warranty service); Individual commenter, FTC–2023–0033– 0071 (lawncare service). 104 See Prof. Chris Jay Hoofnagle, UC Berkeley (‘‘Hoofnagle’’), FTC–2023–0033–1137 (discussing the subscription economy). See also nn.245–252, collecting cases showing deceptive and unfair negative option practices occur across a wide range of industries and involve a variety of claims. 105 State AGs, FTC–2023–0033–0886 (consumer paid for shipping on ‘‘free’’ gift only to have it converted to a paid item because she retained the item); id. (Money Map Press), FTC v. Triangle Media Corp., No. 3:18–cv–01388 (S.D. Cal. 2018) (consumers who clicked on ads for risk free trials, paid for shipping and handling fees unwittingly enrolled in negative option programs). 106 See nn.245–252 (collecting cases). PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 disclose in a clear and conspicuous manner the existence of the negative option feature, refund and cancellation deadlines, or other material terms of the agreement, resulting in consumers purchasing goods or services they do not want.107 All of these unfair or deceptive acts are further supported in dozens of FTC, State AG, and class action cases.108 The record also demonstrates sellers fail to obtain consumers’ express informed consent to the negative option feature before charging them. For instance, as detailed in representative consumer complaints from State AGs and several FTC cases, consumers are often unwittingly enrolled into recurring subscriptions with promises of no- or low-cost or discounted rates (not knowing that agreeing will result in subscription to a costly membership), with consumers not realizing the deceptive and unfair enrollment until they see unexpected charges, often after several billing cycles.109 Finally, substantial record evidence shows sellers often fail to provide a simple cancellation method. If consumers cannot easily leave a negative option program when they wish, the negative option feature is merely a means of charging consumers for goods or services they no longer want. Commission cases, the Sentinel complaint database, and State Attorneys General’s complaints all show sellers often use difficult and cumbersome cancellation mechanisms to prevent or curtail cancellations.110 This fact is further corroborated by studies discussed above.111 107 See State Attorneys General (ANPR), FTC– 2019–0082–0012 and State AGs, FTC–2023–0033– 0886; TINA, FTC–2019–0082–0014 and FTC–2023– 0033–1139. 108 See, e.g., id.; see also FTC v. Pact, Inc., No. 2:17–cv–1429 (W.D. Wash. 2017); United States v. MyLife.com, Inc., No. 2:20–cv–6692 (C.D. Cal. 2020); FTC v. NutraClick, LLC, No. 2:20–cv–08612 (C.D. Cal. 2020); In re Dun & Bradstreet, Inc., FTC Docket No. C–4761 (2022). See generally Staff Report, n.16. 109 See, e.g., State Attorneys General (ANPR), FTC–2019–0082–0012 and State AGs, FTC–2023– 0033–0886; FTC v. FloatMe Corp., No. 5:24–cv– 00001 (W.D. Tex. 2024); United States v. Cerebral, Inc., No. 1:24–cv–21376 (S.D. Fla. 2024); FTC v. Bridge It, Inc., No. 1:23–cv–09651 (S.D.N.Y. 2023); FTC v. Benefytt Techs., Inc., No. 8:22–cv–01794 (M.D. Fla. 2022); FTC v. First Am. Payment Sys., No. 4:22–cv–00654 (E.D. Tex. 2022); FTC v. NutraClick, LLC, No. 2:20–cv–08612 (C.D. Cal. 2020); FTC v. F9 Advert., LLC, No. 3:19–cv–01174 (D.P.R. 2019); FTC v. Age of Learning, Inc., No. 2:20–cv–07996 (C.D. Cal. 2020); FTC v. NutraClick, LLC, No. 2:16–cv–06819 (C.D. Cal. 2016); FTC v. AH Media Grp., LLC, No. 3:19–cv–04022 (N.D. Cal. 2019); In re Urthbox, Inc., FTC Docket No. C–4676 (2019); FTC v. Health Rsch. Labs., LLC, No. 2:17– cv–00467 (D. Me. 2017); FTC v HispaNexo, Inc., No. 1:06–cv–424 (E.D. Va. 2006). 110 See section VII.B.6. 111 Section VII.A.1.a. E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations (c) Statement as to the Economic Effect of the Rule Finally, pursuant to section 18 and the Commission’s Rules, the SBP must include a statement regarding the economic effect of the Rule. As part of these rulemaking proceedings, the Commission solicited and received comments on the economic impact of the proposed Rule. In issuing the final Rule, the Commission has carefully considered the comments and other information received as well as the costs and benefits of each provision, as discussed in more detail in section X, Final Regulatory Analysis. That analysis demonstrates the benefits of the Rule far exceed the costs. Benefits were evaluated on a per-cancellation basis; that is, the analysis assumes the primary consumer benefit of the Rule will come in the form of faster cancellations. Costs were evaluated primarily to reflect resources spent by businesses to review and come into compliance with the Rule. The overall net benefit of the Rule is estimated to exceed $5.3B (and could be as much as $49.2B) over the first 10 years (in 2023 dollars). khammond on DSKJM1Z7X2PROD with RULES3 2. Magnuson-Moss Specificity Requirement Pursuant to Magnuson-Moss, the Commission must also define with specificity acts or practices which are unfair or deceptive and either prohibit those activities or establish rules to prevent them. The Commission has done just that, despite some commenters’ arguments to the contrary. Specifically, IAB and others 112 argue the provision prohibiting material misrepresentations fails to define claims that fall within its scope, and therefore, ‘‘fails to identify covered acts with the requisite level of specificity.’’ 113 First, section 18 does not require the Commission to define claims with specificity, only acts or practices. The practice of misrepresenting the material facts of a transaction, for instance, is a deceptive practice, but could vary depending on the transaction’s terms. Requiring the Commission to identify particular claims would make its rules no better than a leaky sieve, unable to effectively address consumer harm. Second, the NPRM and the final Rule do define with the requisite specificity 112 IAB, FTC–2023–0033–1000; Coalition Comments from CCIA, Direct Selling Association, Information Technology Industry Council, IAB, Software & Information Industry Association, and Chamber (‘‘Coalition’’), FTC–2023–0033–0884; PDMI, FTC–2023–033–0864; TechNet, FTC–2023– 0033–0869; TechFreedom, FTC–2023–0033–0872; ACT-The App Association (‘‘ACT App Association’’), FTC–2023–0033–0874; USTelecom, FTC–2023–0033–0876. 113 IAB, FTC–2023–0033–1000. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 the unfair or deceptive negative option acts and practices covered by the Rule.114 While those critical of the proposed Rule cite to Katharine Gibbs School v. FTC, 612 F.2d 658 (2d Cir. 1979), this case is inapposite. In Katharine Gibbs School, the Second Circuit held the Commission failed to connect elements of its trade regulation rule to specifically defined unfair or deceptive acts or practices. The opinion held the Commission may not merely set requirements and then define failure to meet those requirements as unfair or deceptive acts or practices. The Commission must instead identify some underlying deceptive or unfair conduct and connect the rule requirements to that conduct. In contrast here, the Commission specifically identified misrepresentation of material facts as a deceptive practice, and defined the term ‘‘material’’ with the same meaning it has under Section 5 of the FTC Act.115 Moreover, the misrepresentations provision goes further, providing categories of potentially material facts to assist the marketplace in understanding the provision and supporting those examples with cases.116 Thus, the final Rule’s prohibition against material misrepresentations is not only connected to underlying deceptive or unfair conduct, but in fact prohibits that very conduct. 3. Other Legal Issues Several commenters raised additional challenges to the Commission’s ability to promulgate the Rule. These challenges fall into two categories. First, some commenters argued the Commission failed to give adequate notice of the scope of the proposed amendments to the Rule in the ANPR in accordance with Section 57a(b)(2)(A) of the FTC Act. Second, four commenters argued the Commission exceeded its grant of Congressional authority under the ‘‘major questions’’ doctrine. The Commission addresses each argument below. 114 See Section I; Section VII.A, defining the acts and practices covered in §§ 425.3 through 425.6 as unfair or deceptive and a violation of the Rule. As acknowledged by USTelecom, the ‘‘contours of the ‘specificity’ requirement have not been precisely defined.’’ FTC–2023–0033–0876. 115 See SBP Section VII.B.3 discussing § 425.3. 116 Id. As explained in the Katharine Gibbs School dissent, ‘‘Congress required specific definitions of such practices so that a rule would ‘reasonably and fairly inform those within its ambit of the obligation to be met and the activity to be avoided.’ ’’ 612 F.2d 658, 672 (quoting H.R. Rep. No.93–1107, 93d Cong., 2d Sess. 46 (1974), reprinted in (1974) U.S.C.C.A.N., pp. 7702, 7727). PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 90485 (a) ANPR Several commenters asserted the ANPR, issued in 2019, failed to provide adequate notice of the acts and practices to be covered by the proposed Rule. Specifically, ESA, USTelecom, RILA, a coalition of trade associations, Chamber, CCIA, IAB, and NRF argued the ANPR failed to provide notice the proposed Rule would cover misrepresentations of all material facts; would require express informed consent to opt-in to receive a save; 117 and would require an annual reminder.118 Thus, according to these commenters, including these provisions in the final Rule would violate Section 18(b)(2)(A). They further argued the lack of these topics’ inclusion in the ANPR meant that affected entities had inadequate opportunity to provide input, leading to an inadequate rulemaking record.119 These arguments, however, are unpersuasive. Section 18 imposes no requirement the ANPR have the level of specificity the commenters demand. In fact, the statute only says the ANPR must include ‘‘a brief description of the area of inquiry under consideration, the objectives which the Commission seeks to achieve, and possible regulatory alternatives under consideration by the Commission.’’ 120 The Commission included a discussion of each of these topics in the ANPR.121 Moreover, the affected entities have had the chance to raise concerns with the Rule in their comments to the NPRM, which the Commission has considered and responded to in this Statement of Basis and Purpose. (b) Major Questions Doctrine Four commenters asserted the Rule implicates the ‘‘major questions’’ doctrine.122 According to the Supreme Court, the major questions doctrine is implicated in ‘‘extraordinary cases . . . in which the history and the breadth of the authority that the agency has 117 As discussed in Section VII.B.6, the Commission removes the proposed save provision from the final Rule. 118 As discussed in Section VII.B.7, the Commission removes the proposed annual reminder provision from the final Rule. 119 E.g., IAB, FTC–2023–0033–1000. 120 15 U.S.C. 57a(b)(2)(A). ‘‘The Advance Notice [of Proposed Rulemaking] is a formal invitation to participate in shaping the proposed rule and starts the notice-and-comment process in motion.’’ Office of the Federal Register, ‘‘A Guide to the Rulemaking Process,’’ https://www.federalregister.gov/uploads/ 2011/01/the_rulemaking_process.pdf. 121 ANPR, 84 FR 52393; see also id. 52396–8 (Request for Comments); Section VII.B.3.b.1 (discussing ANPR in context of § 425.3). 122 PDMI, FTC–2023–0033–0864; ACT App Association, FTC–2023–0033–0874; Coalition, FTC–2023–0033–0884; Chamber, FTC–2023–0033– 0885. E:\FR\FM\15NOR3.SGM 15NOR3 90486 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 asserted, and the economic and political significance of that assertion, provide a reason to hesitate before concluding that Congress meant to confer such authority.’’ 123 Citing this authority, the commenters argue Congress only granted the FTC ‘‘limited and tailored authorities to regulate certain mediums and types of negative option marketing, but not all mediums and types as the NPRM encompasses.’’ 124 Further, they assert Congress never intended for the Commission to create a comprehensive regulatory scheme for negative option marketing that encompasses the variety of requirements proposed in the NPRM. Because negative option programs play an ever-increasing role in the economy, these commenters claim the proposed Rule would ‘‘dramatically alter’’ how companies structure their subscription services.125 More specifically, they assert the prohibition against misrepresentations, together with the ability to seek civil penalties in Federal court, would expand the FTC’s authority beyond that envisioned by Congress. However, far from exceeding Congressional intent, the Rule merely effectuates that intent in a way wholly consistent with the specific requirements set forth in Section 18 of the FTC Act. Specifically, Congress explicitly authorized the Commission to prescribe ‘‘rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce (within the meaning of such section 5(a)(1)),’’ which ‘‘may include requirements prescribed for the purpose of preventing such acts or practices.’’ 126 As demonstrated below, each of the Rule’s provisions identifies specific deceptive or unfair acts or practices that are prevalent throughout the marketplace and ties each Rule provision tightly to those findings. As the Supreme Court explained, courts use the ‘‘major questions doctrine’’ when examining ‘‘extraordinary cases’’ where agency action would ‘‘make a radical or fundamental change’’ to a statutory scheme and assert ‘‘extravagant’’ authority over the national economy through ‘‘ambiguous statutory text,’’ citing ‘‘modest words,’’ ‘‘vague terms,’’ ‘‘subtle device[s],’’ or ‘‘oblique or elliptical language.’’ 127 Here, no such 123 West Virginia v. EPA, 597 U.S. 697, 721 (2022) (internal quotations cleaned up). Accord Biden v. Nebraska, 143 S. Ct. 2355, 2372 (2023). 124 Coalition, FTC–2023–0033–0884. 125 See, e.g., PDMI, FTC–2023–0033–0864. 126 15 U.S.C. 57a(a)(1)(B). 127 West Virginia v. EPA, 597 U.S. at 723 (cleaned up). VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 extraordinary circumstance exists. The prohibitions and disclosures in the Rule do not effect a major change in the economy. In fact, all the substantive requirements in the Rule are already extant under section 5 of the FTC Act, ROSCA, or the TSR. Moreover, the Rules’ terms, as explained below, are neither vague, oblique, or elliptical—in fact, if anything, they are clearer than the legal authority just cited. B. Discussion of Specific Rule Provisions, Section-by-Section Analysis Below, for each provision of the proposed Rule, the Commission reviews the provision, summarizes comments received in response, and sets forth the final Rule with an analysis of the comments and other record evidence. 1. Proposed § 425.1 Scope The Commission proposed eliminating the old Rule’s prescriptive requirements applicable to prenotification plans and replacing them with flexible, but enforceable, standards. The proposed requirements would apply to all forms of negative option marketing, including prenotification and continuity plans, automatic renewals, and free trial offers.128 The expanded coverage would establish a common set of requirements applicable to all types of negative option marketing. The proposed Rule would cover offers made in all media, including internet, telephone, in-person, and printed material, and would apply to all ‘‘negative option sellers.’’ With certain exceptions, not applicable here, the FTC Act provides the agency with jurisdiction over nearly every economic sector.129 (a) Negative Option Seller (1) Comments The scope of the proposed Rule covered ‘‘negative option seller,’’ defined to mean ‘‘the person selling, offering, promoting, charging for, or otherwise marketing goods or services with a negative option feature.’’ Several 128 The proposed Rule stated it applied to any form of negative option plan. Because ‘‘negative option plan’’ was a defined term in the old Rule specifically referring to prenotification plans, the Commission modifies the scope to apply to any form of ‘‘negative option program.’’ 129 Certain entities or activities are wholly or partially exempt from FTC jurisdiction under the FTC Act, including most depository institutions, charities, transportation and communications common carriers, and the business of insurance. Under Sections 4 and 5 of the FTC Act, however, the Commission’s jurisdiction extends to companies organized to carry on business for their own profit or that of their members, even if those companies are organized under state law as a not-for-profit entity. See California Dental Ass’n v. FTC, 526 U.S. 756 (1999). But see n.151. PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 commenters raised concerns regarding the scope of this definition. The Chamber, for example, suggested the Commission delete the term ‘‘promoting’’ from the definition.130 It cited a wide variety of actors who could be swept in by the term, including ‘‘advertising companies, web designers, [and] entities in the supply chain,’’ who ‘‘may not actually play an active role in determining’’ what consumers see and hear about negative option programs.131 An individual business commenter also criticized the term, saying to include ‘‘promoting’’ ‘‘would potentially burden our technicians and our business when we provide service for equipment manufacturers that have their own service contract programs.’’ 132 ETA, representing the payments industry, addressed the words ‘‘charging for’’ in the definition.133 ETA interpreted those words not to cover ‘‘intermediaries, such as payment processors, that merely effect the transfer of funds from the consumer buyer to the merchant seller resulting from a negative option feature.’’ 134 ETA noted that payment intermediaries typically ‘‘do not control the terms of the negative option feature and do not control the interface with the consumer buyer.’’ 135 ETA therefore suggested the final Rule ‘‘include an express exemption for payment processors and other intermediaries.’’ 136 Other commenters, while not specifically criticizing the definition of negative option seller, raised concerns about the scope of the proposed Rule where third parties are involved in marketing and cancellation. For example, several suggested the Rule exempt a seller who contracts with a third party for subscription enrollment, management, or cancellation services.137 PDMI argued, ‘‘it is 130 Chamber, FTC–2023–0033–0885. 131 Id. 132 Individual commenter, FTC–2023–0033–1136. Transactions Association (‘‘ETA’’), FTC–2023–0033–1004. 134 Id. 135 Id. 136 Id. IHRSA noted health and fitness membership charges are typically processed on a monthly basis from the time of agreement, and in many cases by a third-party service provider. IHRSA, FTC–2023–0033–0863. 137 NCTA asserted, ‘‘The proposed rule also fails to account for third-party sign-up arrangements. For example, programmers have arrangements with Roku, Amazon, Apple, and others that allow consumers to sign up through these third parties for their streaming services.’’ NCTA, FTC–2023–0033– 0858. N/MA suggested the Commission ‘‘should make clear that when a sale with a negative option feature is made through a third party that controls the process of purchasing and/or cancelling a subscription with a negative option feature, any new requirements would apply to the third party only, and not to the company that fulfills the 133 Electronic E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations (2) Analysis Based on the record, the Commission revises the definition of ‘‘negative option seller’’ to remove the word ‘‘promoting,’’ but declines to create status-based exemptions.140 Moreover, the Commission clarifies it will enforce the final Rule in accordance with established section 5 principles regarding parties’ responsibilities for, and involvement in, relevant activity. This approach should fully address commenters’ concerns while maintaining the Rule’s consumer protections. As several commenters observed, a wide variety of actors may have secondary or tertiary roles in promoting products or services with a negative option feature. Further, as the Chamber noted, ‘‘many of those participants . . . may not actually play an active role in determining how the negative option is presented to the consumer.’’ 141 Similarly, participants in the promotion process may have no role in cancellation. Deleting the word ‘‘promoting’’ from the definition of negative option seller addresses this issue by ensuring those who have no active participation in the negative option feature are outside the Rule’s coverage. However, this amendment does not mean all actors involved in promotion are exempt from the Rule. A participant who promotes and takes on a further role ‘‘selling, offering, charging for, or otherwise marketing goods or services with a negative option feature’’ remains subject to the final Rule, including the provisions covering ‘‘promoting’’ such goods or services for those who meet the negative option seller definition.142 The Commission declines to adopt a status-based exemption for payment intermediaries. Such exemptions are overbroad, excluding actors engaged in the practices condemned by the Rule. For example, a payment processor selling its own services on a negative option basis, as opposed to just providing payment services for another negative option seller, is no different than any other business covered by the Rule. Additionally, as ETA correctly noted, the words ‘‘charging for’’ as used in the Rule do not cover intermediaries merely effecting the transfer of funds from the consumer buyer to the merchant seller. This is consistent with the Commission’s interpretation of ROSCA’s coverage of persons who ‘‘charge or attempt to charge any consumer.’’ 143 Based on longstanding section 5 principles, the Commission has not enforced ROSCA against payment intermediaries solely for their conduct in effecting funds transfers.144 The Commission will apply the same principles to the Rule.145 Similarly, the Commission will not grant blanket exemptions to sellers who contract with third parties while offering subscription services. The Commission expects negative option sellers to evaluate their commercial relationships with the Rule’s provisions in mind. Even where a seller does not directly manage its negative option subscription.’’ N/MA, FTC–2023–0033–0873. Marketplace Industry Association (‘‘MIA’’) requested ‘‘the Commission clarify that where there are third-party payment platforms managing Subscriptions on behalf of businesses . . . (collectively, ‘‘Third Party Subscription Managers’’), that such Third Party Subscription Managers be legally responsible and legally liable for compliance with the proposed Rule. As is the case with Third Party Subscription Managers, businesses that offer Subscriptions have zero control over such Subscriptions, including the initiation of Subscriptions or the cancellation of Subscriptions. Said another way, it is impossible for businesses to comply with the proposed Rule where there are Third Party Subscription Managers. As such, the Association requests that the Commission make clear that Third Party Subscription Managers be responsible for compliance with the proposed Rule, including any penalties for noncompliance.’’ MIA, FTC–2023–0033–1008. 138 PDMI, FTC–2023–003–0864. 139 NRF, FTC–2023–0033–1005. 140 See also Section VII.B.1; Section VIII.A.1. 141 Chamber, FTC–2023–0033–0885. 142 See, e.g., FTC v. LeadClick Media, LLC, 838 F.3d 158, 172 (2d Cir. 2016) (operator of affiliate marketing network liable where it did not create ads but ‘‘directly participat[ed] in the deceptive scheme by recruiting, managing, and paying a network of affiliates to generate consumer traffic through the use of deceptive advertising and allowing the use of deceptive advertising where it had the authority to control the affiliates participating in its network.’’). 143 15 U.S.C. 8403. 144 See FTC v. Apex Capital Grp., LLC, No. 2:18– cv–09573 (C.D. Cal. 2018). In this ROSCA matter, the Commission amended its complaint to add payment intermediary defendants for their unlawful conduct in connection with the scheme. However, the Commission did not assert ROSCA claims against the payment intermediary defendants, instead asserting counts for credit card laundering and manipulation of chargeback levels as Section 5 violations. 145 Id.; see FTC v. First Am. Payment Sys., No. 4:22–cv–00654 (E.D. Tex. 2022) (ROSCA case against payment processor for its unlawful acts and practices against its merchant customers). khammond on DSKJM1Z7X2PROD with RULES3 imperative that the Proposed Rule exempt sellers from compliance with those provisions that are not under their direct control . . . [and] should also exempt the seller from any misrepresentations made by a thirdparty platform.’’ 138 NRF expressed concern a careful retailer could still ‘‘face steep financial penalties for negligent misrepresentations (concerning, e.g., product efficacy) based on information provided by thirdparty vendors.’’ 139 VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 90487 feature disclosures, consent, or cancellation, it can satisfy its obligations under the Rule by choosing to contract with third parties who act in accordance with the Rule and monitoring those parties’ performance. An exemption for all sellers who contract with third parties to manage aspects of their negative option programs would effectively nullify the Rule by incentivizing less than legitimate sellers to contract with actors engaged in deceptive practices to maximize negative option enrollments and frustrate cancellation with impunity. A seller cannot evade its responsibility to deal honestly with consumers by contracting with a third party who does not.146 (b) Insurance (1) Comments Several commenters asked the Commission to expressly exclude insurance and State-regulated service contracts from the Rule.147 They argued Congress prohibited the FTC from regulating the ‘‘business of insurance’’ in section 2 of the McCarran-Ferguson Act and the FTC exempted insurance sales in its Cooling-Off Rule.148 They also asserted, ‘‘State regulations in every jurisdiction require an insurer to give notice of a policy renewal,’’ and State rules prohibit negative options.149 Other commenters argued the Commission should exempt all service contract providers from the Rule due to existing State laws and regulations,150 regardless 146 E.g., FTC v. LeadClick Media, LLC, 838 F.3d 158, 170 (2d Cir. 2016) (‘‘A defendant may be held liable for its own acts of deception under the FTC Act, whether by directly participating in deception or by allowing deceptive acts or practices to occur that are within its control.’’); see also FTC v. Inc21.com Corp., 688 F. Supp. 2d 927, 939 (N.D. Cal. 2010) (‘‘Even if Inc21 did not approve of the fraud (and it seems likely that it did approve), the fact remains that Inc21 is responsible for organizing this engine of fraud and reaping its profits. As such, Inc21 may certainly be held accountable[.]’’) (emphasis in original). 147 Asurion, FTC–2023–0033–0878; Florida Service Agreement Association, FTC–2023–0033– 0882; American Property Casualty Insurance Association (‘‘APCIA’’), FTC–2023–0033–0996; National Association of Mutual Insurance Companies (‘‘NAMIC’’), FTC–2023–0033–1143. 148 See 15 U.S.C. 1012; 16 CFR 429(a)(6). 149 NAMIC, FTC–2023–0033–1143. 150 SCIC, FTC–2023–0033–0879 (noting SCIC’s comment to the ANPR stated most states have substantial regulatory frameworks for service contracts and that industry operates nationwide consistent with the intent of the proposed Rule); CTIA, FTC–2023–0033–0866 (noting service contracts are typically regulated by state departments of insurance and most states with autorenewal laws, including California, New York, and Oregon, provide an exemption for entities regulated by the state department of insurance); Frontdoor, Inc. (‘‘Frontdoor’’), FTC–2023–0033– 0862 (noting majority of states have rigorous laws E:\FR\FM\15NOR3.SGM Continued 15NOR3 90488 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations of whether they are engaged in the ‘‘business of insurance’’ within the meaning of the McCarran-Ferguson Act. (2) Analysis The Commission declines to exempt insurance or service contracts from the Rule. The final Rule can be enforced by the Commission only against covered persons and activities within the Commission’s jurisdiction.151 Restating or further specifying each jurisdictional limit in the final Rule’s text, therefore, is not necessary. Additionally, the requested industrywide exemption is considerably broader than the FTC’s jurisdictional limitations. The McCarran-Ferguson Act does not exempt entities engaged in the business of insurance from the Commission’s jurisdiction unless such entities are subject to State regulation.152 Moreover, activities of entities within the insurance industry that are beyond the scope of the ‘‘business of insurance’’ are subject to the Commission’s jurisdiction.153 No commenter provided any compelling reason to exempt these otherwise covered activities from the Rule. Finally, commenters’ citations to existing State laws and regulations governing service contract sellers indicate these sellers already provide disclosures and protections consistent with the Rule. As a practical matter, sellers who already provide consumers the Rule’s protections should not be burdened by its application.154 (c) Business-to-Business khammond on DSKJM1Z7X2PROD with RULES3 (1) Comments Nine commenters noted the NPRM did not expressly address whether the for the offering, sale, and renewal of home service contracts, including the use of automatic renewals and applicable cancellation rights). 151 Nothing in this Rule, however, shall limit another agency’s ability to enforce this Rule within its own statutory authority, even if that authority is different than the FTC’s authority. See, e.g., 12 U.S.C. 5581(b)(5)(B)(ii). 152 FTC v. IAB Mktg. Assocs. LP, 746 F.3d 1228, 1235 (11th Cir. 2014) (‘‘[T]he FTC Act applies to the business of insurance only to the extent that such business is not regulated by state law.’’). 153 The Supreme Court has explained that, under the McCarran-Ferguson Act, a three-part factual inquiry is necessary to evaluate whether any particular activity constitutes the business of insurance. See Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982). First, does the activity have the effect of transferring or spreading a policyholder’s risk; second, is the activity an integral part of the policy relationship between the insurer and the insured; and third, is the practice limited to entities within the insurance industry. Id. This inquiry requires a factual analysis of the activities in question. 154 Moreover, service contract sellers, like other interested persons, may seek full or partial exemption from the final Rule. See Section VIII.A.1 (discussing new § 425.8, Exemptions provision). VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 proposed Rule would apply to businessto-business (‘‘B2B’’) transactions. Seven, including five industry associations,155 said it should not apply.156 Two individuals disagreed.157 Commenters advocating against including B2B sales in the Rule asserted the Commission should presume businesses are more sophisticated than individual consumers,158 and contended B2B contracts typically are individually negotiated.159 For example, ZoomInfo maintained business consumers are generally ‘‘more sophisticated than individual consumers,’’ explaining B2B contracts ‘‘are assumed to result from arm’slength negotiation and often benefit from professional legal counsel.’’ 160 Similarly, NCTA, an organization representing the internet and television industry, characterized business consumers as ‘‘typically sophisticated,’’ and said the Commission should not intervene in transactions based on ‘‘[n]on-form contracts that are the subject of extensive bargaining between sophisticated companies.’’ 161 Seller and consumer commenters differed on whether the harmful negative option practices discussed in the NPRM are extant for B2B consumers. In support of excluding B2B transactions, two commenters asserted there is insufficient evidence of harm in the B2B context to support a prevalence finding.162 A B2B consumer, however, noted individuals and small businesses both suffer from the harms of deceptive and unfair negative option practices. ‘‘As a small business owner,’’ the individual wrote, ‘‘as well as a 155 BSA, FTC–2023–0033–1015 (B2B software sellers); CTIA, FTC–2023–0033–0866 (wireless communication industry); ETA, FTC–2023–0033– 1004 (payments industry); NCTA, FTC–2023–0033– 0858 (internet and television); USTelecom, FTC– 2023–0033–0876 (broadband). A sixth association, the U.S. Chamber of Commerce, asked the Commission to ensure that the scope of its costbenefit analysis includes business-to-business transactions. FTC–2023–0033–0885. 156 Anonymous commenter, FTC–2023–0033– 1007; BSA, FTC–2023–0033–1015; CTIA, FTC– 2023–0033–0866; ETA, FTC–2023–0033–1004; NCTA, FTC–2023–0033–0858; USTelecom, FTC– 2023–0033–0876; ZoomInfo, FTC–2023–0033–0865. 157 Individual commenter, FTC–2023–0033–0755; Individual commenter, FTC–2023–0033–0042. 158 Anonymous commenter, FTC–2023–0033– 1007; CTIA, FTC–2023–0033–0866; NCTA, FTC– 2023–0033–0858; ZoomInfo, FTC–2023–0033–0865. 159 CTIA, FTC–2023–0033–0866; NCTA, FTC– 2023–0033–0858; USTelecom, FTC–2023–0033– 0876; ZoomInfo, FTC–2023–0033–0865. 160 ZoomInfo, FTC–2023–0033–0865. 161 NCTA, FTC–2023–0033–0858. NCTA requested any final rule exclude individually negotiated business-to-business contracts. FTC– 2023–0033–0858. 162 BSA, FTC–2023–0033–1015; NCTA, FTC– 2023–0033–0858. The Commission discusses the subject of prevalence more broadly at Section VII.A. PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 consumer, I am especially aware of how purposely difficult many companies make it to cancel their services. From telephone companies to travel channel companies . . . to email targeting campaigns . . . the cancelling process is ridiculously complex and at times hidden, if it exists at all on their websites.’’ 163 Seller and consumer commenters also differed on the significance of existing State law B2B exclusions. Three B2B sellers recommended the Commission follow those States that exclude B2B transactions.164 A consumer, however, asserted such exclusions are why this Rule is necessary.165 Specifically, the commenter explained: ‘‘negative option marketing also greatly affect[s] many individual sellers and small businesses,’’ but due to B2B exclusions, ‘‘some larger corporations or companies are able to take advantage of that loophole and use predatory negative option practices against individual sellers and small businesses.’’ 166 Some sellers also referred to other Federal regulations to support excluding businesses from the scope of the Rule. For instance, ETA and NCTA each noted the Commission excluded most B2B transactions in the TSR. ETA made the same observation about the Cooling Off Rule.167 Both CTIA and USTelecom approvingly cited the FCC’s approach. USTelecom explained, ‘‘the FCC has limited certain consumer protection rules to ‘mass-market retail services’ ’’ that are ‘‘ ‘marketed and sold on a standardized basis to residential customers, small businesses, and other end-user customers such as schools and libraries.’ ’’ 168 USTelecom further explained, ‘‘Mass-market retail services stand in contrast to ‘customized or individually negotiated arrangements’ that are typically offered to larger organizations.’’ 169 ETA questioned whether the Commission has authority to address B2B transactions. ETA argued the proposed Rule would let the Commission ‘‘interpose regulatory influence and law enforcement authority in contractual arrangements between businesses in a way that has not been authorized by Congress or 163 Individual commenter, FTC–2023–0033–0755. commenter, FTC–2023–0033– 1007 (California); BSA, FTC–2023–0033–1015 (California, Colorado, Delaware); ZoomInfo, FTC– 2023–0033–0865 (California, Colorado, Connecticut, Delaware, Hawaii, New York, Oregon, Tennessee, Virginia). 165 Individual commenter, FTC–2023–0033–0042. 166 Id. 167 16 CFR 429.0–429.3. 168 USTelecom, FTC–2023–0033–0876. 169 Id. 164 Anonymous E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations justified by the Commission’s own rationale for the Proposed Rule.’’ 170 ETA cited the Commission’s use of ROSCA in the First American Payment Systems case to illustrate its view the Rule’s application in the B2B context would be impermissible regulation of ‘‘an automatic renewal clause in an arm’s length commercial agreement.’’ 171 Finally, ETA and ZoomInfo argued various provisions of the Rule, such as the disclosure and notice requirements, could present unusual implementation problems in B2B transactions. For instance, ETA asserted disclosure requirements could result in operational uncertainty because the Commission did not consider all the typical terms included in B2B agreements. Similarly, ZoomInfo explained ‘‘B2B agreements are often complex, involving multiple decision-makers and points of contact, who might rotate or leave their roles over the course of a contract.’’ 172 (2) Analysis The final Rule, like the proposed Rule, covers B2B transactions. It has been the Commission’s longstanding view that section 5 of the FTC Act 173 protects business consumers as well as individual consumers. Moreover, commenters’ arguments that, under section 5, all business consumers must be held to a heightened standard of sophistication are inconsistent with settled law. The Commission has long enforced the FTC Act against those who deceive and act unfairly to businesses and other organizations.174 As the Supreme Court explained in FTC v. Standard Educ. Soc., 302 U.S. 112, 116 (1937), ‘‘Laws are made to protect the trusting as well as the suspicious.’’ This principle applies no less to the business consumer than to the individual.175 The Commission maintains a decades-long list of business protection cases on its website and dedicates significant effort 170 ETA, FTC–2023–0033–1004. (citing FTC v. First Am. Payment Sys., No. 4:22–cv–00654 (E.D. Tex. 2022)). 172 ZoomInfo, FTC–2023–0033–0865. ETA also raised a concern about the definition of negative option seller, addressed in Section VII.B.1.a. 173 15 U.S.C. 45(a). 174 See, e.g., Indep. Directory Corp. v. FTC, 188 F.2d 468 (2d Cir. 1951) (deceptive practices in selling directory ads to businesses). 175 Indep. Directory Corp., 188 F.2d at 470 (applying Standard Educ. Soc.); see also, e.g., FTC v. LoanPointe, LLC, 525 F. App’x 696, 701 (10th Cir. 2017) (FTC need only prove ‘‘the likelihood that a consumer (here, employers)’’ would be deceived); FTC v. Crittenden, 19 F.3d 26 (9th Cir. 1994) (Table) (noting stipulated judgment with B2B office supplier); FTC v. Inc21.com Corp., 688 F. Supp. 2d 927 (N.D. Cal. 2010) (preliminary injunction against deceptive and unfair B2B billing scheme); FTC v. IFC Credit Corp., 543 F. Supp. 2d 925, 934 (N.D. Ill. 2008) (FTC Act applies to B2B sales). khammond on DSKJM1Z7X2PROD with RULES3 171 Id. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 to educate and protect small businesses.176 Indeed, the Commission has made protecting small businesses a priority.177 Moreover, the TSR never exempted B2B transactions entirely. Importantly, the Commission recently amended the TSR to cover a broader scope of B2B activity. Specifically, in 2024, the Commission expanded the TSR to prohibit material misrepresentations and false or misleading statements in B2B calls due to the ongoing harm to small businesses from such practices.178 Additionally, recent Commission actions to protect small businesses underscore the fact deceptive practices pertaining to negative option features occur in B2B transactions just as they do with individual consumers. None of these cases present the arms-length negotiation of contracts by sophisticated parties that commenters claim to be universal. For example, in its 2022 action against First American Payment Systems,179 the Commission alleged the defendants violated section 5 and ROSCA by making false claims about fees and cost savings to persuade merchants in small- and medium-sized businesses, many of whom had limited English proficiency, to enter into payment processing agreements.180 Once enrolled, the defendants allegedly withdrew funds from merchants’ accounts without consent, and made it difficult and expensive to cancel the service. Under a stipulated court order, the defendants must (among other things) make it easier for merchants to cancel their services. In the Commission’s 2022 Dun & Bradstreet 181 matter, the complaint 176 See Fed. Trade Comm’n, ‘‘Protecting Small Businesses: Cases,’’ https://www.ftc.gov/businessguidance/small-businesses/protecting-smallbusinesses-cases (last visited October 23, 2024); Fed. Trade Comm’n, ‘‘Protecting Small Businesses,’’ https://www.ftc.gov/business-guidance/smallbusinesses (last visited October 23, 2024); Fed. Trade Comm’n, ‘‘Scams and Your Small Business: A Guide For Business,’’ https://www.ftc.gov/ business-guidance/resources/scams-your-smallbusiness-guide-business (last visited October 23, 2024). 177 See Press Release, Fed. Trade Comm’n, ‘‘FTC, BBB, and Law Enforcement Partners Announce Results of Operation Main Street: Stopping Small Business Scams Law Enforcement and Education Initiative’’ (June 18, 2018), https://www.ftc.gov/ news-events/press-releases/2018/06/ftc-bbb-lawenforcement-partners-announce-results-operationmain (last visited October 23, 2024). 178 TSR, 89 FR 26760 (April 16, 2024). 179 FTC v. First Am. Payment Sys., No. 4:22–cv– 00654 (E.D. Tex. 2022). 180 In describing the basis for the misrepresentations provision of the proposed Rule, the NPRM cited (among other cases) First Am. Payment Sys. NPRM, 88 FR 24726 n.65. See also ETA, FTC–2023–0033–1004. 181 In re Dun & Bradstreet, Inc., FTC Docket No. C–4761 (2022). PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 90489 alleged multiple deceptive practices pertaining to products the defendant marketed to small- and medium-sized businesses, in violation of section 5. The resulting consent order includes substantial provisions pertaining to negative option features. The Commission’s 2022 action against Vonage 182 also illustrates this point. The complaint detailed the defendants’ deceptive and unfair practices targeting both business and residential customers and alleged those practices violated section 5 and ROSCA.183 The stipulated court order includes multiple provisions relating to consent, cancellation, and disclosures pertaining to both individual and business consumers. Nonetheless, two arguments for excluding B2B transactions warrant additional discussion. First, several commenters elide the distinction between B2B agreements generally and individually negotiated B2B agreements. It is neither the purpose nor the effect of the final Rule to prevent businesses from entering into agreements with individually negotiated negative option terms. By requiring the cancellation mechanism to be ‘‘at least as easy to use’’ as the consent mechanism, the final Rule incorporates a symmetrical standard that accounts for individually negotiated B2B agreements. A B2B consumer who consents to a negative option feature through an individually negotiated term of an agreement can also individually negotiate the cancellation mechanism. Moreover, as the Commission noted above, it will enforce this Rule in the same manner in which it enforces section 5 of the FTC Act.184 The Commission has not used its consumer protection authority in the type of large individually negotiated B2B transactions commenters are worried about.185 Unsurprisingly, no commenter cited any historical instance to the contrary. Thus, the Rule preserves the ability of sophisticated business consumers to individually negotiate B2B agreement terms.186 182 FTC v. Vonage Holdings Corp., No. 3:22–cv– 06435 (D.N.J. 2022). 183 The Adobe matter provides another recent example of a matter alleging unlawful negative option practices targeting both individual and business consumers. United States v. Adobe, Inc., No. 5:24–cv–03630 (N.D. Cal. 2024). 184 See section VII.B.1.a. 185 See 16 CFR 2.3. 186 The Vonage order expressly exempts negative option feature provisions in B2B contracts where the defendants ‘‘possess evidence that consumers negotiated significant terms of the negative option feature that are only negotiable with business consumers.’’ FTC v. Vonage Holdings Corp., No. 3:22–cv–06435 (D.N.J. 2022). The final Rule is less prescriptive and more flexible than that order, E:\FR\FM\15NOR3.SGM Continued 15NOR3 90490 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations Second, it appears several commenters mistakenly thought the required simple cancellation mechanism would necessarily terminate all aspects of any broader contract or agreement. In fact, this provision only pertains to cancellation of the negative option feature. Complex commercial agreements, such as those described by ETA, will have numerous provisions unrelated to negative option features. Nothing in this Rule prohibits these provisions from being subject to separate cancellation and termination terms. khammond on DSKJM1Z7X2PROD with RULES3 2. Proposed § 425.2 Definitions In the NPRM, the proposed Rule set forth several definitions. For example, the proposed Rule defined ‘‘negative option feature’’ as a contract provision under which the consumer’s silence or failure to take affirmative action to reject a good or service or to cancel an agreement is interpreted by the negative option seller as acceptance or continuing acceptance of an offer. This definition is consistent with the TSR and ROSCA (which references the TSR’s definition). The proposed term includes, but is not limited to, automatic renewals, continuity plans, free-to-pay conversion or fee-to-pay conversions, and pre-notification negative option plans.187 Additionally, the proposed Rule defined ‘‘clear and conspicuous,’’ ‘‘negative option seller,’’ and ‘‘save.’’ To define ‘‘clear and conspicuous,’’ the FTC imported its definition developed through years of enforcement experience. As explained in the NPRM, the proposed definition substantially overlaps with the concepts provided in California and District of Columbia negative option laws,188 with one exception. Specifically, the District of Columbia definition requires disclosures to be visually proximate to any request for consumer consent. The final Rule incorporates this requirement in a separate consent section. (a) Summary of Comments The Commission did not receive any comments specifically supporting any proposed definition, though several commenters generally supported the concepts incorporated in the definitions, such as ‘‘clear and conspicuous disclosures.’’ Several commenters critiqued the Commission’s omission of certain definitions, such as thereby promoting more flexibility in the marketplace. 187 Section II of this Notice contains descriptions of these various plans. 188 Cal. Bus. & Prof. Code section 17601 and DC Code section 28A–202. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 ‘‘material’’ in connection with § 425.3 and § 425.4,189 ‘‘simple cancellation mechanism,’’ 190 ‘‘practical,’’ and ‘‘normal business hours,’’ 191 because these terms are used throughout the Rule. Other commenters asked the Commission to add a definition for ‘‘consumer’’ that excludes businesses,192 while another asked the Commission to include small businesses in that definition.193 Similarly, other commenters asked the Commission to ‘‘exempt’’ certain industries from, or otherwise alter the scope of, the definition of ‘‘negative option seller.’’ 194 Several commenters critiqued the proposed definitions. For example, ESA stated ‘‘the definition of ‘save’ 195 is overly broad and would prohibit the presentation of useful, consumerfriendly details about a consumer’s subscription before they cancel it.’’ 196 Other commenters questioned why the ‘‘clear and conspicuous’’ definitions says a disclosure is not clear and 189 See, e.g., BSA, FTC–2023–0033–1015 (material is not defined); Chamber, FTC–2023– 0033–0885 (same). 190 Center for Data Innovation (‘‘CDI’’), FTC– 2023–0033–0887; see also Act App Association, FTC–2023–0033–0874; NRF, FTC–2023–0033–1005 (failed to defined ‘‘as simple as’’). 191 International Carwash Association, FTC– 2023–0033–1142. 192 See, e.g., Anonymous commenter, FTC–2023– 0033–1007; Zoominfo, FTC–2023–0033–0865; CTIA, FTC–2023–0033–0866; BSA, FTC–2023– 0033–1015. 193 Individual commenter, FTC–2023–0033–0042. 194 See, e.g., Asurion, FTC–2023–0033–0878 (exempt service contracts); Chamber, FTC–2023– 0033–0885 (exclude promoting); ETA, FTC–2023– 0033–1004 (exclude ‘‘charging for’’). These requests are more appropriately addressed in the scope and requested exemptions, and the Commission does not consider them here. 195 Save was defined in the proposed Rule as an attempt by a seller to present any additional offers, modifications to the existing agreement, reasons to retain the existing offer, or similar information when a consumer attempts to cancel a negative option feature. 196 ESA, FTC–2023–0033–0867. PDMI argued similarly as to the definition of save. FTC–2023– 0033–0864 (arguing sellers should be able to be able to immediately discuss pause, skip or modification options without having to ask for permission, particularly because it is impossible to know which customers prefer to cancel as opposed to merely modify their current plan). Accord USTelecom, FTC–2023–0033–0876 (definition of Save overly broad); RILA, FTC–2023–0033–0883 (modify definition of save to allow short clarification and confirmation of intent follow-up communications); Chamber, FTC–2023–0033–0885; CDI, FTC–2023– 0033–0887 (‘‘Commission should exclude information about permanent, irreparable harms that may result from cancellation, and is relevant to the current subscription or product plan.’’); CCIA, FTC–2023–0033–0984; IAB, FTC–2023– 0033–1000 (definition of save overly broad and ‘‘would prohibit the presentation of useful, consumer-friendly details about a consumer’s subscription before they cancel it.’’). PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 conspicuous, if a consumer must click on a hyperlink to see it.197 Additionally, several commenters requested the Commission revise certain of its proposed definitions for clarity. For instance, the National Federation of Independent Businesses (‘‘NFIB’’) asked the Commission to revise the definitions for ‘‘clear and conspicuous’’ and ‘‘negative option feature’’ to ‘‘make their meanings clearer’’ 198 by, for example, using simpler words in the clear and conspicuous definition (‘‘words and grammar’’ versus ‘‘diction and syntax’’) or by providing detailed examples of each type of program covered in the definition of negative option feature. NFIB further explained ‘‘Those regulated by and served by subsection 425.2(d) most likely would understand the meaning of an automatic renewal, but perhaps not the meaning of the other examples.’’ 199 (b) Analysis Based on the record, the Commission makes several changes to the proposed definitions. First, as explained in sections VII.B.1.3 (material) and VII.B.6.c.2.b.ii (interactive electronic medium), it adds definitions of material and interactive electronic medium for clarity. Further, as discussed in section VII.B.4, the Commission modifies the definition of clear and conspicuous. Second, the Commission removes the definition of save. As discussed in section VII.B.6.c the proposed saves provision did not achieve the right balance between protecting consumers from unfair tactics and allowing sellers to provide necessary and valuable information about cancellation. Therefore, the Commission declines to include the NPRM’s proposed limitation on saves, and instead will consider issuing an SNPRM in the future for 197 See, e.g., NCTA, FTC–2023–0033–0858 (definition does not take into account small screens); Chamber, FTC–2023–0033–0885 (‘‘The requirements that disclosure on the internet or mobile applications be ‘unavoidable’ and ‘immediately adjacent’ rase practical concerns.’’); CCIA, FTC–2023–0033–0984 (definition should ‘‘hew closely to the Commission’s guidance in its .com Disclosures policy to ensure regulatory consistency.’’). 198 NFIB, FTC–2023–0033–0789. Accord Kuehn, FTC–2023–0033–0871 (proposed revised definition of negative option feature); Chamber, FTC–2023– 0033–0885 (requests the definition of negative option feature to be revised to exclude monthly subscription services). See section VII.B.4 for further discussion of proposed modifications. See also ETA, FTC–2023–0033–1004 (clarify and narrow ‘‘automatic renewal in the definition). 199 NFIB, FTC–2023–0033–0789 (requesting specific examples of each type of program be included in the definition of negative option feature); see also IHRSA, FTC–2023–0033–0863 (observes the Commission does not define what ‘‘automatic renewal, continuity plan’’ and other examples of negative option features mean). E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations further comment. Accordingly, without the saves provision, the Commission determines there is no need for a defined term at this time. Although several commenters critiqued the lack of definitions for such terms as ‘‘simple cancellation mechanism,’’ ‘‘practical,’’ or ‘‘normal business hours,’’ the Commission addresses these concerns with further clarification, rather than with formal definitions, in the section-by-section analysis below. As to commenter requests for a definition of ‘‘consumer’’ expressly excluding (or including) business-to-business transactions, the Commission similarly addresses these requests in the sections regarding scope and requested exemptions, above. Finally, NFIB asked the Commission to add specific examples of each type of negative option program to the text of the Rule, stating those served by the Rule would likely not understand these ‘‘terms of art.’’ 200 The Commission discusses examples of each type of negative option program in more detail as part of the SBP at section II. Further, the Commission typically engages in robust consumer and business education campaigns when promulgating and issuing final rules and will do so here. The Commission therefore disagrees the Rule must incorporate these examples into the text.201 3. Proposed § 425.3 Misrepresentations Section 425.3 of the proposed Rule prohibited sellers from misrepresenting ‘‘any material fact related to the transaction, such as the negative option feature, or any material fact related to the underlying good or service.’’ 202 As explained in the NPRM, ‘‘misrepresentations in negative option marketing cases often involve deceptive representations not only related to the negative option feature but to the underlying product (or service) or other aspects of the transaction as well.’’ 203 These include ‘‘misrepresentations related to costs, product efficacy, free trial claims, processing or shipping fees, billing information use, deadlines, consumer authorization, refunds, [and] cancellation.’’ 204 200 NFIB, FTC–2023–0033–0789. as explained in n.307, the Commission also declines to revise the definition of ‘‘clear and conspicuous’’ to replace the words ‘‘diction and syntax’’ with ‘‘words and grammar.’’ 202 NPRM, 88 FR 24734. 203 NPRM, 88 FR 24726. 204 Id. (citing e.g., FTC v. Tarr, No. 3:17–cv–02024 (S.D. Cal. 2017); FTC v. First Am. Payment Sys., No. 4:22–cv–00654 (E.D. Tex. 2022); FTC v. XXL Impressions, LLC, No. 1:17–cv–00067 (D. Me. 2017); United States v. MyLife.com, Inc., No. 2:20–cv–6692 (C.D. Cal. 2020); FTC v. Health Rsch. Labs., LLC, khammond on DSKJM1Z7X2PROD with RULES3 201 Further, VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 The FTC Act provides the legal basis for the Commission to prevent and remedy misrepresentations in the negative option context. Specifically, section 5(a)(1) of the FTC Act declares unfair or deceptive acts or practices in or affecting commerce to be unlawful. Negative option sellers making material misrepresentations are engaged in deceptive practices. Addressing these practices through the Rule prevents deception by giving the Commission the ability to seek civil penalties (where appropriate under 5(m)(1)(a)), where they are not already provided, thus deterring misrepresentations, protecting consumers, and leveling the playing field for ‘‘honest sellers who must compete with those who engage in deception.’’ 205 (a) Summary of Comments The State AGs strongly supported this provision, stating, for example, it would ‘‘combat[ ] seller misrepresentations, by providing the FTC with authority to seek civil penalties and consumer redress for material misrepresentations in all types of media.’’ 206 Echoing the NPRM, they explained, ‘‘[l]ike the FTC, we have found that negative option marketing cases ‘often involve deceptive representations not only related to the negative option feature but to the underlying product (or service) or other aspects of the transaction as well.’ ’’ 207 Law Professors further supported prohibiting ‘‘material misrepresentations . . . whether or not the false claim is exclusively about the negative option feature.’’ 208 They, too, offered evidence of the prevalence of misconduct, stating ‘‘entities like the Better Business Bureau have long reported, based on FTC and other data, the prevalence of misrepresentation in certain negative option arrangements, and non-FTC enforcement efforts confirm the problem.’’ 209 Citing No. 2:17–cv–00467 (D. Me. 2017); FTC v. Leanspa, LLC, No. 3:11–cv–01715 (D. Conn. 2011); FTC v. WealthPress, Inc., No. 3:23–cv–00046 (M.D. Fla. 2023); FTC v. BunZai Media Grp., Inc., No. 2:15– cv–04527 (C.D. Cal. 2015); FTC v. Willms, No. 2:11– cv–00828 (W.D. Wash. 2011); FTC v. Universal Premium Servs., No. 2:06–cv–00849 (C.D. Cal. 2006); FTC v. Remote Response Corp., No. 1:06–cv– 20168 (S.D. Fla. 2006); and FTC v. Johnson, No. 2:10–cv–02203 (D. Nev. 2016). 205 NPRM, 88 FR 24726. 206 State AGs, FTC–2023–0033–0886. 207 Id. 208 Law Professors, FTC–2023–0033–0861. 209 Id., citing Better Business Bureau, ‘‘BBB Investigation Update: Free Trial Offer Scams’’ (Apr. 2020), https://www.bbb.org/article/news-releases/ 22040-bbb-update-free-trial-offerscams; C. Steven Baker & Better Business Bureau, ‘‘Subscription Traps and Deceptive Free Trials Scam Millions with Misleading Ads and Fake Celebrity Endorsements’’ (Dec. 2018), https://www.bbb.org/article/ investigations/18929-subscription-traps-and- PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 90491 multiple sources, they argued the ‘‘Commission thus has more than ample ‘reason to believe that’ co-occurring negative option violations and other misrepresentations ‘are prevalent.’ ’’ 210 These commenters further argued the Commission should not adopt a narrower provision limited strictly to the elements of a negative option feature because, in their view, it would be difficult ‘‘to fully separate misrepresentations regarding the negative option feature from all other material misrepresentations.’’ 211 Several commenters, largely trade groups and sellers, criticized the proposed provision. As discussed in section V.A, several questioned the prevalence of misrepresentations 212 and asserted the provision was not within the scope of the ANPR.213 Additionally, several commenters argued the provision is overbroad, and suggested it is unnecessary in light of existing law. Finally, they proposed ways to narrow the proposed provision. Several commenters objected to the scope of the proposed provision. Citing Commissioner Wilson’s dissent to the NPRM, TechNet noted the proposed Rule ‘‘would capture alleged misrepresentations regarding the underlying product or service ‘wholly unrelated’ to the negative option feature.’’ 214 Three commenters asserted no current trade regulation rule deceptive-free-trialsscam-millions-with-misleadingads-and-fake-celebrity-endorsements. The Law professors further pointed to evidence found by searching BBB’s ScamTracker for terms like ‘‘subscription.’’ See, e.g., Better Business Bureau, ScamTracker, ID #720953, https://www.bbb.org/ scamtracker/lookupscam/720953. They additionally cited Consumer Financial Protection Bureau, ‘‘CFPB Charges TransUnion and Senior Executive John Danaher with Violating Law Enforcement Order’’ (Apr. 2022), https:// www.consumerfinance.gov/about-us/newsroom/ cfpb-charges-transunion-and-seniorexecutive-johndanaher-with-violating-law-enforcement-order/; David Pierson, ‘Santa Monica fitness brand Beachbody is fined $3.6 million over automatic renewals,’’ L.A. Times (Aug. 29, 2017), https:// www.latimes.com/business/la-fi-beachbody20170829-story.html; Bruce A. Craig, NegativeOption Billing—Understanding the Stealth Scams of the ‘90s, 7 Loy. Consumer L. Rev. 5 (1994). 210 Law Professors, FTC–2023–0033–0861. 211 Law Professors, FTC–2023–0033–0861. 212 CTA, FTC–2023–0033–0997; ESA, FTC–2023– 0033–0867; IAB, FTC–2023–0033–1000; N/MA, FTC–2023–0033–0873; RILA, FTC–2023–0033– 0883; TechFreedom, FTC–2023–0033–0872. See section VII.A for a discussion of prevalence addressing these comments. 213 ANA, FTC–2023–0033–1001; CCIA, FTC– 2023–0033–0984; Coalition, FTC–2023–0033–0884; ESA, FTC–2023–0033–0867; Frontdoor, FTC–2023– 0033–0862; IAB, FTC–2023–0033–1000; NRF, FTC– 2023–0033–1005; RILA, FTC–2023–0033–0883. See section VII.A for a discussion addressing these comments. 214 TechNet, FTC–2023–0033–0869. E:\FR\FM\15NOR3.SGM 15NOR3 90492 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations prohibits misrepresentations so broadly.215 Similarly on scope, some commenters also argued the proposed language lacked the specificity necessary to give sellers notice of what conduct would violate the Rule.216 For example, ACT App Association asserted, ‘‘Notwithstanding best efforts, tech startups’ ability to flawlessly adhere to the vague and broad language used in this rule is unrealistic.’’ 217 A few commenters provided hypotheticals or asked rhetorical questions to illustrate concerns about the proposal’s breadth. MIA, for example, stated, ‘‘if a streaming service advertises, ‘movies that you will love,’ but you do not ‘love’ them, is that a violation of this rule subject to penalties? If a housekeeping service claims, ‘great cleaning every time,’ but the resulting cleanliness is not up to the consumer’s ‘standards,’ will that trigger this provision and any resulting penalties?’’ 218 The Chamber asked, ‘‘[c]ould a privacy policy, for example, be considered a material representation covered under this requirement?’’ 219 Many of these commenters argued the reach of the proposed Rule would negatively impact consumers by discouraging negative option offerings. TechNet said, ‘‘[f]or a variety of subscription services, the main drivers of consumer engagement are the subscription services’ ability to provide financial savings, convenience, and access to premium services. . . . Unfortunately, the NPRM ignores these benefits and would discourage the offering of subscription services altogether.’’ 220 ESA feared ‘‘this section will discourage industry members from developing and offering innovative khammond on DSKJM1Z7X2PROD with RULES3 215 NCTA, FTC–2023–0033–0858; PDMI, FTC– 2023–0033–0864; TechFreedom, FTC–2023–0033– 0872. 216 For example, the Coalition and IAB both said, ‘‘The NPRM fails, however, to identify which claims would constitute a material fact, and thus fails to identify covered acts with the requisite level of specificity.’’ Coalition, FTC–2023–0033–0884; IAB, FTC–2023–0033–1000. PDMI similarly claimed the proposed provision’s lack of specificity ‘‘renders [the proposed Rule] overly vague and unlawful.’’ FTC–2023–0033–0864. See also ESA, FTC–2023–0033–0867; TechFreedom, FTC–2023– 0033–0872; USTelecom, FTC–2023–0033–0876 (citing Katharine Gibbs School v. FTC, 612 F.2d 658 (2d Cir. 1979)). 217 ACT App Association, FTC–2023–0033–0874. 218 MIA, FTC–2023–0033–1008. 219 Chamber, FTC–2023–0033–0885. See also CDI, FTC–2023–0033–0887 (‘‘consumers could argue that the dish detergent they received through a subscription service did not clean dishes as advertised.’’). 220 TechNet, FTC–2023–0033–0869. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 negative option plans that consumers will enjoy.’’ 221 Several commenters asserted existing laws and regulations make the proposed provision unnecessary. Some argued section 5’s prohibition against deceptive practices already provides the Commission sufficient authority on this issue.222 Others asserted State laws and regulations prohibiting misrepresentations are sufficient to protect the public.223 Commenters were divided on ROSCA’s coverage. NRF, for example, said ‘‘[i]n light of the Commission’s decision that ROSCA already prohibits deceptive statements made in connection with a subscription, even if not directly related to subscription terms, many of the proposed amendments are unnecessary.’’ 224 In contrast, PDMI said while MoviePass ‘‘perhaps reflects a colorable approach,’’ the application of ROSCA there ‘‘exceeded Congress’ intent.’’ 225 Similarly, IAB asserted the proposed Rule would break new ground by ‘‘grant[ing] the Commission authority to seek monetary remedies against a firsttime offender for misrepresentations that would not give rise to monetary relief if made outside the context of an autorenewal agreement.’’ 226 Several commenters recommended changes if the proposed provision remains in the Rule. BSA, for example, suggested the Commission should define the term ‘‘material,’’ citing the TSR and the FTC Policy Statement on Deception as examples.227 Separately, RILA urged the Commission ‘‘to include clear language stating a ‘reasonable person standard’ will apply to determinations of ‘material facts’ related to products.’’ 228 Several commenters suggested the Commission limit the misrepresentation 221 ESA, FTC–2023–0033–0867; see also IAB, FTC–2023–0033–1000 (predicting ‘‘autorenewing (sic) subscriptions will become less common and significantly more costly because of the regulatory risks’’ and ‘‘businesses and consumers will be harmed by the loss of convenience and savings offered by autorenewal arrangements.’’); Chamber, FTC–2023–0033–0885 (contending ‘‘many entities may forgo negative options altogether. This decreases consumer choice in the marketplace given the clear popularity and use of negative option features across the economy.’’). 222 ANA, FTC–2023–0033–1001; Consumer Technology Association (‘‘CTA’’), FTC–2023–0033– 0997; N/MA, FTC–2023–0033–0873. 223 NRF, FTC–2023–0033–1005; RILA, FTC– 2023–0033–0883; SFE Energy, Inc. (‘‘SFE’’), FTC– 2023–0033–1151. 224 NRF, FTC–2023–0033–1005. 225 PDMI, FTC–2023–003–0864. 226 IAB, FTC–2023–0033–1000. 227 BSA, FTC–2023–0033–1015; see also Chamber, FTC–2023–0033–0885 (noting ‘‘materiality’’ not defined in NPRM). 228 RILA, FTC–2023–0033–0883. PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 provision to the terms of the negative option feature. For instance, BSA advocated for limiting the provision ‘‘to facts relating to the transaction and not every material fact relating to the underlying good or service.’’ 229 CCIA and CDI agreed, stating the final phrase should instead cover only those material facts related to the underlying negative option feature and exclude ‘‘any material fact related to the underlying good or service.’’ 230 (b) Analysis Based on the record, the Commission adopts a clarified version of the material misrepresentation section and adds a definition for further clarification. Specifically, the final Rule omits the proposed language referring to ‘‘any material fact related to the transaction, such as the negative option feature, or any material fact related to the underlying good or service’’ and instead prohibits misrepresentation of ‘‘any material fact,’’ and defines ‘‘material’’ consistent with the TSR and section 5 of the FTC Act. Further, to enhance clarity and specificity, the text lists several examples of potentially material fact categories, taken from Commission precedent. As further explained below: (1) despite commenters’ concerns to the contrary, this provision is consistent with the ANPR and prevalence requirements of section 18 of the FTC Act; (2) consistent with ROSCA, the final provision is not limited to material misrepresentations about the negative option feature itself; (3) the Commission declines to exclude any subset of material misrepresentations from the scope of the Rule; and (4) for clarity, the Commission adds a definition of ‘‘material’’ consistent with established law of section 5 and other Commission Rules. (1) Adoption of a prohibition against misrepresentations is consistent with the ANPR and is appropriate to address prevalent unfair or deceptive acts or practices. Prior to the publication of any notice of proposed rulemaking promulgated under the Magnuson Moss Act, the Commission must publish an advance notice of proposed rulemaking (ANPR).231 That notice must contain a ‘‘brief description of the area of inquiry under consideration, the objectives which the Commission seeks to achieve, and possible regulatory alternatives 229 BSA, FTC–2023–0033–1015. FTC–2023–0033–0984; CDI, FTC–2023– 0033–0887; see also TechFreedom, FTC–2023– 0033–0872. 231 15 U.S.C. 57a(b)(2). 230 CCIA, E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations under consideration by the Commission.’’ 232 The ANPR in this case meets this standard. Specifically, in the ANPR, the Commission stated the objective of the Rule was to prevent deceptive or unfair practices in the marketing of products and services with negative option features. Several industry associations submitted comments in response to the ANPR, illustrating the effectiveness of the ANPR in soliciting views of the interested public and affected industry before issuing the NPRM.233 Moreover, as detailed herein, the Commission has reviewed and carefully considered the views of the public and industry as expressed in response to both the ANPR and NPRM. The record demonstrates misrepresentations made to induce consumers to enter into negative option programs are prevalent. Specifically, the Commission’s enforcement experience (including consumer complaints, matters cited in the NPRM, and matters cited in this Statement of Basis and Purpose) as well as the experiences of the State AGs, the information cited by the Law Professors, and comments by consumer commenters all support this conclusion.234 As several commenters critical of the proposed provision correctly note, misrepresentations to induce consumers to join negative option programs are already unlawful under section 5, as well as under other State and Federal laws and regulations, depending on (among other things) media used and jurisdiction. This fact, however, does not undermine the need for the Rule provision. By definition, a section 18 trade regulation rule addresses conduct that is already prohibited under section 5. With such prohibited conduct defined, the trade regulation rule may also more broadly ‘‘include requirements prescribed for the purpose of preventing such acts or practices,’’ but the core of a trade regulation rule is the description of acts or practices already violative of section 5.235 The misrepresentations section of the Rule is narrower than the full scope of tools available under section 18. It simply 232 15 U.S.C. (b)(2)(A)(i). 425.3 is the only remaining section as to which commenters made this ANPR argument. 234 See section VII.1.a. In the cited Commission law enforcement matters, the Commission has applied its established materiality standard, limiting its actions to misrepresentations that are likely to affect consumers’ choice of, or conduct regarding, goods or services. In re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984). That is to say, in the cited matters the Commission alleged defendants made misrepresentations to induce consumers to enter into negative option programs. 235 15 U.S.C. 57a(a)(1)(B). khammond on DSKJM1Z7X2PROD with RULES3 233 Section VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 prohibits conduct that is already deceptive. Such a provision promotes clarity and confidence in the marketplace and provides for more effective remedies (i.e., civil penalties, where appropriate) against wrongdoers. Moreover, the fact that ROSCA’s disclosure requirement 236 already essentially prohibits material misrepresentations about online negative option transactions, means much of the rhetoric predicting the downfall of negative option marketing simply is ill-founded. Indeed, the Chamber pointed to the ‘‘clear popularity and use of negative option features across the economy’’ even as ROSCA has been law for over a decade.237 Far from undermining legitimate business, the Rule’s express prohibition on misrepresenting material facts in connection with promoting or offering for sale a negative option feature should increase consumer confidence in negative option marketing, thus making it easier for legitimate businesses to market their products. (2) Prohibiting misrepresentation of any material facts, not just those pertaining to the negative option feature, promotes clarity consistent with ROSCA and Commission precedent. The final Rule prohibits misrepresentation of ‘‘any material fact.’’ In doing so, it provides a nonexhaustive list of categories of potentially material facts (including transaction terms) and adds a definition of ‘‘material,’’ consistent with section 5 and the TSR. Specifically, consistent with section 5, ‘‘material’’ means ‘‘likely to affect a person’s choice of, or conduct regarding, goods or services.’’ 238 This approach both clarifies the terms most at issue and ensures the Rule accords with longstanding section 5 precedent. The Commission declines to limit the misrepresentations prohibition solely to elements of the negative option feature.239 First, the Commission finds imposing such a narrow restriction would be inconsistent with existing protections. Pursuant to ROSCA section 8403, sellers must ‘‘clearly and conspicuously disclose all material U.S.C. 8403(1). FTC–2023–0033–0885. 238 16 CFR 310.2(t) (TSR); 16 CFR 461.1 (Impersonation Rule); Policy Statement on Deception (Oct. 14, 1983) (appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)). See also BSA, FTC–2023–0033–1015 (requesting definition of material consistent with TSR and Policy Statement); Chamber, FTC–2023–0033–0885 (criticizing the proposed Rule for not defining materiality). 239 E.g., ESA, FTC–2023–0033–0867; NFIB, FTC– 2023–0033–0789; TechFreedom, FTC–2023–0033– 0872. 90493 terms of the transaction before obtaining the consumer’s billing information.’’ As Congress has explained, a healthy marketplace ‘‘must provide consumers with clear, accurate information and give sellers an opportunity to fairly compete with one another for consumers’ business.’’ 240 Limiting a misrepresentations prohibition solely to misrepresentations about the negative option feature itself would fall well short of the scope of ROSCA and the Commission’s responsibility to protect the public. Moreover, seller commenters themselves highlighted transaction elements other than negative option terms as critical to inducing consumers to choose negative option features. IAB, for example, pointed to the promise of ‘‘broader selection and lower prices’’ or ‘‘convenience and savings.’’ 241 Similarly, TechNet identified the ‘‘ability to provide financial savings, convenience, and access to premium services’’ as ‘‘the main drivers’’ of varied subscriptions.242 Furthermore, such a distinction may invite dishonest actors to misrepresent material facts about a transaction so long as they felt they could evade monetary liability for such misrepresentations. Moreover, simply refraining from making material misrepresentations is hardly a significant burden given the fact that such misrepresentations are already illegal under section 5 of the FTC Act, and subject to civil penalties when made on the internet and over the telephone pursuant to ROSCA and the TSR, respectively. (3) The Commission declines to exclude any material facts from the scope of the provision. To further promote clarity, the Commission includes a list of nonexclusive examples in the text of § 425.3. In addition to the negative option feature itself, the examples include certain characteristics the Commission has identified as presumptively material for more than 40 years 243 and which have in fact appeared as the subject of material misrepresentations in Commission negative option cases—cost,244 purpose 236 15 237 Chamber, PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 240 15 U.S.C. 8401(2). FTC–2023–0033–1000. 242 TechNet, FTC–2023–0033–0869. 243 Policy Statement on Deception (Oct. 14, 1983) (appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)) (describing and citing materiality of purpose, safety, efficacy, and cost); In re Thompson Medical Co., Inc., 104 F.T.C. 648, 816–17 (1984) (listing cost, purpose, efficacy, and safety as presumptively material characteristics). 244 In the negative option context, material cost misrepresentations may include any cost (and total 241 IAB, E:\FR\FM\15NOR3.SGM Continued 15NOR3 90494 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 or efficacy,245 and health or safety.246 The record demonstrates the list must be non-exclusive because the Commission has observed the use of material misrepresentations other than those enumerated to induce consumers to enter into transactions with negative option features, including, for example, characteristics of the seller,247 the format of the ad or other sales communication,248 consumer costs) from inception through the course of the commercial relationship, including misrepresentations as to recurring costs and refunds or guarantees. See, e.g., FTC v. FloatMe Corp., No. 5:24–cv–00001 (W.D. Tex. 2024); United States v. Cerebral, Inc., No. 1:24–cv–21376 (S.D. Fla. 2024); FTC v. Bridge It, Inc., No. 1:23–cv–09651 (S.D.N.Y. 2023); FTC v. Benefytt Techs., Inc., No. 8:22–cv– 01794 (M.D. Fla. 2022); FTC v. First Am. Payment Sys., No. 4:22–cv–00654 (E.D. Tex. 2022); FTC v. XXL Impressions, LLC, No. 1:17–cv–00067 (D. Me. 2017); FTC v. Cardiff, No. 5:18–cv–02104 (C.D. Cal. 2018); FTC v. Health Rsch. Labs., LLC, No. 2:17–cv– 00467 (D. Me. 2017); FTC v. Tarr, No. 3:17–cv– 02024 (S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 1:17–cv–09083 (S.D.N.Y. 2017); FTC v. Pact, Inc., No. 2:17–cv–1429 (W.D. Wash. 2017); FTC v. Leanspa, LLC, No. 3:11–cv–01715 (D. Conn. 2011); FTC v. Willms, No. 2:11–cv–00828 (W.D. Wash. 2011); FTC v. Universal Premium Servs., No. 2:06– cv–00849 (C.D. Cal. 2006). 245 See, e.g., FTC v. FloatMe Corp., No. 5:24–cv– 00001 (W.D. Tex. 2024); United States v. Cerebral, Inc., No. 1:24–cv–21376 (S.D. Fla. 2024); FTC v. NGL Labs, LLC, No. 2:24–cv–05753 (C.D. Cal. 2024); FTC v. Bridge It, Inc., No. 1:23–cv–09651 (S.D.N.Y. 2023); FTC v. WealthPress, Inc., No. 3:23–cv–00046 (M.D. Fla. 2023); In re Dun & Bradstreet, Inc., FTC Docket No. C–4761 (2022); FTC v. First Am. Payment Sys., No. 4:22–cv–00654 (E.D. Tex. 2022); In re MoviePass, Inc., FTC Docket No. C–4751 (2021); United States v. MyLife.com, Inc., No. 2:20– cv–6692 (C.D. Cal. 2020); FTC v. RagingBull.com, LLC, No. 1:20–cv–03538 (D. Md. 2020); FTC v. Match Grp., Inc., No. 3:19–cv–02281 (N.D. Tex. 2019); FTC v. XXL Impressions, LLC, No. 1:17–cv– 00067 (D. Me. 2017); FTC v. Cardiff, No. 5:18–cv– 02104 (C.D. Cal. 2018); FTC v. JDI Dating, Ltd., No. 1:14–cv–08400 (N.D. Ill. 2014); FTC v. Credit Bureau Ctr., LLC, No. 1:17–cv–00194 (N.D. Ill. 2017); FTC v. Health Rsch. Labs., LLC, No. 2:17–cv– 00467 (D. Me. 2017); FTC v. Health Formulas, LLC, No. 2:14–cv–01649 (D. Nev. 2014); FTC v. Leanspa, LLC, No. 3:11–cv–01715 (D. Conn. 2011); FTC v. Willms, No. 2:11–cv–00828 (W.D. Wash. 2011); FTC v. Johnson, No. 2:10–cv–02203 (D. Nev. 2010); FTC v. Remote Response Corp., No. 1:06–cv–20168 (S.D. Fla. 2006). 246 See, e.g., FTC v. XXL Impressions, LLC, No. 1:17–cv–00067 (D. Me. 2017); FTC v. Cardiff, No. 5:18–cv–02104 (C.D. Cal. 2018); FTC v. Health Rsch. Labs., LLC, No. 2:17–cv–00467 (D. Me. 2017); FTC v. Health Formulas, LLC, No. 2:14–cv–01649 (D. Nev. 2014); FTC v. Leanspa, LLC, No. 3:11–cv– 01715 (D. Conn. 2011); FTC v. Willms, No. 2:11–cv– 00828 (W.D. Wash. 2011). 247 E.g., FTC v. Elite IT Partners, Inc., No. 2:19– cv–00125 (D. Utah 2019) (affiliation with wellknown companies); In re Urthbox, Inc., FTC Docket No. C–4676 (2019) (independence of reviews); FTC v. BunZai Media Grp., Inc., No. 2:15–cv–04527 (C.D. Cal. 2015) (BBB accreditation and ratings); FTC v. DOTAuthority.com, Inc., No. 0:16–cv–62186 (S.D. Fla. 2016) (ratings); FTC v. FTN Promotions, Inc., No. 8:07–cv–1279 (M.D. Fla. 2007) (affiliation with consumer’s bank). 248 E.g., FTC v. XXL Impressions, LLC, No. 1:17– cv–00067 (D. Me. 2017) (radio news show); FTC v. Leanspa, LLC, No. 3:11–cv–01715 (D. Conn. 2011) (news reports). VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 authorization,249 consumer privacy or data security,250 and endorsements or testimonials.251 The Commission cannot predict what other material misrepresentations dishonest actors may employ in the future. Some commenters asserted section 18 does not authorize the Commission to prohibit material misrepresentations in a given area of commerce. Section 18, however, permits the FTC to promulgate ‘‘rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce (within the meaning of [section 5(a)(1)]) . . . [and] may include requirements prescribed for the purpose of preventing such acts or practices.’’ 252 It places no additional restrictions on the scope of this rulemaking. Several commenters appear to think section 18 requires the Commission to define specific claims as deceptive; for example, two commenters cited the Business Opportunity Rule’s treatment of misrepresentations.253 While the cited Rules show one way to meet the statute’s specificity requirements, the statute does not require the Commission to define claims with specificity, but instead acts or practices.254 For example, in the Business Opportunity Rule, the practice of misrepresenting ‘‘any material aspect of any assistance offered to a prospective purchaser’’ in a business opportunity transaction is a specific type of deceptive practice in or affecting commerce.255 By the same token, the practice of misrepresenting 249 E.g., In re Dun & Bradstreet, Inc., FTC Docket No. C–4761 (2022) (charging for same product consumer previously purchased); FTC v. Benefytt Techs., Inc., No. 8:22–cv–01794 (M.D. Fla. 2022) (charging for authorized products); FTC v. Triangle Media Corp., No. 3:18–cv–01388 (S.D. Cal. 2018) (completeness of order); FTC v. Apex Capital Grp., LLC, No. 2:18–cv–09573 (C.D. Cal. 2018) (completeness of order); FTC v. Moneymaker, No. 2:11–cv–00461 (D. Nev. 2011) (purpose of authorization). 250 E.g., United States v. Cerebral, Inc., No. 1:24– cv–21376 (S.D. Fla. 2024) (data security and privacy); In re MoviePass, Inc., FTC Docket No. C– 4751 (2021) (data security). 251 E.g., FTC v. XXL Impressions, LLC, No. 1:17– cv–00067 (D. Me. 2017); FTC v. Cardiff, No. 5:18– cv–02104 (C.D. Cal. 2018); FTC v. Willms, No. 2:11– cv–00828 (W.D. Wash. 2011). 252 15 U.S.C. 57a(a)(1)(B). 253 PDMI, FTC–2023–003–0864 (contrasting the proposed Rule language with Business Opportunity Rule language, saying ‘‘The Business Opportunity Rule does not prohibit any misrepresentation in connection with business opportunities. It prohibits specific misrepresentations about earnings claims.’’); TechFreedom, FTC–2023–0033–0872 (‘‘For example, the Business Opportunity Rule prohibits no fewer than 21 different kinds of misrepresentation regarding business opportunities. This specificity is typical of trade regulation rules.’’) (footnotes omitted). 254 15 U.S.C. 57a(a)(1)(B). 255 16 CFR 437.6(i). PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 material facts to induce consumers to consent to negative option features constitutes a specific type of deceptive practice. The record, including the submissions of many industry commenters, shows negative option features are found across industries, but are consistently distinguishable as a subset of general commercial practices. As commenters point out, negative option features offer many distinct benefits to consumers and sellers. These benefits do not lose their distinct character merely because they occur across different kinds of goods and services sold across different channels. While the record shows this practice offers distinct benefits, it also shows the practice is plagued by distinct abuse. This is not a hypothetical statement; the Commission is not promulgating the final Rule because negative option features may engender deception, whether relating to the feature itself or to other material facts, but rather because the record shows they have.256 Just as with the benefits of 256 See, e.g., FTC v. FloatMe Corp., No. 5:24–cv– 00001 (W.D. Tex. 2024); United States v. Cerebral, Inc., No. 1:24–cv–21376 (S.D. Fla. 2024); FTC v. NGL Labs, LLC, No. 2:24–cv–05753 (C.D. Cal. 2024); FTC v. Bridge It, Inc., No. 1:23–cv–09651 (S.D.N.Y. 2023); FTC v. WealthPress, Inc., No. 3:23–cv–00046 (M.D. Fla. 2023); FTC v. Benefytt Techs., Inc., No. 8:22–cv–01794 (M.D. Fla. 2022); In re Dun & Bradstreet, Inc., FTC Docket No. C–4761 (2022); FTC v. First Am. Payment Sys., No. 4:22–cv–00654 (E.D. Tex. 2022); In re MoviePass, Inc., FTC Docket No. C–4751 (2021); United States v. MyLife.com, Inc., No. 2:20–cv–6692 (C.D. Cal. 2020); FTC v. RagingBull.com, LLC, No. 1:20–cv–03538 (D. Md. 2020); FTC v. Match Grp., Inc., No. 3:19–cv–02281 (N.D. Tex. 2019); FTC v. Elite IT Partners, Inc., No. 2:19–cv–00125 (D. Utah 2019); In re Urthbox, Inc., FTC Docket No. C–4676 (2019); FTC v. Triangle Media Corp., No. 3:18–cv–01388 (S.D. Cal. 2018); FTC v. Apex Capital Grp., LLC, No. 2:18–cv–09573 (C.D. Cal. 2018); FTC v. XXL Impressions, LLC, No. 1:17–cv–00067 (D. Me. 2017); FTC v. Cardiff, No. 5:18–cv–02104 (C.D. Cal. 2018); FTC v. JDI Dating, Ltd., No. 1:14–cv–08400 (N.D. Ill. 2014); FTC v. Credit Bureau Ctr., LLC, No. 1:17–cv–00194 (N.D. Ill. 2017); FTC v. BunZai Media Grp., Inc., No. 2:15– cv–04527 (C.D. Cal. 2015); FTC v. DOTAuthority.com, Inc., No. 0:16–cv–62186 (S.D. Fla. 2016); FTC v. Health Rsch. Labs., LLC, No. 2:17–cv–00467 (D. Me. 2017); FTC v. Tarr, No. 3:17–cv–02024 (S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 1:17–cv–09083 (S.D.N.Y. 2017); FTC v. Pact, Inc., No. 2:17–cv–1429 (W.D. Wash. 2017); FTC v. RevMountain, LLC, No. 2:17–cv–02000 (D. Nev. 2017); FTC v. AAFE Prods. Corp., No. 3:17– cv–00575 (S.D. Cal. 2017); FTC v. Health Formulas, LLC, No. 2:14–cv–01649 (D. Nev. 2014); FTC v. Dill, No. 2:16–cv–00023 (D. Me. 2016); FTC v. Leanspa, LLC, No. 3:11–cv–01715 (D. Conn. 2011); FTC v. Willms, No. 2:11–cv–00828 (W.D. Wash. 2011); FTC v. Moneymaker, No. 2:11–cv–00461 (D. Nev. 2011); FTC v. Johnson, No. 2:10–cv–02203 (D. Nev. 2010); FTC v. Inc21.com Corp., 745 F. Supp. 2d 975 (N.D. Cal. 2010); FTC v. JAB Ventures, LLC, No. 2:08–cv– 04648 (C.D. Cal. 2008); FTC v. Ultralife Fitness, Inc., No. 2:08–cv–07655 (C.D. Cal. 2008); FTC v. FTN Promotions, Inc., No. 8:07–cv–1279 (M.D. Fla. 2007); FTC v. Think All Publ’g, LLC, No. 4:07–cv– 00011 (E.D. Tex. 2007); FTC v HispaNexo, Inc., No. 1:06–cv–424 (E.D. Va. 2006); FTC v. Universal Premium Servs., No. 2:06–cv–00849 (C.D. Cal. E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations negative option marketing, these problems do not lose their distinct character, in other words they are distinct practices, even though they appear in a variety of contexts. In addressing this deceptive practice, the Commission remains guided by core principles articulated in its 1983 Deception Policy Statement. As the Commission explained, in considering whether to act against a deceptive practice, the Commission will observe the extent to which consumers themselves have been able to police and generate consequences for seller deception. khammond on DSKJM1Z7X2PROD with RULES3 Finally, as a matter of policy, when consumers can easily evaluate the product or service, it is inexpensive, and it is frequently purchased, the Commission will examine the practice closely before issuing a complaint based on deception. There is little incentive for sellers to misrepresent (either by an explicit false statement or a deliberate false implied statement) in these circumstances since they normally would seek to encourage repeat purchases. Where, as here, market incentives place strong constraints on the likelihood of deception, the Commission will examine a practice closely before proceeding.257 The record shows the practice of misrepresenting material facts to induce consent to negative option features has created distinct issues consumers have not been able to address themselves, enabling sellers to collect numerous recurring payments before consumers detect the misrepresentation and act to stop the charges. This problem is not confined to a particular subset of industries or misrepresentations but instead is a too-frequent practice throughout negative option marketing.258 Specifically, when a consumer makes a series of purchases from the same seller in ordinary circumstances (rather than through a negative option), each purchase requires the consumer to actively, even if only briefly, re-evaluate the transaction and affirmatively consent. Dishonest negative option sellers too easily bypass these typical guardrails of ‘‘repeat purchases.’’ Thus, up-front misrepresentations can induce consumers into recurring transactions lacking ordinary sales’ built-in interruptions for re-evaluation and renewed consent. As with other areas where consumers have limited opportunities for critical up-front evaluation (for example, consumers 2006); FTC v. Remote Response Corp., No. 1:06–cv– 20168 (S.D. Fla. 2006). 257 Policy Statement on Deception (Oct. 14, 1983) (appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)). 258 See n.257. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 cannot easily evaluate medical claims about dietary supplements), so too, here, the Commission finds additional protection warranted. The Commission has considered commenters’ section 18 specificity concerns pertaining to material misrepresentations and finds them unsupported by the record. These commenters suggest a hypothetical world where negative option features provide distinguishable commercial benefits without presenting distinguishable material misrepresentation challenges. The reality is otherwise. Thus, the final Rule prohibits the specific practice of sellers misrepresenting material terms or facts in connection with negative option sales. (4) For clarity, the final Rule adds a definition of ‘‘material’’ consistent with precedent. As noted above, and as suggested by commenters, the Commission defines ‘‘material’’ in the final Rule. This definition adds clarity and addresses the rhetorical questions raised by commenters regarding scope. Specifically, consistent with section 5, the TSR, and longstanding Commission policy and case law, the final Rule defines the term to mean likely to affect a person’s choice of, or conduct regarding, goods or services.259 Thus, mere puffery is not material.260 The hypotheticals posed by MIA— ‘‘movies that you will love’’ or ‘‘great cleaning every time’’—are classic examples of puffery, and thus, are not within the scope of materiality.261 The response to the question posed by the Chamber—whether misrepresentation of a privacy policy would be covered— depends, as it always has, on whether the seller misrepresents its privacy policy in a way likely to affect consumer choice or conduct. 4. Proposed § 425.4 Important Information Section 425.4 of the proposed Rule prohibited sellers from failing to disclose ‘‘any material conditions related to the underlying product or service that is necessary to prevent 259 16 CFR 310.2(t); In re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984). 260 See FTC v. Direct Mktg. Concepts, Inc., 624 F.3d 1, 11 (1st Cir. 2010) (‘‘Where a claim is merely ‘exaggerated advertising, blustering, and boasting upon which no reasonable buyer would rely,’ it may be un-actionable puffery.’’). 261 The Commission declines to add language defining a ‘‘reasonable person standard’’ as suggested by RILA, and refers instead to the discussion of reasonableness set forth in the Commission’s Policy Statement on Deception (Oct. 14, 1983) (appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)). PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 90495 deception, regardless of whether that term directly relates to the terms of the negative option offer.’’ 262 As explained in the NPRM, the Commission drafted this provision because ‘‘many sellers fail to provide adequate disclosures, thereby luring consumers into purchasing goods or services they do not want.’’ 263 To address this issue, the proposed Rule required sellers to provide the following important information prior to obtaining a consumer’s billing information: ‘‘(1) that consumers’ payments will be recurring, if applicable; (2) the deadline by which consumers must act to stop charges; (3) the amount or ranges of costs consumers may incur; (4) the date the charge will be submitted for payment; and (5) information about the mechanism consumers may use to cancel the recurring payments.’’ 264 The Commission also proposed requirements regarding the form and location of this important information, as its ‘‘law enforcement experience and consumer complaints are replete with examples of hidden disclosures, including those in fine print, buried in paragraphs of legalese and sales pitches, and accessible only through hyperlinks.’’ 265 Thus, under the proposed Rule, information ‘‘directly related to the negative option feature . . . must appear immediately adjacent to the means of recording the consumer’s consent for the negative option feature.’’ Information ‘‘not directly related to the negative option feature . . . must appear before consumers make a decision to buy (e.g., before they ‘add to shopping cart’).’’ Further, the proposal stated all disclosures must be clear and conspicuous as defined in § 425.2(c). Among other elements of the clear and conspicuous definition, the proposed Rule specified that in any communication using an interactive electronic medium, such as the internet, mobile application, or software, the disclosure must be unavoidable. The proposed Rule also specified that a disclosure is not clear and conspicuous if a consumer ‘‘must take any action, such as clicking on a hyperlink or hovering over an icon, to see it.’’ Finally, the proposed Rule prohibited sellers from including any information that interferes with, detracts from, contradicts, or otherwise undermines the ability of consumers to read, hear, see, or otherwise understand the required disclosures. The final clause of this prohibition ‘‘includ[ed] any 262 NPRM, 88 FR 24727. 88 FR 24726–27. 264 NPRM, 88 FR 24726. 265 NPRM, 88 FR 24727. 263 NPRM, E:\FR\FM\15NOR3.SGM 15NOR3 90496 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations information not directly related to the material terms and conditions of any negative option feature.’’ Through these provisions, the Commission sought to prevent deception by businesses taking advantage of the gray areas in current law, to deter fraudulent actors through the possibility of monetary relief, and to ‘‘level the playing field for legitimate businesses, freeing them from having to compete against those employing deception.’’ 266 (a) Summary of Comments Thousands of commenters supported the important information requirement, stating it is ‘‘critically important that companies make it explicitly clear what consumers are signing up for.’’ 267 Consumers identified problematic practices the provision would address, including insufficient and unclear disclosures in small print or those appearing too late in the transaction. For example, an individual commenter said, ‘‘[t]oo many [sellers] hide these details in extra fine print, and increasingly text is in a very light gray color, making it even harder to read.’’ 268 Another individual commenter noted, ‘‘I ordered skin care from a tv infomercial only to find out it was a subscription thing though none of this was disclosed by famous actresses on the promotion. . . . I went back to my receipt of what I originally ordered and in fine print saw that I had been duped!’’ 269 Several individual commenters indicated clear upfront disclosures would help them make informed choices and improve their willingness to try negative option offerings, particularly if the disclosure provided an easy cancellation mechanism. As one put it, ‘‘I am much more like[ly] to try— and buy—a new service if I know there 266 NPRM, 88 FR 24727. of consumers submitted the following identical comment in their own names: ‘‘It’s critically important that companies make it explicitly clear what consumers are signing up for and to make canceling fast and easy. If you signed up online, you should be able to cancel online. If it took one click to join, it should take one click to cancel. Implementing this consumer protection rule has the potential to save American consumers millions of dollars and I hope it is implemented as soon as possible.’’ While apparently a response to a mass solicitation, many consumers further personalized their submission by adding their unique experiences and desire for the Rule. See, e.g., Individual commenter, FTC–2023–0033–0161; –0163; –0164; 0198; –0204; –0545; 0658. 268 Individual commenter, FTC–2023–0033–0268. Similarly, another individual commenter said, ‘‘Businesses should not present agreements in tiny print on an agent’s tablet for the customer to sign. I can’t read the print.’’ Individual commenter, FTC– 2023–0033–0349. 269 Individual commenter, FTC–2023–0033–0345. khammond on DSKJM1Z7X2PROD with RULES3 267 Thousands VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 is an easy way to cancel online.’’ 270 Another said, ‘‘I actually subscribe to far fewer services than I would if I knew that I could easily cancel once I had tried a sample.’’ 271 Public advocacy commenters also supported the provision. The Berkeley Consumer Law Center said, ‘‘the requirement of ‘clear and conspicuous’ disclosures of ‘any material term related to the underlying goods or services that is necessary to prevent deception’ will help prevent cancellation terms from being shrouded in mystery through complicated terms and conditions, while also blocking the practice of hiding subscription services that are needed to fully use a product.’’ 272 Similarly, a coalition of consumer and public interest advocacy organizations asserted the proposed disclosure requirement ‘‘will clearly inform consumers of the terms of the contract and how they may terminate the agreement.’’ 273 Law enforcement commenters likewise supported the important information requirements. The State AGs said they would ‘‘repel the abusive practices of hidden disclosures, ‘including those in fine print, buried in paragraphs of legalese and sales pitches, and accessible only through hyperlinks.’ ’’ 274 They particularly emphasized their support for ‘‘the required disclosure of ‘the information necessary for the consumer to cancel the negative option feature.’ ’’ 275 The California Auto-Renew Task Force (‘‘CART’’), a group of Southern California prosecutors, supported 270 Individual commenter, FTC–2023–0033–0781. 271 Individual commenter, FTC–2023–0033–0031. Accord Individual commenter, 0196 (‘‘I have had to get to the point of not subscribing to any online offers, as far too many times I have found it nearly impossible to unsubscribe’’); Individual commenter, FTC–2023–0033–0306 (‘‘you could win over more subscribers to your services if you took away the fear and doubts of the public that they will probably be hooked into something that would be more troublesome to get out of . . . I can tell you that I have passed over many opportunities that I was interested in for this very reason.’’); Individual commenter, FTC–2023–0033–0333 (‘‘I’ve had some difficulty in the past cancelling enrollments or subscriptions, so that now I’ve become very wary of products or services I would otherwise appreciate having. Implementing this consumer protection rule would help me feel more confident again.’’). 272 Berkeley Consumer Law Center, FTC–2023– 0033–0855. Similarly, for the same reasons they provided in connection with the misrepresentations provision, the Law Professors encouraged the Commission to maintain the proposed disclosure provision’s coverage of material terms necessary to prevent deception, regardless of whether such terms are exclusively about the negative option feature. Law Professors, FTC–2023–0033–0861. 273 Public Interest Groups, FTC–2023–0033–0880. 274 State AGs, FTC–2023–0033–0886. 275 Id. PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 disclosures appearing ‘‘immediately adjacent to the means of recording the consumer’s consent for the negative option feature.’’ 276 CART asserted this provision, together with others, ‘‘will greatly minimize consumer deception and ensure that consumers fully understand—and agree to—the nature of the transaction under consideration.’’ 277 Other commenters, mostly industry groups,278 expressed several concerns with the proposed requirements, specifically with the definition of ‘‘clear and conspicuous,’’ the scope and timing of the material terms to be disclosed, specific disclosure requirements, placement, and treatment of other information.279 Multiple commenters claimed the requirement that disclosures using an interactive electronic medium must be ‘‘unavoidable’’ would be unworkable given the additional provision that a ‘‘disclosure is not clear and conspicuous if a consumer must take any action, such as clicking on a hyperlink or hovering over an icon, to see it.’’ 280 Commenters noted it would be difficult or impossible to implement this requirement on small screens (such as mobile phones), and it may reduce rather than improve clarity. Several commenters also objected to the requirement sellers disclose material terms other than those pertaining exclusively to the negative option feature, asserting this would be overbroad.281 Additionally, commenters questioned how the Commission would enforce a requirement to disclose material terms before obtaining a 276 CART, FTC–2023–0033–0698. 277 Id. 278 Not all industry groups criticized the provision. Specifically, MIA wrote, ‘‘The Association agrees with the important information requirement under the proposed Rule.’’ MIA, FTC– 2023–0033–1008. 279 In addition, some commenters cited industryspecific laws and regulations pertaining to disclosures as rendering the proposed provision unnecessary or counterproductive. ACA ConnectsAmerica’s Communications Association (‘‘ACA’’), FTC–2023–0033–0881; NCTA, FTC–2023–0033– 0858; SFE, FTC–2023–0033–1151; USTelecom, FTC–2023–0033–0876. 280 ANA, FTC–2023–0033–1001; CCIA, FTC– 2023–0033–0984; Coalition, FTC–2023–0033–0884; ESA, FTC–2023–0033–0867; IAB, FTC–2023–0033– 1000; NCTA, FTC–2023–0033–0858; Chamber, FTC–2023–0033–0885. NFIB suggested the Commission strike the provision ‘‘The disclosure must use diction and syntax understandable to ordinary consumers’’ and replace it with ‘‘ ‘The disclosure must use words and grammar that ordinary consumers would likely understand.’ ’’ FTC–2023–0033–0789. 281 ACT App Association, FTC–2023–0033–0874; ANA, FTC–2023–0033–1001; BSA, FTC–2023– 0033–1015; CCIA, FTC–2023–0033–0984; NCTA, FTC–2023–0033–0858; NFIB, FTC–2023–0033– 0789; NRF, FTC–2023–0033–1005; PDMI, FTC– 2023–003–0864; Sirius XM, FTC–2023–0033–0857; Chamber, FTC–2023–0033–0885. E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 consumer’s billing information, especially where a consumer previously elected to save billing information with the seller.282 Commenters also found the requirement that material terms ‘‘not directly related to the negative option feature . . . must appear before consumers make a decision to buy’’ to be vague.283 Several commenters took issue with the five specific disclosures in the proposed Rule. For example, the requirement to disclose ‘‘the date (or dates) each charge will be submitted for payment’’ drew substantial criticism, with several commenters asserting appropriate disclosures regarding frequency should suffice.284 Commenters also criticized the requirements to disclose deadlines to act and the amount or range of costs.285 A group of direct marketers asserted, for example, ‘‘the Proposed Rule goes too far in appearing to require a specific date by which consumers must act to stop charges when certain negative option plans are inherently more flexible and allow consumers to cancel anytime.’’ 286 Commenters also found the requirement to disclose ‘‘the information necessary for the consumer to cancel the negative option feature’’ was vague and impractical. They contended the requirement would result in unnecessary details crowding out other disclosures.287 IAB contended ‘‘[a] more effective strategy [regarding cancellation disclosures] would be to make clear but concise disclosures of where that information can be found.’’ 288 Additionally, multiple commenters criticized the provision requiring the placement of material terms ‘‘directly related to the negative option feature’’ 282 CTA, FTC–2023–0033–0997; ESA, FTC–2023– 0033–0867; IAB, FTC–2023–0033–1000; NRF, FTC– 2023–0033–1005; RILA, FTC–2023–0033–0883. Sirius XM asserted this requirement could be interpreted to mean every advertisement must contain disclosure of all material terms. FTC–2023– 0033–0857. 283 Rebecca Kuehn (‘‘Kuehn’’), FTC–2023–0033– 0871; NRF, FTC–2023–0033–1005. 284 CCIA, FTC–2023–0033–0984; CTA, FTC– 2023–0033–0997; ESA, FTC–2023–0033–0867; IAB, FTC–2023–0033–1000; NRF, FTC–2023–0033–1005; RILA, FTC–2023–0033–0883; Sirius XM, FTC– 2023–0033–0857. 285 IAB, FTC–2023–0033–1000 (deadlines); Comment from Kelley Drye & Warren LLP on behalf of certain direct marketing companies (‘‘Direct Marketing Companies’’), FTC–2023–0033–1016 (deadlines); NRF, FTC–2023–0033–1005 (amount or range of costs); Sirius XM, FTC–2023–0033–0857 (amount or range of costs). 286 Direct Marketing Companies, FTC–2023– 0033–1016. 287 CCIA, FTC–2023–0033–0984; ESA, FTC– 2023–0033–0867; IAB, FTC–2023–0033–1000; NRF, FTC–2023–0033–1005. 288 IAB, FTC–2023–0033–1000. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 . . . ‘‘immediately adjacent’’ to recording the consumer’s consent.289 Commenters asserted having numerous disclosures in a constrained space would impair consumers’ ability to make informed choices. As an individual commenter explained, ‘‘this important information may still become overwhelming to a user, or challenge the integrity of other disclosures if it must compete for space (especially because this disclosure must be placed immediately adjacent to where a user will consent to the negative option feature).’’ 290 NRF found unclear the distinction between which terms are or are not ‘‘directly related to the negative option feature.’’ 291 Other commenters noted the ‘‘immediately adjacent’’ requirement may not be appropriate for voice transactions.292 Finally, one commenter expressed uncertainty about the meaning of the ‘‘other information’’ provision. NRF said it ‘‘asks companies to walk a tight rope between ensuring they contain all material terms, while risking liability if they include ‘any information not directly related to the material terms.’ ’’ 293 The State AGs also recommended three amendments to this proposal. First, they recommended requiring sellers to ‘‘disclose all material policies concerning cancellation.’’ Second, they recommended ‘‘sellers be required to disclose ‘all the information necessary for the consumer to effectively cancel the negative option feature.’ ’’ (Emphasis in comment.) They explained, ‘‘[d]isclosures in the form of ‘click-hereto-cancel’ icons, which lead to terms and conditions pages, confusing cancellation flows, or do not otherwise explain how to cancel online, should not be permitted.’’ Third, they recommended ‘‘the FTC amend this provision to require that the important information identified by this proposed Rule be provided to the consumer in a 289 ANA, FTC–2023–0033–1001; CCIA, FTC– 2023–0033–0984; Coalition, FTC–2023–0033–0884; CTA, FTC–2023–0033–0997; ESA, FTC–2023– 0033–0867; IAB, FTC–2023–0033–1000; Direct Marketing Companies, FTC–2023–0033–1016; NRF, FTC–2023–0033–1005; SFE, FTC–2023–0033–1151; Sirius XM, FTC–2023–0033–0857; Chamber, FTC– 2023–0033–0885. 290 Individual commenter, FTC–2023–0033–0552. 291 NRF, FTC–2023–0033–1005. 292 Coalition, FTC–2023–0033–0884; Chamber, FTC–2023–0033–0885. 293 NRF, FTC–2023–0033–1005 (emphasis in comment); see also Chamber, FTC–2023–0033–0885 (‘‘[T]he [disclosure] requirement is also ambiguous considering it does not clearly outline the specific material terms that need to be disclosed, which is particularly important considering the requirement applies not just to the negative option feature, but all terms in the transaction.’’). PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 90497 manner that is capable of being retained by the consumer.’’ 294 (b) Analysis Based on the record, the Commission retains proposed § 425.4 with several clarifications. First, as explained in section VII.B.3 of this SBP, the Commission adds a definition of ‘‘material’’ at § 425.2(e). Second, in § 425.4(a), the Commission clarifies three of the listed types of important information sellers must provide and omits one to address commenters’ concerns. Third, as explained in section VII.B.4.b.2 of this SBP, the Commission revises the definition of ‘‘clear and conspicuous’’ in § 425.2(c). Fourth, in § 425.4(b)(2) the Commission clarifies language regarding ‘‘placement’’ of disclosures. Finally, the Commission clarifies the language prohibiting sellers from including ‘‘any other information’’ that ‘‘interferes with, detracts from, contradicts, or otherwise undermines’’ consumers’ abilities to read, hear, see, or understand the required disclosures. (1) The Commission declines to limit the required important information under § 425.4(a). The Commission declines to limit the scope of the required information under this provision to only information related to the negative option feature. Section 425.4(a)’s requirement that sellers disclose ‘‘all material terms’’ prior to obtaining the consumer’s billing information is consistent with ROSCA and section 5 of the FTC Act. Moreover, in the Commission’s law enforcement experience such a provision is necessary to prevent deception.295 Therefore, extending this requirement is well within the Commission’s rulemaking authority.296 To address commenters’ concerns about clarity, however, § 425.2(e) adds a definition of ‘‘material;’’ specifically, material means ‘‘likely to affect a person’s choice of, or conduct regarding, goods or services.’’ 297 This definition is consistent with longstanding section 5 case law and other Commission rules defining ‘‘material.’’ 298 294 State AGs, FTC–2023–0033–0886. e.g., In re MoviePass, Inc., FTC Docket No. C–4751 (2021). 296 15 U.S.C. 57a(a)(1)(B). 297 Additionally, the Commission changes ‘‘any’’ to ‘‘all’’ material terms, and deletes the phrase ‘‘related to the underlying good or service that is necessary to prevent deception’’ for clarity. Specifically, the Commission makes clear that sellers are required to disclose all material terms, consistent with the requirements of ROSCA. 298 See In re Cliffdale Associates, Inc., 103 F.T.C. 110, 165 (1984) (misleading impression created by a solicitation is material if it ‘‘involves information that is important to consumers and, hence, likely 295 See., E:\FR\FM\15NOR3.SGM Continued 15NOR3 90498 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 Additionally, the Commission modifies the proposed list of important information.299 The Commission retains the first proposed requirement that sellers must disclose ‘‘[t]hat consumers will be Charged 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.’’ 300 The Commission continues to find this requirement appropriate to combat deception. The Commission revises the second proposed disclosure, that sellers provide ‘‘the deadline (by date or frequency) by which the consumer must act in order to stop all charges.’’ As revised, this provision requires sellers to disclose ‘‘each deadline (by date or frequency) by which the consumer must act to prevent or stop the Charges.’’ This change clarifies there may not be a single ‘‘deadline’’ by which a consumer must act to ‘‘stop all charges.’’ A single seller, for example, may offer a single consumer multiple goods or services, and the consumer may wish to stop some charges without terminating the entire relationship. The Commission also clarifies that ‘‘frequency’’ as used in the final Rule includes a description of an irregular frequency (e.g., within a certain period after the seller notifies the consumer a new item in a series has become available) as well as a regular one (e.g., the 15th of each month). The Commission also clarifies the third proposed disclosure. The proposed Rule required sellers to disclose ‘‘[t]he amount (or range of costs) the consumer will be charged, and, if applicable, the frequency of such charges a consumer will incur unless the consumer takes timely steps to prevent or stop those charges’’).301 The record suggests, however, that in some circumstances, the amounts to be charged may be inexact before the seller to affect their choice of, or conduct regarding, a product.’’); see also FTC v. Cyberspace.com, LLC, 453 F.3d 1196, 1201 (9th Cir. 2006); 16 CFR 310.2(t) (TSR); 16 CFR 461.1 (Impersonation Rule); Policy Statement on Deception (Oct. 14, 1983) (appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110, 174 (1984)). 299 In the misrepresentations provision (§ 425.3), the final Rule uses the term ‘‘including’’ to provide examples of categories of potentially material facts. In the disclosures provision, the final Rule retains the proposed Rule’s use of ‘‘and including’’ (rather than just ‘‘including’’) to establish all of the specifically listed disclosures as being always material. 300 NPRM, 88 FR 24735 (proposed 425.4). 301 The final Rule requires sellers to disclose ‘‘The amount (or range of costs) the consumer will be Charged and, if applicable, the frequency of the Charges a consumer will incur unless the consumer takes timely steps to prevent or stop those Charges.’’ VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 obtains the consumer’s billing information. For example, taxes or delivery fees may depend in part on the billing information the consumer provides. Thus, the Commission clarifies under the final Rule as adopted, the ‘‘amount (or range of costs)’’ need not be exact if an exact figure is impossible, but the seller must give a reasonable approximation. For example, it is within the meaning of ‘‘amount (or range of costs)’’ for a seller to disclose an amount ‘‘plus tax’’ where the seller requires billing information to determine the actual amount of tax. However, a ‘‘plus shipping’’ disclosure may not be sufficient if the amount of shipping is beyond what a consumer would reasonably expect or is greater than the amount a seller would reasonably incur for shipping. In such a circumstance, the seller would need to provide an estimate of shipping costs. These clarifications should address commenters’ concerns about having to disclose an exact cost when doing so is not possible. The final Rule omits the proposed fourth disclosure: the date (or dates) each charge will be submitted for payment. The Commission is persuaded by commenters’ concern that a specific date or dates may be cumbersome or impossible to calculate. For example, if the seller will submit a charge when it ships a new item in a series, the seller may not be able to predict the specific dates it will submit the charge in the future. In addition, in light of the change to the placement requirements of § 425.4(b)(2)(i), discussed below, including these dates could reduce the clarity and conspicuousness of higher priority adjacent disclosures (especially cancellation deadlines, which will often occur before dates of charges). If, however, disclosure of the date (or dates) each charge will be submitted for payment is necessary to prevent deception in individual cases, such disclosure is required under § 425.4(a). However, its placement is governed by revised § 425.4(b)(2)(ii) rather than § 425.4(b)(2)(i). Finally, the Commission clarifies the fifth proposed mandatory disclosure (the fourth in the final Rule). The proposed Rule required sellers to disclose ‘‘[t]he information necessary for the consumer to cancel the negative option feature’’. In contrast, the final Rule requires sellers to disclose ‘‘The information necessary for the consumer to find the simple cancellation mechanism required pursuant to § 425.6’’. This change addresses commenters’ concern the language of the proposed Rule, combined with the placement requirements of PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 § 425.4(b)(2)(i), would result in detailed cancellation disclosures crowding out other important required disclosures.302 This new language should provide consumers with concise critical upfront information about how to cancel, while offering sellers flexibility to avoid obscuring other important information.303 Some sellers expressed concern regarding the timing of disclosures where a consumer previously elected to save billing information with the seller. To address this concern the Commission now clarifies that, where a consumer has previously provided account information to the seller and expressly allowed the seller to store that information,304 the seller must make the required disclosures prior to obtaining the consumer’s consent to use saved account information.305 (2) The Commission modifies the requirements of § 425.4(b) to promote clarity. Section 425.4(b)(1) provides, ‘‘[e]ach disclosure required by paragraph (a) of this section must be clear and conspicuous.’’ The Commission retains this requirement but revises the definition of clear and conspicuous at § 425.2(c) to address commenters’ concerns regarding space-constrained 302 For example, IAB suggested the Commission should require sellers ‘‘to make clear but concise disclosures of where [cancellation] information can be found, so consumers can find that information if and when it is relevant to them.’’ IAB, FTC–2023– 0033–1000. 303 The Commission declines to adopt the State AGs three suggestions to supplement this section. The Commission expects the final Rule will address two of those suggestions (disclosure of ‘‘all material policies concerning cancellation’’ and of ‘‘all the information necessary for the consumer to effectively cancel the negative option feature’’) through the requirement that sellers disclose all material terms (§ 425.4), the prohibition of misrepresentations of material facts or terms including those pertaining to cancellation (§ 425.3), and the requirement of a simple cancellation mechanism (§ 425.6). The Commission expects to address the concerns underlying their third suggestion (‘‘to require that the important information identified by this proposed Rule be provided to the consumer in a manner that is capable of being retained by the consumer’’), through its further development of the reminders requirement. In the interim, the Commission expects the Rule provisions as adopted will encourage sellers to make important information easy to find and easy to retain. 304 It is a violation of section 5 for a seller to retain and use a consumer’s payment information without the consumer’s consent. E.g., FTC v. Classic Closeouts LLC, No. 2:09–cv–2692 (E.D.N.Y. 2009). 305 See FTC v. Amazon.com, Inc., No. 2:23–cv– 00932, 2024 WL 2723812, at *11 (W.D. Wash. May 28, 2024) (‘‘Nothing in ROSCA says that companies . . . may not give consumers the option to autofill the billing information already on file or simply to provide billing information after the disclosures, but ROSCA requires that consumers be given that choice after the disclosures.’’) (emphasis in original). E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 disclosures.306 Specifically, the Commission deletes the sentence, ‘‘A disclosure is not Clear and Conspicuous if a consumer must take any action, such as clicking on a hyperlink or hovering over an icon, to see it.’’ This prohibition would have made effective space-constrained disclosures of the terms required by the final Rule difficult if not impossible. However, a clear and conspicuous disclosure still must be ‘‘unavoidable.’’ By this requirement, consumers are protected from buried or inconspicuous disclosures. Sellers, on the other hand, can make disclosures ‘‘unavoidable’’ even if the consumer must take some action to see it. Specifically, the seller could make it impossible for the consumer to consent to a transaction or feature unless and until the consumer has seen the disclosure. For example, a seller dealing with space constraints on a mobile device might not display a consent button until after the consumer has scrolled down to a clear disclosure and then clicked a button indicating they have seen the disclosure. Section 425.4(b)(2) (‘‘Placement’’) retains the proposed Rule’s structure requiring a subset of disclosures to ‘‘appear immediately adjacent to the means of recording the consumer’s consent for the negative option feature,’’ while setting a more general timing requirement regarding other disclosures. However, the Commission has revised some terms to promote clarity. Specifically, final § 425.4(b)(2)(i) requires only the four specific mandatory disclosures listed in § 425.4(a) to appear ‘‘immediately adjacent to the means of recording the consumer’s consent.’’ The Commission is persuaded by commenters’ concerns that requiring market participants to determine which required disclosures are ‘‘directly related to the negative option feature,’’ and which are not, is too great a burden and could lead to consumer confusion.307 Thus, rather than define ‘‘directly related to the negative option feature,’’ the Commission removes this phrasing and confines the ‘‘immediately adjacent’’ requirement to a specific, narrow list of disclosures. This change provides clarity and improves predictability for 306 The Commission declines to adopt NFIB’s suggested change to strike the provision ‘‘The disclosure must use diction and syntax understandable to ordinary consumers’’ and replace it with ‘‘ ‘The disclosure must use words and grammar that ordinary consumers would likely understand.’ ’’ Particularly in the context of audio disclosures, the terms ‘‘diction and syntax’’ provide clearer requirements than the terms ‘‘words and grammar.’’ NFIB, FTC–2023–0033–0789. 307 NRF, FTC–2023–0033–1005; Law Professors, FTC–2023–0033–0861. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 consumers, and should prevent disclosure overload. Several commenters requested clarification of the ‘‘immediately adjacent’’ requirement in the context of voice transactions.308 In response, the Commission clarifies to comply with this requirement, a voice transaction seller must make the required disclosures immediately before requesting and recording the consumer’s consent to the negative option feature. Two commenters expressed concern that requiring sellers to make disclosures ‘‘before consumers make a decision to buy’’ creates uncertainty because it is unclear when that triggering event occurs.309 The Commission agrees. Therefore, it revises § 425.4(b)(2)(ii) to provide generally for all required disclosures to appear before the seller obtains consumer consent to the transaction pursuant to § 425.5. This amended language provides a triggering event based on a clear point in the process. Additionally, the Commission revises § 425.4(b)(2)(ii) to remove the phrase ‘‘not directly related to the negative option feature,’’ doing so for the same clarity reasons described above for removing the phrase ‘‘directly related to the negative option feature’’ from § 425.4(b)(2)(i). Finally, the Commission adopts a clarified version of § 425.4(b)(3) (‘‘Other information’’). The Commission retains the proposed Rule’s requirement that sellers not employ ‘‘other information that interferes with, detracts from, contradicts, or otherwise undermines the ability of consumers to read, hear, see, or otherwise understand the disclosures.’’ However, the Commission finds the final clause in the proposed Rule (‘‘including any information not directly related to the material terms and conditions of any negative option feature’’) could be read to contradict other requirements of the Rule. Specifically, there may be necessary material disclosures not directly related to the terms and conditions of a negative option feature, and it is illogical to simultaneously require these disclosures (through §§ 425.4(a) and (b)(2)) and prohibit them (through § 425.4(b)(3)). The Commission therefore omits the clause from the final Rule. This revision does not alter the requirement of § 425.4(b)(2)(i) that certain specific disclosures be made clearly and conspicuously immediately adjacent to the means of recording the consumer’s consent. A seller who makes 308 Coalition, FTC–2023–0033–0884; Chamber, FTC–2023–0033–0885. 309 Kuehn, FTC–2023–0033–0871; NRF, FTC– 2023–0033–1005. PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 90499 additional disclosures immediately adjacent to the means of recording the consumer’s consent in a manner undermining the clarity and conspicuousness of the required § 425.4(b)(2)(i) disclosures violates § 425.4(b)(2)(i) and § 425.4(b)(3). 5. Proposed § 425.5 Consent Section 425.5(a) of the proposed Rule prohibited sellers from charging consumers before obtaining their express informed consent to the negative option feature. This provision mirrors 15 U.S.C. 8403(2) (ROSCA), but provided specificity for sellers covered by the Rule and to prevent unfair and deceptive practices. Specifically, the provision addressed one of the most pervasive problems of negative option marketing: sellers employing inadequate consent procedures to increase enrollment. Even for marketers trying to comply with the law, negative option programs present unique challenges. Specifically, consumers often focus on the aspects of an offer that mirror the offers they regularly encounter (e.g., the quality, functionality, and one-time price of the item) and think they are consenting to these core attributes while missing the negative option feature. To address this problem, § 425.5(a)(1) of the proposed Rule required sellers to obtain a consumer’s unambiguously affirmative consent to the feature separately from any other portion of the transaction. Section 425.5(a)(2) of the proposed Rule further required the seller to exclude any information that ‘‘interferes with, detracts from, contradicts, or otherwise undermines’’ the consumer’s ability to provide express informed consent to the negative option feature. This prohibition is consistent with longstanding Commission precedent that consent can be subverted, including by so-called ‘‘dark patterns,’’ sophisticated design practices used to manipulate users into making choices they would not otherwise have made.310 Additionally, under § 425.5(a)(3) of the proposed Rule, sellers had to obtain consumers’ unambiguously affirmative consent to the rest of the transaction to ensure consumers agreed to all elements of the agreement, even those not specifically related to the negative option feature. Further, § 425.5(a)(4) of the proposed Rule required sellers to obtain and maintain (for three years or a year after cancellation, whichever is 310 See, e.g., FTC v. RevMountain, LLC, No. 2:17– cv–02000 (D. Nev. 2017); FTC v. Cyberspace.com, LLC, 453 F.3d 1196 (9th Cir. 2006); United States v. Mantra Films, Inc., No. 2:03–cv–9184 (C.D. Cal. 2003); FTC v. Crescent Publ’g Grp., Inc., 129 F. Supp. 2d 311 (S.D.N.Y. 2001). E:\FR\FM\15NOR3.SGM 15NOR3 90500 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations longer) verification of the consumer’s consent. The Commission specifically sought comment on the appropriate recordkeeping period.311 To maintain consistency with the TSR, § 425.5(b) contained a crossreference to 16 CFR part 310 so sellers subject to the TSR know they must comply with all applicable provisions of that Rule, including those related to preacquired account information and freeto-pay conversions. Proposed § 425.5(c) provided an exemplar consent mechanism for those making written offers (including those on the internet) to illustrate how sellers could obtain consumers’ unambiguously affirmative consent to the negative option feature. Specifically, this provision stated for all written offers, sellers may obtain such consent through a check box, signature, or other substantially similar method, which the consumer must affirmatively select or sign to accept the negative option feature. This consent had to be independent from any other portion of the offer.312 Finally, the Commission invited comments on whether sellers offering free trials should be required to obtain an additional round of consent before charging a consumer at the end of a free trial.313 khammond on DSKJM1Z7X2PROD with RULES3 (a) Summary of Comments Consistent with the Commission’s and States’ enforcement experience,314 individual consumers’ comments confirm the need for clear, unambiguous, affirmative consent to a negative option feature. These comments identify numerous examples of consumers’ unwitting enrollment in negative option programs.315 311 NPRM, FR 88 24727 n.70; see also id. at 24734. 312 To avoid potential conflict with EFTA, this proposed provision does not apply to transactions covered by the preauthorized transfer provision of that Act, 15 U.S.C. 1693e, and Regulation E, 12 CFR 1005.10. Those EFTA provisions, which apply to a range of preauthorized transfers include some used for negative options, contain various prescriptive requirements (e.g., written consumer signatures that comply with E-Sign, 15 U.S.C. 7001–7006, evidence of consumer identity and assent, the inclusion of terms in the consumer authorization, and the provision of a copy of the authorization to the consumer) beyond the measures identified in the proposed Rule. Consequently, compliance with the proposed Rule would not necessarily ensure compliance with Regulation E. For example, use of a check box for consent without additional measures may not comply with Regulation E’s more specific authorization requirements. 313 NPRM, 88 FR 24728. 314 See, e.g., State Attorneys General (ANPR), FTC–2019–0082–0012; State AGs, FTC–2023–0033– 0886 (citing cases); FTC v. Amazon.com, Inc., No. 2:23–cv–0932 (W.D. Wash. 2023); see also n.109. 315 See, e.g., Anonymous commenter, FTC–2023– 0033–0799 (automatically enrolled in program VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 Sellers and trade groups also supported the requirement,316 as did consumer groups.317 However, sellers and trade groups expressed concern about the requirement that sellers obtain separate, unambiguously affirmative consent to the ‘‘rest of the transaction,’’ as opposed to the ‘‘negative option feature’’ itself. Specifically, these commenters asserted consumers may be confused where the product or service itself is only offered as a negative option, such as with streaming services or periodicals.318 As explained by one without consent); Individual commenter, FTC– 2023–0033–0039 (free-trial conversion to one year plan without consent); Individual commenter-FTC– 2023–0033–0052 (discount to full-price conversion without consent); Individual commenter, FTC– 2023–0033–1119 (cancelled, then automatically reenrolled without consent); Individual commenter, FTC–2023–0033–0079 (automatically re-enrolled without consent); Individual commenter, FTC– 2023–0033–0083 (no disclosure account would be automatically renewed); FTC–2023–0033–0138 (charged after cancellation); Individual commenter, FTC–2023–0033–0275 (no affirmative consent to monthly charge). 316 Sirius XM, FTC–2023–0033–0857 (businesses should be required to obtain express informed consent to the negative option feature at the point of sale); PDMI, FTC–2023–0033–0864 (no objection to the general requirement that sellers obtain a consumer’s consent to a transaction containing a negative option feature); MIA, FTC–2023–0033– 1008 (agreeing with the consent requirement under the proposed Rule). 317 Berkely Consumer Law Center, FTC–2023– 0033–0855; State AGs, FTC–2023–0033–0886 (noting State Attorneys General support the FTC’s proposed consent requirements and agree this provision is necessary given how easily marketers can enroll consumers in negative option programs without actual consent.). One individual consumer generally supported the separate consent requirements of the proposed Rule, but asked that the regulation prevent businesses from only offering goods and services through auto-renewal and subscription programs, i.e., consumers should have the option to purchase a good or service a la carte and not only on a recurring basis. Individual commenter, FTC–2023–0033–0026. 318 Sirius XM, FTC–2023–0033–0857 (requiring an additional consent will only result in consumer confusion); NCTA, FTC–2023–0033–0858 (‘‘requiring two consents could lead to consumer confusion (to say nothing of their exasperation at being forced to read and provide consent to a plethora of successive and largely duplicative documents). They may wonder why they are being asked to consent twice to a single transaction. And might worry that they have somehow misunderstood one or both of the consent notices’’); PDMI, FTC–2023–003–0864 (anecdotal evidence received from several PDMI members demonstrates that any time an additional choice or check box is offered to a consumer during a single transaction, such extra steps are likely to cause consumer confusion); N/MA, FTC–2023–0033–0873 (‘‘Requiring sellers to separate a single unified offer into separate components is not only unnecessary, it risks creating consumer confusion and fatigue’’ and consumers may ‘‘simply abandon the transaction’’); RILA, FTC–2023–0033–0883 (‘‘requirement for two distinct consents . . . may be confusing and not helpful to consumers.’’); DCN, FTC–2023–0033–0983 (‘‘We are concerned that requiring a separate consent would be confusing for the consumer who may not have the details of the entire contract readily available in the mandated PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 commenter, in these situations a second consent is likely unanticipated, and thus, could be confusing.319 Other groups asserted if consumers are confused, they may not affirmatively consent to the rest of the transaction, which could cause uncertainty about the existence of the contract.320 Commenters also noted too many required actions during the purchasing process may lead to ‘‘fatigue’’ and ‘‘cognitive overload,’’ causing consumers to abandon transactions they may have otherwise wanted.321 Finally, several commenters complained the separate consent requirements would be difficult (and costly) to implement, but without any benefit to consumers.322 separate context. For example, most consumers would likely want to review all of the benefits they would receive as part of a subscription including any discounts when deciding on whether to choose the option of automatic renewal.’’); APCIA, FTC– 2023–0033–0996 (‘‘Requiring a separate consent for a feature that is inherent in service contracts— continuous coverage—seems unnecessary and detrimental to consumers.’’). 319 IAB, FTC–2023–0033–1000 (‘‘Furthermore, consumers are familiar with subscription sign-up experiences and do not expect to have to consent a second time once they choose to purchase an autorenewal plan.’’). One individual consumer confirmed the comment. Individual commenter, FTC–2023–0033–0552 (‘‘The rule specifically prescribes that users must affirmatively assent specifically to the negative option feature, but in cases where a user is only purchasing a negative option product, how should other disclosures be presented?’’) 320 NCTA, FTC–2023–0033–0858; Sonsini Alarm Clients, FTC–2023–0033–0860 (‘‘could lead to consumers inadvertently failing to consent to autorenewal (because they did not notice the second check box) and having an unintended lapse in home security system coverage.’’); Asurion, FTC– 2023–0033–0878 (‘‘many consumers who want and could benefit from auto-renewal protection provisions will neglect to make the requisite two separate affirmative consents and suffer real consequences when they find themselves with a broken device during a gap in coverage’’); APCIA, FTC–2023–0033–0996 (‘‘A consumer who wants a service contract but then inadvertently fails to check a box indicating separate consent for the negative option feature could find that they no longer have coverage at the time they most need it.’’). 321 See, e.g., DCN, FTC–2023–0033–0983 (could lead to over-notification); CCIA, FTC–2023–0033– 0984 (‘‘Adding too much additional information or too many required actions in a purchase cart has diminishing returns for consumer comprehension and attention, and can increase the cognitive load for consumers to the point that they simply stop reading or give up on the purchase.’’); ANA, FTC– 2023–0033–1001. 322 NCTA, FTC–2023–0033–0858 (‘‘would require companies to change their current customer sign-up flows, at significant cost, without providing consumers with any additional benefits’’); PDMI, FTC–2023–003–0864 (‘‘requiring merchants to implement a double opt-in would impose an extraordinary financial and resource burden on sellers.’’); id. (double opt-in requirements ‘‘makes absolutely no sense, where, as is often the case, there is no transaction separate from the negative option transaction’’); SCIC, FTC–2023–0033–0879; Chamber, FTC–2023–0033–0885 (little to no evidence that double opt-in will create any E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 Thus, these commenters asked the Commission to exclude transactions where the negative option feature is not independent of the good or service being sold, i.e., where the good or service is itself only offered as a negative option,323 or to delete the requirement that sellers obtain separate, unambiguous, affirmative consent ‘‘to the rest of the transaction.’’ 324 Two commenters asked the Commission to modify the proposed provision by merging consent to the transaction and the negative option feature. These commenters suggested a separate consent should only be necessary where there are two independent portions of the transaction: one related to the negative option feature and a second for the sale of a separate good or service (including a free trial).325 Without this change, commenter Kuehn suggested ‘‘the proposed Rule could have the unintended result of diminishing the efficacy of other important terms of the contract.’’ Accordingly, Kuehn suggested the Commission revise the definition of negative option feature to encompass the entire contract (rather than a provision of the contract).326 This alteration, along with changing ‘‘rest of the transaction’’ to ‘‘the sale of another good or service,’’ would make it clear separate consent is only required where the seller has both an auto renewal agreement and the sale of another good or service. IAB, DCN, CTA, and several direct marketing companies asserted the Commission could achieve the same outcome—informed consent—through less restrictive means, e.g., by requiring a clearer disclosure of the negative option feature.327 For example, CTA consumer benefit, instead will increase consumer fatigue); see also IAB, FTC–2023–0033–1000 (double opt-in could be especially burdensome for bundled services, requiring consumers to check an additional box for each service, without added benefit to clarity or disclosure); ICA, 2023–0033– 1142 (‘‘requiring recording keeping of ‘‘express informed consent’’ potentially expressed through verbal, digital, or written records for multiple years will be an onerous and expensive requirement for small business owners to fulfill.’’). 323 Chamber, FTC–2023–0033–0885 (‘‘unless there is a negative promotional option, service providers should not be required to have a separate consent for monthly billing and the underlying transaction when the underlying transaction is for a monthly service.’’); see also MIA, FTC–2023– 0033–1008 (‘‘an additional consent to initiate a Subscription is unnecessary and superfluous’’). 324 See, e.g., Direct Marketing Companies, FTC– 2023–0033–1016. 325 Kuehn, FTC–2023–0033–0871; RILA, FTC– 2023–0033–0883. 326 Kuehn, FTC–2023–0033–0871. 327 Direct Marketing Companies, FTC–2023– 0033–1016 (‘‘the Commission provides no evidence or rationale that a robust, clear and conspicuous VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 posited: ‘‘[a]lternatively, to advance the same goal, and because the Proposed Rule already requires clear and conspicuous disclosure of material terms, the FTC could instead require subscription service providers to prominently disclose subscription terms in a manner that differentiates them from other disclosures, such as in bolded or underlined font, in the course of obtaining consumer consent to the transaction.’’ 328 Additionally, several commenters questioned ‘‘why a seller should be precluded from including other material terms of the transaction in obtaining a single consent.’’ 329 Some commenters raised additional concerns. For instance, several commenters challenged the Commission’s statement that a separate check box or similar method could be used to record a consumer’s unambiguously affirmative consent. Specifically, PDMI contended the check box, signature, or ‘‘substantially similar’’ method of consent could quickly become obsolete and ‘‘replaced by far more effective and consumer friendly mechanisms.’’ 330 Another, NRF, argued courts routinely hold a separate check box is not required for consumers to manifest asset to terms and conditions of the agreement, so long as the terms are reasonably conspicuous.331 Finally, a group of direct marketing companies, argued standalone consent is not necessary or reasonable, and other methods could suffice. They suggested the Commission include language that it ‘‘shall be a question of fact’’ whether the seller obtained consent through another means.332 Additionally, several trade groups and sellers expressed concern about the NPRM’s proposed recordkeeping requirements. For instance, one trade group explained the proposed requirements ‘‘would require sellers to disclosure proximate to the consumer’s consent would be insufficient to prevent deception and remedy allegedly prevalent unfair or deceptive acts and practices’’). 328 CTA, FTC–2023–0033–0997. 329 PDMI, FTC–2023–003–0864; Sirius XM, FTC– 2023–0033–0857 (‘‘Businesses should be able to obtain such consent in conjunction with the other terms of an offer,[ ] as long as they clearly and conspicuously disclose the negative option features and the other material terms of the offer and refrain from ‘‘includ[ing] any information that ‘interferes with, detracts from, contradicts, or otherwise undermines’’ the negative option terms.’’). 330 PDMI, FTC–2023–003–0864. 331 NRF, FTC–2023–0033–1005 (citing Meyer v. Uber Techs., Inc., 868 F.3d 66, 79 (2d Cir. 2017)). It is unclear from NRF’s comment whether it questioned separate consent generally, or the guidance on a check box. 332 Direct Marketing Companies, FTC–2023– 0033–1016. PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 90501 maintain records of consumer consent for at least three years, even for consumers who signed up for a free trial and cancelled it before being charged. As drafted, the proposed amendments would also require sellers to maintain records of consumer consent for eleven years for individuals who continuously subscribe to negative option features for at least ten years.’’ 333 Numerous commenters asserted these recordkeeping requirements would increase costs, which could ultimately be passed onto consumers,334 or small businesses, especially with respect to in-person and telephone transactions.335 Others raised concern the proposed recordkeeping requirement could conflict with best privacy practices. For example, commenters noted the retention period is at odds with the need to minimize the amount of consumer data that businesses hold and to enable customers to request deletion of their data.336 Commenters also suggested the Commission reduce the length of the recordkeeping requirement, e.g., to six months,337 or revise the proposal to eliminate the requirement for those who do not allow customers to purchase without 333 ANA, FTC–2023–0033–1001; see also BSA, FTC–2023–0033–1015 (‘‘the current language could be read to require a company to retain for three years the records of a customer who signed up for a free trial but cancelled before the trial ended—and was therefore never a paying customer.’’). 334 APCIA, FTC–2023–0033–0996; IAB, FTC– 2023–0033–1000 (‘‘this requirement will be significantly costly, as subscription businesses will need to overhaul their sign-up processes to comply with this requirement. Businesses seeking to offset this increased cost will be forced to pass this cost to consumers or avoid offering subscriptions at all’’). 335 NCTA, FTC–2023–0033–0858 (‘‘The proposal fails to account for the immense burden the proposal would impose on companies using alternative means to sell their products and services by requiring them to create and implement ways to capture and store duplicative layers of consumer consent.’’). 336 CCIA, FTC–2023–0033–0984 (‘‘This record retention rule also seems to be at odds with key principles of consumer privacy, namely the need to minimize the amount of consumer data that businesses hold and to enable customers to request deletion of any data in possession of a third party. A shorter mandatory retention period is more appropriate for both businesses and consumers.’’); NCTA, FTC–2023–0033–0858 (‘‘Not only is it expensive to maintain these records, it does not comport with privacy best practices.’’). 337 ICA, 2023–0033–1142 (‘‘Decrease the duration of the record-keeping requirement to six months after the business and the consumer enters into the agreement.’’); see also Direct Marketing Companies, FTC–2023–0033–1016 (change recordkeeping requirement to keep or maintain records ‘‘for at least one year if the consumer is charged at least twice within six months after the initial charge; or for at least three years if the consumer is not charged at least twice within six months after the initial charge.’’). E:\FR\FM\15NOR3.SGM 15NOR3 90502 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 accepting the terms of the negative option feature.338 Two consumer groups supported the consent provision but asked the Commission to add clarifying language. Specifically, Berkeley Consumer Law Center asked the Commission to state the Rule strictly prohibits the use of dark patterns to obtain consent and that consent cannot be given through silence. A group of professors asked the Commission to clarify that disclosures ‘‘appear in each language in which the representation that requires the disclosure appears.’’ 339 Finally, commenters split on whether the Rule should require separate affirmative consent for free-trial offers. Several consumers supported requiring separate consent at the conclusion of a free-trial period,340 with one consumer suggesting the Commission ban free-trial offers that require the prepurchase of the good or service.341 Other consumer interest and public advocacy groups reiterated consumers often forget, or are unaware they have signed up for, a negative option feature in connection with a free trial offer.342 Sellers and 338 PDMI, FTC–2023–003–0864; Chamber, FTC– 2023–0033–0885. 339 Law Professors, FTC–2023–0033–0861. 340 Individual commenter, FTC–2023–0033–0843 (‘‘In addition to making it easy to cancel an online subscription, it should be illegal for companies offering a ‘free trial’ to bill for any term of subscription without an opt-in step. If they really believe trying their product will prompt me to keep using it, then it needs to be a 2-step process in which at the end of the trial period they must ask for and receive an opt in before they place a charge on my card.’’); Individual commenter, FTC–2023– 0033–0615 (‘‘Rather than automatic renewals, I think subscriptions should only be renewed following consumer approval. For example, after a 14-day trial of an app, consumers should be asked if they approve a purchase to continue. If approval isn’t given, the default should be that the subscription expired and the consumer isn’t charged.’’); Individual commenter, FTC–2023– 0033–0993 (‘‘If it’s a trial subscription the company should notify you that your trial is over and affirm your desire to continue.’’). 341 Individual commenter, FTC–2023–0033–0026; see also Individual commenter, FTC–2023–0033– 0583 (‘‘Require that any entity not require a credit card on file for a trial, or any free period.’’); Individual commenter, FTC–2023–0033–0641 (‘‘Consumers shouldn’t have to be required to submit credit/debit card information for a trial usage. And, consumers shouldn’t be automatically charged the day after the trial expires.’’); Individual commenter, FTC–2023–0033–1069 (‘‘A free trial should not create an automatic subscription!’’); Individual commenter, FTC–2023–0033–0607 (‘‘A ‘trial offer’ should be just that—a ONE-TIME purchase.’’). 342 State AGs, FTC–2023–0033–0886 (‘‘the State Attorneys General again respectfully encourage the FTC to require sellers offering free trials to obtain an additional round of consent before charging a consumer at the completion of the free trial.’’); Law Professors, FTC–2023–0033–0861 (‘‘we ask that the Commission require additional consent from the consumer before a business may convert a free (or nominal-fee) trial into an expensive subscription. Indeed, it seems that Congress, in adopting ROSCA, VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 trade groups disagreed, specifically noting the Commission’s own analysis indicating a separate consent may not be necessary given the other requirements of the Rule 343 and existing State laws.344 (b) Analysis Based on the record, the Commission removes the proposed requirement that sellers obtain separate consent to ‘‘the rest of the transaction’’ under § 425.5(a)(3). Further, the Commission modifies the recordkeeping requirement to require sellers to maintain records only for three years from the date of consent. Alternatively, if sellers can show by a preponderance of the evidence they use processes that make it technologically impossible for a consumer to purchase the good or service without consent, sellers need not retain such records.345 Finally, the Commission declines to modify the consent provisions to require separate consent for free-trial offers. However, should the Commission seek additional comments about a provision to require annual reminders,346 it will consider addressing such offers at that time. Prior to addressing each of the issues listed above, it is important to clarify one point. A negative option feature is not itself a product or service—it is simply a mechanism for repeatedly consenting to the extension of a contract through silence. Thus, there are not situations in which the negative option feature is the product, as some commenters suggested. In the example provided above, a subscription to a streaming entertainment service can be offered with (e.g., the offer renews each month until cancellation) or without (e.g., the subscription lasts one year and then must be affirmatively renewed, or it cancels) a negative option feature. There are situations in which sellers only offer products or services on a validated consumer expectations that they would ‘‘have an opportunity to accept or reject [a] membership club offer at the end of [a] trial period.’’); TINA, FTC–2023–0033–1139 (‘‘Such consumer complaints are consistent with survey data showing that 42 percent of consumers forget they are still paying for a subscription they no longer use.[ ] ‘Many of those happen after you get enticed by a free trial for an online streaming service or a monthly subscription service for clothes or personal items, and then you forget to cancel it after that trial is over.’ ’’). 343 Sirius XM, FTC–2023–0033–0857 (‘‘As long as consumers are clearly informed about the terms of a free trial offer and evince affirmative consent, no further consumer consent should be required when the free trial period expires.’’). 344 CCIA, FTC–2023–0033–0984; Chamber, FTC– 2023–0033–0885. 345 This change will not affect a seller’s obligation to maintain appropriate records under other regulations, e.g., the TSR. 346 See section VII.B.7. PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 negative option basis; however, doing so does not lessen the need to ensure consumers consent to the negative option mechanism within the agreement. Therefore, the analysis below does not separately address this issue. (1) The Commission does not adopt a requirement for separate consent to ‘‘the rest of the transaction’’ because it is unnecessary, confusing, and hard to implement. Based on the comments, the Commission finds requiring consumer consent to ‘‘the rest of the transaction’’ apart from the negative option feature is unnecessary, potentially confusing, and may be hard to implement. First, even without the separate consent requirement, the proposed Rule contained several elements that work together to ensure consumers know they are agreeing to a negative option feature. Specifically, the proposed Rule required sellers to obtain the consumer’s unambiguously affirmative consent to the negative option feature separately from any other portion of the transaction 347 through, for example, a separately presented check box.348 It also required sellers to clearly and conspicuously provide important information immediately adjacent to the request for consumer consent, including that the charge will be recurring, the deadline to act to stop charges, the amount of the charges, and information necessary to cancel.349 Further, the proposed Rule stated the seller cannot include any information or employ any techniques that interfere with the consumer’s ability to understand these important disclosures and provide unambiguously affirmative consent to the negative option feature. Given these protections, a separate consent requirement is not necessary.350 Second, the Commission agrees the separate consent requirement could cause consumer confusion. Moreover, compliance with the Rule’s required disclosure and consent provisions should address the concerns commenters raised regarding deception. Finally, several sellers suggested, and there is no evidence to the contrary, that seeking consent to both the negative 347 Section 425.5(a)(1). 425.5(c) allows sellers to comply with the requirement to obtain unambiguously affirmative consent to the negative option feature through a check box, signature, or other substantially similar method. 349 See Rule § 425.4(a)(1)–(4). 350 The Commission further notes because the seller is obtaining express informed consent to the negative option feature separately from the rest of the transaction, consumers are, in effect, agreeing to both the negative option feature and the sale of the good or service separately. 348 Section E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations option feature and the rest of the transaction could be hard to implement for many sellers. Thus, the final Rule does not contain the separate consent requirement.351 (2) The Commission modifies the recordkeeping requirements to address legitimate privacy concerns and reduce undue burden on small businesses. Section 425.5(a)(4) of the proposed Rule required sellers to obtain and maintain (for three years or a year after cancellation, whichever was longer) verification of the consumer’s consent to the negative option feature. Implementation of this requirement would undoubtably enhance the FTC’s ability to enforce the Rule. However, the Commission agrees the proposal creates privacy concerns. The Commission has long recommended companies employ data retention policies that ‘‘dispose of data once it has outlived the legitimate purpose for which it was collected.’’ 352 Therefore, the Rule’s data retention requirement, could, in some instances, be at odds with this guidance. Further, several commenters asserted a longer recordkeeping requirement will be burdensome, particularly for small businesses. Balancing the Commission’s interest in robust Rule enforcement against privacy and burden concerns, the Commission modifies the proposed Rule. Specifically, § 425.5(a)(3) of the final Rule requires sellers to keep or maintain verification of the consumer’s consent for a period of three years from the date of consent (rather than three years or a year after cancellation, whichever is longer). Removing the requirement that sellers keep records until one year after cancellation prevents the retention of records for very long periods of time while the contract is still in force. Moreover, as some commenters stated,353 sellers can employ technological processes for online consent that could alter the balance of concerns. Specifically, it is technologically feasible to make it impossible for customers to enroll without providing unambiguously affirmative consent. The Commission therefore further modifies the recordkeeping requirement to eliminate the requirement entirely if a seller can 351 See § 425.5(a)(3). FTC–2023–0033–0858 (citing FTC, ‘‘Protecting Consumer Privacy in an Era of Rapid Change’’ (2012) at 28, www.ftc.gov/reports/ protecting-consumer-privacy-era-rapid-changerecommnedations-businessespolicymakers). 353 ANA, FTC–2023–0033–1001; ESA, FTC– 2023–0033–0867 (for purchases that cannot be completed without a consumer’s consent, a business will be deemed compliant with any recordkeeping requirement and is not required to maintain an individual record of consent). khammond on DSKJM1Z7X2PROD with RULES3 352 NCTA, VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 demonstrate it meets this threshold. The final provision will allow sellers to destroy consumer records more quickly, while accomplishing the same goal.354 Finally, the Commission clarifies maintaining copies of advertisements or telephone scripts documenting the disclosures provided in general does not meet this requirement. Such information is easily manipulated by deceptive sellers and cannot show any particular consumer received the disclosures prior to giving consent. Therefore, sellers must either maintain records of each consumer’s unambiguously affirmative consent or demonstrate they satisfy the technological exemption provision. (3) Other concerns raised by commenters do not warrant modifications to the rule. As noted above, a few commenters questioned the Commission’s proposed exemplar consent mechanism under § 425.5(c). This proposed provision states for written offers, a check box, signature, or ‘‘substantially similar’’ method can be used to obtain a consumer’s unambiguously affirmative consent. The Commission notes the mechanism applies to the negative option feature only, and thus corrects the cross-reference contained in this provision from (a)(3) to (a)(1). The Commission further notes this provision does not require a check box or signature. The Commission offered these methods only as examples a seller can use to obtain unambiguously affirmative consent, not the only ways to do so. Thus, the exemplar does not conflict with caselaw holding that a check box is not required to manifest consent. The Commission also declines to include language in the final Rule, as one commenter suggested,355 stating whether a seller has complied with this provision is a question of fact. This is unnecessary because the Commission always evaluates sellers’ practices on a case-by-case basis to determine whether they comply with the law. The Commission further declines to remove this provision’s reference to ‘‘substantially similar’’ methods as some commenters requested. The language is intended to cover any method that affords consumers all the same protections as a check box or signature. The phrase ‘‘substantially similar’’ performs this function while allowing for technological advancement, innovation, and adaption without tying 354 Importantly, if the seller does not maintain records and cannot satisfy the technological exemption, the seller has violated the Rule. 355 Direct Marketing Companies, FTC–2023– 0033–1016. PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 90503 sellers to specific mechanism that may become obsolete. Further, the Commission declines to modify the final Rule to allow sellers to obtain express informed consent by merely ‘‘disclosing’’ the negative option more clearly through, e.g., bolded or underlined font, rather than obtaining expressed informed consent separately for the negative option feature. Although this change would be ‘‘less restrictive,’’ it would not adequately protect consumers from unknowingly enrolling in negative option programs. In the NPRM, the Commission balanced the need for clear, unavoidable disclosure of, inter alia, the negative option feature with the need for flexibility to allow sellers to best communicate their entire message to consumers. The proposed Rule strikes the right balance. As discussed above, proposed § 425.4 (Important Information), required sellers to clearly and conspicuously disclose important information about the negative option feature, immediately adjacent to the means of recording consent to the feature, and, under § 425.5 (Consent), separately from any other portion of the transaction. The Commission did not specify exact placement, language, or font size because doing so would have diminished flexibility without a sufficient corresponding benefit. While this balance is appropriate, the required disclosure of important information under § 425.4 does not replace the requirement that sellers obtain consumers’ express informed consent. To avoid harm from unfair and deceptive practices, it is imperative consumers unequivocally understand they are agreeing to enrollment in a negative option program and demonstrate their agreement. The Commission also declines to add language stating (1) the Rule strictly prohibits the use of dark patterns to obtain consent and (2) consent cannot be given through silence. The Rule already addresses both concerns. First, the Rule bars any information that ‘‘interferes with, detracts from, contradicts, or otherwise undermines’’ the consumer’s ability to provide express informed consent. To the extent dark patterns run afoul of any of these requirements, they are prohibited. To the extent they do not, consumers’ express informed consent as required by the Rule is not implicated. Second, under § 425.5, consumers already must give affirmative consent. Finally, the Commission does not need to clarify, as some commenters suggested, that required consents ‘‘appear in each language in which the E:\FR\FM\15NOR3.SGM 15NOR3 90504 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations representation . . . appears.’’ 356 To obtain a consumer’s express informed consent, each disclosure must be clear and conspicuous and immediately adject to the means of recording the consumer’s consent. To meet the clear and conspicuous standard as defined in the Rule, the disclosure must, among other things, ‘‘appear in each language in which the representation that requires the disclosure appears.’’ 357 (4) The Commission does not modify the Rule to require separate consent for free trial offers. In the NPRM, the Commission invited comments on whether the Rule should require an additional (or alternative) round of consent after the end of a free trial offer. As explained in the NPRM, if the seller follows the proposed Rule’s disclosure and consent requirements, consumers should understand they are enrolled in, and will be charged for, the negative option feature once the free trial ends. As discussed above, however, several commenters explained with enough time between initial enrollment and charge after conversion, consumers are primed to forget the negative option feature.358 The Commission agrees this an important issue; however, clear upfront disclosures lessen the chance a negative option feature may be unfair or deceptive. Specifically, clear, accurate upfront disclosures reduce the risk of deception, and the potential harms caused are more likely to be reasonably avoidable (i.e., the consumer can simply refuse to enter into the contract). That said, taking advantage of consumers’ ‘‘forgetfulness’’ is extremely troubling and thus ripe to be addressed by other means. 6. Proposed § 425.6 Simple Cancellation (‘‘Click to Cancel’’) Section 425.6 of the proposed Rule contains several requirements to ensure consumers can easily cancel negative option features. As explained in the NPRM, ‘‘easy cancellation is an essential feature of a fair and nondeceptive negative option program,’’ but one that has become ‘‘far too often illusory.’’ 359 ‘‘If consumers cannot easily leave a negative option program, the negative option feature is little more 356 Law Professors, FTC–2023–0033–0861. § 425.2(c)(6). 358 Deceptive sellers also commonly delay shipment of goods or services until close to the end of the trial period, giving consumers little time to stop the charge or cancel the negative option. See, e.g., Individual commenter, FTC–2023–0033–0085. 359 NPRM, 88 FR 24729; see ANPR, 84 FR 52395 (discussing general requirements for nondeceptive negative options); id. at 52396 (discussing the ongoing problems in the marketplace including inadequate or overly burdensome cancellation procedures). khammond on DSKJM1Z7X2PROD with RULES3 357 Rule VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 than a means of charging consumers for goods and services they no longer want.’’ 360 To prevent unfairly trapping consumers in a transaction they do not want, the proposed Rule directed sellers to provide a cancellation mechanism that (1) immediately halts recurring charges; (2) is as simple to use as the mechanism the consumer used to consent to the negative option feature; and (3) is readily accessible through the same medium the consumer used to provide that consent. The Commission intended these requirements to erect clear guardrails, while providing sellers with the flexibility to innovate. Therefore, rather than propose specific prohibitions, which may lose utility over time, or inadvertently provide a roadmap for deception, the proposed Rule outlined a performance-based standard mapping the contours of what constitutes a simple mechanism, without overly prescriptive requirements. (a) § 425.6(a) and (b) Simple Mechanism Required for Cancellation; and Simple Mechanism at Least as Simple as Initiation (1) Summary of Comments Proposed § 425.5(a) and (b) required a fast and easy cancellation mechanism that, at minimum, allows the consumer to cancel as easily as they enrolled in the program. The Commission received thousands of comments in support of this provision, with individual consumers uniformly expressing their desire for a simple easy to use cancellation mechanism.361 Such comments included: ‘‘If you signed up online, you should be able to cancel online. If it took one click to join, it should take one click to cancel;’’ 362 ‘‘I 360 NPRM, 88 FR 24729. commenter FTC–2023–0033–0029 (‘‘Please implement this necessary rule to protect consumers and save us hours on the phone cancelling services we signed up for with one click online.’’); Individual commenter, FTC–2023–0033– 0072 (‘‘I have had issues with some online subscriptions which were entered into purely online, but to cancel I had to call a phone number open only during certain business hours. I would like a rule that requires all subscriptions to be available to cancel through the same means as they were initiated, whether that is online, in person, phone, mail, or chat. I believe that would be fair to people of all technological levels while allowing businesses to conduct business how they feel comfortable without allowing them to create unnecessary hurdles for customers looking to end their service.’’). 362 Individual commenter, FTC–2023–0033–0111. Thousands of individual consumers repeated this phrase through a mass media campaign. See, e.g., Anonymous commenter, FTC–2023–0033–0013; Individual commenter, FTC–2023–0033–0016 (‘‘If I can subscribe in one click, I should be able to unsubscribe in one click.’’); Individual commenter, 361 Individual PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 would like the option to cancel my subscriptions, [and] offers online just as easily as it was to sign up;’’ 363 ‘‘As more and more services enter online use, it is ridiculous that consumers have to jump through so many hoops to cancel services when it is so easy to sign up for them;’’ 364 and ‘‘Consumers need the one-click option.’’ 365 Some commenters suggested unsubscribing should be easier than enrolling,366 and others, ‘‘very easy.’’ 367 Indeed, several advocated for an ‘‘Unsubscribe link,’’ 368 similar to those available under the CAN–SPAM Act.369 Numerous commenters complained they FTC–2023–0033–0017 (‘‘It should be as easy as one click to cancel an online account.’’); Individual commenter, FTC–2023–0033–0068 (‘‘Being able to go online and with a simple click be able to cancel a subscription would be a dream.’’); see also Individual commenter, FTC–2023–0033–0015 (‘‘Ending a subscription should be as easy as it was to sign up. it makes no sense how hard it is to close out an account with some places.’’); Individual commenter, FTC–2023–0033–0020 (‘‘The time has come to make it as easy for consumers to cancel subscriptions as it has been to start them.’’); Individual commenter, FTC–2023–0033–0087 (‘‘I think any offer you can buy with a click should also be an offer to unsubscribe with a click.’’). 363 Individual commenter, FTC–2023–0033–0003; see also Individual commenter, FTC–2023–0033– 0010 (‘‘I for one would be for the Easing of subscription cancellation. Having it be much harder to cancel a subscription than start it simply shouldn’t be.’’); Anonymous commenter, FTC– 2023–0033–0024 (‘‘It should be no harder for consumers to stop giving a company their money than it is for them to start giving it to them.’’); Individual commenter, FTC–2023–0033–0025 (‘‘In fact, it should be as easy to cancel as it is to sign up.’’). 364 Individual commenter, FTC–2023–0033–0231; Individual commenter, FTC–2023–0033–0109. 365 Individual commenter, FTC–2023–0033–0403. 366 ‘‘Unsubscribing should be easier than subscribing.’’ Individual commenter, FTC–2023– 0033–0005. Accord Individual commenter, FTC– 2023–0033–0021 (same); Anonymous commenter, FTC–2023–0033–0040 (‘‘I am in favor of making it easier to discontinue services.’’); Individual commenter, FTC–2023–0033–0107 (‘‘Canceling a subscription should be easier that setting up the subscription.’’). 367 Individual commenter, FTC–2023–0011 (‘‘It should be very easy to cancel a subscription, artificially creating difficulty or hurdles only serves to hurt the consumer of a service as well as a company’s image and deplete trust in a brand or service.’’); Individual commenter, FTC–2023–0033– 0036 (‘‘It should be very easy to cancel a subscription!!!!!’’). 368 Individual commenter, FTC–2023–0033–0030; Individual commenter, FTC–2023–0033–0035; see also Individual commenter, FTC–2023–0033–0188 (‘‘If you sign up online, you should be able to cancel online. If it took one click to join, it should take one click to cancel. Kind of like ‘unsubscribing’ from an email newsletter you don’t want to get anymore.’’); Individual commenter, FTC–2023–0033–0236 (‘‘When I get an email from a politician I’m not interested in there is always an unsubscribe button. Why can’t paid subscriptions be the same?’’). 369 Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (‘‘CAN– SPAM Act’’), 15 U.S.C. 7701–7713; 16 CFR part 316. E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 often have to resort to disputing the charge with credit card companies (or cancelling the card altogether) because cancellation is so difficult or impossible.370 Additionally, commenters described the simple cancellation mechanism requirements as a ‘‘no brainer,’’ ‘‘common sense,’’ and ‘‘only fair’’ to consumers.371 These and others commenters complained of the hundreds of dollars 372 and hours 373 370 See, e.g., Individual commenter, FTC–2023– 0033–0068; Individual commenter, FTC–2023– 0033–0086; Individual commenter, FTC–2023– 0033–0203 (‘‘Recently, I had to start a dispute case with my credit card company because I had subscribed to a service and there was no way to cancel that service.’’); Individual commenter, FTC 2023–0033–0211; Individual commenter, FTC– 2023–0033–0225 (had new card issued); Individual commenter, FTC–2023–0033–0275 (disputed the charge and cancelled card); Individual commenter, FTC–2023–0033–0311 (cancelled credit card); Individual commenter, FTC–2023–0033–0320 (disputed charge); Individual commenter, FTC– 2023–0033–0501 (terminated credit card); Individual commenter, FTC–2023–0033–1134 (cancelled credit card). 371 See, e.g., Individual commenter, FTC–2023– 0033–0256; Individual commenter, FTC–2023– 0033–0408 (‘‘common sense’’); Individual commenter, FTC–2023–0033–0431 (‘‘no brainer’’); Individual commenter, FTC–2023–0033–0586 (‘‘no brainer’’). 372 Individual commenter, FTC–2023–0033–0232; Individual commenter, FTC–2023–0033–0459 (‘‘I once lost hundreds of dollars because I could not find how to cancel.’’); Individual commenter, FTC– 2023–0033–0509; Individual commenter, FTC– 2023–0033–0232 (‘‘I’m currently trapped in at least three subscriptions that are nearly impossible to cancel, costing me hundreds of dollars per year.’’); Individual commenter, FTC–2023–0033–0509; Individual commenter, FTC–2023–0033–0825 (‘‘I have wasted hundreds of dollars for things that automatically renewed as a result of not being able to figure out easily how to cancel.’’); Individual commenter, FTC–2023–0033–0572; Individual commenter, FTC–2023–0033–0697 (‘‘I have been caught up in just this very unfair practice where I’ve been lured in and can’t get out—to the tune of hundreds of dollars that I don’t have.’’); see also Public Interest Groups, FTC–2023–0033–0880. 373 See, e.g., Individual commenter, FTC–2023– 0033–029 (‘‘Please implement this necessary rule to protect consumers and save us hours on the phone cancelling services we signed up for with one click online.’’); Anonymous commenter, FTC–2023– 0033–0040 (‘‘My negative experience was that it was a simple ‘click’ on-line to sign up for a service but to cancel same service it took three phone calls and hours of my time.); Individual commenter, FTC–2023–0033–0084 (‘‘I spent over two hours of my time trying to cancel the subscription.’’); Individual commenter, FTC–2023–0033–0106 (‘‘I’ve definitely lost at least 30 hours of my life dealing with insufferable ‘retention specialists,’ all of whom should be ashamed of what they do.’’); Individual commenter, FTC–2023–0033–0431; Individual commenter, FTC–2023–0033–0385 (‘‘This is not a bot generating a letter; it’s an actual person, and I want to register strong support for the one Click rule you are considering. I have wasted hours trying to deal with customer service, whose only goal is to keep me on board.’’); Individual commenter, FTC–2023–0033–0672 (‘‘It’s about time! Trying to unsubscribe can waste many hours, induce stress, result in unwanted subscription or cancellation fees, and leave personal data subject to abuse.’’); Individual commenter, FTC–2023–0033–0642 (‘‘There needs to be a substantial penalty when a VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 wasted on unused and unwanted products and services they were not effectively able to cancel due to byzantine cancellation procedures.374 As summarized by the Berkeley Consumer Law Center, ‘‘requiring the mechanism of cancellation be as simple as enrollment’’ will minimize ‘‘overly complex cancellation processes with multiple steps,’’ and prevent sellers ‘‘from trapping consumers in automatically renewing subscriptions through obstacles created by tedious processes or confusion.’’ 375 Sellers and trade organizations argued the proposed requirements were ‘‘too vague.’’ 376 For instance, PDMI asserted the requirement that the simple cancellation mechanism be as easy to use as the one used to initiate the transaction provides no clear guidance on when a transaction is ‘‘initiated.’’ Several industry and trade groups echoed this comment, contending ‘‘as easy as’’ is a difficult, and often subjective, standard.377 Other businesses complained the proposed Rule fails to define ‘‘simple mechanism’’ 378 and making cancellation as easy as enrollment was not possible because they serve different purposes.379 IAB asserted the proposed requirements were overbroad in relation service is requested to be cancelled, but the charges continue. I dropped my TV service from Comcast 3 months ago and they continue to charge me. Every time I need to re-contact them I waste an hour.’’). 374 Individual commenter, FTC–2023–0033–0422 (‘‘Implementing this consumer-protection rule has the potential to save American consumers millions of dollars, and prevent unscrupulous companies from using byzantine cancellation procedures to squeeze unwarranted funds out of their customers.’’); Individual commenter, FTC–2023– 0033–0233 (‘‘I had to navigate an endless labyrinth of dark-patterned links in order to cancel an Amazon Prime subscription that took me one click to sign up for.’’); Individual commenter, FTC–2023– 0033–0482 (‘‘They make it a labyrinth of obscure phrases and if you don’t know to click on just the right one, you’ll never be able to cancel.’’). 375 Law Professors, FTC–2023–0033–0861; see also State AGs, FTC–2023–0033–0886 (‘‘state attorneys general strongly endorse the FTC’s efforts to ensure that consumers enrolled in subscription services or other negative option plans are continuing to pay for those plans because they want to maintain their subscriptions, and not because it is too much trouble to cancel.’’). 376 PDMI, FTC–2023–003–0864; ACT App Association, FTC–2023–0033–0874 (elusive language); IAB, FTC–2023–0033–1000 (unclear how to measure simplicity). 377 Chamber, FTC–2023–0033–0885 (‘‘ambiguous and hard to implement requirement); NRF, FTC– 2023–0033–1005 (as simple as not defined and no examples). 378 ACT App Association, FTC–2023–0033–0874. The Commission does indeed define ‘‘simple mechanism’’ through the requirements of § 425.6, as well as through existing caselaw and the 2021 Enforcement Policy Statement. See n.385. 379 ESA, FTC–2023–0033–0867; IHRSA, FTC– 2023–0033–0863; Chamber, FTC–2023–0033–0885; BSA, FTC–2023–0033–1015. PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 90505 to the prevalent acts or practices the Commission identified.380 (2) Analysis Considering the overwhelming support for a simple cancellation 381 mechanism that immediately halts charges,382 and given substantial evidence supporting the need for such mechanism to prevent unfair and deceptive acts and practices, the Commission retains proposed § 425.6(a) and (b).383 The Commission disagrees with commenters’ argument that the ‘‘as easy as’’ standard is vague. The Commission has provided considerable guidance on what constitutes a simple or ‘‘easy’’ cancellation mechanism through numerous cases and its 2021 Enforcement Policy Statement.384 380 IAB, FTC–2023–0033–1000. The Commission addresses IAB’s prevalence assertions elsewhere. See section VII.A. 381 Beyond the near universal support by consumers and consumer advocacy groups, some trade groups also supported the goal of ensuring consumers have a quick and easy mechanism to cancel. RILA, FTC–2023–0033–0883; see also Sirius XM, FTC–2023–0033–0857 (‘‘All parties want an easy-to-use and an accessible method of cancellation’’); ZoomInfo, FTC–2023–0033–0865 (‘‘We concur with the FTC’s recognition that negative option terms, often concealed in ‘fine print’, can be difficult for consumers to negotiate or even to comprehend fully, and that canceling these contracts can be unfairly burdensome.’’). 382 Some commenters asked for clarification regarding whether the requirement under § 425.6(a) would also immediately cancel the entire contract. See, e.g., N/MA (‘‘The FTC should also clarify that the ‘‘Click to Cancel’’ proposal applies only to the negative option portion of a subscription and not to the entire subscription.’’). The language of the Rule is clear—cancellation under the Rule applies only to the negative option portion of the contract, and not the entire contract. Section 425.6 (‘‘it is violation of this Rule . . . for the negative option seller to fail to provide a simple mechanism for a consumer to cancel the negative option feature’’). Thus, when a consumer cancels, all terms and conditions continue until the expiration of the contract or agreement. 383 BSA specifically requested the Commission revise subsection (a) to the following: ‘‘We suggest revising this language to clarify the intended result by stating the obligation is ‘to cancel the negative option feature and immediately stop any recurring charges for the good or service.’ ’’ BSA, FTC–2023– 0033–1015. However, this change could create ambiguity regarding application of the subsection to the initiation of charges under free- and fee-to-paid conversions. Accordingly, the Commission will not incorporate the suggested change. 384 See, e.g., EPS, 86 FR 60822; FTC v. FloatMe Corp., No. 5:24–cv–00001 (W.D. Tex. 2024); United States v. Cerebral, Inc., No. 1:24–cv–21376 (S.D. Fla. 2024); FTC v. Bridge It, Inc., No. 1:23–cv–09651 (S.D.N.Y. 2023); FTC v. Vonage Holdings Corp., No. 3:22–cv–06435 (D.N.J. 2022); FTC v. Benefytt Techs., Inc., No. 8:22–cv–01794 (M.D. Fla. 2022); FTC v. First Am. Payment Sys., No. 4:22–cv–00654 (E.D. Tex. 2022); United States v. MyLife.com, Inc., No. 2:20–cv–6692 (C.D. Cal. 2020); FTC v. RagingBull.com, LLC, No. 1:20–cv–03538 (D. Md. 2020); FTC v. Age of Learning, Inc., No. 2:20–cv– 07996 (C.D. Cal 2020); FTC v. Match Grp., Inc., No. 3:19–cv–02281 (N.D. Tex. 2019); FTC v. Cardiff, No. 5:18–cv–02104 (C.D. Cal. 2018); FTC v. AdoreMe, E:\FR\FM\15NOR3.SGM Continued 15NOR3 90506 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 Moreover, the ‘‘as easy as’’ standard is even clearer in context, i.e., a flexible measure that ensures consumers have similar cancellation and consent experiences in terms of time, burden, expense, and ease of use, among other things.385 The Commission is aware these experiences may not always be perfectly symmetrical. Consumers may have to verify or authenticate their identity, for instance,386 or they may be asked to confirm their intent to cancel.387 However, reasonable verification, authentication, or confirmation procedures should not create distinctly asymmetrical experiences, particularly if the cancellation mechanism is located within account or user settings secured by authentication requirements for access. Any authentication, verification, or confirmation procedure that creates unreasonable asymmetry runs afoul of section 5 of the FTC Act and the Rule. Moreover, given the extensive record and the Commission’s experience with sellers using verification and authentication tools to thwart or delay cancellation,388 the Commission declines to create a safe harbor for these activities as some States have 389 and as some commenters requested.390 Nevertheless, as some commenters point out, the proposed initiation or purchase date trigger may provide Inc., No. 1:17–cv–09083 (S.D.N.Y. 2017); FTC v. AAFE Prods. Corp., No. 3:17–cv–00575 (S.D. Cal. 2017); FTC v. JDI Dating, Ltd., No. 1:14–cv–08400 (N.D. Ill. 2014). 385 Some commenters raised the concern that sellers might create complicated signup procedures to justify complex cancellation mechanisms. ESA, FTC–2023–0033–0867; State AGs, FTC–2023–0033– 0886; IAB, FTC–2023–0033–1000. As pointed out by the State AGs sellers must comply with all requirements of a simple cancellation mechanism, including that consumers can promptly effectuate cancellation through an accessible means. 386 Commenters insisted that reasonable authentication and verification procedures be allowed prior to cancellation to ensure that only authorized persons are making changes to an account. NFIB, FTC–2023–0033–0789; IHRSA, FTC–2023–0033–0863; ESA, FTC–2023–0033–0867; N/MA, FTC–20230033–0873; RILA, FTC–2023– 0033–0883; ANA, FTC–2023–0033–1001. 387 See, e.g., MIA, FTC–2023–0033–1008. 388 Berkeley Consumer Law Center, FTC–2023– 0033–0855; RocketMoney, FTC–2023–0033–0998; Anonymous commenter, FTC–2023–0033–0024; Individual commenter, FTC–2023–0033–0411; Individual commenter, FTC–2023–0033–0850; Individual commenter, FTC–2023–0033–0861; Individual commenter, FTC–2023–0033–0888; Anonymous commenter; FTC–2023–0033–0134; Individual commenter, FTC–2023–0033–0326; Individual commenter, FTC–2023–0033–0778. 389 See, e.g., Cal. Bus. & Prof. Code § 17602(d)(3); Colo. Rev. Stat. § 6–1–732(2)(d)(I)(B). 390 USTelecom, FTC–2023–0033–0876 (‘‘expressly allow’’ business to engage in privacy and data security measures prior to cancellation); ANA, FTC–2023–0033–1001. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 insufficient clarity.391 Not all negative option features begin with a purchase (e.g., free trials), and when a transaction is initiated is subject to interpretation or possible manipulation. Given this ambiguity, businesses attempting to comply with the proposed Rule may have difficulty, and those attempting to evade the proposed Rule may find loopholes with the proposed initiation or purchase date trigger. Thus, the Commission revises § 425.6(b) 392 to require the simple cancellation mechanism be ‘‘as easy as’’ the mechanism the consumer used ‘‘to consent’’ to the negative option feature, rather than ‘‘initiate’’ or ‘‘purchase’’ the feature. The moment of consent avoids the lack of clarity the terms ‘‘purchase’’ and ‘‘initiate’’ introduce and clarifies the action to which the cancellation must be compared. (b) Proposed § 425.6(c) Minimum Requirements for Simple Mechanisms (1) Summary of Comments The proposed Rule required sellers to provide a simple cancellation mechanism through the same medium (internet, phone, in-person) the consumer used to consent to the negative option feature. Almost uniformly, consumers supported this requirement.393 However, a number of a trade groups disagreed, arguing, as explained below, the requirement is too prescriptive, or could lead to accidental or inadvertent cancellation.394 Instead, these commenters suggested the Commission allow consumers to choose their cancellation medium (e.g., based 391 For online cancellation, § 425.6(c)(1) of the proposed Rule required sellers to provide a simple cancellation mechanism through the same medium consumers used ‘‘to purchase the negative option feature.’’ 392 The Commission also will make a conforming change to add ‘‘consent’’ in section 425.6(c)(1). 393 See, e.g., Individual commenter, FTC–2023– 0033–0072 (‘‘I would like a rule that requires all subscriptions to be available to cancel through the same means as they were initiated, whether that is online, in person, phone, mail, or chat.’’); Individual commenter, FTC–2023–0033–0252 (‘‘the method provided for signing up for a service must also be provided for cancelling the same service, be just as easy to find, and require no more steps than it took to sign up.’’). 394 See, e.g., NCTA, FTC–2023–0033–0858; PDMI, FTC–2023–0033–0864; CTA, FTC–2023–0033– 0997; ANA, FTC–2023–0033–1001. See also Wilson Sonsini Goodrich & Rosati on behalf of certain of its alarm company clients (‘‘Sonsini Alarm Clients’’), FTC–2023–0033–0860 (alarm companies should be able to speak to the customers to verify identity and confirm cancellation intent); N/MA– FTC–2023–0033–0873 (A ‘‘one click’’ cancellation requirement for an entire subscription, especially absent some form of authentication, could also lead to accidental and/or malicious cancellations.); NRF, FTC–2023–0033–1005 (data suggests that one-clickcancellation functions frequently cause accidental cancellations). PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 on ‘‘consumer expectations,’’ convenience, or common use by the seller).395 Consumer groups and law enforcement asked the Commission to add minimum requirements to the simple cancellation mechanism. For instance, the State AGs asked the Commission to include the various requirements stated in the 2021 Enforcement Policy Statement, e.g., require negative option sellers ‘‘not [to] erect unreasonable barriers to cancellation or impede the effective operation of promised cancellation procedures, and must honor cancellation requests that comply with such procedures.’’ 396 They also urged the Commission to adopt language from New York’s statute, which provides simple cancellation mechanisms must be ‘‘cost effective, timely, and easy to use.’’ 397 Additionally, the Center for Data Innovation asked the Commission to create a working group to define simple mechanism further, including best practices for businesses.398 Finally, some commenters suggested the record lacks evidence that it would be unfair or harmful to consumers to have a cancellation process different from the sign-up process.399 Accordingly, they argued promulgating a trade regulation rule requiring such symmetry is beyond the Commission’s authority. Further, IAB argued the Commission cannot create new requirements defining simple cancellation methods beyond ROSCA’s simplicity standard, i.e., that sellers provide simple mechanisms to stop recurring charges, because Congress already decided the appropriate standard.400 (a) Proposed § 425.6(c)(1): Online Cancellation Section 425.6(c)(1) of the proposed Rule specifically addressed online cancellation, requiring sellers to provide a cancellation mechanism over the same website or web-based application the consumer used to consent. Thousands of commenters repeated the mantra: ‘‘If you signed up online, you should be able to cancel online,’’ noting they often face hurdles finding a cancellation mechanism, and then must call and 395 See, e.g., Sirius XM, FTC–2023–0033–0857; N/ MA, FTC–2023–0033–0873; State AGs, FTC–2023– 0033–0886. 396 State AGs, FTC–2023–0033–0886. 397 Id. 398 CDI, FTC–2023–0033–0887. 399 CTA, FTC–2023–0033–0997; IAB, FTC–2023– 0033–1000. 400 IAB, FTC–2023–0033–1000. E:\FR\FM\15NOR3.SGM 15NOR3 khammond on DSKJM1Z7X2PROD with RULES3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations industries posited consumers often do not, in fact, want to cancel, but rather seek to downgrade or modify services. Therefore, requiring a consumer to speak to a live agent best accomplishes this goal, regardless of how the consumer enrolled.408 Alarm companies raised a similar concern, i.e., there are no safeguards to ensure the consumer intended to cancel (rather than, e.g., unsubscribe from marketing emails) when cancelling online. They also emphasized the importance of verifying a consumer’s identity prior to cancellation. As explained by a commenter representing various alarm company clients, alarm companies’ ‘‘cancellation procedures are designed to prevent inadvertent or malicious disabling of alarm monitoring services, often by directing consumers to call trained customer support representatives who can verify the consumer’s identity via their secure passcode and ensure any changes made to the account are intentional and fully informed.’’ 409 spend significant time on the telephone to cancel their subscriptions.401 In contrast, RILA suggested consumers would not always expect to find a cancellation function through the same online medium the consumer used to enroll. ‘‘For example, contracts are . . . increasingly concluded online through third parties or via social media apps. Regardless of how a customer initially signs up, once she/he establishes a purchasing arrangement with a seller, the customer will logically look to the seller to cancel.’’ 402 Several commenters agreed, stating where a consumer enrolls through a third party, or through an IoT device, the consumer may naturally look to the seller with whom the consumer has the agreement.403 Similarly, trade groups, such as NCTA and PDMI, argued mandating consumer cancellation through the same website or web-based application the consumer used to initiate the transaction is too prescriptive.404 Several of these commenters asserted the proposed requirement is unnecessary and contrary to consumer expectations.405 They further contended when consumers enroll online, any online cancellation mechanism should be adequate.406 Further, these commenters suggested it may not be possible to offer the same website or web-based application due to contractual obligations and limitations imposed by third parties.407 Additionally, broadband, wireless, and streaming groups, such as NCTA and USTelecom, suggested the samemedium requirement is particularly troublesome for their industries because consumers often subscribe to multiple, or bundled, services, rendering cancellation online through a single click difficult or impossible. These (b) Proposed § 425.6(c)(2): Telephone Cancellation Proposed § 425.6(c)(2) addressed situations in which sellers obtain consumer consent by telephone. In these situations, the proposed Rule required sellers to provide a telephone number to consumers and ‘‘assure’’ all calls are answered promptly during ‘‘normal business hours’’ and are no more costly than the call to enroll. Several commenters asked the Commission to modify this section. Specifically, N/MA asked that sellers be allowed to confirm telephone cancellations through email verification.410 A group of law professors asked the Commission to require sellers to answer cancellation 401 Individual commenter, FTC–2023–0033–0215 (‘‘If you signed up online, you should be able to cancel online. If it took one click to join, it should take one click to cancel.’’); Individual commenter, FTC–2023–0033–0847; Anonymous commenter, FTC–2023–0033–0040 (‘‘My negative experience was that it was a simple ‘click’ on-line to sign up for a service but to cancel same service it took three phone calls and hours of my time. If I can sign up with a ‘click’ then I SHOULD be able to cancel with a ‘click.’ ’’). 402 RILA, FTC–2023–0033–0883. 403 ESA, FTC–2023–0033–0867; ANA, FTC– 2023–0033–1001. 404 NCTA, FTC–2023–0033–0858; PDMI, FTC– 2023–0033–0864; CTA, FTC–2023–0033–0997; ANA, FTC–2023–0033–1001. 405 See, e.g., ESA, FTC–2023–0033–0867; IAB, FTC–2023–0033–1000. 406 See, e.g., IAB, FTC–2023–0033–1000; MIA, FTC–2023–0033–1008; see also RILA, FTC–2023– 0033–0883 (enrollment online, e.g., internet-based mobile applications, should be allowed through seller’s website). 407 See, e.g., ESA, FTC–2023–0033–0867. 408 USTelecom, FTC–2023–0033–0876; CTIA, FTC–2023–0033–0866 (‘‘imperative that businesses are able to have a live representative speak with a customer seeking to cancel, regardless of the medium used to sign up’’); NCTA, FTC–2023– 0033–0858; (‘‘Whatever these consumers’ reasons for seeking to cancel or modify services, in most instances they are best served by speaking with a live agent, even if they enrolled online.’’); see also Chamber, FTC–2023–0033–0885 (subscriptions to multiple products or services ‘‘require[ ] more time and personal assistance to address when a customer seeks to cancel only one of such related products or services’’). 409 Sonsini Alarm Clients, FTC–2023–0033–0860; see also Joint Alarm Industry Comments—ESA, TMA, SIA and AICC, FTC–2023–0033–1014 (asking for clarification that alarm companies can require written or verbal confirmation of online cancellation requests). The concerns raised by these industries are likely an artifact of the Saves provision, which, as proposed, could be interpreted to prevent verification procedures and cancellation intent. The Commission addresses these concerns in section VII.B.6.c. 410 N/MA, FTC–2023–0033–0873. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 90507 calls in ‘‘comparable timeframe to signup calls.’’ 411 They also suggested telephone answering systems should not be limited to normal business hours if they are entirely automated. The State AGs further asked the Commission to incorporate the guidance for telephone cancellation from the 2021 Enforcement Policy statement, for example, ensuring ‘‘the calls are not lengthier or otherwise more burdensome than the telephone call the consumer used to consent to the negative option feature,’’ and prohibiting sellers from ‘‘hang[ing] up on consumers who call to cancel; plac[ing] them on hold for an unreasonably long time; provid[ing] false information about how to cancel; or misrepresent[ing] the reasons for delays in processing consumers’ cancellation requests.’’ 412 (c) Proposed § 425.6(c)(3): In-person Cancellation For in-person sales, proposed § 425.6(c)(3) required sellers to offer online or telephone call cancellation mechanisms in addition to the same inperson mechanism, where practical. The proposed Rule further required sellers not make telephone cancellation more costly than the method used to consent to the negative option feature. Individual consumers identified the many ways in which demanding inperson cancellation is unfair. For instance, they observed it may not always be possible to cancel in person, as was true during the COVID pandemic,413 after a consumer moves from the area,414 or for people with young children or who have difficulty leaving their home.415 Others 411 Law Professors, FTC–2023–0033–0861. AGs, FTC–2023–0033–0886. 413 Individual commenter, FTC–2023–0033–0399 (‘‘Even if I didn’t sign up online, terminating, a membership in person isn’t always possible. Lock down during Covid being a prime example.’’). 414 Individual commenter, FTC–2023–0033–0677 (‘‘Companies are absolutely being deceptive about their practices when it comes to canceling a service, including their initial pitch to ‘Cancel anytime!’ only for you to find out that canceling requires you to go in person to a business in a place you might not even live anymore’’). 415 Individual commenter, FTC–2023–0033–0741 (‘‘[m]any places . . . require you to go in person to cancel—they won’t even let you do it over the phone! This harms anyone that may have trouble leaving the house regularly, including disabled folks and parents of small children and those caring for older or ailing family members.’’). See also TechFreedom, FTC–2023–0033–0872 (‘‘Returning to the in-person venue where the initial sale occurred may be inconvenient, or even impossible, for the consumer.’’); Individual commenter, FTC– 202–0033–1141 (‘‘Sometimes an unexpected move or unforeseen circumstances make it impossible to cancel in person. I would like to see an option to be able to cancel remotely, even if the subscription was purchased on site.’’). 412 State E:\FR\FM\15NOR3.SGM 15NOR3 90508 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations complained they showed up numerous times in person, only to be told they could not cancel because the manager was not available.416 One commenter complained sellers demanded consumers cancel by certified mail if they originally consented in person.417 In contrast, two trade associations requested the Commission allow sellers to require consumers to cancel in person if they signed up in person. These commenters argued such a limitation is appropriate due to the unique challenges of their industries. For example, IHRSA, which represents the health and fitness industry, stated, ‘‘it is appropriate for a brick-and-mortar business’’ to require customers to cancel in person ‘‘to verify their identity.’’ The International Carwash Association (‘‘ICA’’) stated some of its members sell products and services exclusively in person; therefore, it asked the Commission to not ‘‘force’’ these small business owners ‘‘to set up an online marketplace’’ to process cancellations if the seller does not already have an online presence.418 (2) Analysis khammond on DSKJM1Z7X2PROD with RULES3 (a) The Commission retains the general ‘‘same medium’’ requirements of § 425.6(c). Based on the record, the final Rule retains the general requirements proposed in § 425.6(c); specifically, the negative option seller must provide a simple cancellation mechanism through the same medium (such as internet, telephone, mail, or in-person) the consumer used to consent to the negative option feature. Further, the final Rule retains § 425.6(a) that requires sellers to provide consumers with a simple mechanism to immediately stop charges that is cost-effective, timely, and easy to use. Such a mechanism cannot include ‘‘unreasonable barriers to cancellation or impede the effective operation of promised cancellation procedures.’’ 419 This provision makes 416 See, e.g., Individual commenter, FTC–2023– 0033–0510 (‘‘I had to go in person 3 different times because the manager wasn’t there so to cancel it’’). 417 Individual commenter, FTC–2023–0033–0007 (‘‘I work dispute resolutions for a bank. I see so many cases where someone is trying to cancel something like a gym membership and, while they can sign up in person, they for some reason have to mail a certified letter to the [company’s] home office. That has always seemed unreasonable and deliberately contrived.’’). 418 ICA, FTC–2023–0033–1142. ICA’s comment seems to suggest a misunderstanding that the Rule would require both telephone and online cancellation for in-person consent. It does not. A business may elect either online or telephone (or both), but there must be at least one mechanism in addition to in-person cancellation. 419 EPS, 86 FR 60823; see also NPRM, 88 FR 24728 (explaining the simple cancellation VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 adding language from the 2021 Enforcement Policy Statement or the New York statute unnecessary because the simple mechanism provision already includes it. Further, several commenters asked the Commission to allow consumers to choose additional, alternate means of cancellation.420 This modification, however, is also unnecessary. The ‘‘same medium’’ requirement presents a floor, not a ceiling. That is, it only requires businesses to offer consumers the ability to cancel in the manner they were able to sign up. Sellers are free to provide additional cancellation mechanisms, giving consumers choices. Moreover, despite some commenters’ assertions to the contrary, the Commission has clear authority to issue a rule requiring sellers to offer cancellation through the same medium as enrollment. As detailed in section VII.A, there is a substantial record demonstrating the negative option practices covered by this Rule are unfair or deceptive, prevalent, and have caused significant consumer harm.421 Moreover, Magnuson-Moss empowers the Commission to promulgate requirements designed to prevent any unfair or deceptive practice it identifies with specificity.422 By promulgating a rule that prevents sellers from making cancellation unreasonably difficult, the Commission has done so here. Further, while ROSCA does not provide for APA rulemaking, it does not limit the Commission’s authority to issue a trade regulation rule.423 In fact, the mechanism proposed in the Rule should remove barriers, such as unreasonable hold times or verification requirements). 420 See, e.g., N/MA, FTC–2023–0033–0873 (subscribers should be allowed to choose method most convenient; subscribers who sign up by mail may prefer to cancel online or by telephone, and consumers who subscribed by telephone may prefer to cancel online); Sirius XM, FTC–2023–0033–0857 (‘‘For example, requiring a customer to use direct mail to cancel if the customer used direct mail to accept a subscription offer would be inconvenient for the customer and not the customer’s expected or desired means for cancellation. Instead, the cancellation method should be an easy-to-use mechanism for a consumer to stop recurring charge which would closely track consumer expectations and allow for changes in technology.’’); State AGs, FTC–2023–0033–0886 (‘‘We respectfully suggest requiring sellers to allow all consumers to cancel through any medium that the seller uses to sell subscriptions or memberships, regardless of the medium through which that particular consumer signed up.’’). 421 See generally section VII.A. 422 15 U.S.C. 57a(a)(1)(B). 423 NPRM, 88 FR 24716 n.9. Although, as stated in the NPRM, Congress did not direct the FTC to promulgate implementing regulations, it certainly did not preclude them, and the language contained in ROSCA confirms the FTC’s authority to do so. 15 U.S.C. 8404(a) (‘‘Violation of this chapter or any regulation prescribed under this chapter shall be treated as a violation of a rule. . . .’’); see also id. PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 Commission’s Negative Option Rule predates ROSCA, and the statute does not rescind that Rule. (b) The Commission modifies the requirements of § 425.6(c)(1): Online Cancellation. In response to comments, the Commission makes several changes to clarify the online cancellation mechanism requirements. First, it removes the requirement that, for website or web-based applications, cancellation must be afforded through the same precise means as consent. Instead, the final Rule provides the simple cancellation must be easy to find. Second, the revised provision incorporates a definition of ‘‘interactive electronic medium’’ in place of ‘‘internet.’’ Third, the Commission excludes cancellation mechanisms requiring interaction with a live or virtual agent, unless the consumer consented to the negative option feature through such mechanism. Each modification is discussed below. (i) The simple cancellation mechanism must be easy to find. Consumers uniformly opposed having to engage with a representative to cancel when they could simply click a button to enroll.424 They also expressed deep 8404(b) (‘‘Any person who violates this chapter or any regulation prescribed under this chapter’’ shall be subject to penalties); id. 8404(c) (‘‘Nothing in this section shall be construed to limit the authority of the Commission under any other provision of law.’’). 424 Individual commenter, FTC–2023–0033–0003 (‘‘When signing up, I didnt talk to a single individual. So its fair that when cancelling, I should not have to talk to a single individual.’’); Individual commenter, FTC–2023–0033–0006 (was forced to call ‘‘and speak with several agents’’ because unable to cancel online); Anonymous commenter, FTC– 2023–0033–0044 (shouldn’t be forced to make a phone call and sit on hold for hours if signed up online); Individual commenter, FTC–2023–0033– 0072 (fair to consumers to allow consumers to cancel through same means as they were initiated); Individual commenter, FTC–2023–0033–0087 (‘‘I think any offer you can buy with a click should also be an offer to unsubscribe with a click’’; having to call instead is a scam); Anonymous commenter, FTC–2023–0033–0095 (‘‘I would like to specify that [company] did not allow to terminate the account online. They specifically requested a phone call, which they then ignored for as long as possible. This practice is unfair and deceptive and needs to be outlawed.’’); Anonymous commenter; FTC– 2023–0033–0097 (FTC should ban practice of companies only offering cancellation via phone call, despite not requiring a phone call for signup); Individual commenter, FTC–2023–0033–0274 (‘‘having to call the company to cancel when the party clicked on the website is forced verbal speech’’); Individual commenter, FTC–2023–0033– 0356 (‘‘If you signed up online, you should be able to cancel online. If it took one click to join, it should take one click to cancel. I am tried [sic] of calling some call center, waiting on hold, and then having someone go through a long script about why I should not cancel. Generally make it as easy to cancel as to sign up.’’); Individual commenter, FTC–2023–0033–0379 (‘‘I have now been charged for a full month because I have to call and speak E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 frustration over having to hunt to find cancellation mechanisms, usually buried deep within a website or in fine print on a bill or other correspondence.425 The Commission has brought numerous cases alleging these practices are unfair or deceptive.426 The proposed Rule sought to prevent these unfair and deceptive practices by requiring sellers to provide an easily accessible online cancellation mechanism to consumers who enrolled to a representative instead of clicking to cancel.’’); Individual commenter, FTC–2023–0033–0443 (‘‘If the public is allowed to set up an account online we should be allowed to cancel online without ever making a phone call. The consumer should have more rights than corporations.’’); Individual commenter, FTC–2023–0033–0617 (‘‘It is truly obnoxious to be able to click to join but have to research to find the way to cancel, often involving making a phone call and being left on hold.’’); Individual commenter, FTC–2023–0033–0716 (‘‘We shouldn’t have to call the company to cancel!’’); Individual commenter, FTC–2023–0033–0788 (requiring a call when enrolled online is ‘‘coercive and unfair’’); Individual commenter, FTC–2023– 0033–0822 (‘‘I am sick of having to call a phone number to cancel something I signed up for on line, and often speaking to someone who is snide, sarcastic, or downright rude!’’). 425 Individual commenter, FTC–2023–0033–0065 (‘‘Often a company makes it significantly more difficult to even find out where or how to cancel a subscription.’’); Individual commenter, FTC– 2023–0033–0024 (‘‘It took a Google search to find the right Customer Service number because it was hidden or unavailable on the website.’’); Individual commenter, FTC–2023–0033–0084 (finally found corporate number to cancel trampoline park after scouring website for a membership enrolled online); see also Individual commenter, FTC–2023–0033– 0067 (‘‘why are they allowed to sign you up for automatic renewal with no way to cancel nothing on their web page in order to cancel a subscription’’); Individual commenter, FTC–2023– 0033–0071 (biggest annoyance is that subscriptions can be signed up for so easily with a few buttons on the remote but nearly impossible to cancel); Anonymous commenter, FTC–2023–0033–0108 (‘‘I certainly hope this goes through. These companies make it incredibly difficult to even find the cancel or opt out option.’’); Anonymous commenter, FTC– 2023–0033–0123 (‘‘Straight forward plain language cancelation instructions that are easy to locate should be required.’’); Individual commenter, FTC– 2023–0033–0124 (‘‘Clearly there should be an easy way to unsubscribe that is easy to find.’’); Individual commenter, FTC–2023–0033–0560 (cancellation page should be easy to find); Individual commenter, FTC–2023–0033–0642 (‘‘If you signed up online, you should be able to cancel online. If it took one click to join, it should take one click to cancel. I have had trouble finding where to cancel on multiple subscription services. Often, they are confusing on purpose to keep customers like me trapped in the payment cycle. Some require an email or phone call to a separate customer service representative. Cancelling should not be harder than signing up for their service.’’); Individual commenter, FTC–2023–0033–0685 (‘‘I am tired of having to screen grab the fine print to figure out my options for cancelling subscriptionsit just shouldn’t be this hard!?!’’); Ashley Sheil on behalf of Maynooth University and in collaboration with Radboud University, FTC–2023–0033–1006 (observing that companies may take advantage of the ‘‘as easy as’’ requirement, and recommending any termination button should be highlighted and in an obvious location). 426 See n.385 (citing simple cancellation cases). VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 online.427 As several commenters rightly noted, however, consumers may not always expect (and it may not always be possible) to use the same precise means for both enrollment and cancellation.428 Accordingly, to clarify the intent of the original language and to better match consumer expectation with actual cancellation procedures, the Commission now clarifies that where a consumer enrolls online, whether through a website, a mobile application, chat, email, or messaging, consumers must be afforded an equally simple online cancellation experience, i.e., one that allows them easily to find and use the cancellation mechanism.429 Many commenters agreed consumers would consider a link or button located on a website or within a user’s account or device settings to be ‘‘easy to find.’’ 430 Providing a clearly-labeled 427 NPRM, 88 FR 24728 (‘‘On the internet, this ‘Click to Cancel’ provision requires sellers, at a minimum, to provide an accessible cancellation mechanism on the same website or web-based application used for sign-up.’’). 428 See, e.g., ESA, FTC–2023–0033–0867 (‘‘Such a requirement would not be helpful for players seeking to cancel a subscription, as in-game is not the place that most players would expect to find a cancellation ingress.’’); RILA, FTC–2023–0033– 0883 (‘‘The method that a consumer uses for initial sign-up may not be the place where that consumer would expect to find a simple cancellation function. For example, contracts are also increasingly concluded online through third parties or via social media apps. Regardless of how a customer initially signs up, once she/he establishes a purchasing arrangement with a seller, the customer will logically look to the seller to cancel the arrangement.’’). 429 The Chamber asked the Commission to clarify that web-based chat is an appropriate cancellation where a consumer signs up online. As is clear from the record, unless the seller required the consumer to engage with an agent through a web-based chat to enroll, the Rule will preclude requiring the consumer to do so to cancel. There is substantial evidence this asymmetrical practice of requiring consumers to engage with agents (live or virtual) for cancellation but not enrollment is one of the principal methods sellers use to create unfair and deceptive cancellation procedures. Accordingly, it is appropriate to include limitations within the Rule to prevent unscrupulous sellers from using such practices. 430 Individual commenter, FTC–2023–0033–0124 (‘‘Clearly there should be an easy way to unsubscribe that is easy to find.’’); Individual commenter, FTC–2023–0033–0252 (‘‘I had been thinking of contacting my Governor to suggest just such a rule that the method provided for signing up for a service must also be provided for cancelling the same service, be just as easy to find, and require no more steps than it took to sign up.’’); Individual commenter, FTC–2023–0033–0560 (‘‘And ensure the bill is explicit with requirement to make it EASY TO FIND HOW TO REACH the company or cancellation page.’’); Individual commenter, FTC– 2023–0033–0640 (‘‘The Federal Trade Commission needs to make it mandatory for companies to have an easy to find button to cancel a subscriptions -online-.’’); Individual commenter, FTC–2023– 0033–0784 (‘‘And the cancel button should be easy to find and as attractively marketed as an opportunity to extend a subscription (font size, PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 90509 cancellation button in a consumer’s account or user settings is, thus, one example of a simple online cancellation mechanism.431 The Commission cautions, however, while such a mechanism need not be exactly the same as the consent mechanism, the seller cannot make it more difficult to use or find than the consent mechanism. For example, the seller cannot prominently label the mechanism within the account settings but make it difficult for consumers to find the account settings in the first instance. Further, the Commission emphasizes that the cancellation mechanism must be easy to find at the time the consumer decides to cancel. Providing an easy-tofind mechanism at consent does not mean the mechanism will be easy to find later when the consumer wants to cancel, and therefore will not prevent unreasonable barriers to cancellation. Thus, providing the information necessary to find the cancellation mechanism at enrollment (as required under § 425.4) does not discharge the seller’s obligation to ensure cancellation is easy to find when most relevant to the consumer.432 (ii) ‘‘Interactive electronic medium’’ is broadly defined to include all methods of electronic communication. The State AGs asked the Commission specifically to address the requirements for cancellation by chat, text messaging, and email. The State AGs explained that although chat and text are increasingly common cancellation mechanisms, they share some of the same qualities and potential problems as telephone cancellation because they require interaction with a live or virtual customer representative.433 Further, the State AGs suggested email should not be an acceptable cancellation medium for online consent.434 To address these concerns, the Commission revises the proposed provision to refer to ‘‘interactive electronic medium’’ rather than ‘‘internet.’’ This change clearly includes text, chat, and email within the scope of online cancellation mechanisms. colors, etc.).’’); Individual commenter, FTC–2023– 0033–1006 (cancellation should be highlighted and in an obvious location). 431 See, e.g., Cal. Bus. & Prof. Code § 1702(d)(1)(A); Conn. Gen. Stat. Ann. § 42–158ff (d)(1)(A); N.J. Stat. Ann. § 56:8–42.1.a. 432 See, e.g., Individual commenter, FTC–2023– 0033–0022 (‘‘Note that subscriptions are by their very nature long lasting in time, therefor requirements should not just emphasize some fine print disclosure at the time of sign up but also it should be easy to check back with the company or their many layers of subcontractors to cancel at anytime in the future.’’). 433 State AGs, FTC–2023–0033–0886. 434 Id. E:\FR\FM\15NOR3.SGM 15NOR3 90510 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 Specifically, the phrase ‘‘interactive electronic medium’’ used in the ‘‘clear and conspicuous’’ definition includes all media that involve electronic communications (except telephone calls), whether or not they strictly use the internet (and thus would otherwise be ‘‘online’’). Consumers may not know whether a text or chat is MMS (online) or SMS (offline), for example. This broader definition should provide flexibility to sellers while continuing to require parallel cancellation and sign-up procedures to meet consumers expectations. Although the State AGs suggested prohibiting the use of email as a cancellation mechanism, the record provides no basis for doing so. Further, consistent with the Commission’s definition of interactive electronic medium, several States specifically allow sellers to use email as an online cancellation method.435 Thus, the final Rule does not bar the use of email to effectuate online cancellation. (iii) No interaction with representatives for online cancellation. The State AGs noted, and consumer comments further support, the fact that sellers have often used chat, text, and messaging to perpetrate the same abuses documented for telephone cancellation. The Commission, therefore, reiterates all cancellation mechanisms, including chat, text, messaging, and email, are subject to the same ‘‘simple’’ requirements, i.e., sellers may not erect unreasonable barriers or prevent consumers from immediately halting charges. Cancellation mechanisms must be as easy to use as the mechanism the consumer used to sign up, in terms of time, expense, burden, and ease of use; and the mechanism must be as readily accessible as the means the consumer used to consent in the first place. Consumer comments, as well as the Commission’s and State AGs’ enforcement experience demonstrate asymmetrical enrollment and cancellation experiences, such as requiring telephone cancellation when consumers can easily sign up online 435 See, e.g., Cal. Bus. & Prof. Code § 17602 (‘‘The business shall provide a method of termination that is online in the form of either of the following: By an immediately accessible termination email formatted and provided by the business that a consumer can send to the business without additional information.’’); Conn. Gen. Stat. Ann. § 42–158ff (an electronic mail message from the business to the consumer, which is immediately accessible by the consumer and to which the consumer may reply without obtaining any additional information); N.J. Stat. Ann. § 56:8–42.1 (a termination email formatted and provided by the subscription service provider that a consumer can email to the subscription service provider without being required to provide any additional information). VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 without speaking with an agent, are unfair. Specifically, this asymmetry creates unreasonable barriers to cancellation, such as unreasonable hold times, unreasonable verification requirements, and aggressive save tactics. Moreover, comments and the Commission’s enforcement experience indicate consumers likely understand a simple online enrollment experience as an implied claim that the cancellation experience also will be simple.436 As consumers themselves explain, they do not anticipate engaging with a customer service representative (whether by phone, or through a web-based chat or messaging) if they did not do so to sign up for the negative option feature.437 Thus, the Commission further clarifies, for online consent, the seller cannot require the consumer to engage with an agent or customer service representative to cancel unless the consumer did so at enrollment.438 Finally, the Commission declines to exclude industries providing bundled services from the same medium requirement. NCTA and other industries with such services insisted their customers are better served by speaking with a live representative, even when they enroll online.439 They expressed concern these sellers cannot confirm a consumer’s cancellation intent (consumers may want to modify or renegotiate services) or apprise consumers of any negative consequences of cancellation (loss of 436 See nn.362–369; see also vlogbrothers, Why isn’t this Illegal?, https://www.youtube.com/ watch?v=FjAw1LMShIA& pp=ygUMdmxvZ2Jyb3RoZXJz (last visited Aug. 25, 2024). 437 See, e.g., Anonymous commenter, FTC–2023– 0033–0024 (could not cancel online even though consumer could upgrade online and via TV); Individual commenter, FTC–2023–0033–0137 (‘‘3 months to cancel, 3 minutes to sign-up. Seriously?’’); Individual commenter, FTC–2023– 0033–0252 (detailing three instances where consumer signed up online with a few clicks but was required to call to cancel, concluding ‘‘the method provided for signing up for a service must also be provided for cancelling the same service, be just as easy to find, and require no more steps than it took to sign up.’’); Individual commenter, FTC– 2023–0033–0457 (‘‘If I enrolled in a subscription online, there are no good reasons why I can’t disenroll that way as well. Forcing me to call a number to unsubscribe, which is only staffed during ‘normal business hours,’ unnecessarily complicates the process’’); Anonymous commenter, FTC–2023–0033–0802 (this practice of making someone call or chat to someone to cancel a membership is predatory). 438 The Chamber asked the Commission to ‘‘make clear that a web-based chat qualifies as an appropriate cancellation mechanism where a customer signed up for a service online.’’ FTC– 2023–0033–0885. The Commission reiterates that a web-based chat cancellation mechanism may be appropriate, but only if the consumer enrolled through a virtual or live agent. 439 NCTA, FTC–2023–0033–0858; CTIA, FTC– 2023–0033–0866. PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 access to emergency services, for example) without a live discussion.440 They further assert providing this information online could be complicated and expensive for the seller and not what the consumer would prefer.441 NCTA noted only 30% of its members’ customers sign up online, with the remaining 70% enrolling in person or over the phone.442 NCTA’s comment seems to suggest the simple cancellation mechanism requirement demands a certain asymmetry—specifically, no matter how complex online enrollment is, the proposed Rule would require a simple ‘‘one click’’ cancellation mechanism, which could preclude the seller from confirming cancellation intent or apprising consumers of negative consequences of cancellation. The Commission reiterates the simple cancellation requirement requires symmetry in terms of, inter alia, time, burden, expense, and ease of use. It does not require use of the exact same mechanism. Further, existing verification procedures, such as two-factor authentication, are routinely used to ensure a consumer’s identity in highly sensitive situations. Thus, they are more than sufficient to ensure the correct person is cancelling and do not require the use of a cancellation mechanism different than enrollment. Moreover, at this juncture, the Commission has removed the proposed ‘‘saves’’ provision from the final Rule, making communication regarding material consequences of cancelling easier to convey (so long as communicating through the same medium). (c) The Commission adopts § 425.6(c)(2): Telephone Cancellation as proposed, with one exception. The Commission adopts the telephone cancellation provision as proposed, except the final Rule removes the requirement sellers must assure all calls are answered during normal business hours. Instead, the final Rule requires sellers to promptly effectuate cancellation requests by consumers via a telephone number that is answered or records messages during normal business hours. Several commenters suggested specific changes were necessary to enhance the proposed telephone medium requirements. For instance, the State AGs asked the Commission to include the various requirements detailed in the 2021 Enforcement Policy Statement, e.g., require negative option 440 Id. 441 Id. 442 NCTA, E:\FR\FM\15NOR3.SGM FTC–2023–0073–0008. 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 sellers ‘‘not [to] erect unreasonable barriers to cancellation or impede the effective operation of promised cancellation procedures, and . . . honor cancellation requests that comply with such procedures.’’ However, the proposed provisions already include these requirements.443 Nonetheless, several commenters correctly pointed out requiring sellers to answer cancellation calls during normal business hours could create considerable costs for small businesses while not directly addressing the core problem identified by the Commission—the unreasonable delay of cancellation requests. To address these concerns, the Commission first clarifies normal business hours are those hours in which the business would normally engage with its customers. A seller, however, cannot make telephone cancellation available only at times that are so inconvenient they erect a barrier to cancellation. For instance, it would be improper to limit cancellation calls to only between midnight and 3 a.m., regardless of whether these are the seller’s normal business hours. Importantly, however, the final Rule does not require a seller to physically answer the telephone call (a task that could be difficult for, e.g., a sole proprietorship). An answering machine that clearly provides for cancellation (e.g., a message stating: if you want to cancel your subscription please identify that subscription, and leave identifying information) would comply with this provision of the Rule. To effectuate the provision’s intent, the final Rule states sellers, whether answering the cancellation call in person or not, must effectuate that cancellation promptly. Thus, a seller could not, for example, have an answering machine it does not regularly monitor or for which it does not promptly effectuate cancellation requests. Notably, the final Rule retains the requirement that, for the mechanism to be at least as simple as the one used to initiate the recurring charge, any cancellation call cannot be more expensive than the call used to enroll (e.g., if the sign-up call is toll free, the cancellation call must also be toll free). Consumers would not expect such fees, rendering them unfair or deceptive.444 443 E.g., the requirements that all cancellation mechanisms be simple and easy to use (§ 425.6), and the seller disclose where to find the cancellation mechanism prior to the sale (§ 425.4). 444 Cf. United States v. Adobe, Inc., No. 5:24–cv– 03630 (N.D. Cal. 2024) (cancellation fees plead as a failure to disclose and failure to obtain consent to charge in violation of ROSCA); FTC v. FloatMe Corp., No. 5:24–cv–00001 (W.D. Tex. 2024) (extra cost in relation to timing of receipt of product VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 (d) The Commission adopts § 425.6(c)(3): In-Person Cancellation as proposed. Based on the Commission’s experience and that of other States, as well as many comments in the record, requiring in-person cancellation presents significant opportunities for unfair and deceptive practices. To prevent such practices, the final Rule adopts provision 425.6(c)(3) essentially as proposed. Thus, the provision continues to require in-person sellers to provide alternatives to in-person cancellation, either online or by phone, at the seller’s choice. The Commission, however, corrects the requirement that if the alternative is a telephone call, the call cannot be more costly than the inperson consent. That proposal connected two unrelated costs and thus did not make logical sense. To effectuate the purpose of this provision, however, the Commission adds language stating the call cannot impose any cost that creates an unreasonable barrier to cancellation, including by making the call unreasonably expensive.445 deceptive in violation of section 5); United States v. Cerebral, Inc., No. 1:24–cv–21376 (S.D. Fla. 2024) (delays in cancellation deceptive and injured consumers in violation of section 5); FTC v. Bridge It, Inc., No. 1:23–cv–09651 (S.D.N.Y. 2023) (claims to cancel at any time without paying any fees, interest, or other charges deceptive); FTC v. Vonage Holdings Corp., No. 3:22–cv–06435 (D.N.J. 2022) (requiring phone cancellation with roadblocks including long hold times, frequent disconnects, endless loops, and early termination fee unfair under section 5); FTC v. Benefytt Techs., Inc., No. 8:22–cv–01794 (M.D. Fla. 2022) (unexpected cost for additional product is deceptive and unfair); In re Dun & Bradstreet, Inc., FTC Docket No. C–4761 (2022) (renewal practices, including at end of designated time periods, deceptive); FTC v. First Am. Payment Sys., No. 4:22–cv–00654 (E.D. Tex. 2022) (misrepresentations in cancellation and unfair debiting); United States v. MyLife.com, Inc., No. 2:20–cv–6692 (C.D. Cal. 2020) (cancellation by phone discouraged or prevented by unavailable or uncooperative agents specified as a violation of ROSCA); FTC v. Match Grp., Inc., No. 3:19–cv– 02281 (N.D. Tex. 2019) (pleading cancellation difficulties in violation of ROSCA); In re Urthbox, Inc., FTC Docket No. C–4676 (2019) (unexpected charges, including for a full 6 months following the first month of free trial, are a failures to disclose in violation of section 5); FTC v. Cardiff, No. 5:18–cv– 02104 (C.D. Cal. 2018) (unexpected charges a section 5 misrepresentation and unfair charging); FTC v. BunZai Media Grp., Inc., No. 2:15–cv–04527 (C.D. Cal. 2015) (failure to disclose charge as deceptive and unfair); FTC v. Tarr, No. 3:17–cv– 02024 (S.D. Cal. 2017) (failure to disclose material terms deceptive and unfair); FTC v. AdoreMe, Inc., No. 1:17–cv–09083 (S.D.N.Y. 2017) (cancelling made difficult by phone, contributing to misrepresentations regarding store credit); FTC v. RevMountain, LLC, No. 2:17–cv–02000 (D. Nev. 2017) (unexpected product deceptive); FTC v. AAFE Prods. Corp., No. 3:17–cv–00575 (S.D. Cal. 2017); FTC v. Health Formulas, LLC, No. 2:14–cv– 01649 (D. Nev. 2014) (deceptive costs). 445 N/MA suggested there may be instances where the original method of consent is no longer available. FTC–2023–0033–0873. For example, if the person signed up a trade show in person, PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 90511 To address ICA’s concerns, the Commission clarifies the Rule does not require sellers who sell in-person to maintain an alternative online presence to process cancellations. Sellers who have no such presence can allow cancellations by phone if they comply with the simple telephone cancellation requirements detailed above. (c) § 425.6(d) Saves (1) Summary of Comments Proposed § 425.6(d) would have required sellers to immediately effectuate cancellation unless they obtained the consumer’s unambiguously affirmative consent to receive a save prior to cancellation. The Commission explained the record shows many businesses have created unnecessary and burdensome obstacles to cancellation, including forcing uninterested consumers to sit through multiple upsells before allowing them to cancel.446 Individual consumer commenters corroborated the pervasive use of such unfair tactics to thwart cancellation.447 returning to the in-person venue may be impossible. The Commission notes the in-person method only must be made available, ‘‘where practical.’’ 446 NPRM, 88 FR 24729. 447 See, e.g., Individual commenter, FTC–2023– 0033–0006 (‘‘Last year I had the pleasure of trying to cancel a radio subscription which took 2 attempts and far too much time to accomplish. Unable to cancel online, I was forced to call and speak with several agents trying to convince me to keep their service. After nearly a half hour of insisting I wanted to cancel, they simply hung up on me which forced me to start the cancellation process all over again from the beginning.’’); Anonymous commenter, FTC–2023–0033–0024 (able to cancel only after listening to a ‘‘long sale pitch about why he shouldn’t’’); Anonymous commenter, FTC–2023–0033–0066 (when you request a cancellation, will pass your call on to a more ‘‘experienced representative’’ in an attempt to convince you to keep your service. They do not listen to your concerns, instead make you jump through hoops for a cancellation which makes me not want to be one of their customers even more); Individual commenter, FTC–2023–0033–0071 (call to cancel and they repeatedly said ‘‘well let’s just see how we can save you money’’ instead of canceling); Individual commenter, FTC–2023– 0033–0082 (‘‘You have to call them and endure a high pressure pitch to renew . . . . It wastes time and minutes on your phone bill’’); Anonymous commenter, FTC–2023–0033–0097 (the only way to cancel a service is to call them on the phone, intended to allow for sales reps to make a pitch); Individual commenter, FTC–2023–0033–0120 (‘‘However, when you attempt to cancel a continuous subscription you are told you cannot do that and you must call the provided phone number. You are connected to a sales person who then will negotiate with you to continue at a lower rate.’’); Individual commenter, FTC–2023–0033–0125 (‘‘The only way for me to cancel this service was to CALL THEM DIRECTLY, whereupon they spent nearly half an hour trying to upsell me into a two year subscription.’’); Individual commenter, FTC– 2023–0033–0130 (‘‘It should not be required to call (and sit on hold forever), only to have to sit through a diatribe of hard-sell techniques to try to convince E:\FR\FM\15NOR3.SGM Continued 15NOR3 khammond on DSKJM1Z7X2PROD with RULES3 90512 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations one not to cancel.’’); Individual commenter, FTC– 2023–0033–0233 (‘‘I had to wait on hold and then get sales pitch after sales pitch after sales pitch to cancel a digital-only [newspaper] subscription that I signed up for online.’’); Individual commenter, FTC–2023–0033–0228 (had difficulty canceling a newspaper subscription of all things as it required consumer to call an 800 number during the day and then had to listen to multiple sales pitches and saying ‘‘No! What part of ‘no’ don’t you understand’’ to cancel); Individual commenter, FTC–2023–0033–0312 (‘‘I and members of my family have had to use valuable time to call corporations to cancel subscriptions, each time getting a long pitch to keep the subscription. If I wanted to keep it, I would not be calling to cancel it.’’); Individual commenter, FTC–2023–0033–0356 (‘‘If it took one click to join, it should take one click to cancel. I am tired of calling some call center, waiting on hold, and then having someone go through a long script about why I should not cancel.’’); Individual commenter, FTC–2023–0033– 0457 (Forcing me to call a number to unsubscribe, which is only staffed during ‘‘normal business hours,’’ unnecessarily complicates the process for the provider’s benefit: I don’t need to give opportunity to upsell or persuade me to continue at a reduced price.); Individual commenter, FTC– 2023–0033–0491 (‘‘Some have even required me to make a phone call and listen to a hard sell before they will cancel the service.’’); Individual commenter, FTC–2023–0033–0597 (have to sit and turn down multiple offers to cancel); FTC–2023– 0033–0677 (sit and ‘‘suffer through a long sales pitch’’ to cancel); Individual commenter, FTC– 2023–0033–0784 (‘‘I suggest limiting the seller’s efforts to pitch additional offers & modifications when trying to cancel . . . . no one wants to wade through too many of screens until the cancel ‘finally’ appears.’’); Anonymous commenter, FTC– 2023–0033–0785 (person being ‘‘penalized by losing time waiting to speak to a customer service rep, having to decline further sales, or being stuck with recurring charges they don’t want’’); Individual commenter, FTC–2023–0033–0798 (difficult to cancel subscriptions, including by repeatedly forcing the customer to turn down ‘‘special offers’’ to entice the customer not to cancel); Individual commenter, FTC–2023–0033– 0815 (No reason to have to call customer service reps who will keep trying to prevent me from canceling); Individual commenter, FTC–2023– 0033–0835; Individual commenter, FTC–2023– 0033–0850 (Have to make a long awkward phone call and wait on hold or long repetitive live chat); Individual commenter, FTC–2023–0033–0913 (‘‘I’ve experienced having to call to cancel a subscription only to be forced to listen to a sales spiel in order to do so.’’); Individual commenter, FTC–2023– 0033–0967 (‘‘Some have even required me to make a phone call and listen to a hard sell before they will cancel the service.’’); Individual commenter, FTC–2023–0033–0999 (Consumers should have an on-line option to cancel. A national media company ONLY provides a cancel option with a call to customer service. When doing so, you are met with a CS rep that will not accept your request to cancel, talks over you, continued harassment, making offer after offer. We must stop this deceptive practice.); Individual commenter, FTC–2023–0033–1063 (‘‘Now I’m about to cancel my [company name] account. If it’s anything like the last time when I moved, I expect to spend several hours dealing with multiple levels of salespeople, trying to convince me to stay.’’); Individual commenter, FTC–2023– 0033–1099 (Once customer service is contacted, it should not take more than about 90 seconds to cancel a subscription instead of the endless questions of why you want to cancel. Then try to keep you by offering a discounted rate on yet another year of useless service. Please make this end.); Individual commenter, FTC–2023–0033–1138 (The agent, made multiple attempts to sell me the service, disregarding my many direct statements VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 However, other commenters explained some of the ‘‘barriers’’ consumers complained about are necessary to prevent harm, at least in certain situations. Specifically, commenters noted consumers might not understand the negative consequences of cancellation,448 and the provision might prevent consumers from taking advantage of money-saving offers prior to cancellation.449 Some commenters also expressed confusion regarding whether verification or authentication procedures, or discussion of consumers’ attempts to pause or modify their existing offers, would violate the Rule.450 Finally, commenters noted the proposed provision requiring consumers to opt-in to saves could interfere with the simplicity of a cancellation mechanism.451 (2) Analysis Based on the record, the Commission determines revisions to this proposed provision are necessary, for which the Commission would need to seek additional comment. Therefore, the Commission does not adopt this provision in the final Rule at this time. On one hand, the record demonstrates saves are often used simply as a barrier to prevent cancellations.452 On the other, the proposed opt-in save provision could have unintended consequences.453 Specifically, the provision may thwart attempts to confirm consumers’ intent or apprise consumers of any negative consequences of cancellation (e.g., losing data). Moreover, the opt-in save provision may prevent consumers from obtaining valuable concessions (e.g., lower prices), which they would otherwise want. Consequently, the proposed saves provision did not achieve the right balance between protecting consumers that I just wanted to cancel.); Individual commenter, FTC–2023–0033–1150 (They make you call their company so that sales retention can try to talk you into staying with freebies etc.); Individual commenter, FTC–2023–0033–1153 (There is no reason a person should be subjected to 20 minutes or repeated drilling if they say upfront that they want to cancel service.). 448 NCTA, FTC–2023–0033–0858; PDMI, FTC– 2023–0033–0864; Chamber, FTC–2023–0033–0885. 449 Id. 450 See, e.g., PDMI, FTC–2023–0033–0864; ANA, FTC–2023–0033–1001; CTIA, FTC–2023–0033– 0866. 451 See, e.g., CCIA, FTC–2023–0033–0984. Some commenters also argued the saves provision violates the First Amendment. E.g., PDMI, FTC– 2023–0033–0864; Chamber, FTC–2023–0033–0885; ACT App Association, FTC–2023–0033–0874. The Commission rejects this proposition. See Mainstream Mktg. Servs., Inc. v. FTC, 358 F.3d 1228 (10th Cir. 2004). 452 See nn.447–448. 453 See nn.449–452. PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 from unfair tactics and allowing sellers to provide necessary and valuable information about cancellation. Therefore, the Commission will consider issuing an SNPRM in the future seeking a better solution to this difficult problem. However, the Commission notes the removal of the saves proposal is not a license to erect unreasonable and unnecessary barriers to cancellation. The final Rule requires sellers to provide a simple, easy to use cancellation mechanism. Save attempts that interfere with this mandate by requiring consumers to navigate through upsells, jump through unreasonable hoops, or wait unreasonable amounts of time to cancel are neither simple nor easy.454 7. Proposed § 425.7 Annual Reminders In the NPRM, the Commission proposed requiring sellers to provide an annual reminder to consumers for nonphysical goods sold with a negative option feature. Under this proposal, reminders would have needed to identify the product or service, the frequency and amount of charges, and the means to cancel. Additionally, the proposal required Negative Option Sellers to provide the reminders through the same medium the consumer used to consent to the negative option feature. The Commission opined the delivery of physical goods may remind consumers they enrolled in a negative option feature. Therefore, these consumers effectively already receive reminders and can reasonably avoid further payments by canceling their subscription. For services lacking a regular, tangible presence (e.g., data security monitoring or subscriptions for online services), however, many consumers may reasonably forget they enrolled and, consequently, incur charges for services they do not want or use. Thus, the Commission concluded, the failure to provide reminders for such contracts would meet all elements of unfairness.455 The Commission sought 454 See, e.g., United States v. Adobe, Inc., No. 5:24–cv–03630 (N.D. Cal. 2024); FTC v. Amazon.com, Inc., No. 2:23–cv–0932 (W.D. Wash. 2023). 455 NPRM, 88 FR 24729, citing FTC Policy Statement on Unfairness, appended to In re International Harvester Co., 104 F.T.C. 949 (1984). ‘‘To justify a finding of unfairness the injury must satisfy three tests. It must be substantial; it must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and it must be an injury that consumers themselves could not reasonably have avoided.’’ Id.; see also 15 U.S.C. 45(n) (Commission has no authority to declare a practice unfair ‘‘unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations comment on this proposal, including whether it should narrow the coverage of the proposed language, for example, by types of covered services or the duration between reminders.456 khammond on DSKJM1Z7X2PROD with RULES3 (a) Summary of Comments The Commission received 32 comments in response.457 Consumers, public interest and consumer advocacy groups, and academics, among others, generally supported the reminder requirement, observing, for example, that ‘‘subscription-based products and services have become so widespread that consumers are having difficulty keeping track of them all.’’ 458 The commenters asserted the proposed ‘‘annual notice will clearly inform consumers of the terms of the contract and how they may terminate the agreement.’’ 459 Despite this support, virtually every group of commenters— individuals, consumer advocates, trade organizations, and industry groups— suggested the Commission modify or clarify its proposal. Only three commenters specifically requested the Commission jettison a reminder provision altogether. Specifically, ESA argued the requirement (1) would impose a significant burden on businesses because several State laws already require reminders or notices; (2) would be improper because the Commission did not raise reminders in the ANPR; and (3) would increase the overall number of notices consumers receive, which could result in consumers ignoring reminders, thus benefiting bad actors. NCTA suggested the Commission should instead ‘‘allow businesses flexibility to determine whether to provide reminders.’’ 460 IAB also ‘‘recommend[ed] that the Commission remove this requirement for several reasons.’’ 461 Both ESA and NCTA conceded, however, the Commission could adopt the provision with additional modifications, such as making the reminders optional (NCTA) outweighed by countervailing benefits to consumers or to competition’’). 456 NPRM, 88 FR 24729; see also id. at section XIII, Request for Comments (‘‘The Commission seeks any suggestions or alternative methods for improving current requirements.’’). 457 The Commission received comments from, inter alia, individual consumers; cable/broadband/ communications industry groups; public interest and consumer advocacy groups; various trade associations representing traditional and digital marketing, technology, news and magazine media, gaming and entertainment, and retail industries; academic and public policy groups; and service contract and alarm company industries. 458 State AGs, FTC–2023–00330–0886. 459 Public Interest Groups, FTC–2023–0033–0880. 460 NCTA, FTC–2023–0033–0858. 461 IAB, FTC–2023–0033–1000. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 or offering consumers the ability to optout of subscription reminders (ESA).462 Other commenters agreed, asking for ‘‘less prescriptive’’ requirements that would allow businesses more flexibility.463 Several commenters, while not urging the Commission to reject the reminder requirement, suggested the NPRM proposal did not satisfy the unfairness test. For instance, CTA, a technology trade association, questioned whether there was sufficient basis to find a lack of annual reminder is an unfair practice or causes consumer harm.464 Similarly, two other commenters from the communications industry questioned whether a lack of annual reminder would be unfair in the specific context of services that are ‘‘always on,’’ such as cable or wireless services.465 A few commenters asked to be exempted from the reminder requirement based on the nature of their industries or the frequency of existing notices.466 For instance, cable/ broadband/wireless/streaming industry groups suggested they should be exempt for the same reasons they argued the unfairness test did not render the lack of reminders illegal in their industries. Similarly, these and other sellers, such as service contract providers, suggested consumers who receive monthly bills are already effectively receiving reminders, and therefore, these transactions should be exempt.467 Several commenters questioned the proposed requirement that sellers provide the annual reminder through the same medium the consumer used to consent to the negative option feature.468 For example, several 462 ESA, FTC–2023–0033–0867; NCTA, FTC– 2023–0033–0858. 463 See, e.g., Sirius XM, FTC–2023–0033–0857 (asking Commission not to mandate exactly how renewal notices must be sent); N/MA, FTC–2023– 0033–0873 (allow sellers to obtain consent to provide notice through alternate means); Chamber, FTC–2023–0033–0885 (proposed revisions); DCN, FTC–2023–0033–0983 (make annual notice an option company could comply with to provide adequate notice of obligations); ACT App Association, FTC–2023–0033–0874 (adopt a less prescriptive approach so same medium can be used to comply with State and Federal requirements). 464 CTA, FTC–2023–0033–0997 (no basis to conclude different medium is unfair, or that lack of reminders is unfair). 465 NCTA, FTC–2023–0033–0858 (lack of notice for ‘‘always on’’ services not unfair, injury reasonably avoidable); USTelecom, FTC–2023– 0033–0876 (same). 466 See, e.g., CTIA, FTC–2023–0033–0866 (exempt mobile services offered on a month-tomonth basis); USTelecom, FTC–2023–0033–0876 (exempt broadband and communication services). The Commission addresses exemptions elsewhere in the SBP at sections VII.B.1 and VIII. 467 See, e.g., Chamber, FTC–2023–0033–0885. 468 Sirius XM, FTC–2023–0033–0857; Kuehn, FTC–2023–0033–0871; N/MA, FTC–2023–0033– PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 90513 commenters observed that requiring reminders through a telephone call could violate the TCPA, the TSR, or at minimum, be a nuisance, and thus ignored by consumers.469 Many of these commenters advocated for letting consumers choose how they want to receive annual reminders,470 or allowing sellers to provide reminders through any medium they typically use to communicate with consumers.471 Additionally, several commenters disagreed with the Commission’s observation that agreements involving delivery of physical goods inherently create a ‘‘regular, tangible presence’’ that serves as a reminder of the contract.472 For example, they noted some companies charge a monthly fee, but only deliver physical goods at the consumer’s request. Some commenters stated that, without Federal preemption, the annual reminder requirement would create another layer of regulatory complexity because several State laws already require reminders or notices.473 In contrast, Professor Hoofnagle stated many ‘‘credit card processing service’’ providers likely afford a simple and inexpensive means for sellers to comply with State and Federal mandates ‘‘because policy changes can be made programmatically in dashboards.’’ 474 Several commenters suggested the Commission amend the proposal. For instance, TINA and several individual consumers recommended the Commission require reminders at the end of a free trial period.475 Others suggested the Commission require more frequent reminders, such as every six 0873; Act App Association, FTC–2023–0033–0874; CTA, FTC–2023–0033–0997; Chamber, FTC–2023– 0033–0885; ANA, FTC–2023–0033–1001. 469 Sirius XM, FTC–2023–0033–0857; Kuehn, FTC–2023–0033–0871; N/MA, FTC–2023–0033– 0873; Chamber, FTC–2023–0033–0885; SCIC, FTC– 2023–0033–0879. 470 Sirius XM, FTC–2023–0033–0857; Kuehn, FTC–2023–0033–0871; Chamber, FTC–2023–0033– 0885; Public Interest Groups, FTC–2023–0033– 0880. 471 State AGs, FTC–2023–0033–0886. 472 Individual commenter, FTC–2023–0033–0026; TINA, FTC–2023–0033–1139. 473 NCTA, FTC–2023–0033–0858; ESA, FTC– 2023–0033–0867; IAB, FTC–2023–0033–1000; ACT App Association, FTC–2023–0033–0874. 474 Hoofnagle, FTC–2023–0033–1137. 475 Individual commenter, FTC–2023–0033–0039 (not reminded ‘‘that the free trial was up’’); Individual commenter, FTC–2023–0033–0045 (‘‘consumer should get an email reminder their free period is about to end’’); Individual commenter, FTC–2023–0033–0050 (businesses should ‘‘be required to provide advance notice that the free trial is about to expire.’’); TINA, FTC–2023–0033–1139; ACT App Association, FTC–2023–0033–0874 (provide less prescriptive process). E:\FR\FM\15NOR3.SGM 15NOR3 90514 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 months, or before each charge.476 They noted that under an annual notice requirement, a consumer could be charged up to 12 times before discovering a negative option feature.477 One commenter asked the Commission to require a reminder for so-called ‘‘zombie’’ agreements, ones that have long periods, e.g., 24 months, of inactivity.478 In contrast, other commenters noted consumers may suffer from ‘‘notice fatigue’’ given the increasing popularity of subscription services.479 Some argued there is no evidence of tangible consumer benefit from additional notices, and consumers should be given a choice whether to opt-in to receive annual reminders (or more frequent reminders), or to opt-out.480 Three commenters suggested sending annual reminder notices could increase opportunities for phishing and other deceptive practices.481 Finally, several commenters asked the Commission to clarify certain aspects of the reminder requirement. For instance, ANA asked the Commission to explain what constitutes the ‘‘same medium,’’ and a group of law professors asked for more detail about what constitutes an adequate telephone reminder.482 Additionally, some commenters asked the Commission to clarify that sellers can rely on contact information provided by the consumer at the time of consent,483 or to provide that abiding by State reminder requirements satisfies a seller’s obligations under this provision.484 476 Public Interest Groups, FTC–2023–0033–0880 (‘‘consumers deserve to know when they are about to be charged automatically, with a chance to opt out’’); State AGs, FTC–2023–0033–0886; MIA, FTC– 2023–0033–1008; Individual commenter, FTC– 2023–0033–0026 (notification within one month of renewal, stating specific renewal date); Individual commenter, FTC–2023–0033–0708 (commenting that companies do not provide reminders before being charged, possibly overdrawing an account). 477 See, e.g., Public Interest Groups, FTC–2023– 0033–0880. 478 Law Professors, FTC–2023–0033–0861. 479 NCTA, FTC–2023–0033–0858; USTelecom, FTC–2023–0033–0876; CCIA, FTC–2023–0033– 0985 (recommending a biannual reminder for longer subscriptions); and Coalition, FTC–2023– 0033–0884; see also DCN, FTC–2023–0033–0983 (incorrectly states the current proposed rule would require monthly notice for month-to-month renewals). 480 NCTA, FTC–2023–0033–0858 (opt in); ESA, FTC–2023–0033–0867 (opt out); Chamber, FTC– 2023–0033–0885 (opt in); DCN, FTC–2023–0033– 0983 (opt out); Public Interest Groups, FTC–2023– 0033–0880 (opt out). 481 NCTA, FTC–2023–0033–0858; ESA, FTC– 2023–0033–0867; DCN, FTC–2023–0033–0983. 482 ANA, FTC–2023–0033–1001 (same medium); Law Professors, FTC–2023–0033–0861 (adequate phone reminder). 483 Sirius XM, FTC–2023–0033–0857; NFIB, FTC– 2023–0033–0789. 484 ACT App Association, FTC–2023–0033–0874. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 (b) Analysis After reviewing these comments, the Commission determines it needs additional information on the scope and particularities of the proposed annual reminder requirement. The record suggests, given the proliferation of subscription and auto-renewal services, consumers have difficulty tracking all the negative option services and products in which they may be enrolled—so much so that there are now companies claiming to help consumers keep track of these services for a fee. As one commenter noted, consumers should not have to sign up for yet another service to manage all their subscriptions.485 Thus, limiting the reminder provision to just non-physical goods, and only annually, may not adequately mitigate the harm caused by negative option practices in the marketplace. Additionally, the Commission shares some commenters’ concerns that consumers may ignore these reminder calls. Further, as some commenters noted, the proposed provision does not specify the timing for these reminders (e.g., should sellers issue reminders annually from the date of initial purchase and a specific number of days before the charge?). Accordingly, the Commission will consider issuing a SNPRM seeking additional comment on these issues at a later date. 8. Proposed § 425.8 Relation to State Laws In its NPRM, the Commission proposed that amendments to the Rule would not affect State laws, regulations, orders, or interpretations relating to negative options, except to the extent they are inconsistent with the final Rule, and then only to the extent of the inconsistency. A State provision would not be ‘‘inconsistent’’ with the proposed Rule if it affords any consumer greater protection than the Rule.486 The Commission received a range of comments in response. On one end, a commenter opined the ‘‘FTC cannot preempt existing [State] laws,’’ so it should instead strive for ‘‘harmonization and consistency with existing laws.’’ 487 At the other end, multiple industry groups said the 485 State AGs, FTC–2023–0033–0886 (‘‘Subscription management has become an entire industry; consumers can choose from a variety of companies that offer to monitor their recurring subscriptions. We believe that consumers should not have to sign up for yet another service—one that comes with privacy and security risks, as subscription monitoring services require sharing financial account and other sensitive information— in order to effectively manage their subscriptions.’’). 486 See proposed § 425.8. 487 ANA, FTC–2023–0033–1001. PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 Commission should completely preempt State laws in this area.488 These commenters argued having both State and Federal standards may confuse consumers and create financial and operational burdens for sellers, thus raising consumer prices. For example, NCTA asserted that, without preemption, the proposed Rule ‘‘would encourage the enactment of new [S]tate laws with differing standards.’’ 489 Another industry commenter suggested the Commission should work with lawmakers on one national standard.490 Other industry groups and individual businesses supported preemption in various ways. For example, CTA argued the Rule should ‘‘preempt [S]tate laws with differing requirements.’’ 491 Two additional commenters, including a mixed group of industry associations, asserted the Rule should set the ceiling and preempt any State provision that is more stringent.492 NRF said the Rule should ‘‘preempt any [S]tate law requirements that contradict or are inconsistent with the Rule . . . to the extent of the inconsistency.’’ 493 To effectuate this change, NRF suggested the Commission adopt language from California’s Automatic Renewal Law, which it said other States have copied. NRF proposed State laws be deemed inconsistent if they require disclosures or actions ‘‘that contradict . . . the [final rule],’’ and requirements be deemed contradictory if they use the same terms differently from the final rule or require ‘‘using a term different from the one required in the [final rule] to describe the same item.’’ 494 Several industry groups expressed concern regarding potential confusion about preemption. For example, ACA Connects asserted it ‘‘may be unclear whether and to what extent [a particular State law offers] ‘greater’ or ‘lesser’ protection than [the proposed Rule]’’ and asked for more guidance generally or for a process that lets interested parties ask the Commission if a 488 NCTA, FTC–2023–0033–0858; PDMI, FTC– 2023–0033–0864; CCIA, FTC–2023–0033–0984; ESA, FTC–2023–0033–0867; IAB, FTC–2023–0033– 1000. 489 NCTA, FTC–2023–0033–0858; see also Chamber, FTC–2023–0033–0885 (‘‘A floor just creates an increased [F]ederal burden without actually ensuring consistency of overall regulation on entities in the different [S]tates.’’). 490 IHRSA, FTC–2023–0033–0863 (national standard). 491 CTA, FTC–2023–0033–0997; see also Sirius XM, FTC–2023–0033–0857; DCN, FTC–2023–0033– 0983. 492 Coalition, FTC–2023–0033–0884; CCIA, FTC– 2023–0033–0984. 493 NRF, FTC–2023–0033–1005. 494 Id. E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 particular State law is inconsistent.495 NRF noted such a system has worked well with gift card laws, explaining the CARD Act (Pub. L. 111–24, 124 Stat. 2385) preempts less restrictive State laws.496 Finally, a group of law professors supported the Commission’s proposed Rule. They noted ‘‘more than half of [S]tates . . . regulate some negative option marketing practices,’’ and said the Commission ‘‘does not occupy the field or displace non-conflicting [S]tate [laws].’’ 497 The professors added States ‘‘can often move more nimbly to address problematic elements and evolving business models’’ and should retain the ability to do so.498 Having considered the foregoing comments, the Commission will streamline the text of the final Rule for clarity and efficiency, while maintaining the substance of the proposed Rule’s proposed preemption language (renumbered in the final Rule as § 425.7). The FTC Act does not expressly preempt State law, and the legislative history of the FTC Act indicates Congress did not intend the FTC to occupy the consumer protection regulation field.499 Therefore, any preemptive effect of the Rule must be limited to instances where it is not possible to comply with both State law and the Rule, or where application of State law would frustrate the purposes of the Rule.500 This approach preserves States’ ability to continue to act as laboratories to handle new and changing business models. This approach is consistent with other Commission Rules.501 Therefore, § 425.7 of the final Rule specifies the Rule does not supersede, alter, or affect State statutes, regulations, orders, or interpretations relating to negative option marketing, except to the extent a State statute, regulation, order, or interpretation is inconsistent with the 495 ACA, FTC–2023–0033–0881 (greater or lesser); NRF, FTC–2023–0033–1005 (more guidance); DCN, FTC–2023–0033–0983 (more guidance). 496 NRF, FTC–2023–0033–1005. 497 Law Professors, FTC–2023–0033–0861. 498 Id. 499 See, e.g., Am. Fin. Servs. Ass’n v. FTC, 767 F.2d 957, 989 (D.C. Cir. 1985). 500 Preemption would occur where there is an actual conflict between the two schemes of regulation such that both cannot stand in the same area. Fla. Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 141 (1963); see also Am. Fin. Servs. Ass’n v. FTC, 767 F.2d 957 (D.C. Cir. 1985) (Credit Practices Rule); Harry & Bryant Co. v. FTC, 726 F.2d 993 (4th Cir. 1984) (Funeral Rule); Am. Optometric Ass’n v. FTC, 626 F.2d 896 (D.C. Cir. 1980) (Ophthalmic Practices Rule). 501 See, e.g., 16 CFR 437.9(b) (Business Opportunity Rule); id. 435.3(b) (Merchandise Rule); id. 436.10 (Franchise Rule); id. 429.2 (Cooling-Off Rule). VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 Rule. The final language also continues to make clear State requirements are not inconsistent with the Rule to the extent they afford greater protection to any consumer. The manners in which a State law may provide greater protection are many. For example, a State law that requires sellers to remind consumers at the end of a free trial that they are about to be billed would provide greater protection to consumers and not be inconsistent with the Rule. VIII. Modifications, Alternatives Considered A. New Provisions in Final Rule for Clarification 1. New § 425.8 Exemptions The NPRM sought comment on whether the Rule should exempt any entities or activities that are otherwise subject to the Commission’s authority under the FTC Act.502 Several commenters requested Rule exemption for their business or industry.503 These commenters made various arguments based on the law and facts in their particular circumstances. For example, some argued existing State licensing and other requirements that already apply to their activities adequately address the problems identified in the NPRM and additional rules would only interfere with the existing regulatory structure. Because such decisions are highly fact dependent, the Commission must consider exemptions, even of larger groups, on an individualized basis pursuant to the FTC’s Rules of Practice.504 Pursuant to these rules, interested persons may file petitions for exemption with relevant evidence and data. If the Commission deems the petition sufficient to warrant further consideration, it will follow the procedures outlined in § 1.31 of its rules. The Commission adopts a new section, § 425.8. Pursuant to this provision, and consistent with the Commission’s Rules of Practice, sellers 502 See, e.g., NPRM, 88 FR 24730. of products and services for which commenters sought exemptions include: alarm companies (FTC–2023–0033–0860; FTC–2023– 0033–1001); wireless carriers (FTC–2023–0033– 0866); telecommunication providers (FTC–2023– 0033–0876; FTC–2023–0033–0881); service contracts (FTC–2023–0033–0877; FTC–2023–0033– 0879; FTC–2023–0033–0882; FTC–2023–0033– 0996; FTC–2023–0033–1136; FTC–2023–0033– 1143); insurance agreements, service contracts on consumer goods, and cancellable month-to-month agreements (FTC–2023–0033–0878); and retail energy service (FTC–2023–0033–1151). Some of these and others sought to exclude B2B agreements. See section VII.B.1.c. 504 See 16 CFR 1.25, 1.31; see also 86 FR 59851 (Oct. 29, 2021) (amending Commission procedures and rules on the petition exemption process). 503 Categories PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 90515 and other covered persons may seek full or partial exemptions if they can demonstrate application of the Rule’s requirements to a particular product or service, or class of product or service, is not necessary to prevent the acts or practices to which the Rule relates. 2. New § 425.9 Severability One commenter, NFIB, asked the Commission to address severability in the Rule.505 Specifically, NFIB proposed a provision stating if a court finds any part of the Rule to be invalid, then the remainder of the Rule remains in force. The Commission agrees with this proposal. It is the Commission’s intent that the provisions of the final Rule are separate and severable from one another; therefore, if any provision is stayed or determined to be invalid, the remaining provisions shall continue in effect. Thus, the final Rule includes this language in a new section, § 425.9.506 B. Notice of Material Changes In the NPRM, the Commission sought comment on whether and how sellers should notify consumers when they make material changes to contracts with a negative option.507 As discussed in the NPRM, several commenters responding to the ANPR recommended the Commission require sellers to send consumers notices of such changes. TINA, for example, asserted the Commission should require such notice and provide consumers an opportunity to cancel before the terms become effective.508 Several States require similar notices.509 The Commission, however, did not require notice of material changes in the proposed Rule. As it explained at the time, whether a seller’s failure to provide such notice is unfair or deceptive is a highly factspecific inquiry that must be determined on a case-by-case basis. Given the importance of the issue, however, the Commission requested further comment. 1. Summary of Comments Five commenters responded.510 TINA reiterated sellers should provide 505 NFIB, FTC–2023–0033–0789. provision is comparable to the severability provision in other Commission Rules. See 16 CFR 437.10 (Business Opportunity Rule); 16 CFR 455.7 (Used Motor Vehicle Rule); 16 CFR 436.11 (Franchising Rule); 16 CFR 453.8 (Funeral Industry Rule); 16 CFR 310.9 (TSR). 507 NPRM, 88 FR 24730. 508 NPRM, 88 FR 24724. 509 Those States include Virginia, California, and Oregon. NPRM, 88 FR 24724. 510 ESA, FTC–2023–0033–0867; USTelecom, FTC–2023–0033–0876; ACA, FTC–2023–0033– 0881; IAB, FTC–2023–0033–1000; and TINA, FTC– 2023–0033–1139. 506 This E:\FR\FM\15NOR3.SGM 15NOR3 90516 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations consumers with notice of material changes to subscription terms.511 Further, it asserted the Commission’s reasoning is at odds with State laws and the Commission’s longstanding position on material terms, i.e., that they be ‘‘clearly and conspicuously disclosed when relevant to the marketing being presented.’’ 512 TINA further argued allowing businesses to ‘‘hide’’ material changes to these contracts is likely to cause injury because consumers ‘‘do not read these contracts (let alone monitor them for changes) and a significant minority of consumers are not even aware they are bound by these subscription contracts.’’ 513 In contrast, ESA, USTelecom, ACA, and IAB supported the Commission’s proposal. IAB and ESA said it is ‘‘industry practice for subscriptionbased services and products to have regular price increases over time,’’ and consumers expect it.514 USTelecom agreed with the Commission’s rationale that ‘‘whether such a practice is unfair or deceptive depends heavily on the facts presented in each case.’’ 515 ACA, a telecommunications trade association, noted the FCC and States already have notice requirements for contract term changes.516 khammond on DSKJM1Z7X2PROD with RULES3 2. Analysis Based on the record, the Commission does not require notice of material changes to contract conditions in the final Rule. The final Rule requires the seller disclose important information prior to charging the consumer. Such information includes all material terms, including, e.g., the range of costs the consumer will be charged and the frequency of charges that will incur unless the consumer takes timely steps to prevent or stop them. The seller’s failure to disclose such information upfront, clearly and conspicuously, violates the Rule. Moreover, State laws have different predicate requirements (e.g., less robust initial disclosures) and, importantly, are often based on different legal authority. Additionally, the Commission’s final Rule does not conflict with its longstanding advice on clear upfront disclosure. The final Rule requires just such disclosure, § 425.4; and the Commission has never required after sale disclosure based on its section 5 authority. 511 TINA, FTC–2023–0033–1139. 512 Id. 513 Id. 514 IAB, FTC–2023–0033–1000; ESA, FTC–2023– 0033–0867. 515 USTelecom, FTC–2023–0033–0876. 516 ACA, FTC–2023–0033–0881. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 Finally, as the Commission explained in the NPRM, whether a seller’s failure to notify a consumer of material changes is unfair or deceptive could be heavily dependent on the particular facts and circumstances, such as the seller’s upfront marketing claims. For example, based on a clear upfront agreement to allow periodic price increases, consumers may understand that firms can make small price increases over long periods of time. On the other hand, significant unilateral changes to the terms of the agreement, such as huge prices increases over short periods of time would probably be inconsistent with reasonable consumer expectation, and therefore, deceptive or unfair. Because the determination of whether a practice runs afoul of section 5 in this context is highly fact dependent, the Commission declines to address it at this time. Nevertheless, the Commission will continue to monitor the need for such a requirement and will continue to bring enforcement actions when appropriate. C. Consumer Education The Commission solicited comments on alternative approaches such as additional consumer and business education, and received two comments in response.517 The Commission plans to continue its efforts to provide information to help consumers with their purchasing decisions and avoid ensnarement in unwanted recurring payment programs. However, consumer education is not a substitute for improving existing regulatory provisions. Consumer education is likely to have a limited benefit where sellers lure consumers into an agreement without consumers’ knowledge, particularly with the use of dark patterns. D. Implementation Date Several industry groups and one individual commenter asked the Commission to delay the final Rule’s effective date. Three commenters sought a delay of at least 12 months or up to 18 months, citing generalized concerns that changes can take time ‘‘given the complexities’’ of the proposed Rule.518 The Chamber asked for a two-year period ‘‘depending on the scope and specific requirements of the final 517 See NPRM. 88 FR 24730; NFIB, FTC–2023– 0033–0789 (requesting a business education enforcement provision); Hoofnagle, FTC–2023– 0033–1137 (consumer and business education probably uneconomical intervention). 518 IAB, FTC–2023–0033–1000 (at least 12 months); ESA, FTC–2023–0033–0867 (12–18 months); Kuehn, FTC–2023–0033–0871 (12–18 months). PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 rule.’’ 519 By contrast, consumers generally encouraged the Commission to enact the Rule without delay.520 None of the commenters identified a precise period it would take to comply with a specific provision or otherwise detailed what would necessitate a particular length of time.521 They did, however, detail the general actions they would need to take. For example, NCTA explained, ‘‘this proposal would require companies to change and update their customer processes and user interfaces to provide the mandated notices, obtain additional consent, and implement cancellation mechanisms,’’ as well as troubleshoot those changes in a careful way to avoid ‘‘glitches and issues that would affect service and frustrate and harm consumers.’’ 522 The Commission recognizes changes to processes and disclosures typically require some time to address and has regularly provided a grace period for implementation of its rules.523 Small businesses in particular may require time to ensure their modified processes conform to the Rule. To address these concerns, the final Rule provides 180 days from the date the final Rule is published to come into full compliance. However, sellers must comply with § 425.3 60 days after publication of the Rule, consistent with 5 U.S.C. 801(a)(3). This section prohibits misrepresentations in connection with a negative option feature. Existing law already requires sellers not to make misrepresentations. Therefore, this provision should not impose an added time or cost burden on businesses operating lawfully.524 The Commission recognizes the remainder of the final Rule may require some businesses to implement or modify systems, software, or procedures. As detailed in the NPRM, however, the existing legal landscape already includes a patchwork of relevant Federal laws and regulations in 519 Chamber, FTC–2023–0033–0885. commenter, FTC–2023–0033–0257; Individual commenter, FTC–2023–0033–0685. 521 ACA, FTC–2023–0033–0881; SCIC, FTC– 2023–0033–0879 (noting many States require service contract forms be filed with State regulators for approval); ANA, FTC–2023–0033–1001; NCTA, FTC–2023–0033–0858. 522 NCTA, FTC–2023–0033–0858. 523 E.g., 38 FR 33766 (Dec. 7, 1973) (original Negative Option Rule, 6-month grace period); 60 FR 43842 (Aug. 23, 1995) (TSR. 4-month grace period); 89 FR 26767 (Apr. 16, 2024) (TSR amendment, 180day grace period); 79 FR 55615 (Sept. 17, 2014) (Merchandise Rule amendments, 3-month grace period). 524 Similarly, the various procedural sections of the Rule, e.g., § 425.1 (Scope), § 425.2 (Definitions); § 425.7 (Relation to State Laws), § 425.8 (Exemptions), and § 425.9 (Severability) are also operative 60 days after publication. 520 Individual E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations addition to State laws to address sellers’ negative option practices.525 The Commission has also issued guidance to businesses on the basic requirements that negative option marketers must follow to avoid deception.526 Compliance with these statutes and regulations should mean sellers have a significant head start on their compliance efforts. Moreover, the Commission has streamlined the final Rule, significantly reducing the compliance burdens. Specifically, for reasons detailed in section VII, above, the final Rule omits or modifies proposed requirements that gave some commenters particular concern. Most notably, the Commission omitted the entire annual reminder and saves requirements. As commenters pointed out, these two sections imposed the greatest compliance burdens on sellers.527 Their removal, therefore, should substantially reduce the time and expense needed to ensure processes comply. Similarly, other modifications should clarify and streamline requirements, making compliance easier. For example, the final Rule eliminates certain recordkeeping requirements.528 Additionally, the final Rule narrows the required disclosures.529 These changes combined with existing law obviate the need for a lengthy grace period. E. Anti-Abuse Provision The Law Professors suggested the Commission include an ‘‘anti-abuse’’ provision to provide a mechanism for enforcement against sellers’ attempts to evade the Rule.530 Such a provision would make it an ‘‘unfair or deceptive act or practice’’ for a seller to, for example, set up a facially complicated sign-up process to allow for a similarly complicated cancellation process, but in practice to simplify the sign-up process to maximize enrollment.531 As the Law Professors acknowledge, such attempts to evade the Rule already violate the Rule, and the record does not suggest a need for such an additional anti-abuse provision. 525 NPRM, 88 FR 24716–18. EPS, 86 FR 60822; Staff Report, https:// www.ftc.gov/sites/default/files/documents/reports/ negative-options-federal-tradecommissionworkshop-analyzing-negative-optionmarketingreport-staff/p064202negativeoptionreport.pdf {last visited on Aug. 26, 2024}. 527 See sections VII.B.6 (saves) and VII.B.7 (reminders). 528 See § 425.5(a)(4). 529 See § 425.4. 530 Law Professors, FTC–2023–0033–0861. 531 Id. khammond on DSKJM1Z7X2PROD with RULES3 526 See VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 IX. Congressional Review Act Pursuant to the Congressional Review Act, 5 U.S.C. 801 et seq., we anticipate the Office of Information and Regulatory Affairs will designate the final Rule as a ‘‘major rule,’’ as defined by 5 U.S.C. 804(2). X. Final Regulatory Analysis Under section 22(a) of the FTC Act, 15 U.S.C. 57b–3(a), the Commission must issue a preliminary regulatory analysis for a proceeding to amend a rule if the Commission: (1) estimates that the amendment will have an annual effect on the national economy of $100 million or more; (2) estimates that the amendment will cause a substantial change in the cost or price of certain categories of goods or services; or (3) otherwise determines that the amendment will have a significant effect upon covered entities or upon consumers. Although the Commission preliminarily determined the proposed amendments to the Rule would not have such effects on the national economy; on the cost of goods and services offered for sale by mail, telephone, or over the internet; or on covered parties or consumers, several commenters raised concerns with the Commission’s preliminary determination. Ultimately, the presiding officer determined, after receiving additional comments from interested stakeholders, the proposed amendments would have such effect.532 In accordance with section 22, the Commission therefore issues its final regulatory analysis below. A. Introduction Under section 22 of the FTC Act, 15 U.S.C. 57b–3, the final regulatory analysis must contain (1) a concise statement of the need for, and objectives of, the final rule; (2) a description of any alternatives to the final rule which were considered by the Commission; (3) an analysis of the projected benefits, any adverse economic effects, and any other effects of the final rule; (4) an explanation of the reasons for the determination of the Commission that the final rule will attain its objectives in a manner consistent with applicable law and the reasons the particular alternative was chosen; and (5) a summary of any significant issues raised by the comments submitted during the public comment period in response to the preliminary regulatory analysis, and a summary of the assessment by the Commission of such issues. 532 Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-20240001-0042. PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 90517 The Commission received comments from trade associations regarding the preliminary regulatory analysis in the NPRM, and three presented testimony and expert reports at the informal hearing. Comments and testimony, including reports submitted by experts, were largely conclusory in nature.533 The general theme of the comments and testimony, however, was that the compliance costs would be higher than those estimated in the NPRM’s preliminary analysis, and the Commission herewith presents revised estimates of those compliance costs. B. Regulatory Analysis 1. Concise statement of the need for, and the objectives of, the final Rule. As discussed previously, the objective of the proposed amendments is to curb deceptive or unfair negative option practices . The legal basis for the proposed amendments is section 18(a)(1)(B) of the FTC Act, which provides the Commission with authority to issue ‘‘rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce.’’ 534 As described in this SBP, the amendments address unfair or deceptive negative option practices. The FTC, other Federal agencies, and State attorneys general have brought multiple administrative and judicial actions to stop and remedy harmful negative option practices. The record demonstrates, however, that existing legal authorities fall short because they leave consumers unprotected from certain practices and constrain the relief the Commission may obtain for law violations to redress consumers and deter future unlawful activity. In the ANPR and NPRM, the Commission explained it receives thousands of consumer complaints a year related to negative option marketing. As discussed above in sections III–VII, the final Rule clarifies existing requirements regarding negative option marketing currently dispersed in other rules and statutes administered by the FTC and provides a consistent legal framework across media and offers. It also consolidates all requirements, such as those in the TSR and ROSCA, specifically applicable to negative 533 Where specific components of the Rule, as anticipated when the NPRM was published, were discussed, commenters combined them, such that the concerns expressed cannot readily be separated to reflect what remains in the final Rule. For example, NCTA claims that ‘‘(t)he rigid ‘Click-toCancel’ requirements and limits on ‘saves’ will harm consumers,’’ but addresses these harms only in combined and qualitative ways. FTC–2023– 0073–0008. 534 15 U.S.C. 57a(a)(1)(B). E:\FR\FM\15NOR3.SGM 15NOR3 khammond on DSKJM1Z7X2PROD with RULES3 90518 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations option marketing. The final Rule also provides clarity about how to avoid deceptive negative option disclosures and procedures. For example, ROSCA lacks specificity about cancellation procedures and the placement, content, and timing of cancellation-related disclosures. The final Rule now provides clear standards for sellers about, inter alia, the content and timing of important information disclosures and what constitute ‘‘simple mechanisms’’ for the consumer to stop recurring charges. Further, the Rule allows the Commission to seek civil penalties and consumer redress under section 19(a)(1) of the FTC Act in contexts where such remedies are currently unavailable, such as deceptive or unfair practices involving negative options in print materials and face-toface transactions (i.e., in media not covered by ROSCA or the TSR). 2. A description of any alternatives to the final Rule which the Commission considered. In formulating the final Rule, the Commission makes every effort to avoid imposing unduly burdensome requirements on sellers. To that end, the Commission avoids, where possible, proposing specific, prescriptive requirements that could stifle marketing innovation or otherwise limit seller options in using new technologies. In the NPRM, the Commission sought comments on several alternatives, including provisions related to consent requirements (additional consent for free trials) and reminder requirements (narrowing the scope of product types requiring reminders). The Commission also sought comments on how it could modify the proposed amendments to reduce costs or burdens for small entities. In response to the comments, and as discussed in the section-bysection analysis, the Commission determines not to finalize the proposed Rule in its entirety. Instead, the Commission finalizes a Rule that limits the material terms to be disclosed immediately adjacent to consent for the negative option feature; removes the limitation on saves and the accompanying recordkeeping requirement; removes the annual reminder provision; and modifies the length of the recordkeeping requirement for verification of consent to three years and provides an alternative method of compliance. One alternative to the final Rule would be to terminate the rulemaking and rely instead on the existing legal framework to combat unfair or deceptive negative option practices. Another alternative would be to limit the scope of the final Rule to just those VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 negative option plans that are marketed in person or through the mail and therefore, currently, are covered only by section 5 of the FTC Act and not by ROSCA or the TSR. However, failing to proceed in accordance with the final Rule would substantially reduce or eliminate the benefits of the Rule, including clarifying the requirements currently spread throughout statutes and regulations and covering negative options in media not subject to the TSR or ROSCA. Given that the Commission expects the unquantified benefits and unquantified costs of the final Rule to be small, and that there is considerable scope for the net benefits to remain positive and large even if compliance costs have been substantially underestimated, this regulatory analysis indicates that adoption of the Rule will result in benefits to the public that outweigh the costs. 3. An analysis of the projected benefits and any adverse economic effects and any other effects of the final Rule. (a) Summary of Benefits and Costs The primary consumer benefits of the final Rule, relative to the existing regulatory baseline,535 come in the form of faster cancellations when consumers wish to cancel subscriptions.536 535 As explained in section III of the SBP, several other statutes and regulations address harmful negative option practices. Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices, has traditionally served as the Commission’s primary mechanism for addressing deceptive negative option claims. ROSCA, the TSR, 1the Unordered Merchandise Statute, and EFTA all address various aspects of negative option marketing. 536 The final Rule also requires that specific disclosures relating to negative option features be provided separately to consumers before consent is obtained, whereas the existing regulatory framework requires that all material terms of a negative option contract be disclosed in a clear and conspicuous manner. The new disclosure requirements will aid consumers in understanding both that they are entering a negative option contract and the terms and conditions of that contract, especially how they can cancel the contract and when such cancellation must occur to avoid future charges. No consumer testing of the final Rule’s disclosure requirements, relative to a ‘‘control’’ of ‘‘clear and conspicuous’’ disclosure requirements under the existing regulatory baseline, has been done. Accordingly, it is not possible to quantify any incremental consumer comprehension of a negative option plan at the time a consumer provides consent to that plan that may result from the final Rule’s disclosure requirements. Moreover, some academic studies claim that ‘‘[n]ot only do consumers have a tendency to forget, but also a tendency to forget that they forget,’’ suggesting that any gain in comprehension of the negative option features of an agreement that might be measured under consumer testing might not be durable. See Sophia Wang, ‘‘One Size Does Not Fit All: The Shortcomings of Current Negative Option Legislation,’’ 26 Cornell J. of L. & Pub. Policy, 197, 212 n.135 (2016) citing Keith M. Marzilli Ericson, PO 00000 Frm 00044 Fmt 4701 Sfmt 4700 The final Rule requires negative option sellers to provide cancellation mechanisms that are at least as easy to use as the mechanisms by which consumers consent to negative option plans. For negative option sales made online or over the telephone, ‘‘at least as easy to use’’ requires that the cancellation mechanism operate in the same medium and take no more time or effort than the consumer used when enrolling in the negative option plan. For negative option sales that are made in-person or through the mail, the final Rule requires that, in addition to offering cancellation through the specific method used for enrollment, the seller must also offer at least one alternate cancellation mechanism that can be used remotely, e.g., cancellation via a website, email, or a toll-free telephone number and, again, that the consumer can cancel the negative option contract at least as quickly as he or she completed enrollment in the negative option plan. In the following analysis, the Commission describes the anticipated effects of the final Rule. Where possible, it quantifies the benefits and costs. If a benefit or cost is quantified, it indicates the sources of the data relied upon. If an assumption is needed, the text makes clear which quantities are being assumed. The Commission measures the benefits and costs of the Rule against the existing regulatory baseline that consists primarily of ROSCA, the TSR, and section 5 enforcement.537 ‘‘Forgetting We Forget: Overconfidence and Memory,’’ 9 J. Eur. Econ. Assoc. 43 (2011). Additionally, if the disclosures required by the final Rule come to be viewed as ‘‘boilerplate’’ language that consumers rush through, or consumers consider those disclosures to be less salient than other aspects of the transaction, such as acquiring a free trial of a product or service, the final Rule’s disclosures may not offer any incremental benefit over existing ‘‘clear and conspicuous’’ because ‘‘people have limited attentional resources and will overlook non-salient features of any transaction.’’ See Tess Wilkinson-Ryan, ‘‘A Psychological Account of Consent to Fine Print,’’ 99 Iowa L. Rev. 1745 (2014). Concerns such as these are consistent with some consumer advocacy groups seeking amendments that would require a second round of consent to be obtained at the end of a free trial and before any recurring charges could be initiated in addition to routine reminders of recurring charges. See, e.g., TINA, FTC–2019–0082–0014 (seeking amendments to require notice and re-affirmance of consumer consent, prior to being charged because consumers may forget about the trial and incur unwanted charges or enrollments at the end of the offer, particularly with long trial periods). 537 The Unordered Merchandise Statute and EFTA also address various aspects of negative option marketing, but violations of those laws in relation to negative option marketing are typically pleaded in conjunction with violations of other laws; without loss of generality, the regulatory analysis expressly considers only ROSCA, the TSR, and section 5 as the regulatory baseline against which incremental benefits and costs from the final Rule are measured. E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations First, the likely per-cancellation benefits of the final Rule in relation to four scenarios under the existing regulatory baseline are considered. Next, the number of transactions relevant to each scenario are estimated. The product of average benefits-percancellation in each scenario multiplied by the likely number of consumer cancellation transactions for each scenario, summed across all scenarios, provides an estimate of the aggregate, quantifiable, consumer benefits produced by marketers’ compliance with the final Rule’s cancellation requirements. Quantifiable costs primarily reflect the resources spent by businesses to review the Rule and to take any preemptive or remedial steps to comply with its provisions, including, when and as needed, making changes to the manner they receive and process cancellation requests from consumers. The Commission estimates the present discounted value of quantified benefits over ten years, using a 2 percent discount rate, will range between $6.1 and $49.3 billion. Annualized over 10 90519 years, the Commission estimates the quantified benefits will range between $682.8 million and $5.5 billion per year. The Commission estimates the present discounted value of quantified costs over ten years, using a 2 percent discount rate, will range between $100.9 and $826.2 million. Annualized over ten years, the Commission estimates the quantified costs will range between $11.2 and $92.0 million per year. These estimates are presented in Table 1 below. TABLE 1—SUMMARY OF TOTAL QUANTIFIED BENEFITS AND COSTS [In millions, 2023 dollars] Low High Present Discounted Value over 10 years, 2% discount rate Benefits .................................................................................................................................................................... Costs ........................................................................................................................................................................ $6,133.57 100.89 $49,315.39 826.15 Net Benefits ...................................................................................................................................................... 5,307.43 49,214.50 Benefits .................................................................................................................................................................... Costs ........................................................................................................................................................................ 682.83 11.23 5,490.11 91.97 Net Benefits ...................................................................................................................................................... 590.86 5,478.88 Annualized over 10 years, 2% discount rate khammond on DSKJM1Z7X2PROD with RULES3 (b) Benefits of the Final Rule This section describes the beneficial impacts of the Rule, provides quantitative estimates where possible, and describes benefits that are only assessed qualitatively. The quantifiable estimates reflect benefits stemming from the decreased amount of time and effort consumers will need to expend cancelling subscriptions, and in contexts where data are available, welfare gains from avoided expenditure for unwanted subscriptions, under the final Rule relative to marketers’ compliance with the existing regulatory baseline. This section first estimates per-consumer savings from cancellation mechanisms that would become at least as easy to use as the mechanisms through which consent to the negative option transactions was given and then estimates the number of cancellation transactions to which those benefits apply. In addition to these quantified benefits, there are several benefits we do not quantify. First, marketers’ compliance with the final Rule is likely to improve consumer confidence in using subscriptions 538 and increase the 538 One survey found that consumers without subscriptions were much more pessimistic about the ability to cancel subscriptions than were VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 number of consumers who are willing to subscribe and obtain the convenience, and often cost savings, that subscriptions can provide. Second, research in economics and psychology finds the perceived monetary and psychological costs from switching products or services can lead consumers to make sub-optimal decisions. The final Rule, by reducing these costs through simpler cancellation methods, may improve consumer decisionmaking by reducing enrollments in subscriptions that consumers do not value and increasing enrollments in subscriptions that they do value.539 consumers who had subscriptions. See Jabil, ‘‘Connected Packaging Perceptions and Attitudes: A Consumer Insights Survey’’ (July 2021), https:// www.jabil.com/dam/jcr:ecdb74e6-c34f-4c30-aa34c10269617db6/2021-connected-packagingsurvey.pdf#page=3. Another recent study finds that consumers are aware that they may be inattentive in future and not cancel subscriptions that they no longer desire, and so are less likely to sign up for negative-option subscriptions. See Klaus Miller, et al., ‘‘Sophisticated Consumers with Inertia: LongTerm Implications from a Large-Scale Field Experiment’’ (2023), https://papers.ssrn.com/sol3/ papers.cfm?abstract_id=4065098. 539 A large literature in economics has documented that consumers face switching costs and/or psychological biases towards inertia. See, e.g., Brigitte Madrian & Dennis Shea, ‘‘The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior,’’ 116 Quarterly J. of Econ. 1149 (2001); William Samuelson and Richard Zeckhauser, ‘‘Status Quo Bias in Decision Making,’’ PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 Marketers’ compliance with the final Rule, and the consumer confidence that compliance inspires, may also ‘‘exert additional competitive pressures on businesses who offer subscription contracts (and) could increase productivity in the sector.’’ 540 Compliance with the final Rule may also result in some allocative effects when consumers can cancel online instead of by telephone. In such cases, consumers will be able to cancel subscriptions at times of the day that may be more convenient to them than the hours that subscription sellers staff their telephone lines and from devices that they find more convenient to use than telephones.541 1 J. of Risk & Uncertainty 7 (1988). Research has found that many consumers do not cancel subscriptions due to such inertia effects. See, e.g., Miller, et al. (2023); Liran Einav, et al., ‘‘Selling Subscriptions’’ (2023), https://harris.uchicago.edu/ sites/default/files/mahoney_ppe_seminar_paper_926-23_0.pdf. 540 See U.K. Department for Business and Trade, ‘‘Impact Assessment—Digital Markets, Competition and Consumers Bill: Subscription Measures,’’ at 3 (Apr. 20, 2023), https://publications.parliament.uk/ pa/bills/cbill/58-03/0294/ImpactAssessment Annex2.pdf. 541 In some instances, an online cancellation completed at, say, 11:59 p.m., compared to a counterfactual in which a call center closed at, say, 8 p.m., could result in sparing a consumer from a recurring charge that would take effect the next day, and such instances would result in actual monetary E:\FR\FM\15NOR3.SGM Continued 15NOR3 90520 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations Finally, the Commission’s estimates of quantified benefits are based on reductions in time and effort from cancelling subscriptions to non-business consumers. The Commission expects small businesses may also benefit in similar ways from less costly cancellations, but it does not quantify such benefits due to lack of data on business cancellation transactions. The following subsections then estimate the quantified benefits from reductions in time and effort from cancelling subscriptions. First, in subsection (1), the Commission estimates the per-cancellation benefit relative to the regulatory baseline for (i) online cancellation when only ROSCAcompliant telephonic cancellation was available, (ii) simpler online cancellation when only ROSCAcompliant online cancellation was available, (iii) simpler telephone cancellation when only TSR-compliant cancellation was available, and (iv) online or telephone cancellation when only in-person or mail cancellation was available. The Commission then estimates the number of cancellation transactions in subsection (2), and finally calculates benefits as the percancellation benefit in each scenario multiplied by the number of affected transactions in subsection (3). khammond on DSKJM1Z7X2PROD with RULES3 (1) Estimating Per-Cancellation Benefits For each of the four scenarios below, the Commission estimates a range of benefits that a consumer will gain each time they cancel a negative option subscription. In these scenarios, the Commission assumes a final Rulecompliant online cancellation should take no more than 30 seconds to one minute, based on the Commission’s experience that the average time for consumers to read required disclosures and provide consent to a negative option plan online is 30 seconds to one minute. For telephone cancellations under the final Rule, the Commission assumes that a rule-compliant cancellation should take no more than one to two minutes, based on the assumption it takes a telemarketer twice as long to read required disclosures to a consumer as it would take a consumer to read such disclosures to his or herself online. (a) Estimated Per-Cancellation Benefit Relative to ROSCA-Compliant Telephonic Cancellation For consumers enrolling in negative option plans online, the existing savings to consumers, but we are unable to estimate the frequency of such occurrences or the monetary savings they would engender. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 regulatory baseline, ROSCA, requires marketers to provide ‘‘simple’’ cancellation mechanisms. A facially ROSCA-compliant, ‘‘simple’’ telephonic cancellation may, nonetheless, require more time and effort from consumers than was expended when enrolling in the negative option plan. Online subscription sellers’ compliance with the final Rule will save consumers that extra measure of time and effort. To estimate the average time savings to consumers of a final Rule-compliant ‘‘click-to-cancel’’ mechanism compared to a ROSCA-compliant simple telephonic cancellation, this analysis first assumes that ROSCA-compliant simple telephonic cancellations take no more time than the ‘‘average handle time’’ for all customer service requests made to call centers, which an industry source indicates is six minutes and three seconds.542 As discussed at the beginning of this subsection, the Commission assumes a final Rulecompliant cancellation should take no more than 30 seconds to one minute, saving consumers between five minutes and three seconds and five minutes and 33 seconds per cancellation relative to a simple telephonic cancellation. The Commission then assumes consumers, on average, value their nonwork time at 82% of the mean hourly wage of $31.48, or $25.81 (i.e., .82 × $31.48) per hour.543 Accordingly, the Commission estimates the faster online cancellations the final Rule will provide, relative to ROSCA-compliant telephonic cancellations, will be valued at between $2.17 (i.e., 5:03 minutes × $25.81/hour) and $2.39 (i.e., 5:33 minutes × $25.81/hour). 542 See Michelle Hawley and Shane O’Neill, ‘‘21 Important Call Center Statistics to Know About,’’ (Apr. 3, 2024), https://www.cmswire.com/contactcenter/16-important-call-center-statistics-to-knowabout. We use this proxy for the time a ROSCAcompliant telephonic cancellation takes only for the express purpose of estimating the incremental benefits to consumers of a final Rule-compliant cancellation replacing a ROSCA-compliant telephonic cancellation. ‘‘Average handle time’’ has not been used as a standard for ROSCA enforcement and is not intended to set a standard here. 543 The Commission uses a mean hourly wage rate of $31.48; see Bureau of Labor Statistics, ‘‘May 2023 National Occupational and Wage Estimates, Unites States,’’ https://www.bls.gov/oes/current/oes_ nat.htm. A meta-analysis of studies on how consumers value time used in traveling (an area in which ‘‘a huge literature has arisen’’) has determined that consumers value time used in that matter at 82% of their wage rate. See Daniel S. Hamermesh, ‘‘What’s to Know About Time Use?,’’ 30 J. Econ. Surv. 1, 198–203 (2015). The Commission assumes for the purpose of the final Rule consumers value transaction costs savings in the same way that they value travel time. PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 (b) Estimated Per-Cancellation Benefit Relative to ROSCA-Compliant Online Cancellation For online cancellations of onlineentered subscriptions, the Commission lacks a source of average cancellation times presumed to be ROSCA-compliant that is as comprehensive as that used for the average handle times of call centers. The Commission relies, instead, on an experiment that involved signing up for 16 online subscriptions between August 2 to October 4, 2022, then canceling each one, and recording the time it took to cancel, as well as the variety of other obstacles faced in canceling.544 To estimate the average time for online cancellations, the Commission subtracts the time incurred in canceling the three subscriptions that required telephonic cancellation from the aggregate time reported to cancel all 16 subscriptions. This yields an average of two minutes and 4 seconds per online cancellation.545 Based on the Commission staff’s experience, the average time needed to read the required disclosures and provide consent to a negative option feature is 30 seconds to one minute. An online cancellation that took no longer than the provision of online consent would therefore save the consumer between one minute and four seconds and one minute and 34 seconds. Valuing consumers’ time at $25.81 per 544 See Caroline Sinders, ‘‘How Companies Make It Difficult to Unsubscribe,’’ https://pudding.cool/ 2023/05/dark-patterns. Among the obstacles noted for otherwise seemingly simple online cancellations were that some websites did not use straight forward terms, such as ‘‘unsubscribe’’ or ‘‘cancel,’’ and instead put the cancellation path under titles such as ‘‘auto-renew’’ or ‘‘edit plan.’’ 545 The researcher reported the aggregate time expended to cancel all 16 subscriptions was 57 minutes and 31 seconds. Of the three subscriptions that required telephonic cancellations, one call took 17 minutes and 36 seconds, one took seven minutes, and the time to cancel the third one was not reported (apart from explaining that it was necessary to call three times due to the seller’s ‘‘technical difficulties’’). The Commission replaces this missing value with the average handle time found by Hawley/O’Neill (2024) of six minutes and three seconds. The Commission therefore subtracted 30 minutes and 39 seconds from the aggregate cancellation time of 57 minutes and 31 seconds; measured in seconds, this becomes 3,451¥1,839 = 1,612. Dividing this result by 13 equals 124 seconds, or two minutes and 4 seconds. The Commission notes this average cancellation time, though relevant for this regulatory analysis, has not been used as a standard for ROSCA enforcement and is not intended to set a standard here. Moreover, while we have calculated this average, the study notes cancellation took under one minute for three large sellers of digital entertainment subscriptions. Last, the Commission notes one commenter opined, ‘‘(f)or the most part,’’ companies offer convenient, no-hassle, cancellation options that probably take about five clicks on average, though the commenter did not indicate a time duration. See Individual commenter, FTC– 2023–0033–0780. E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations hour, as assumed above, the final Rule would therefore save consumers who enroll online and cancel online time that they value at between $0.46 (i.e., 1:04 seconds × $25.81/hour) and $0.67 (i.e., 1:34 minutes × $25.81/hour). khammond on DSKJM1Z7X2PROD with RULES3 (c) Average Per-Cancellation Benefit Relative to TSR-Compliant Cancellation For consumers enrolling in negative option plans via telemarketing, the existing regulatory baseline is the TSR. The TSR does not specify a performance standard specific to negative option cancellations. Although egregious cancellation delays can be pleaded against telemarketers under § 310.3(a)(1)(vii) (requiring disclosure of all material terms and conditions of the negative option feature) or § 310.3(a)(2)(ix) (prohibiting misrepresentation directly or by implication of any material aspect of a negative option feature), the final Rule’s requirement that the cancellation mechanism be at least as easy to use as the consent mechanism provides cancellation-specificity to negative options sold through telemarketing that is lacking under the existing regulatory baseline. Because telemarketers have substantial discretion in designing and implementing consent processes specific to their programs, telemarketers will have a clear benchmark for the speed with which they must complete a final Rule-compliant cancellation. As described at the beginning of this subsection, the Commission assumes it takes telemarketers between one and two minutes to read the required disclosures to consumers and receive their consent for enrollment in a negative option plan. Using the same average handle time measure of six minutes and three seconds used a previous scenario to proxy for baseline time spent for a telephonic cancellation, the Commission assumes the final Rule will save consumers who consent to a negative option sale via telemarketing, and cancel in the same manner, between four minutes and three seconds and five minutes and three seconds. Evaluating that time saving in the same manner as above, compliance with the final Rule results in a per-cancellation time saving that is worth between $1.74 (i.e., 4:03 minutes × $25.81/hour) and $2.17 (i.e., 5:03 minutes × $25.81/hour). (d) Estimated Per-Cancellation Benefit Related to In-Person Enrollments Some sellers market negative option plans in ways that are not covered by ROSCA or the TSR. Those that involve in-person enrollment and only offer inperson or mail cancellation, in particular, may be highly burdensome to VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 consumers. The final Rule requires sellers who offer in-person enrollment to offer at least one alternate cancellation method that consumers may use remotely, e.g., online 546 or via telephone. Providing consumers with an alternative to in-person cancellations will give consumers a faster route to cancel a subscription and may also spare some consumers from incurring additional recurring charges which might accrue during the pendency of a slow cancellation mechanism, enabling consumers to reallocate their spending power in directions of greater utility, resulting in allocative efficiencies. Unlike negative option transactions entered into online (ROSCA) or by telephone (TSR), the Commission lacks comprehensive experience with negative option plans that require cancellation in person or through the mail. However, because many gym/ fitness center/health studio memberships (hereafter, ‘‘gym memberships’’) are sold via negative options 547 and may require cancellation via certified mail or in person (sometimes even when consumers can enroll online 548), the Commission proxies the per-cancellation benefits of an additional, remote, method of cancellation by looking at those benefits in the context of gym memberships.549 546 At the seller’s choice, an online cancellation method may be through a website or via email. 547 IHRSA, The Global Health & Fitness Association, commenting on behalf of itself and the industry (see FTC–2023–0033–0863) claimed there were clear distinctions between in-person, brick and-mortar health and fitness businesses and online subscription services, explaining a month-to-month contract is a very different risk to consumers than a long-term contract that begins after a free trial or auto-renews without notice. IHRSA further claims short-term (e.g., month-to-month) continuous service agreements should be distinguished from purely online subscription services targeted by the rule. IHRSA further (mis-) characterizes the Rule as appearing to be concerned with paid contracts that initiate automatically after a free trial period or auto-renew without notice after a long, pre-paid initial term. IHRSA notes consumers with membership agreements with firms in its industry are on notice of the recurring cost because of the monthly charge and have the option to cancel each month under the terms of their contract. The Commission disagrees with IHRSA’s characterization of the Rule; the Rule is not intended to exclusively, or even primarily, address online subscription services or long-term contracts that begin after a free trial or auto-renew without notice, but to address all recurring charge plans where the consumer’s silence or failure to cancel is interpreted as consent to recurring charges. Accordingly, consumer memberships with firms in IHRSA’s industry where consumers have the option to cancel each month squarely fit within the Rule’s coverage of negative option plans. 548 Individual commenter, FTC–2023–0033–0233. 549 The International Carwash Association (‘‘ICA’’), however, commented many of its 60,000 U.S. members offer carwash subscriptions that offer a reduced price for carwashes to subscribers and PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 90521 As noted in the comment submitted by comment filed by IHRSA,550 The Global Health & Fitness Association, ‘‘many (fitness club) operations allow several options for agreement termination through simple online solutions including online account management, email cancellation requests, and specific online cancellation buttons or forms’’ and ‘‘[m]any of these options are currently available for members who have purchased their membership either online or in person.’’ IHRSA did not quantify the share of their member organizations that provide such cancellation opportunities or the number or share of consumer cancellation transactions in which online cancellation is available. Accordingly, the Commission assumes the low-end of the range of quantifiable benefits to consumers who purchased negative option plans in person, but could currently cancel online is the same as the same the low-end of the range for consumers who purchased negative option plans online and had access to online cancellations: $0.46 per cancellation. Notwithstanding IHRSA’s assertion that many fitness clubs offer online cancellation, at least 25 individual consumers submitted comments attesting to the difficulties of canceling gym memberships. Some wrote in general terms of the difficulties consumers experience in canceling such memberships as something that contributed to their support for the Rule. strengthen the relationship with customers and reduce dependence on cash transactions for these businesses. See FTC–2023–0033–1142. These subscriptions may be purchased in person, on the world wide web, via a mobile app, or at an automated teller, which indicates at least some of those subscriptions are covered by ROSCA. ICA asserts cancellation through a means other than in person may be burdensome to the generally small businesses that operate carwashes. Id. Although commenter Rocket Money, FTC–2023–0033–0998, mentioned ‘‘car wash chains that require consumers to visit a specific location to cancel their membership as an example of draconian cancellation requirements they experienced working with consumers, no individual consumer commenter mentioned difficulties with carwash subscriptions. Because no consumer commenter provided any other indication of the number of carwash subscriptions purchased or the costs of cancelling such subscriptions, even anecdotally, they are excluded from the analysis. The estimate of the consumer benefits that would flow from the final Rule’s provision that an extra, remote, cancellation mechanism be required of marketers who currently offer only in person or mail cancellation mechanisms may therefore be an under-estimate of such benefits. 550 FTC–2023–0033–0863. E:\FR\FM\15NOR3.SGM 15NOR3 khammond on DSKJM1Z7X2PROD with RULES3 90522 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations • ‘‘What seems more troublesome tend to be stuff like gym memberships.’’ 551 • ‘‘I work dispute resolutions for a bank. I see so many cases where someone is trying to cancel something like a gym membership and, while they can sign up in person, they for some reason have to mail a certified letter to the companies (sic) home office.’’ 552 • ‘‘I have experienced so much frustration ending memberships with gyms, online subscriptions, etc. over many years and welcome help in this matter. So many friends I speak to share similar stories of how they were roped into paying for longer memberships and subscriptions that they no longer wanted.’’ 553 • ‘‘Many places, like [specific fitness center chain], require you to go in person to cancel—they won’t even let you do it over the phone! This harms anyone that may have trouble leaving the house regularly, including disabled folks and parents of small children and those caring for older or ailing family members, not to mention being horribly inconvenient for everyone else.’’ 554 Many others conveyed personal experiences with burdensome gym membership cancellation. The Commission relies upon these comments to estimate the high-end of the range of quantifiable benefits that the final Rule will provide to consumers who purchase negative option plans inperson. Examples of these include: • ‘‘I had to write a letter and physically mail it to cancel a gym membership I singed [sic] up for on an iPad.’’ 555 • ‘‘Recently it took me three days and several hours to cancel a gym membership (that) had taken less than 20 minutes to join, on line [sic].’’ 556 • ‘‘I had to go in person 3 different times because the manager wasn’t there so [sic] to cancel it.’’ This consumer attached a screen shot of the gym’s cancellation policy, which read, in part, ‘‘There is no contract and you are free to cancel your Direct Debit at any time. If you do decide to cancel your membership, you must allow at least 7 days before the fifth of the month to ensure your payment is cancelled and advise Reception of the cancellation.’’ Both ‘‘(a)t least 7 days before the fifth of the month,’’ and the failure to specify whether ‘‘7 days’’ is seven business days or seven calendar days introduce considerable uncertainty as to when, precisely, the consumer must tender a cancellation to avoid the next recurring payment.557 • ‘‘Years ago, I had signed up for a gym membership, and after a change in job situation, was no longer able to make use of it. Repeated attempts to reach the gym membership department and cancel my membership went unheeded—a [sic] got a classic runaround, and as often forwarded to unattended phone numbers—and I kept racking up monthly bills for a membership I didn’t want . . . . It was only through a personal relationship with someone who worked in the corporate office that I was finally able to get past their automatic renewals and effect a cancellation.’’ 558 • ‘‘We wanted to cancel the [gym] membership, but when we called and emailed, we were told we couldn’t cancel that way. We had to send a certified letter or go in person. We have gone in person twice to try to cancel or [sic] membership and it has been a nightmare.’’ 559 • ‘‘Personally, I have been impacted by my local gym’s undisclosed policies and shady cancelation policies that have costed me hundreds of dollars.’’ 560 • ‘‘They bill you monthly for your gym membership but when you want to cancel your membership that’s when the problems arise. You cannot do it over phone or on their website. You have to go into the gym personally to cancel said membership. Not only that I was told that I’d have to go to the gym [home gym] where I signed up in order to cancel membership. I could only imagine what this would be like had I moved out of the state. Please help us stop these practices.’’ 561 • ‘‘I am currently trying to cancel a gym membership and have been overwhelmed by how difficult it has been . . . . I just called my gym . . . and the pre-recorded automated answering message literally says there is no direct line to the gym! That’s outrageous!!!’’ 562 • ‘‘My personal experience is with my gym membership . . . . Getting out of it was terrible, and I’d hate to see it happen to anyone else.’’ 563 Based on these comments, the Commission makes the simplifying assumption that the worst gym membership cancellation experiences 557 Individual 551 Individual commenter, FTC–2023–0033–0780. 552 Individual commenter, FTC–2023–0033–0007. 553 Individual commenter, FTC–2023–0033–1046. 554 Individual commenter, FTC–2023–0033–0741. 555 Individual commenter, FTC–2023–0033–0233. 556 Individual commenter, FTC–2023–0033–1076. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 commenter, FTC–2023–0033–0510. commenter, FTC–2023–0033–0968. 559 Individual commenter, FTC–2023–0033–0387. 560 Individual commenter, FTC–2023–0033–0572. 561 Individual commenter, FTC–2023–0033–0299. 562 Individual commenter, FTC–2023–0033–1163. 563 Individual commenter, FTC–2023–0033–0545. 558 Individual PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 involve three failed attempts at cancellation, each costing one hour of time, and that, because of those cancellation failures, three unwanted monthly charges were processed. The Commission assumes a fourth cancellation attempt, also costing one hour of time, succeeds in halting the recurring payments. As above, the Commission values consumers’ time at $25.81/hour. The typical gym membership costs between $40 and $70 a month.564 The Commission therefore assumes, at the high-end, consumers incur gym membership cancellation costs of $313.25 (i.e., (4 × $25.81) + (3 × $70)) in the absence of this Rule.565 As stated previously, the Commission assumes a final Rule-compliant cancellation should take no more one minute at the high end, which has a value of consumers’ non-market time of $0.43. Then, to estimate the high-end avoided burden that such consumers would experience under the final Rule, the Commission takes the difference between the high-end cancellation costs in the absence of this Rule ($313.25) and the high-end final Rule-compliant cancellation costs ($0.43), which equates to $312.82. Accordingly, the low-to-high range of benefits provided by the final Rule to consumers who purchase negative option plans in person or through the mail ranges from $0.46 to $312.78.566 (e) Summary of Per-Cancellation Benefits Table 2 presents a summary of the per-cancellation benefit the Commission estimates would result from this final Rule. For subscriptions that are currently cancelled over the phone but would be cancelled online under this final Rule, the Commission estimates 564 See Dana George, ‘‘This Is How Much the Average American Really Spends on Gym Memberships,’’ Jan. 7, 2024, https://www.fool.com/ the-ascent/personal-finance/articles/this-is-howmuch-the-average-american-really-spends-on-gymmemberships. Because this report is from January 2024, the Commission assumes it measured gym membership costs in 2023 dollars. 565 Note the avoided recurring payments associated with delayed cancellations may overstate the amount of consumer surplus gained attributable to the final Rule if consumers continue to use their gym membership during that period of delayed cancellation. However, it is difficult to estimate the extent to which that occurs due to lack of data. A part of those gains may also be transfers of producer surplus from firms to consumers. 566 Other cancellation methods gyms may currently offer, such as in-person visits that succeed in cancellation and cancellation via certified mail, would fall in between these low/high endpoints, as would the benefits to consumers if those methods were augmented under the final Rule not with online cancellations but with telephonic cancellations. E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations consumers would experience a benefit of between $2.17 and $2.39 per cancellation. For subscriptions that are currently cancelled online and would move to a simpler online cancellation under this Rule, the Commission estimates consumers would experience a benefit of between $0.46 and $0.67 per cancellation. For subscriptions that are currently cancelled over the phone and would move to a simpler telephone cancellation under this Rule, the Commission estimates consumers would experience a benefit of between 90523 $1.74 and $2.17 per cancellation. For subscriptions enrolled in person that would be required to provide online or telephone cancellation under this Rule, the Commission estimates consumers would experience a benefit of between $0.46 and $312.82 per cancellation. TABLE 2—ESTIMATES OF BENEFIT PER CANCELLATION [In 2023 dollars] Low Phone to Online Cancellation .................................................................................................................................. Online to Simpler Online Cancellation .................................................................................................................... Phone to Simpler Phone Cancellation .................................................................................................................... In-Person to Online or Phone Cancellation ............................................................................................................. (2) Estimating the Number of Consumer Cancellation Transactions khammond on DSKJM1Z7X2PROD with RULES3 (a) Baseline Number of Subscriptions The Commission regards ‘‘consumers’’ for the purposes of this analysis as the U.S. population over the age of 18; 567 this is estimated to be 269 million in 2025,568 the first year in the ten-year period over which the Commission estimates the benefits and costs of the final Rule (‘‘Year 1’’). Because negative option sales are a form of marketing of goods and services, and not an industry or type of output, and because no occupational category is uniquely associated with negative option marketing, no publicly produced data source, such as the Economic Census, tracks the use of negative option marketing in the United States. Accordingly, the Commission must look to other data sources, to estimate the number of subscription cancellations and the channels through which consumer consent was obtained and cancellation mechanisms provided. To estimate the aggregate number of consumer cancellation transactions, the Commission relies upon a credible source that found that, as of mid-2023, 83% of American consumers had at least one subscription.569 The 567 Although this final Rule also benefits small businesses that purchase negative option plans, the Commission does not have sufficient data to quantify those effects in this analysis. 568 See U.S. Census, ‘‘Demographic Turning Points for the United States: Population Projections for 2020 to 2060: Population Estimates and Projections,’’ Feb. 2020, https://www.census.gov/ library/publications/2020/demo/p25-1144.html. The Commission linearly extrapolated between the report’s figures for the population over the age of 18 in 2020 and its estimates of the same population in 2030 to estimate the number of consumers in years 2025 through 2029. Similarly, the Commission linearly extrapolated between the report’s estimates of the over age 18 population in 2030 and 2040 to estimate the over age 18 population in the years 2031 through 2034. 569 See Julia Stoll, ‘‘SVOD service user shares in the U.S. 2015–2023’’ (Sept. 7, 2023) (noting 83 VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 Commission assumes, for the purposes of this analysis, that the percentage of American consumers with at least one subscription remains constant over ten years. Accordingly, in Year 1 the Commission assumes 223.27 million consumers (i.e., .83 × 269 million) have at least one subscription. To estimate the total number of subscriptions held by U.S. consumers the Commission looks to data on the average number of subscriptions per subscriber. One source, relying upon a large sample of U.S. consumers conducted in late 2023 and early 2024, reported, ‘‘[t]he average subscriber now has 4.5 subscriptions.’’ 570 The Commission therefore applies a multiplier of 4.5 to the number of consumers estimated to have at least one subscription to estimate the aggregate number of subscriptions held by consumers in each year. Continuing with the Year 1 example from above, the Commission assumes the 223.27 million U.S. consumers who have subscriptions collectively hold 1,004,715 subscriptions (i.e., 223.27 million × 4.5). The Commission acknowledges some uncertainty in these estimates which could lead to overestimation since subscriptions may be held by households of multiple individual consumers or underestimation due to potential growth in subscription-based goods and services. (b) Baseline Number of Cancellations The Commission next considers how many subscriptions consumers may want to cancel. To do so, we look to subscription ‘‘churn,’’ or cancellation, percent of U.S. consumers used a subscription video-on-demand service in 2023), https:// www.statista.com/statistics/318778/subscriptionbased-video-streaming-services-usage-usa. 570 Bango, ‘‘Subscription Wars: Super Bundling Awakens,’’ at 4 (2024) (based on data from 5,000 U.S. subscribers), https://bango.com/resources/ subscription-wars-super-bundling-awakens. PO 00000 Frm 00049 Fmt 4701 Sfmt 4700 $2.17 0.46 1.74 0.46 High $2.39 0.67 2.17 312.82 rate data. Churn rates can reflect intentional cancellations as when a consumer completes a merchant’s cancellation process, but can also reflect involuntary or passive cancellations, which occur when the payment mechanism the consumer has on file with the merchant is unable to be processed by the merchant.571 Churn rates may be calculated on a monthly, quarterly, or annual basis,572 and some rates do not disclose a time dimension; mischaracterizing a monthly churn rate as an annual churn rate could vastly underestimate the volume of annual cancellations. One source reports an aggregate measure of voluntary 573 churn of 3% per month.574 The Commission assumes 571 See Stripe, ‘‘Subscription churn 101: A complete guide for businesses’’ (Jan. 23, 2024), https://stripe.com/resources/more/subscriptionchurn-101. 572 Id. (noting the choice often depends on your business cycle and how often you want to assess your performance). 573 Some consumers may welcome an ‘‘involuntary’’ cancellation of a subscription, and other cancellations that payment processors perceive as ‘‘involuntary’’ may reflect consumers’ deliberate cancellation of a credit card as a means of escaping a subscription that was difficult to cancel. The Commission’s analysis nonetheless uses only the reported ‘‘voluntary’’ churn rate to avoid the possibility of over-estimating the consumer benefits of the final Rule. 574 Recurly, a subscription management platform used across multiple industries, reports an overall churn rate of 4.1% per month and parses this rate into that arising from voluntary cancellations, 3%, and involuntary cancellations, 1%, with, presumably, 0.1% lost to rounding. Recurly explains its methodology in producing these estimates is based on a sample of over 1,200 subscription sites on the Recurly platform over 12 months (January to December 2023); its churn rates are monthly, calculated by dividing the number of subscribers who churn during the month by the total number of subscribers and uses median, 25th, and 75th percentile values to eliminate outliers and provide a more accurate representation of the data in its view. See Recurly, ‘‘What is a good churn rate?,’’ https://recurly.com/research/churn-ratebenchmarks. Other payment processors report similar churn rates but provide fewer details on the E:\FR\FM\15NOR3.SGM Continued 15NOR3 90524 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations this rate is constant from month to month and from year to year and therefore assume that the average annual churn rate across all subscriptions is 36%.575 This churn rate, multiplied by the number of subscriptions held by consumers each year, provides the yearly estimate of how many subscriptions are cancelled by consumers.576 Continuing with the Year 1 example from above, the Commission therefore estimates 361.70 million cancellations (i.e.,.36 × 1,004.72 million) will occur in Year 1 of the analysis and that this number will increase to 384.82 million by Year 10. Table 3 presents the number of subscriptions and total number of cancellations expected in each year. TABLE 3—NUMBER OF SUBSCRIPTIONS AND TOTAL CANCELLATIONS PER YEAR [In millions] Year khammond on DSKJM1Z7X2PROD with RULES3 1 ................ 2 ................ 3 ................ 4 ................ 5 ................ 6 ................ 7 ................ 8 ................ 9 ................ 10 .............. Subscriptions 1,004.72 1,012.48 1,020.25 1,028.02 1,035.79 1,043.56 1,049.91 1,056.26 1,062.61 1,068.96 Cancellations 361.70 364.49 367.29 370.09 372.88 375.68 377.97 380.25 382.54 384.82 data underlying their churn rate estimates or do not distinguish voluntary from involuntary churn rates. 575 Because consumers may cancel a subscription and then enroll in a different subscription (or even re-enroll in a recently canceled subscription), the Commission assumes average, aggregate, monthly voluntary churn rates are additive across months and that the number of consumers with subscriptions do not ‘‘decay’’ at a rate of 3% per month. Indeed, another report found one-quarter of U.S. consumers cancelled a streaming video service in the past 12 months and resubscribed to the same service, with younger generations significantly more likely to return. See Deloitte, Digital Media Trends Survey: 16th Edition (2022), https:// www2.deloitte.com/us/en/insights/industry/ technology/digital-media-trends-consumptionhabits-survey/summary.html. The Deloitte report also notes the average churn cancellation rate has remained consistent since 2020 at about 37% across all paid streaming video on demand services. Similarly, a comment from NCTA, FTC–2023– 0073–0008, quotes Congressional testimony from Consumer Reports that 36% of consumers who subscribed to streaming services, switched and resubscribed multiple times over a period of 12 months. 576 The Commission is aware a recent survey of U.S. subscribers found 75% identified one subscription as one they will never cancel or even pause. See Bango (2024) at 8. The Commission assumes no adjustment is needed to the reported ‘‘churn’’ rate in light of this finding as subscriptions with such loyalty are already reflected in the denominator of the reported churn rate. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 (c) Number of Cancellations by Enrollment and Baseline Cancellation Method As discussed in the estimates of percancellation benefits, the estimated percancellation benefits stemming from the final Rule depend on the regulatory baseline cancellation methods relative to those that would be made available under the final Rule. To determine the number of cancellations for which the four categories of per-cancellation benefits estimates would apply, the Commission uses data on its enforcement experience to determine the share of cancellations likely to occur through online and telephone methods. For cancellations of subscriptions that are enrolled in person, the Commission uses data on gym membership cancellations as a proxy. (i) In-Person Subscriptions As a proxy for the number of subscriptions entered into in person, the Commission uses a report from Renew Bariatrics that claims 19 percent of the U.S. population are members of gyms or health clubs.577 The Commission assumes gym members are uniformly distributed by age and multiplies the U.S. adult population by 19 percent to estimate that 51.11 million adults will have active gym membership subscriptions when this final Rule goes into effect. An IHRSA article from 2019 stated the average health club has an annual attrition rate of 28.6 percent.578 Interpreting this to mean 28.6 percent of all adult gym members cancel their memberships each year, the Commission estimates 14.62 million gym membership subscriptions will be cancelled in the first year of this Rule. In Year 10, the Commission estimates 15.55 million gym membership subscriptions will be cancelled. The Commission uses these estimates as a proxy for the total number of subscriptions that are entered into in person and cancelled each year. The Commission acknowledges several limitations with this proxy. To begin, there are likely many other types of businesses, such as car washes, lawn care, pest control, and personal care and grooming establishments, that may offer 577 See ‘‘28 Gym Membership Statistics: Average Cost of Memberships,’’ Renew Bariatrics (Jan. 4, 2024), https://renewbariatrics.com/gymmembership-statistics/. 578 See ‘‘Why Health Club Retention Requires a Technology Solution,’’ IHRSA (May 20, 2019), https://www.healthandfitness.org/improve-yourclub/why-health-club-retention-requires-atechnology-solution/#:∼:text= Acquiring%20a%20new%20customer %20is%20five%20times,rates %20by%205%%20increases%20profits %20from%2025%%2D95%. PO 00000 Frm 00050 Fmt 4701 Sfmt 4700 in-person subscription enrollment. To the extent these subscriptions are not included in the count, the estimates may be understated. Further, the source that states 19 percent of the population are members of gyms does not specify the age distribution of the gym members. The Commission has assumed children and adults are distributed uniformly across that 19 percent; however, if adults are more likely to have gym memberships than children, the estimates of gym memberships and cancellations among adults will be understated. On the other hand, gym memberships are not always individual memberships; multiple family members may share a single-family membership. In estimating the number of gym memberships and cancellations, the Commission has assumed each adult gym member has their own subscription, which may overestimate the number of subscriptions and cancellations. (ii) Online and Telephone Subscriptions The Commission assumes all subscriptions that are not entered into in person are instead entered into either online or over the phone. Subtracting the in-person subscription, as proxied by gym membership cancellations, from the total number of cancellations, the Commission estimates 347.08 million subscriptions entered into either online or over the phone will be canceled in the first year of this Rule. This number would increase to 369.27 million cancellations in Year 10. To estimate the distribution of cancellation methods for these subscriptions that are entered into online and over the phone, the Commission reviewed matters it has brought and resolved 579 in which complaints specifically alleged negative option cancellation mechanisms that violated ROSCA, the TSR, or section 5.580 The Commission found 54 matters met these criteria. Online 581 enrollment was possible in 42 of 54 matters that met the review 579 This tally does not include ongoing matters or matters that obtained ‘‘fencing-in’’ relief encompassing the sale of negative options without expressly pleading complaint counts related to cancellation mechanisms. 580 In many instances, ROSCA and TSR counts were cross-pled as section 5 counts; in parsing cancellation transactions by their enrollment methods, we use ‘‘section 5’’ to refer to instances in which neither ROSCA nor TSR violations were pled. 581 For ease, the Commission includes in this tally two negative option plans that enrolled consumers via phone apps. Similarly, the Commission regards matters involving online marketing of negative options that were resolved before the passage of ROSCA (and some others that were resolved after the passage of ROSCA, but addressed online E:\FR\FM\15NOR3.SGM 15NOR3 90525 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations criteria. In the remaining 12 matters, enrollment occurred over the phone. Among the 42 matters in which online enrollment was possible, only six firms offered online 582 cancellation,583 and the remaining 36 firms offered only telephonic cancellation.584 Among the 12 matters in which enrollment occurred over the telephone; none of the firms offered online cancellation, therefore, the Commission treats these 12 matters as if only telephone cancellation was available.585 To summarize, the Commission finds that, among subscriptions that are entered into online and over the phone, 66.7 percent (i.e., 36/54) offered online enrollment and only telephone cancellation, 11.1 percent (i.e., 6/54) offered online enrollment and online cancellation, and 22.2 percent (i.e., 12/ 54) offered telephone enrollment and telephone cancellation. Extrapolating the baseline cancellation methods from enforcement matters may weight the online enrollment/telephone cancellation subscriptions and the telephone enrollment/telephone cancellation subscriptions more heavily than is currently experienced in the market. It also assumes that there are no subscriptions offered in the baseline with cancellation methods that are already compliant with the provisions of this Rule. The Commission explores the impacts of these limitations in a sensitivity analysis in section (d). Multiplying the distribution of cancellation methods for subscriptions entered into online and over the phone by the total number of cancellations of online and telephone subscriptions, the Commission estimates the annual number of cancellations that fall into each of these categories. In Year 1, the Commission estimates that, in the absence of this final Rule, there would be 231.39 million cancellations by telephone of subscriptions entered into online, 38.56 million online cancellations of subscriptions entered into online, and 77.13 million telephone cancellations of subscriptions entered into over the phone. (iii) Summary of Subscription Cancellations by Enrollment and Baseline Cancellation Method Table 4 provides the number of subscription cancellations each year distributed across the four enrollment and regulatory baseline cancellation method categories: online enrollment and telephone cancellation; online enrollment and online cancellation; telephone enrollment and telephone cancellation; and in-person enrollment. TABLE 4—CANCELLATIONS BY ENROLLMENT AND BASELINE CANCELLATION METHOD [In millions] Online enrollment, telephone cancellation Year khammond on DSKJM1Z7X2PROD with RULES3 1 ....................................................................................................................... 2 ....................................................................................................................... 3 ....................................................................................................................... 4 ....................................................................................................................... 5 ....................................................................................................................... 6 ....................................................................................................................... 7 ....................................................................................................................... 8 ....................................................................................................................... 9 ....................................................................................................................... 10 ..................................................................................................................... Online enrollment, online cancellation 231.39 233.18 234.96 236.75 238.54 240.33 241.79 243.26 244.72 246.18 38.56 38.86 39.16 39.46 39.76 40.06 40.30 40.54 40.79 41.03 Telephone enrollment, telephone cancellation 77.13 77.73 78.32 78.92 79.51 80.11 80.60 81.09 81.57 82.06 In-person enrollment 14.62 14.73 14.84 14.96 15.07 15.18 15.27 15.37 15.46 15.55 (3) Total Quantified Benefits To estimate total benefits from this final Rule, the Commission first matches the enrollment and baseline cancellation method categories from the previous section to the four scenarios used to estimate the per-cancellation benefit. The Commission assumes that, under this final Rule, subscriptions enrolled online and cancelled over the phone in the baseline would move to online cancellations; subscriptions enrolled online and cancelled online would move to simpler online cancellation; subscriptions enrolled over the phone and cancelled over the phone would move to simpler telephone cancellation; and subscriptions enrolled in person would allow online or phone cancellation. Next, the Commission multiplies the number of cancellations in each baseline category by the matched percancellation benefit on the low- and the high-end and then sums across all four categories to obtain total benefits each year. Those totals are presented in Table 5. In the first year following implementation of the final Rule, the Commission estimates the benefits will marketers’ conduct that occurred prior to the passage of ROSCA), as ROSCA matters for the purposes of assessing the incremental benefits of the final Rule relative a regulatory baseline of ROSCA’s simple cancellation mechanism. 582 In a few of these matters, online cancellation was offered in addition to telephonic cancellation, and to simplify the analysis, the Commission attributed half to the measure of telephonic cancellations and half to the measure of online cancellations. In a few other instances the Commission’s designation of ‘‘online’’ cancellation includes cancellation by email or within the marketer’s app. 583 In contrast, other evidence indicated that 81.25% of U.S. online marketers offered online cancellation. See, e.g., Sinders (2023). Different research looked at nine U.S. news media publishers that sold subscriptions online. When two ‘‘personas’’ created by the researchers subscribed to each of the nine publications, and then attempted to cancel, 17 of the 18 subscriptions could be canceled online; one publication permitted only the California resident persona to cancel online and offered only telephonic cancellation to the persona posing as a Texas resident. See Ashley Sheil, et al., ‘‘Staying at the Roach Motel: Cross-Country Analysis of Manipulative Subscription and Cancellation Flows,’’ in Mueller, F.F. (ed.), CHI ‘24: Proceedings of the CHI Conference on Human Factors in Computing Systems (May 11–16, 2024), https://repository.ubn.ru.nl/handle/2066/30690. 584 In some of the 36 matters, no cancellation method was disclosed by the seller, and in a few other matters consumers were required to return merchandise through the mail to prevent a free trial from rolling over into a subscription or to obtain a refund for merchandise that was shipped to a consumer, and for which the consumer was charged. Such instances generally occurred before the passage of ROSCA, and it is highly unlikely that an online marketer who offered only a mailed-in cancellation could be in compliance with ROSCA’s requirement that cancellation mechanisms be ‘‘simple.’’ Without loss of generality, the Commission therefore treats instances in which online cancellation was not offered as instances in which only telephonic cancellation was offered to consumers. 585 Some required the return of merchandise through the mail if consumers wanted refunds. In two matters, no cancellation mechanism was revealed. Without loss of generality, we assume that cancellation could take place telephonically. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 PO 00000 Frm 00051 Fmt 4701 Sfmt 4700 E:\FR\FM\15NOR3.SGM 15NOR3 90526 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations range between $661.52 million and $5.32 billion. In Year 10, the Commission estimates the benefits will range between $703.82 million and $5.66 billion. Using a 2 percent discount rate, the Commission estimates the present discounted value of benefits over 10 years to range between $6.13 and $49.32 billion. Annualized over 10 years using a 2 percent discount rate, the Commission estimates the benefits to range between $682.83 million and $5.49 billion per year. TABLE 5—TOTAL QUANTIFIED BENEFITS [In millions, 2023 dollars] Year High 1 ............................................................................................................................................................................... 2 ............................................................................................................................................................................... 3 ............................................................................................................................................................................... 4 ............................................................................................................................................................................... 5 ............................................................................................................................................................................... 6 ............................................................................................................................................................................... 7 ............................................................................................................................................................................... 8 ............................................................................................................................................................................... 9 ............................................................................................................................................................................... 10 ............................................................................................................................................................................. $661.52 666.63 671.75 676.86 681.98 687.09 691.27 695.45 699.63 703.82 $5,318.76 5,359.88 5,401.01 5,442.14 5,483.26 5,524.39 5,558.00 5,591.62 5,625.23 5,658.84 Present Discounted Value of Benefits over 10 years, 2% discount rate ......................................................... Annualized Benefits over 10 years, 2% discount rate ..................................................................................... 6,133.57 682.83 49,315.39 5,490.11 (c) Estimated Costs of the Final Rule This section describes the costs associated with firms coming into compliance with the final Rule, provides quantitative estimates where possible, and describes costs that are only assessed qualitatively. Whereas benefits were estimated based on cancellation transactions, compliance costs are estimated on the basis of firms covered by the final Rule. The Commission first examines the comment record on compliance costs and then estimates the compliance costs for the initial year and subsequent nine years following implementation of the final Rule. khammond on DSKJM1Z7X2PROD with RULES3 Low (1) The Comment Record The comment record has not provided specific data useful to the estimation of the costs of compliance with the disclosure, cancellation, and recordkeeping requirements of the final Rule. Some industry commenters addressed compliance costs by providing broad, aggregate, conclusory cost estimates; because those costs were not itemized by specific features of the Rule as proposed in the NPRM, the Commission is unable to use those comments to estimate compliance costs relevant to the substantially narrowed scope of the final Rule in comparison to the Rule proposed in the NPRM.586 The same is 586 For example, NCTA, FTC–2023–0073–0008, indicated some major cable operators estimate it could cost $12–$25 million per company and take 2–3 years to rebuild their systems and one of its members thought annual costs could be 15–20% of the implementation costs (an industry rule of thumb). This comment does not itemize costs across different elements of the specific rules adopted. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 Additionally, estimates of the annual costs of maintaining systems may be blanket costs that include a host of programming maintenance features that are unrelated to the specific disclosures and ‘‘click to cancel’’ features of the final Rule. Moreover, NCTA’s comment indicated customers of top cable operators enrolled over the phone (43%), online (30%), and in person (24%) and calls to customer service are answered within 30 seconds and lines are available 24 hours a day, 7 days a week. Accordingly, no extra compliance steps may be necessary with respect to offering final Rule-compliant cancellations for enrollments made by telephone, and compliance with the final Rule’s requirement that firms offer an extra cancellation mechanism for in-person enrollments likely could be met through reliance on these firms’ existing telephonic cancellation capabilities. Accordingly, the provision of an online cancellation mechanism will be required only for the 43% of their consumers who presently enroll online, and NCTA has not provided estimates of compliance costs that are specifically tailored to that segment of their consumer base. Because NCTA members who enroll consumers online already, clearly, have websites, the Commission rejects the notion that adding ‘‘click to cancel’’ functionality to websites that already include an order path for enrolling, and likely also include functionality for registering a payment mechanism for automated billing, would cost $12–$25 million, particularly in light of NCTA’s discussion of compliance with the 2019 Television Viewer Protection Act (‘‘TVPA’’) which, NCTA claims, already regulates the very same practices the FTC is attempting to regulate here. NCTA further claims major cable operators estimate that it cost approximately $2.5 to 4 million per company and took about one year for TVPA compliance. However, having already incurred the costs to comply with ‘‘the very same practices’’ the final Rule addresses in the course of complying with the TVPA, there would appear to be no incremental costs to comply with the final Rule. Therefore, because the final Rule is narrower in scope than as proposed in the NPRM and because it offers firms the opportunity to apply to be excluded, the Commission rejects NCTA’s claim compliance with the Rule would be multiples of TVPA compliance costs and require building online cancellation systems virtually from the ground up and expensive ongoing recordkeeping requirements across all services. Accordingly, the Commission does not include in the estimates of compliance PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 generally true of testimony and expert reports submitted in conjunction with the informal hearing. Those materials did not focus on providing specific, relevant, data that would permit estimating compliance costs of the final Rule.587 costs the aggregate, non-specific, and possibly idiosyncratic compliance costs NCTA cites. Similarly, an expert’s survey submitted by IAB (attachment B to FTC–2024–0001–0010) found only six respondents (out of more than 100,000 companies subject to the proposed Rule) indicated the annual cost of compliance would be a total of $50 million, but provided no itemization of these costs, such that they cannot be disaggregated to comport with the narrower scope of the final Rule. 587 For example, an expert report (Christopher Carrigan and Scott Walster, FTC–2024–0001–0026) filed by IAB concluded the effects of the proposed Rule, if finalized, on the U.S. economy would surpass $100 million annually. The Commission agrees with this conclusion. The Commission disagrees, however, with both the initial and ongoing compliance costs used by Carrigan-Walster; both were liberally based on replicating assumptions made in the preliminary regulatory analysis in the NPRM. Further, their assumptions are inappropriate to this cost analysis because they fail to account for the fact firms subject to the final Rule, unlike firms subject to the proposed Unfair or Deceptive Fees Rule, are already required to provide clear and conspicuous disclosures of all material facts relating to the sale of negative option contracts under the totality of ROSCA, the TSR, and section 5 of the FTC Act, and to provide simple cancellation mechanisms under ROSCA for those firms covered by ROSCA. In addition, firms subject to the final Rule are also required to comply with a variety of other laws relating to negative option sales, including the current Prenotification Rule, EFTA, the Unordered Merchandise Statute, numerous State laws, various laws and regulations that effect specific industries, such as the Television Viewer Protection Act of 2019 (TVPA), other FCC regulations, and, for multi-national entities, various foreign laws. Accordingly, the units of specialized labor, e.g., lawyer, web developer, and business analyst time, that CarriganWalster adopt from the Unfair or Deceptive Fees NPRM are not valid representations of the usage of such inputs that are incremental to compliance E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 Another commenter addressed the Paperwork Reduction Act cost estimate in the NPRM in a way that conflated it with the totality of compliance costs. IFA, which represents firms, including small firms, in the fitness, preventative healthcare, personal wellness or children’s extracurricular activities industries, commented, ‘‘the FTC’s estimate (in the NPRM) that it will cost companies merely three hours annually at $22.15/hr to comply is grossly understated for IFA’s members.’’ 588 The Commission agrees the final Rule’s compliance costs will exceed the Paperwork Reduction Act costs discussed in the NPRM because the Paperwork Reduction Act costs only include burden associated with information collection requirements, such as recordkeeping and disclosure costs, while the total compliance costs include those costs as well as costs of familiarization with the Rule and costs to bring cancellation mechanisms into compliance. IFA did not, however, provide a sufficiently detailed alternative estimate of annual or ongoing general compliance or recordkeeping costs for its members.589 Similarly, IFA provided no information on the enrollment mechanisms used by its members nor an estimate of what share of its members offer negative option plans.590 with the final Rule relative to its existing regulatory baseline. 588 See IFA, FTC–2024–0001–0001. 589 IFA provided an extreme example relevant to what it identified as a preventative healthcare franchise system without disclosing how many individual firms belonged to that system. In the context of that system, IFA stated it would take thousands of hours to access if modifications are necessary to existing contracts, marketing, and operational processes and implement any requirements, costing hundreds of thousands of dollars. IFA did not, however, provide detailed, itemized, estimates of compliance costs that relate to the specific features of the final Rule, which has been substantially streamlined relative to what was proposed in the NPRM, making IFA’s highly aggregated notion of compliance costs for one particular group system’ inapplicable to the current cost analysis. The same lack of specificity is present in IFA’s discussion of ‘‘Fitness franchise systems.’’ With somewhat greater specificity, IFA estimates costs to comply with disclosure and recordkeeping requirements are 24 hours annually, but IFA did not disclose what type of labor inputs are involved in those tasks nor the number of fitness facilities that will incur these costs. Moreover, IFA reveals its members estimate the impact to member lifetime value will exceed $100,000 per fitness center and lost revenue is expected to be nearly $40,000 annually per fitness center, but these figures cannot properly be considered compliance costs as they may, in fact, represent benefits consumers receive from speedier exits from fitness club memberships that are no longer wanted by consumers. 590 Some of its members may offer yearly contracts that do not auto-renew, but that apportion payments over 12 months for the convenience of consumers. Such contracts are installment plans, and not negative option plans. Others may conduct business on a pay-as-you-go basis. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 IFA did, however, comment that many of its members already offer consumers the ability to pause or ‘‘freeze’’ memberships, noting, ‘‘consumers take advantage of alternatives to membership cancellation at rates of 10% to 40%, with many consumers electing to reactivate their memberships, saving thousands of dollars annually in increased membership rates and additional initiation fees.’’ While pause/freeze capabilities are indeed beneficial to consumers, they do not relieve a firm from an obligation to offer a cancellation mechanism. IFA did not provide similar data on what percentage of its member firms’ consumers are dissatisfied with pause/freeze opportunities and seek authentic cancellations or what cancellation mechanisms its member firms make available to consumers. The technological capability to pause or freeze subscriptions suggests the presence of software architecture ‘‘scaffolding’’ upon which a cancellation mechanism could be built at a modest incremental cost. Alternatively, the offering of subscription pauses or freezes by some IFA members may suggest those members use the services of third-party e-commerce hosting platforms or payment processors who routinely provide consumer subscription account management tools relied on by businesses, including small businesses. As discussed, below, existing software scaffolding and the utilization of third-party consumer subscription management tools can facilitate low- (and even no-) cost compliance with some of the final Rule’s requirements. (2) Initial Compliance Costs The Commission has previously estimated that 106,000 firms offer negative option plans.591 The 591 As explained in the NPRM, this estimate is based primarily on data from the U.S. Census North American Industry Classification System (NAICS) for firms and establishments in industry categories wherein some sellers offer free trials, automatic renewal, prenotification plans, and continuity plans. Based on NAICS information as well as Commission staff’s own research and industry knowledge, the Commission identified an estimated total of 530,000 firms involved in such industries. However, the Commission estimates only a fraction of the total firms in these industry categories offer negative option features to consumers. For example, few grocery stores and clothing retailers, which account for approximately a third of the of the total estimate from all industry categories, are likely to regularly offer negative option features. In addition, some entities included in the total may be exempt from the Commission’s authority. Accordingly, the Commission estimates approximately 106,000 business entities (20%) offer negative option features to consumers. See 88 FR 24733. Although no commenter proposed a different number, ETA, FTC–2023–0033–1004, challenged the PO 00000 Frm 00053 Fmt 4701 Sfmt 4700 90527 Commission assumes that to come into compliance with the final Rule, all 106,000 firms selling negative option plans will need to expend some resources to familiarize themselves with the final Rule and some firms will incur costs related to improvements in their pre-consent disclosures and cancellation mechanisms. Familiarization costs: No commenters presented estimates expressly related to the costs of legal and managerial review of the final Rule and front-line staff training needed to come into compliance. The U.K. ‘‘Impact Assessment,’’ using surveys and interviews with managers of firms that sold goods and services via negative options, found that firms would need between four and 16 hours of ‘‘senior staff’’ time, depending upon the size of the firm, to gain familiarization with their proposed rule, and between zero and 80 hours of ‘‘service staff’’ time, again depending upon the size of the firm.592 The Commission assumes that similarities between American and British firms are such that the same units of time are relevant for American firms to gain familiarity with the final Rule. In the American context, the Commission assumes ‘‘senior staff time’’ is proxied by ‘‘attorney time,’’ and uses the mean hourly wage for attorneys, $84.84 per hour, to estimate those costs.593 Similarly, the Commission assumes ‘‘service staff time’’ is proxied by the average of mean wages for salespersons and clerical workers, which is $23.27.594 Accordingly, the Commission’s estimated number of firms selling negative option plans on the basis that it did not account for ‘‘the many providers of goods and services to business where automatic renewal clauses are used.’’ 592 See U.K. ‘‘Impact Assessment’’ (2023) at 26. While the U.K.’s rule may not be directly analogous to the final Rule, it addresses similar problems associated with consent and cancellation associated with negative option practices. Therefore, the burden the U.K.’s rule places upon subscription sellers, in terms of executive and staff resources to read and understand the rule and assess whether existing procedures are in compliance or need to be revised, may be highly similar to the familiarization steps that U.S. businesses will need to undertake. 593 The mean hourly wage for lawyers in 2023 was $84.84; see Bureau of Labor Statistics, ‘‘Occupational Employment and Wages, May 2023, 23–1011 Lawyers,’’ https://www.bls.gov/oes/ current/oes231011.htm. 594 The Commission uses a mean hourly wage for sales personnel of $25.62; see Bureau of Labor Statistics, ‘‘Occupational Employment and Wages, May 2023, 41–0000 Sales and Related Occupations (Major Group),’’ https://www.bls.gov/oes/currenT/ oes410000.htm. The Commission uses a mean hourly wage for clerical workers of $20.94, see Bureau of Labor Statistics, ‘‘Occupational Employment and Wages, May 2023, 43–9061 Office Clerks, General,’’ https://www.bls.gov/oes/currenT/ oes439061.htm. The average of these two mean wage rates is $23.27. E:\FR\FM\15NOR3.SGM 15NOR3 90528 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 Commission estimates the aggregate initial year familiarization costs as ranging between $35.97 million and $341.22 million. Disclosures: Clear and conspicuous disclosures are already required by the existing regulatory baseline; § 425.4(a)(1)–(4) of the final Rule adds specificity to those disclosures, albeit in a flexible way.595 As estimated below, the Commission assumes some marketers are already in compliance with the disclosure requirements of the final Rule; for these marketers, there are no incremental costs of compliance with the disclosure requirements of the final Rule. For online marketers, the current regulatory baseline is ROSCA, which requires marketers to clearly and conspicuously disclose all material terms of the transaction before obtaining the consumer’s billing information. To the extent ROSCA-covered marketers’ current disclosures lack the specificity required by the final Rule, the Commission estimates changes will be needed only to textual elements of such marketers’ websites and that no changes to the underlying website architecture will be needed. The Commission further assumes any such changes, if needed, will be made by website developers, whose mean hourly wage is $45.95.596 Similarly, some telemarketers and inperson negative option marketers may need to modify their sales agents’ scripts to incorporate the disclosures required by the final Rule. Without loss of generality, the Commission assumes the mean wage rates of marketers’ staff who will make such script changes is proxied by the mean wage rates of web developers.597 Although in the Commission’s experience these changes should take very little time, perhaps as little as one hour, the Commission adopts a range of one to 10 hours to complete this task.598 595 The final Rule requires disclosure of: the fact consumers will be charged; the amount(s) they will be charged; when the consumer must act (by deadline or frequency) to prevent or stop charges; and the information needed for the consumer to find the simple cancellation mechanism. 596 See Bureau of Labor Statistics, ‘‘Occupational Employment and Wages, May 2023, 15–1254 Web Developers,’’ https://www.bls.gov/oes/2023/may/ oes151254.htm. 597 This is consistent with the approach taken in the expert report submitted by IAB. See CarriganWalster, FTC–2024–0001–0026 (noting many firms using negative option marketing present offers through the internet and, for firms presenting offers through other means, web developer time is used as a proxy for worker time to create the presentation of the offers). 598 The assumed range of one to 10 hours is consistent with the time estimate used for compliance checks and minor modifications of websites in the Unfair or Deceptive Fees NPRM. See 88 FR 77420 (Nov. 9, 2023). VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 Accordingly, the Commission estimates that for those marketers whose disclosures are not already in compliance with the requirements of the final Rule, disclosure compliance costs will range between $45.95 and $459.50. Cancellation mechanisms: Section 425.6 of the final Rule requires negative option marketers to provide a simple cancellation mechanism that is in the same medium, and at least as simple for the consumer to use, as the mechanism by which the consumer provided consent to the negative option plan. Additional requirements are mediumspecific. For example, when consent is provided through an interactive electronic medium, the cancellation mechanism (also provided through an interactive electronic medium) must be easy for the consumer to find when the consumer seeks cancellation information (for example, on a website, the cancellation mechanism cannot be hidden in ‘‘terms and conditions’’ or otherwise difficult to find) and cannot require interactions with live or virtual representatives (such as chatbots) if no such interactions were required when the consumer consented. When consent is provided over the telephone, the final Rule requires that telephonic cancellation must be available during normal business hours and not be more costly for the consumer to use than the telephone call the consumer used to consent to the negative option feature. When consumer consent to a negative option plan is provided via an in-person method, the marketer must offer cancellation opportunities, where practical, in a like manner. In addition, the marketer must offer an alternative simple cancellation mechanism through an interactive electronic medium or by providing a telephone number that satisfies all final Rule requirements related to use of those cancellation media. The costs negative option sellers will incur in the initial year following implementation of the final Rule to bring their cancellation mechanisms into compliance with the final Rule will depend upon their pre-existing cancellation mechanisms. No commenter provided research or data on the frequency of use of different cancellation mechanisms across negative option marketers or on the incremental costs to make the existing cancellation mechanism compliant with the requirements of the final Rule.599 599 Trade association commenters who addressed cancellation mechanisms used by their members, and whether those mechanisms were or were not symmetric with enrollment mechanism or as easy PO 00000 Frm 00054 Fmt 4701 Sfmt 4700 Because the comment record has not provided sufficient data to estimate the costs of compliance with the final Rule’s cancellation requirements, the Commission turns to data from the U.K.’s ‘‘Impact Assessment’’ on regulating subscriptions there. Based on these sources, the Commission finds some sellers of negative option plans are already in compliance with the cancellation requirements of the final Rule, and many others will incur only minimal costs to make their cancellation flows compliant with the final Rule. The relevant experimental research looked at the cancellation practices of 16 online subscription sellers, many of them large and well-known firms, and noted the cancellation mechanisms made available to consumers and how easy those mechanisms were for consumers to locate and use.600 Although the number of firms sampled in this research was small, publicly available data on total enrollments, located for just seven of the 16 firms, collectively numbered over 350 million,601 which may lend significance to use as enrollment mechanisms did so only in a very general manner. For example, NCTA (FTC– 2024–0001–0011) commented that, in 2021 and 2022, customers of top cable operators enrolled over the phone (43%), online (30%), and in person (24%)’’ but provided no information on available cancellation mechanisms. Additionally, NCTA stated its analysis shows complaints received about cancellation are very limited (approximately 0.017% of cancellations) out of the approximately 14 million customers who cancelled some or all of their services from NCTA’s largest cable operator members in 2022. Anecdotes such as these, about ‘‘top’’ or ‘‘largest’’ companies do not provide sufficiently reliable data for the instant analysis. Similarly, IHRSA’s comment about ‘‘many’’ fitness club operations allowing options to cancel by simple online solutions is not specific enough to be helpful (see FTC–2023–0033–0863). 600 See Sinders (2023). 601 The Commission located subscriber estimates for seven (Amazon, Ancestry, Hulu, Netflix, Paramount+, The Boston Globe, and The New York Times) of the 16 firms included in the research. The number of U.S. subscribers to Amazon Prime is estimated to reach 171.8 million in 2024. See https://www.yaguara.co/amazon-prime-statistics. At year-end 2023, Ancestry.com had over 3 million subscribers. See https://www.ancestry.com/ corporate/newsroom/press-releases/ancestryreleases-2023-annual-impact-report--underscoringcorpor. As of the second quarter of 2024, Hulu had 50.2 million paid U.S. subscribers. See https:// www.statista.com/statistics/258014/number-ofhulus-paying-subscribers). Also as of the second quarter of 2024, Netflix had 84.11 million subscribers in the U.S. and Canada. See https:// www.statista.com/statistics/483112/netflixsubscribers. Even if the Commission makes the extreme assumption that every Canadian held a Netflix subscription, that would still leave approximately 50 million U.S. subscribers. Paramount+ had over 71 million subscribers as of the first quarter of 2024. See https:// www.theverge.com/2024/4/29/24144766/ paramount-plus-now-has-over-71-millionsubscribers). The Boston Globe had 260,000 (mostly digital) subscribers in 2023. See https:// pressgazette.co.uk/north-america/us-local-news- E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 to this research beyond what might otherwise be associated with a sample size of 16 firms. Moreover, the methodology of the study suggests that the researcher’s experiences with enrollment and cancellation likely would be typical of any consumer undertaking the same enrollment and cancellation tasks with those firms. The experimental research found that 18.75% (i.e., 100 × 3/16) of the online marketers studied offered online cancellations in a straightforward, easy to use manner such that it took the researcher less than one minute to complete a subscription cancellation. The Commission therefore assumes that 18.75% of online sellers of negative option plans will not need to change their websites to come into compliance with the cancellation requirements of the final Rule. Although this research did not specifically measure the adequacy of pre-consent disclosures, the Commission assumes that companies who make cancellation so easy for consumers perform equally well in making disclosures. Accordingly, the Commission assumes that the 18.75% of online firms selling negative options that will not incur incremental costs to comply with the final Rule’s cancellation requirements also will not incur any incremental costs to comply with the final Rule’s disclosure requirements. The Commission assumes that the remaining 81.25% of online negative option sellers that lacked such easy-to-use cancellation mechanisms also performed less well in making the disclosures required by the final Rule, such that they would incur initial year compliance costs of improving their disclosures as indicated by the range estimated above. The same research found that 62.5% (i.e., 100 × 10/16) of sampled online negative option sellers had cancellation paths that took longer for consumers to complete as a result of nomenclature, not website architecture. These sites, rather than using straightforward terms such as ‘‘unsubscribe’’ or ‘‘cancel,’’ put the cancellation path under titles such as ‘‘auto-renew’’ or ‘‘edit plan,’’ 602 and locating the cancellation mechanism delayed the researcher in completing the cancellation task because of the nonsubscribers-ranking. As of mid-year 2024, the New York Times had 10.8 million subscribers. See https://www.nytimes.com/2024/08/07/business/ media/new-york-times-earnings.html. The Commission was unable to locate subscriber data for some of the other firms sampled (e.g., Savage Fenty, Daily Harvest, Deliveroo) and in some other instances found subscriber data reported only on a global basis (e.g., Google One, Adobe). 602 In the researcher’s view, this kind of naming is confusing and adds unnecessary friction to the cancellation process. See Sinders (2023). VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 intuitive labeling of the entry point into the cancellation mechanism. In such instances, more intuitive, consumerfriendly labeling of the existing cancellation architecture is assumed to be what is needed for these sites to come into compliance with the cancellation requirements of the final Rule. The Commission assumes such relabeling will not require any additional programming or changes to the underlying website architecture. In the Commission’s experience, such ‘‘cosmetic’’ changes can be made quickly and inexpensively, possibly in as little as one hour of a website developer’s time. The Commission notes, however, that the U.K. ‘‘Impact Assessment,’’ in considering ‘‘general updates to websites such as reflecting the clearer communication on contract conditions and updating cancellation options,’’ estimated that such changes would ‘‘require eight hours’ work from an IT professional and that these costs are uncorrelated with the size of the business.’’ 603 The website changes contemplated in that assessment likely exceed those required to merely relabel consumer-facing elements of an existing cancellation architecture. Out of an abundance of caution, however, the Commission uses the U.K.’s estimate of eight hours as an upper bound on the time required to make the needed changes and further assumes that the relevant ‘‘IT professionals’’ are website developers, which, as noted previously, have a mean wage rate of $45.95. Accordingly, the Commission assumes each firm that needs to relabel existing cancellation mechanisms to make those mechanisms easy for consumers to locate and use will spend between $45.95 (i.e., 1 × $45.95) and $367.60 (i.e., 8 × $45.95) to come into compliance with the final Rule’s cancellation requirements. Lastly, the aforementioned research found that 18.75% (i.e., 100 × 3/16) of online negative option sellers offered only telephonic cancellation. Such firms, because they were online sellers, clearly had online ordering and payment website architecture in place, and so had ‘‘scaffolding’’ upon which online cancellation architecture could be built. No commenter provided relevant data on the costs of buildingout a ‘‘click-to-cancel’’ mechanism in such instances, and the U.K ‘‘Impact Assessment’’ indicated it ‘‘lacked high quality evidence on the costs businesses would incur’’ to integrate ‘‘easy exiting mechanisms into websites.’’ As a result, the ‘‘Impact Assessment’’ turned to ‘‘external estimates’’ from ‘‘[t]he U.S. 603 U.K. PO 00000 eCommerce agency OuterBox [which] indicates a possible range of costs. It suggests that integrating simple tools into an existing eCommerce platform would cost most businesses approximately $500’’ in 2022.604 In 2023 dollars, that amount is $532.05.605 The Commission notes, however, that many payment processors and website hosting platforms used by many businesses, particularly small and medium-sized businesses, provide marketers with consumer subscription account management tools that provide consumers with ‘‘click-to-cancel’’ functionality at no direct 606 incremental cost to marketers.607 As no commenter 604 U.K. ‘‘Impact Assessment’’ (2023) at 27 (citing a report from 2022). 605 See Bureau of Labor Statistics, ‘‘CPI Inflation Calculator,’’ https://www.bls.gov/data/inflation_ calculator.htm. We note that this amount is equal to 10.25 hours of computer programmer time valued at a mean hourly wage rate of $51.90; see Bureau of Labor Statistics, ‘‘Occupational Employment and Wages, May 2023, 15–1251 Computer Programmers,’’ https://www.bls.gov/oes/current/ oes151251.htm. As such, this is consistent with the outcome of the approach used by Carrigan-Walster, FTC–2024–0001–0026, in proxying the first-year costs of compliance costs with each of the six provisions of the Rule proposed in the NPRM (which differed, substantially, from the narrowed final Rule, although not with respect to ‘‘click to cancel’’ provisions). That approach made the ad hoc assumption that technological changes required by the Rule would require the same labor inputs as similar requirements in the NPRM for the FTC’s Rule on Unfair or Deceptive Fees, notwithstanding the two rules differ substantially in their regulatory baselines. See 88 FR 77420. 606 To the extent that a marketer uses the easy subscription account management and cancellation tools offered by hosting platforms or payment processors and the presence of such tools reduces consumers’ perception of the risks of entering into a subscription agreement with the marketer, the marketer’s sales may increase along with any payments to the platform or processor that are based on the number of transactions or aggregate sales. 607 See, for example, Shopify’s help page at https://help.shopify.com/en/manual/products/ purchase-options/shopify-subscriptions/customerexperience#subscription-management-forcustomers, ‘‘Shopify Subscriptions displays subscription information to customers in the checkout. For example, when buying a subscription product, the order frequency and discount amount for the subscription is displayed in the order summary . . . . During checkout, your customer needs to agree to the cancellation policy terms to confirm that they understand they’re purchasing a subscription. They can’t complete their purchase without agreeing to this policy . . . . Customers can log in to their customer account to view and manage their subscription orders. Customers can resume, skip, and cancel their subscriptions, and manage their payment methods and shipping address.’’ Moreover, Shopify offers a variety of consumer subscription management tools to merchants that use Shopify for payment processing (‘‘checkout’’) or website hosting at no incremental cost to merchants See https://apps.shopify.com/ categories/selling-products-purchase-optionssubscriptions. The fees Shopify charges merchants varies with a number of merchant-specific features, including website design elements, whether merchants want ‘‘Shopify checkout’’ to work on ‘‘Impact Assessment’’ (2023) at 26. Frm 00055 Fmt 4701 Sfmt 4700 90529 E:\FR\FM\15NOR3.SGM Continued 15NOR3 90530 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 provided information on (1) how many negative option sellers comply with ROSCA by offering only telephonic cancellation, (2) what specific costs they would face to provide an online cancellation mechanism, or (3) whether they would build such functionality themselves or use a third-party payment processor or hosting platform to provide it for them, we estimate such costs to range between $0 and $532.05 per firm. Accordingly, the Commission assumes that most online marketers of negative option plans will face minimal IT costs of coming into compliance with the cancellation requirements of the final Rule.608 As noted previously, telemarketers have substantial control over both how long the consent process takes and how long it takes a consumer to complete a cancellation over the telephone. If compliance with the final Rule expedites the cancellation process over the phone, telemarketers may experience cost-savings associated with such resources. Furthermore, no telemarketers or call centers that provide services to telemarketers submitted comments relating to what costs telemarketers would incur to bring cancellation mechanisms into compliance with the final Rule. Because of this, and because the Commission has previously found that only 2,000 609 of 106,000 firms selling negative options were telemarketers (and no commenter has disputed this finding), the Commission proceeds as if telemarketers face no incremental costs in complying with the final Rule’s cancellation requirements. However, to reduce any potential downward bias 610 this might introduce into the social media platforms in addition to the merchant’s own website, how many of the merchant’s employees will have the ability to login to the merchant’s Shopify account, etc. (see https://aureatelabs.com/blog/shopify-websitedevelopment-cost). So, although what merchants pay to use Shopify may vary across firms, the incremental cost of using Shopify for consumer subscription account management is assumed to be zero. See also Hoofnagle, FTC–2023–0033–1137 (‘‘There are scores of companies like Chargebee that help companies manage subscriptions . . . . Compliance with new rules is inexpensive because policy changes can be made programmatically in dashboards’’ provided by entities such as Chargebee.’’). 608 No commenter to the ANPR or NPRM, and no comment, expert report, or testimony in relation to the informal hearing provided estimates of compliance costs firms would incur that were specific to the features of the Rule as then-proposed that remain in the final Rule. 609 See NPRM, 88 FR 24733. 610 Because telemarketing firms are such a small share of all firms that will be covered by the final Rule, the Commission does not expect this treatment of telemarketers (or, indeed, even a total exclusion of telemarketers from the analysis) to impart a significant bias. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 compliance cost estimate, the Commission does not subtract the estimated number of telemarketers (2,000) from the total estimated number of online negative option marketers in its calculations of costs. Similarly, the Commission lacks data on how many of the 106,000 firms selling negative option plans currently offer only inperson or by-mail cancellations.611 The final Rule requires such firms to add a cancellation mechanism that consumers can easily use in a remote manner, e.g., through interactive electronic media or by telephone. Lastly, the Commission considers the initial year recordkeeping costs required by the Rule, which are estimated in section XIII to be $6.54 million when aggregated across all 106,000 firms. Because of the aforementioned data limitations emerging from the comment record, the Commission applies the findings of the experimental research above, which looked only at online sellers, to the full number of firms, 611 Three trade associations, who have some members who either sell or offer cancellation mechanisms in-person, submitted comments that were not sufficiently detailed to permit Commission staff to estimate the number of firms that both sell and cancel in-person or through the mail. For example, IHRSA (FTC–2023–0033–0863) commented many of its members allow several options for agreement termination through simple online solutions including online account management, email cancellation requests, and specific online cancellation buttons or forms, adding many of these options are currently available for members who have purchased their membership either online or in person. The International Carwash Association (‘‘ICA’’), FTC– 2023–0033–1142, commented on subscriptionrelated revenues of member firms (noting more than half, and sometimes more than 80%, of store revenues can be attributable to subscription sales), but not on the number of firms that sell subscriptions or how many subscriptions they sell. Similarly, although it commented subscriptions could be purchased in person, on the world wide web, via a mobile app, or at an automated teller, it provided no data on the relative shares of subscription purchases through these channels or the cancellation mechanisms made available to consumers. The objections ICA raised to a Rule requiring its members to offer cancellation by any method other than in-person strongly suggests that most member firms currently only offer cancellation that way, suggesting that those who sell on the internet, via a mobile app and (possibly) at an automated teller may already be in violation of ROSCA if in-person cancellations are a violation of ROSCA’s ‘‘simple cancellation mechanism’’ requirement. IFA (FTC–2023–0033–0856) provided data from its database on the number of franchisees operating fitness establishments, spa/massage studios, entertainment facilities, and preventative healthcare facilities in the U.S., but provided no information on what share of firms sold subscriptions or the media through which consent was obtained or cancellation mechanisms were offered. In a later comment (FTC–2024–0001–0009), IFA noted consumers of member firms used the alternative of ‘‘freezing’’ their memberships at rates of 10%–40% but did not provide information on what the ‘‘freezing’’ mechanism was or what cancellation mechanisms were available to consumers. PO 00000 Frm 00056 Fmt 4701 Sfmt 4700 106,000, that it has previously estimated to be marketers of negative option plans. This approach comports with a general proposition made by the report submitted by IAB.612 Accordingly, the Commission makes the following estimates of initial year compliance costs. Familiarization costs: All 106,000 firms selling negative options will collectively incur final Rule familiarization costs of between $35.97 million and $341.22 million. Disclosure costs: 19,875 firms (i.e., .1875 × 106,000) will incur no costs in bringing their disclosures into compliance with the requirements of the final Rule because their disclosures are already compliant. The remaining 86,125 firms will collectively incur costs of between $3.96 million (i.e., $45.95 × 86,125) and $39.58 million (i.e., $459.50 × 86,125) to make their disclosures compliant with the final Rule. Cancellation costs: 19,875 firms (i.e., .1875 × 106,000) will incur no costs in bringing their cancellation mechanisms into compliance with the final Rule. 66,250 firms (i.e., .625 × 106,000) collectively will incur costs of between $3.04 million (i.e., 1 × $45.95 × 66,250) and $24.35 million (i.e., 8 × $45.95 × 66,250) to bring their online cancellation mechanisms into compliance with the final Rule by relabeling consumer-facing elements of their existing cancellation architecture. 19,875 firms (i.e., .1875 × 106,000) collectively will incur costs of between $0 and $10.57 million (i.e., 19,875 × $532.05) to bring their telephonic cancellation mechanisms into compliance with the final Rule. The Commission notes that this analysis does not quantify costs for the firms selling negative option plans that offer only in-person or by-mail cancellation. The Commission assumes that, in complying with this final Rule, these firms will choose to provide the alternative cancellation method (by phone, online, or both) that makes the most economic sense. The Commission also assumes that the cost of processing a cancellation over the phone should be similar to or less than the cost of processing a cancellation in person or by-mail for these firms. Therefore, the Commission assumes that these firms will not incur significant compliance 612 See Carrigan-Walster, FTC–2024–0001–0026 (employing a similar assumption: ‘‘Many firms using negative option marketing present their offers through the web. For those firms that present offers through other means, web developer time is used as a proxy for worker time to create the presentation of the offers.’’). E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations costs to provide an alternative cancellation method. Recordkeeping costs: Collectively, firms will incur recordkeeping costs of $6.54 million annually. Total Initial Year Costs: Summing costs enumerated above, the Commission estimates the costs of the Rule in the first year will range between $49.52 and $422.26 million. These costs 90531 are presented in Table 6. The Commission assumes that these costs will be incurred by the end of the initial year following the Rule’s implementation. TABLE 6—TOTAL INITIAL YEAR COMPLIANCE COSTS [In millions, 2023 dollars] khammond on DSKJM1Z7X2PROD with RULES3 Low High Familiarization Costs ............................................................................................................................................... Disclosure Costs ...................................................................................................................................................... Cancellation Mechanisms Costs ............................................................................................................................. Recordkeeping Costs .............................................................................................................................................. $35.97 3.96 3.04 6.54 $341.22 39.57 34.93 6.54 Total Initial Year Costs ..................................................................................................................................... 49.52 422.26 (3) Ongoing Compliance Costs, Years 2 Through 10 Compliant disclosures, cancellation paths, and consumer-facing information about cancellation mechanisms will form a ‘‘template’’ that can be used without any incremental compliance costs as new subscription products are added to a marketer’s retinue of products offered for sale via a negative option plan. The information relevant to the sale of a new product may be ‘‘dropped’’ into the template in a fill-inthe-blank way. The Commission assumes marketers, in the ordinary course of business, know what is required for the disclosures (e.g., the amounts consumers will be charged, when, by date or frequency, such charges will occur, when consumers must act to stop recurring charges, etc.) and consider the costs of entering this information into established disclosure templates to be a routine cost of doing business, not an incremental cost required by compliance with the final Rule. The same will also be true for negative option plans that are telemarketed or sold in person; once a telemarketing script or an in-person sales disclosure form is developed in the initial year of compliance, it becomes a template that readily can be used as new subscription products are offered over time. Accordingly, once a marketer comes into compliance with the final Rule there should be no incremental costs of ongoing compliance with respect to disclosures and cancellation mechanisms, and the costs of adding, changing, or deleting products the marketer offers for sale via negative option will be no different from what they would have been absent the final Rule. The Commission can seek redress or civil penalties for violations of the final Rule. Absent the final Rule, enforcement actions against unfair or deceptive negative option practices would be VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 brought under section 5 where civil penalties are not available and where, post-AMG, it is difficult to obtain redress. Accordingly, some negative option marketers may pay closer attention to underlying claims made for products marketed using negative option sales because of the monetary relief available for violations of the final Rule relative to a section 5 enforcement action. This, however, is no different than what any firm should do to assure that it is not in violation of section 5, and the Commission considers the costs of attentiveness to section 5 compliance as part of the existing regulatory baseline, not as costs that are incremental to complying with the final Rule. The U.K.’s ‘‘Impact Assessment’’ of its regulatory treatment of subscription plans did not estimate ongoing compliance costs because ‘‘the size of these costs . . . are likely small in comparison to the one-off cost and benefits.’’ 613 In further support of this, the ‘‘Impact Assessment’’ cited a report that found that on-going costs were meaningful only in relation to sending reminders to consumers about their subscriptions, and only for firms that used postal mail delivery and not electronically delivered reminders.614 The final Rule does not contain a ‘‘reminder’’ requirement, and so the ongoing costs of sending reminders to consumers, small though they may be, are not ongoing costs of compliance with the final Rule. 613 U.K. ‘‘Impact Assessment’’ (2023) at 30. note for example, that Ofcom assessed . . . the business costs of providing customers with notifications at the end of their contracts. These involved possible ongoing costs related to identifying customers that needed notifications on an ongoing basis and providing them with the notification. After consultation with stakeholders, Ofcom only estimated the costs of providing consumers with letters, on the basis that only this medium had significant ongoing costs.’’ Id. 614 ‘‘We PO 00000 Frm 00057 Fmt 4701 Sfmt 4700 The experts’ report submitted by IAB estimated 10 hours of attorney time for annual compliance checks for the Rule proposed in the NPRM. Because the final Rule has removed the most complex (and, therefore, costly) features of the proposed Rule (e.g., double consent, the treatment of ‘‘saves’’ in cancellation flows, and the issuance of annual ‘‘reminders’’ for some subscriptions), the Commission assumes half of the annual compliance check hours assumed in IAB’s experts’ report, five hours, is an upper bound on attorney hours needed for annual compliance checks. Moreover, the Commission assumes that some firms will incur no incremental annual compliance check costs, either because their pre-existing business practices followed what the final Rule requires or because the platforms or payment processors they use provide compliant disclosures and cancellation flows.615 Accordingly, the Commission estimates the aggregate annual costs of compliance checks to range between $0 and $44.97 million (i.e., 106,000 × 5 hours × $84.84/hour). Inclusive of recordkeeping costs, total ongoing costs range between $6.54 million (i.e., $0 + $6.54 million) and $51.51 million (i.e., $44.97 million + $6.54 million). (4) Summary of Total Costs Table 7 presents the initial and recurring costs of this Rule in each year, as well as the present discounted value and annualized costs over 10 years using a 2 percent discount rate. The Commission estimates that in Year 1, the initial costs will range between $49.52 and $422.26 million. In each of the following years, the Commission estimates that the recurring costs will range between $6.54 and $51.51 million. The Commission estimates that the 615 See discussion in section VII.B.1.a.2 of this SBP and n.146. E:\FR\FM\15NOR3.SGM 15NOR3 90532 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations $826.15 million. The Commission estimates that these costs, annualized over ten years using a 2 percent present discounted value of costs over ten years, using a 2 percent discount rate, will range between $100.89 and discount rate, would range between $11.23 and $91.97 million per year. TABLE 7—TOTAL QUANTIFIED COSTS [In millions, 2023 dollars] Year High 1 ............................................................................................................................................................................... 2 ............................................................................................................................................................................... 3 ............................................................................................................................................................................... 4 ............................................................................................................................................................................... 5 ............................................................................................................................................................................... 6 ............................................................................................................................................................................... 7 ............................................................................................................................................................................... 8 ............................................................................................................................................................................... 9 ............................................................................................................................................................................... 10 ............................................................................................................................................................................. $49.52 6.54 6.54 6.54 6.54 6.54 6.54 6.54 6.54 6.54 $422.26 51.51 51.51 51.51 51.51 51.51 51.51 51.51 51.51 51.51 Present Discounted Value of Costs over 10 years, 2% discount rate ............................................................ Annualized Costs over 10 years, 2% discount rate ......................................................................................... 100.89 11.23 826.15 91.97 (d) Sensitivity Analysis As a sensitivity analysis, the Commission considers an alternative method that does not rely on data from historical enforcement matters for distributing subscription cancellations across the baseline cancellation methods used to estimate quantified benefits. This alternative method assumes the majority of subscriptions are enrolled online and can be cancelled online in the baseline; whereas, in the main analysis, the majority of subscriptions are enrolled online and can only be cancelled by phone in the baseline. Compared with the main analysis, this alternative method produces lower total quantified benefits by $419.77 to $449.53 million annualized per year, yet the estimated range of quantified benefits still exceeds the estimated range of quantified costs. (1) Number of Cancellations by Enrollment and Baseline Cancellation Method khammond on DSKJM1Z7X2PROD with RULES3 Low Under this sensitivity analysis, the Commission assumes that the baseline number of subscriptions and cancellations is the same as in the main analysis. The Commission also assumes the number of in-person subscriptions, as proxied for by gym memberships, is the same as in the main analysis. What differs here is the approach for determining the share of cancellations likely to occur through online and telephone methods. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 The main analysis uses enforcement data to determine the share of cancellations likely to occur through online and telephone methods. This data may suffer from selection bias if, among other factors, only the more egregious violations are pursued through enforcement methods. This approach also assumes no marketers of negative option plans comply with this Rule in the baseline. Further, because the data only include resolved cases and resolved cases tend to be older, they are less likely to reflect the current state of the market. In this alternative analysis, the Commission uses statistics discussed in the NPRM—that 106,000 firms offer negative option plans and 2,000 of those firms are telemarketers.616 Based on that, the Commission assumes 1.9 percent (i.e., 2,000/106,000) of subscriptions and cancellations are enrolled and cancelled over the phone in the baseline. The Commission then assumes the remaining cancellations of subscriptions that were not enrolled over the phone or in person were instead enrolled online.617 To estimate the distribution of baseline cancellation methods of subscriptions enrolled online, the Commission uses the results from an experiment in which a researcher 616 See NPRM, 88 FR 24733. 617 The Commission acknowledges this excludes subscriptions that are enrolled by mail, likely resulting in an overestimate of the number of subscriptions enrolled online. PO 00000 Frm 00058 Fmt 4701 Sfmt 4700 consented to 16 online subscriptions between August 2 to October 4, 2022 and then canceled each one, recording the time it took to cancel along with a variety of other obstacles faced in cancelling.618 Of the 16 online subscriptions, three were found to be easy to cancel online, indicating they are likely in compliance with this Rule; three required phone calls to cancel; and the remaining 10 had a nonstraightforward online cancellation method. Based on these results, the Commission assumes 18.75 percent (i.e., 3/16) of online subscriptions have Rulecompliant cancellation methods in the baseline; 18.75 percent (i.e., 3/16) of online subscriptions require telephone cancellation in the baseline; and 62.5 percent (i.e., 10/16) of online subscription offer non-Rule-compliant online cancellations in the baseline. Table 8 provides the number of subscription cancellations each year distributed across the enrollment and regulatory baseline cancellation methods: online enrollment and telephone cancellation; online enrollment and non-Rule-compliant online cancellation; online enrollment and Rule-compliant online cancellation; telephone enrollment and telephone cancellation; and in-person enrollment. 618 See Sinders (2023). Among the obstacles noted for otherwise seemingly simple online cancellations were that some websites did not use straight forward terms, such as ‘‘unsubscribe’’ or ‘‘cancel,’’ and instead put the cancellation path under titles such as ‘‘auto-renew’’ or ‘‘edit plan.’’ E:\FR\FM\15NOR3.SGM 15NOR3 90533 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations TABLE 8—SENSITIVITY ANALYSIS: CANCELLATIONS BY ENROLLMENT AND BASELINE CANCELLATION METHOD [In millions] Online enrollment, telephone cancellation Year 1 ........................................................................................... 2 ........................................................................................... 3 ........................................................................................... 4 ........................................................................................... 5 ........................................................................................... 6 ........................................................................................... 7 ........................................................................................... 8 ........................................................................................... 9 ........................................................................................... 10 ......................................................................................... (2) Estimating Total Benefits To estimate total quantified benefits under this sensitivity analysis, the Commission uses the same matching of enrollment and baseline cancellation methods to per-cancellation benefit estimates as in the main analysis. The only difference here is that the Commission assumes consumers who experience Rule-compliant online cancellations in the baseline will not see any additional benefit as a result of this final Rule. Online enrollment, non-compliant online cancellation 63.79 64.28 64.78 65.27 65.76 66.26 66.66 67.06 67.46 67.87 Online enrollment, compliant online cancellation 212.63 214.27 215.92 217.56 219.21 220.85 222.19 223.54 224.88 226.23 As in the main analysis, the Commission multiplies the number of cancellations in each category by the matched per-cancellation benefit on the low- and the high-end and then sums across all five categories to obtain total quantified benefits each year. Those totals are presented in Table 9 below. In the first year following implementation of the final Rule, the Commission estimates the benefits under this sensitivity analysis will range between $254.85 million and $4.88 billion. In Year 10, the Commission estimates the Telephone enrollment, telephone cancellation 63.79 64.28 64.78 65.27 65.76 66.26 66.66 67.06 67.46 67.87 6.87 6.93 6.98 7.03 7.08 7.14 7.18 7.22 7.27 7.31 In-person enrollment 14.62 14.73 14.84 14.96 15.07 15.18 15.27 15.37 15.46 15.55 benefits will range between $271.15 million and $5.20 billion. Using a 2 percent discount rate, the Commission estimates the present discounted value of benefits over 10 years to range between $2.36 and $45.28 billion. Annualized over 10 years using a 2 percent discount rate, the Commission estimates the benefits to range between $263.06 million and $5.04 billion per year. These annualized benefits estimates are between $419.77 and $449.53 million less per year than the estimates from the main analysis. TABLE 9—SENSITIVITY ANALYSIS: ESTIMATES OF BENEFITS [In millions, 2023 dollars] khammond on DSKJM1Z7X2PROD with RULES3 Year Low High 1 ............................................................................................................................................................................... 2 ............................................................................................................................................................................... 3 ............................................................................................................................................................................... 4 ............................................................................................................................................................................... 5 ............................................................................................................................................................................... 6 ............................................................................................................................................................................... 7 ............................................................................................................................................................................... 8 ............................................................................................................................................................................... 9 ............................................................................................................................................................................... 10 ............................................................................................................................................................................. $254.85 256.82 258.79 260.76 262.73 264.70 266.31 267.92 269.54 271.15 $4,883.26 4,921.01 4,958.77 4,996.53 5,034.29 5,072.05 5,102.91 5,133.77 5,164.63 5,195.49 Present Discounted Value of Benefits over 10 years, 2% discount rate ......................................................... Annualized Benefits over 10 years, 2% discount rate ..................................................................................... Difference in Annualized Benefits from Main Analysis .................................................................................... 2,362.97 263.06 ¥419.77 45,277.43 5,040.58 ¥449.53 4. An explanation of the reasons for the determination of the Commission that the final Rule will attain its objectives in a manner consistent with applicable law and the reasons the particular alternative was chosen. As discussed above in sections I, II, and VII.A, the Commission determines the following deceptive or unfair practices are widespread in the negative option marketplace and cause consumer harm: (1) material misrepresentations made while marketing goods or services with negative option features; (2) failure VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 to provide important information about material terms prior to obtaining consumers’ billing information and charging consumers; (3) lack of informed consumer consent; and (4) failure to provide consumers with a simple cancellation method, including failure to honor cancellation requests, refusal to provide refunds to consumers who unknowingly enrolled in programs, denying consumers refunds and forcing them to pay to return the unordered goods, and requiring consumers to PO 00000 Frm 00059 Fmt 4701 Sfmt 4700 cancel using a different method than the one used to sign up for the program. The final Rule amendments prohibit sellers from misrepresenting material facts in connection with promoting or offering for sale a good or service with a negative option feature, require negative option sellers to disclose certain important information about negative option features, obtain a consumer’s express informed consent and maintain records of consumer consent for three years after the initial transaction (unless the seller satisfies E:\FR\FM\15NOR3.SGM 15NOR3 90534 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations the technological exemption), and provide consumers a simple mechanism for cancellation. In promulgating the final Rule, the Commission sought to enhance consumer protections while avoiding detailed, prescriptive requirements that would impede innovation. 5. A summary of any significant issues raised by the comments submitted during the public comment period in response to the preliminary regulatory analysis and a summary of the assessment by the Commission of such issues. Several commenters (e.g., NCTA, IAB) raised concerns over the Commission’s conclusions regarding the economic effect of the proposed Rule. NCTA asserted the NPRM lacked any meaningful cost-benefit analysis, suggesting compliance with the proposed Rule would result in significant costs to its members.619 Among other things, NCTA said its members would be required to implement changes to their existing customer processes, review and revise existing disclosures, and revamp recordkeeping systems. During the informal hearing process, NCTA further argued it could cost major cable operator members between $12–25 million to comply with the proposed Rule.620 Additional commenters also suggested compliance with the proposed Rule would cost more than what the Commission estimated. None of them, however, offered any empirical analysis of the issue. In response to these comments, and following the presiding officer’s recommended decision, the Commission provides the detailed cost-benefit analysis above in Section X.B.3. khammond on DSKJM1Z7X2PROD with RULES3 XI. Final Regulatory Flexibility Act Analysis The Regulatory Flexibility Act (‘‘RFA’’), 5 U.S.C. 601–612, requires the Commission to conduct an Initial Regulatory Flexibility Analysis (‘‘IRFA’’) with a proposed rule and a Final Regulatory Flexibility Analysis (‘‘FRFA’’), if any, with a final rule, 619 NCTA, FTC–2023–0033–0858; IAB, FTC– 2023–0033–1000. See also IFA, FTC–2023–0033– 0856; USTelecom, FTC–2023–0033–0876; RILA, FTC–2023–0033–0883; Coalition, FTC–2023–0033– 0884; Chamber, FTC–2023–0033–0885 (urging the Commission to refine its cost benefit analysis). 620 FTC–2024–0001–0011; see also Asurion, FTC– 2023–0033–0878 (stating the Commission’s estimated annual labor costs are understated, and projecting the costs to Asurion and its clients would be millions of dollars); SCIC, FTC–2023–0033–0879 (cost of compliance for the service contract industry would be substantially higher than cost of compliance for unregulated entities, and disproportionately borne by small businesses; APCIA, FTC–2023–0033–0996 (same). VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 unless the Commission certifies the rule will not have a significant economic impact on a substantial number of small entities.621 The Regulatory Flexibility Act further states the required elements of the FRFA may be performed in conjunction with or as part of any other agenda or analysis required by any other law if such other analysis satisfies the provisions of the FRFA.622 In the NPRM, the Commission provided an IRFA, stating its belief that the proposal will not have a significant economic impact on small entities, and solicited comments on the burden on any small entities that would be covered. Specifically, the Commission acknowledged it did not have sufficient empirical data to determine whether the proposed amendments may affect a substantial number of small entities; therefore, the Commission sought comment on the percentage of affected companies that qualify as small businesses. The Commission reviewed and considered the comments in response to the NPRM and determined, as an alternative to finalizing the proposed Rule in its entirety, to modify the Rule. In particular, the Commission decided to limit the material terms to be disclosed immediately adjacent to consent for the negative option feature; remove the limitation on saves and the accompanying recordkeeping requirement; remove the annual reminder provision; and modify the length of the recordkeeping requirement for verification of consent by fixing it to three years and provide an alternative method of compliance. After careful consideration of the comments and following the Commission’s determination not to finalize the proposed Rule in its entirety, the Commission certifies that the final Rule will not have a significant economic impact on a substantial number of small entities. Nevertheless, because the Commission included an IFRA in the NPRM, the Commission has also performed an FRFA below, and comments to the IFRA are discussed below. A. A statement of the need for, and objectives of, the Rule. The Commission describes the need for and the objectives of the final Rule in section X.B.1 to the Final Regulatory Analysis. B. A statement of the significant issues raised by the public comments in response to the Initial Regulatory Flexibility Analysis, a statement of the assessment of the agency of such issues, 621 See 622 5 PO 00000 5 U.S.C. 603–605. U.S.C. 605. Frm 00060 Fmt 4701 Sfmt 4700 and a statement of any changes made in the proposed Rule as a result of such comments. Several commenters raised issues about the proposed Rule’s economic impact on small businesses. For instance, NFIB asked the Commission to adopt a special provision that would limit enforcement of the Rule against small businesses (fewer than 50 employees) to instances of willful or repeated violations, and set up a program for education on compliance.623 IFA and IHRSA encouraged the Commission to conduct a ‘‘Small Business Regulatory Impact Analysis’’ to determine how the proposal will impact small businesses.624 IHRSA stated that small businesses in the health and fitness industry operate at ‘‘much different capacity’’ than larger industries, noting 44% of U.S. small businesses have less than three months of cash reserves, making them more vulnerable to disruptions.625 Similarly, ACT App Association noted that roughly 20% of small business startups fail in the first year due to scarcity in financial resources.626 Other commenters, including PDMI, ESA, Joint Small Business Digital Economy Innovators, and ICA, generally stated the proposed Rule would impose unnecessary and undue burdens on small businesses, but did not offer any detailed empirical data for the Commission to consider.627 In response, the Commission first notes its sensitivity to small businesses’ concerns. It provides numerous free resources through the Bureau of Consumer Protection Business Center web page 628 to assist businesses of all sizes in complying with the law and will engage in consumer and business education campaigns about this Rule. Second, in consideration of comments regarding regulatory burden, the Commission clarifies or modifies the Rule in several significant ways: (1) it defines ‘‘material’’ and provides several concrete categories of material facts to ensure businesses have a clear understanding of how it will interpret materiality under the Rule; (2) it limits the number of terms that must mandatorily appear ‘‘immediately adjacent’’ to the request for consent to 623 NFIB, FTC–2023–0033–0789. FTC–2023–0033–0856; IHRSA, FTC– 2023–0033–0863. 625 IHRSA, FTC–2023–0033–0863. 626 ACT App Association, FTC–2023–0033–0874. 627 PDMI, FTC–2023–0033–0864; ESA, FTC– 2023–0033–0867; Joint Small Business Digital Economy Innovators, FTC–2023–0033–0875; ICA, FTC–2023–0033–1142. 628 https://www.ftc.gov/business-guidance. 624 IFA, E:\FR\FM\15NOR3.SGM 15NOR3 khammond on DSKJM1Z7X2PROD with RULES3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations the negative option feature; (3) it removes the requirement to obtain separate affirmative consent to ‘‘the rest of the transaction’’ and modifies the recordkeeping requirement; (4) it removes the saves and annual reminder requirements, which also should reduce recordkeeping and compliance burdens. Additionally, the Commission delays the effective date of the final Rule for 180 days to allow time for implementation (except for the provisions related to misrepresentations and other procedural requirements, which should not be an added burden for businesses already complying with the law and which take effect 60 days after publication of the final Rule). C. The response of the agency to any comments filed by the Chief Counsel for Advocacy of the Small Business Administration in response to the proposed Rule, and a detailed statement of any change made to the proposed rule in the final Rule as a result of the comments. The Small Business Administration did not file comments in response to the proposed Rule. D. A description of and an estimate of the number of small entities to which the Rule will apply or an explanation of why no such estimate is available. The final Rule affects sellers, regardless of industry, engaged in making negative option offers, defined by the final Rule to mean any person ‘‘selling, offering, charging for, or otherwise marketing goods or services with a Negative Option Feature.’’ 629 Small entities in potentially any industry could incorporate a negative option feature into a sales transaction.630 The Commission is unaware, however, of any source of data identifying across every industry the number of small entities that routinely utilize negative option features. Although the NPRM requested comments on the percentage of affected companies that qualify as small businesses, and some trade association commenters indicated that some of their members were small businesses, these comments did not identify either the number or share of their small business members that sold negative option contracts. E. A description of the projected reporting, recordkeeping, and other compliance requirements of the Rule, including an estimate of the classes of small entities which will be subject to the requirement and the type of professional skills necessary for preparation of the report or record. 629 Rule § 425.2(g). VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 The estimates of the recordkeeping requirements under the final Rule are set out within the Paperwork Reduction Act analysis in section XII below. As mentioned above, the Commission preliminarily determined the impact of the proposed requirements on small entities is most likely not significant. The small entities potentially covered by these amendments will include all such entities subject to the Rule (e.g., all entities selling goods or services through negative option programs). The professional skills necessary for compliance with the proposed amendments would include sales and clerical personnel. The Commission requested comment on these issues. In the NPRM, The FTC estimated the majority of firms subject to the recordkeeping requirements already retained these types of records in the normal course of business. The FTC anticipated many transactions subject to the final Rule would be conducted via the internet, minimizing burdens associated with compliance. Additionally, most entities subject to the final Rule were likely to store data though automated means, which reduces compliance burdens associated with record retention. Furthermore, regarding the disclosure requirements, the Commission stated it was likely the substantial majority of sellers routinely provide these disclosures in the ordinary course as a matter of good business practice. Moreover, many State laws already require the same or similar disclosures as the Rule would mandate. Finally, some negative option sellers are already covered by ROSCA and the TSR and thus subject to similar disclosure requirements. Commenters provided additional comments, suggesting small businesses will be significantly impacted, and the Commission underestimated the burdens. Recordkeeping and disclosure costs associated with the Rule became one of the issues designated for the informal hearing, after which the presiding officer determined ‘‘the issue is not genuinely disputed,’’ noting the failure of interested parties to ‘‘provide any evidence to establish what the costs would be,’’ as opposed to generalized complaints ‘‘costs will be higher than the NPRM’s estimates.’’ 631 As explained in the Paperwork Reduction Act estimates below and elsewhere in this SBP, the Commission made changes to the Rule based on the record. Specifically, the Commission determined to specify and thereby limit 631 Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-20240001-0042 (emphasis in original). PO 00000 Frm 00061 Fmt 4701 Sfmt 4700 90535 the types of disclosures required, narrow the scope of entities covered (by excluding those solely involved in ‘‘promoting’’ negative option plans), curtail the length of time for retaining records (to only three years), and establish an option for sellers to eliminate having to keep records of consent if they have the requisite processes in place. Because neither the Commission nor the presiding officer at the informal hearing received evidence to dispute the recordkeeping and disclosure costs figures in the NPRM, the Commission adopts the NPRM’s analysis. Given the narrower scope of the final Rule, that analysis should be more conservative and tend to overstate the burden. F. A description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternative adopted in the final Rule and why each one of the other significant alternatives to the Rule considered by the agency which affect the impact on small entities was rejected. In formulating the proposed amendments, the Commission made every effort to avoid imposing unduly burdensome requirements on sellers. To that end, the Commission avoided, where possible, proposing specific, prescriptive requirements that could stifle marketing innovation or otherwise limit seller options in using new technologies. As explained above, in response to comments regarding regulatory burden, the Commission clarifies or modifies the Rule in several significant ways: (1) it defines ‘‘material’’ and provides several concrete categories of material facts to ensure businesses have a clear understanding of how it will interpret materiality under the Rule; (2) it limits the number of terms that must mandatorily appear ‘‘immediately adjacent’’ to the request for consent to the negative option feature; (3) it removes the requirement to obtain separate affirmative consent to ‘‘the rest of the transaction’’ and modifies the recordkeeping requirement; (4) it removes the saves and annual reminder requirements, which also should reduce recordkeeping and compliance burdens. Additionally, the Commission delays the effective date of the final Rule for 180 days to allow time for implementation (except for the provisions related to misrepresentations and other procedural requirements, which should not be an added burden E:\FR\FM\15NOR3.SGM 15NOR3 90536 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations for businesses already complying with the law and which take effect 60 days after publication of the final Rule). khammond on DSKJM1Z7X2PROD with RULES3 XII. Paperwork Reduction Act The Paperwork Reduction Act (‘‘PRA’’), 44 U.S.C. 3501 et seq., requires Federal agencies to obtain Office of Management and Budget (‘‘OMB’’) approval before collecting information directed to ten or more persons. The current Rule contains various provisions that constitute information collection as defined by 5 CFR 1320.3(c), the OMB regulations implementing the PRA. In January 2024, OMB approved continuation of the Rule’s existing information collection (OMB Control No. 3084–0104). The final Rule makes changes in the Rule’s recordkeeping and disclosure requirements that will increase the PRA burden as detailed below. Accordingly, the Commission is submitting the final Rule and a Supplemental Supporting Statement to OMB for review under the PRA.632 The associated burden analysis follows. A. The Proposed Rule In the NPRM, the Commission provided time and cost estimates for the proposed Rule’s recordkeeping and disclosure requirements, and solicited comments about their associated costs, including on: (1) whether the disclosure, recordkeeping, and reporting requirements are necessary, including whether the resulting information will be practically useful; (2) the accuracy of our burden estimates, including whether the methodology and assumptions used are valid; (3) how to improve the quality, utility, and clarity of the disclosure requirements; and (4) how to minimize the burden of providing the required information to consumers.633 The NPRM also included staff’s estimate that the burden for recordkeeping compliance would be 53,000 hours and the estimated burden for disclosures would be 212,000 hours, for a total of 265,000 hours. These estimates are explained below. Number of Respondents. FTC staff estimated there are 106,000 entities offering negative option features to consumers. This estimate is based primarily on data from the U.S. Census North American Industry Classification System (NAICS) for firms and establishments in industry categories wherein some sellers offer free trials, automatic renewal, prenotification 632 The PRA analysis for this rulemaking focuses strictly on the information collection requirements created by and/or otherwise affected by the amendments. 633 88 FR 24734. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 plans, and continuity plans. Based on NAICS information as well as its own research and industry knowledge, FTC staff identified an estimated total of 530,000 firms involved in such industries.634 However, FTC staff estimated that only a fraction of the total firms in these industry categories offer negative option features to consumers. For example, few grocery stores and clothing retailers, which account for approximately a third of the of the total estimate from all industry categories, are likely to regularly offer negative option features. In addition, some entities included in the total may qualify as common carriers, exempt from the Commission’s authority under the FTC Act. Accordingly, the Commission estimated approximately 106,000 business entities (20%) offer negative option features to consumers. Recordkeeping Hours. FTC staff estimated the majority of firms subject to the Rule already retain the types of records in the normal course of business that would be required by the proposed Rule. Under such conditions, the time and financial resources needed to comply with disclosure requirements do not constitute ‘‘burden’’ under the PRA.635 Moreover, staff anticipated that many transactions subject to the Rule are conducted via the internet and most entities subject to the Rule are likely to store data though automated means, which reduces compliance burdens associated with record retention. Accordingly, staff estimated that 53,000 entities subject to the Rule will require approximately one hour per year to comply with the Rule’s recordkeeping requirements, for an annual total of 53,000 burden hours. Disclosure Hours. Staff anticipated that the substantial majority of sellers already routinely provide the disclosures that would be required by the proposed Rule. For these sellers, the time and financial resources associated 634 Examples of these industries include sellers of software, streaming media, social media services, financial monitoring, computer security, fitness services, groceries and meal kits, dietary supplements, sporting goods, home service contracts, home security systems, office supplies, pet food, computer supplies, cleaning supplies, home/lawn maintenance services, personal care products, clothing sales, energy providers, newspapers, magazines, and books. The NAICS does not provide estimates for all of these categories. Where such data is unavailable, the staff has used its own estimates based on its knowledge of these industry categories. 635 Under the PRA, the time, effort, and financial resources necessary to comply with the collection of information that would be incurred by persons in the normal course of their activities (e.g., in compiling and maintaining business records) does not constitute a burden under the Rule where the associated recordkeeping is a usual and customary part of business activities. 5 CFR 1320.3(b)(2). PO 00000 Frm 00062 Fmt 4701 Sfmt 4700 with making these disclosures do not constitute a ‘‘burden’’ under the PRA because they are a usual and customary part of regular business practice. 5 CFR 1320.3(b)(2). Moreover, many State laws require the same or similar disclosures as the Rule mandates. In addition, approximately 2,000 negative option sellers are already covered by the TSR and subject to its disclosure requirements. Accordingly, FTC estimated the disclosure burden required by the Rule will be, on average, two hours each year for each seller subject estimated to be subject the Rule, for a total estimated annual burden of 212,000 hours. Estimated Annual Labor Cost. To estimate labor costs for recordkeeping requirements, staff multiplied the 53,000 hours to comply with the proposed Rule’s recordkeeping provisions by a clerical wage rate of $18.75/hour.636 The result is an annual cost of approximately $993,750. To estimate annual labor costs for disclosures for all entities, staff multiplied the 212,000 hours to comply with the proposed Rule’s disclosure provisions by a sales personnel wage rate of $22.15/hour.637 The result is an annual cost of approximately $4,695,800. Thus, the estimated annual labor costs were $5,689,550 [($993,750 recordkeeping) + ($4,695,800 disclosure)]. Estimated Annual Non-Labor Cost. The NPRM stated capital and start-up costs associated with the Rule’s recordkeeping provisions are de minimis. Any disclosure or recordkeeping capital costs involved with the Rule, such as equipment and office supplies, would be costs borne by sellers in the normal course of business. B. Comments Received and Informal Hearing The NPRM sought comments on the PRA analysis and stated, ‘‘comments should provide any available evidence and data that supports their position, such as empirical data.’’ 638 The Commission did not receive such evidence. A few commenters from businesses and industry groups, however, raised generalized concerns 636 This figure is derived from the mean hourly wage shown for Information and Record Clerks. See Bureau of Labor Statistics, ‘‘Occupational Employment and Wages—May 2021,’’ at Table 1 (Mar. 31, 2022) (National employment and wage data from the Occupational Employment Statistics survey by occupation, May 2021), https:// www.bls.gov/news.release/pdf/ocwage.pdf. 637 This figure is derived from the mean hourly wage shown for Sales and related occupations. See id. 638 88 FR 24730. E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations that the NPRM underestimated PRArelated costs.639 As noted earlier, the Commission set an informal hearing, at the request of interested parties, and appointed Administrative Law Judge Carol Fox Foelak as the presiding officer.640 Based on submissions by interested parties, and other information in the record, the presiding officer designated two disputed issues of material fact, including, ‘‘What will the recordkeeping and disclosure costs associated with the proposed rule be?’’ 641 Based on the record, the presiding officer concluded, ‘‘There is insufficient evidence to make a finding concerning the . . . recordkeeping and disclosure costs associated with the proposed rule,’’ and ‘‘in the absence of evidence, the issue is not genuinely disputed.’’ 642 The presiding officer further explained: ‘‘IAB made a well-reasoned argument that the costs will be higher than the NPRM’s estimates, generalizing from limited estimates that it, IFA, and NCTA provided. However, it did not provide any evidence to establish what the costs would be.’’ 643 khammond on DSKJM1Z7X2PROD with RULES3 C. Final PRA Analysis As previously discussed, the Commission made changes to the Rule based on the record. Some of these changes, in turn, affect the PRA analysis. Specifically, the Commission determined to specify and thereby limit the types of disclosures required, narrow the scope of entities covered (by excluding those solely involved in ‘‘promoting’’ negative option plans), curtail the length of time for retaining records (to only three years), and establish an option for sellers to eliminate having to keep records of consent if they have the requisite processes in place. Neither the Commission nor the presiding officer at the informal hearing received evidence 639 Sirius XM, FTC–2023–0033–0857; SCIC, FTC– 2023–0033–0879; Coalition, FTC–2023–0033–0884; ETA, FTC–2023–0033–1004; Direct Marketing Companies, FTC–2023–0033–1016. In addition, one commenter seemingly confused PRA-related costs with full implementation of the Rule, but still offered only generalized points. See Asurion, FTC– 2023–0033–0878. Another commenter queried whether the Commission’s estimate of the number of firms offering negative option features include B2B sales with automatic renewal clauses. ETA, FTC–2023–0033–1004. The staff estimate did not seek to exclude such sellers. 640 Hr’g Notice, 88 FR 85525. 641 Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-20240001-0042. 642 Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-20240001-0042. 643 Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-20240001-0042. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 to dispute the specific PRA-related figures in the NPRM. For the final Rule, the Commission adopts the following PRA analysis. Number of Respondents. The Commission received no evidence to dispute the NPRM’s statements on the number of entities offering negative option features to consumers, so the Commission adopts the NPRM estimate that there are 106,000 such entities. Although the final Rule is narrower in that it excludes the term ‘‘promote’’ from its scope, the Commission retains the estimate of 106,000 entities for the purposes of this analysis, which would be more conservative and tend to overstate the burden. Recordkeeping Hours. The Commission received no evidence to dispute the NPRM’s statements on recordkeeping under the PRA. As the final Rule is narrower, the time and financial resources needed to comply with disclosure requirements still do not constitute ‘‘burden’’ under the PRA.644 Accordingly, the Commission adopts the NPRM estimate that 53,000 entities subject to the Rule will require approximately one hour per year to comply with the Rule’s recordkeeping requirements, for an annual total of 53,000 burden hours. Disclosure Hours. Similarly, the Commission received no evidence to dispute the NPRM’s statements on disclosure hours under the PRA. As the final Rule narrowed and delineated the types of disclosures required, the time and financial resources associated with making these disclosures is even less than under the proposed Rule, which also did not constitute a ‘‘burden’’ under the PRA because they are a usual and customary part of regular business practice. 5 CFR 1320.3(b)(2). Accordingly, the Commission adopts the NPRM estimate that the disclosure burden required by the Rule will be, on average, two hours each year for each seller subject estimated to be subject the Rule, for a total estimated annual burden of 212,000 hours. Estimated Annual Labor Cost. The Commission received no evidence to dispute the NPRM’s statements on labor costs under the PRA. For the final Rule, the Commission updates its labor cost estimates by using more recent wage data. For recordkeeping, staff multiplied the 53,000 estimated hours to comply 644 Under the PRA, the time, effort, and financial resources necessary to comply with the collection of information that would be incurred by persons in the normal course of their activities (e.g., in compiling and maintaining business records) does not constitute a burden under the Rule where the associated recordkeeping is a usual and customary part of business activities. 5 CFR 1320.3(b)(2). PO 00000 Frm 00063 Fmt 4701 Sfmt 4700 90537 with the Rule’s recordkeeping provisions by a clerical wage rate of $20.94/hour,645 to yield an annual cost of approximately $1,109,820. For disclosure compliance, staff multiplied the 212,000 estimated hours by an hourly wage rate for sales personnel of $25.62,646 to yield an annual cost of $5,431,440. Thus, the estimated total annual labor costs are $6,541,260 [($1,109,820 recordkeeping) + ($5,431,440 disclosure)]. Estimated Annual Non-Labor Cost. The Commission received no evidence to dispute the NPRM’s statements that capital and start-up costs associated with the Rule’s recordkeeping provisions are de minimis under the PRA. The Commission adopts those findings. List of Subjects in 16 CFR Part 425 Advertising, Consumer protection, Trade practices. ■ For the reasons stated in the preamble, the Federal Trade Commission revises 16 CFR part 425 to read as follows: PART 425—RULE CONCERNING RECURRING SUBSCRIPTIONS AND OTHER NEGATIVE OPTION PROGRAMS Sec. 425.1 Scope. 425.2 Definitions. 425.3 Misrepresentations. 425.4 Important information. 425.5 Consent. 425.6 Simple cancellation (‘‘Click to Cancel’’). 425.7 Relation to State laws. 425.8 Exemptions. 425.9 Severability. Authority: 15 U.S.C. 41 through 58. § 425.1 Scope. This Rule contains requirements related to any form of negative option program in any media, including, but not limited to, Interactive Electronic Media, telephone, print, and in-person transactions. § 425.2 Definitions. Billing Information means any data that enables any person to access a consumer’s account, such as a credit card, checking, savings, share or similar account, utility bill, mortgage loan account, or debit card. 645 This figure is derived from the mean hourly wage shown for Information and Record Clerks. See Bureau of Labor Statistics, ‘‘Occupational Employment and Wages, May 2023, 43–9061 Office Clerks, General,’’ https://www.bls.gov/oes/currenT/ oes439061.htm. 646 This figure is derived from the mean hourly wage shown for Sales and related occupations. See id. E:\FR\FM\15NOR3.SGM 15NOR3 khammond on DSKJM1Z7X2PROD with RULES3 90538 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations Charge, Charged, or Charging 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. Clear and Conspicuous means that a required disclosure is easily noticeable (i.e., difficult to miss) and easily understandable by ordinary consumers, including in all of the following ways: (1) In any communication that is solely visual or solely audible, the disclosure must 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 must 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. (2) A visual disclosure, by its size, contrast, location, the length of time it appears, and other characteristics, must stand out from any accompanying text or other visual elements so that it is easily noticed, read, and understood. (3) An audible disclosure, including by telephone or streaming video, must be delivered in a volume, speed, and cadence sufficient for ordinary consumers to easily hear and understand it. (4) In any communication using an Interactive Electronic Medium, such as the internet, mobile application, or software, the disclosure must be unavoidable. (5) The disclosure must use diction and syntax understandable to ordinary consumers and must appear in each language in which the representation that requires the disclosure appears. (6) The disclosure must comply with these requirements in each medium through which it is received, including all electronic devices and face-to-face communications. (7) The disclosure must not be contradicted or mitigated by, or inconsistent with, anything else in the communication. (8) When the representation or sales practice targets a specific audience, such as children, older adults, or the terminally ill, ‘‘ordinary consumers’’ includes members of that group. Interactive Electronic Medium is any electronic means of communicating (except via telephone calls), including internet, mobile application, text, chat, instant message, email, software, or any online service. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 Material means likely to affect a person’s choice of, or conduct regarding, goods or services. Negative Option Feature is a provision of a contract under which the consumer’s silence or failure to take affirmative action to reject a good or service or to cancel the agreement is interpreted by the negative option seller as acceptance or continuing acceptance of the offer, including, but not limited to: (1) An automatic renewal; (2) A continuity plan; (3) A free-to-pay conversion or fee-topay conversion; or (4) A pre-notification negative option plan. Negative Option Seller means the person selling, offering, charging for, or otherwise marketing a good or service with a Negative Option Feature. § 425.3 Misrepresentations. In connection with promoting or offering for sale any good or service with a Negative Option Feature, it is a violation of this part and an unfair or deceptive act or practice in violation of section 5 of the Federal Trade Commission Act (‘‘FTC Act’’) for any Negative Option Seller to misrepresent, expressly or by implication, any Material fact, including any of the following: (a) The Negative Option Feature or any term of the Negative Option Feature, including consumer consent, any deadline to prevent or stop a Charge, or the cancellation of the Negative Option Feature; (b) Cost; (c) Purpose or efficacy of the underlying good or service; (d) Health or safety; or (e) Any other Material fact. § 425.4 Important information. (a) Disclosures. In connection with promoting or offering for sale any good or service with a Negative Option Feature, it is a violation of this part and an unfair or deceptive act or practice in violation of section 5 of the FTC Act for a Negative Option Seller to fail to disclose to a consumer, prior to obtaining the consumer’s Billing Information, all Material terms, regardless of whether those terms directly relate to the Negative Option Feature, and including but not limited to: (1) That consumers will be Charged 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; PO 00000 Frm 00064 Fmt 4701 Sfmt 4700 (2) Each deadline (by date or frequency) by which the consumer must act to prevent or stop the Charges; (3) The amount (or range of costs) the consumer will be Charged and, if applicable, the frequency of the Charges a consumer will incur unless the consumer takes timely steps to prevent or stop those Charges; and (4) The information necessary for the consumer to find the simple cancellation mechanism required pursuant to § 425.6. (b) Form and content of required information. (1) Clear and Conspicuous: Each disclosure required by paragraph (a) of this section must be Clear and Conspicuous. (2) Placement: (i) The disclosures required by paragraphs (a)(1) through (4) of this section must appear immediately adjacent to the means of recording the consumer’s consent for the Negative Option Feature; and (ii) The disclosures required by paragraph (a) of this section (including, but not limited to, the disclosures required by paragraphs (a)(1) through (4) of this section) must appear before obtaining the consent required pursuant to § 425.5. (3) Other Information: All communications, regardless of media, must not contain any other information that interferes with, detracts from, contradicts, or otherwise undermines the ability of consumers to read, hear, see, or otherwise understand the disclosures required by paragraph (a) of this section. § 425.5 Consent. (a) Express informed consent. In connection with promoting or offering for sale any good or service with a Negative Option Feature, it is a violation of this part and an unfair or deceptive act or practice in violation of section 5 of the FTC Act for a Negative Option Seller to fail to obtain the consumer’s express informed consent before Charging the consumer. In obtaining such expressed informed consent, the Negative Option Seller must: (1) Obtain the consumer’s unambiguously affirmative consent to the Negative Option Feature offer separately from any other portion of the transaction; (2) 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; and (3) Keep or maintain verification of the consumer’s consent for at least three years. However, if the seller can E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations demonstrate by a preponderance of the evidence that it uses processes ensuring no consumer can technologically complete the transaction without consent, such seller does not have to maintain these records for such transactions. (b) Requirements for Negative Option Features covered in the Telemarketing Sales Rule. Negative Option Sellers covered by the Telemarketing Sales Rule must comply with all applicable requirements provided in 16 CFR part 310, including, for transactions involving preacquired account information and a free-to-pay– conversion feature, obtaining from the customer, at a minimum, the last four (4) digits of the account number to be charged and making and maintaining an audio recording of the entire telemarketing transaction as required by 16 CFR part 310. (c) Documentation of unambiguously affirmative consent for written offers. Except for transactions covered by the preauthorized transfer provisions of the Electronic Fund Transfer Act (15 U.S.C. 1693e) and Regulation E (12 CFR 1005.10), a Negative Option Seller will be deemed in compliance with the requirements of paragraph (a)(1) of this section for all written offers (including over the internet or phone applications), if that seller obtains the required consent through a check box, signature, or other substantially similar method, which the consumer must affirmatively select or sign to accept the Negative Option Feature and no other portion of the transaction. The consent request must be presented in a manner and format that is clear, unambiguous, nondeceptive, and free of any information not directly related to the consumer’s acceptance of the Negative Option Feature. khammond on DSKJM1Z7X2PROD with RULES3 § 425.6 Simple cancellation (‘‘Click to Cancel’’). (a) Simple mechanism required for cancellation. In connection with promoting or offering for sale any good or service with a Negative Option Feature, it is a violation of this Rule and an unfair or deceptive act or practice in violation of section 5 of the FTC Act for the Negative Option Seller to fail to provide a simple mechanism for a consumer to cancel the Negative Option Feature; avoid being Charged, or Charged an increased amount, for the good or service; and immediately stop any recurring Charges. (b) Simple mechanism at least as simple as consent. The simple mechanism required by paragraph (a) of this section must be at least as easy to use as the mechanism the consumer VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 used to consent to the Negative Option Feature. (c) Minimum requirements for simple mechanism. At a minimum, the Negative Option Seller must provide the simple mechanism required by paragraphs (a) and (b) of this section through the same medium the consumer used to consent to the Negative Option Feature, and: (1) For cancellation by Interactive Electronic Medium, the simple cancellation mechanism must be easy to find when the consumer seeks to cancel. Compliance with the disclosure required under § 425.4(a)(4) does not discharge this obligation. In no event shall a consumer be required to interact with a live or virtual representative (such as a chatbot) to cancel if the consumer did not do so to consent to the Negative Option Feature. (2) For cancellation by telephone call, the Negative Option Seller must promptly effectuate cancellations requested by the consumer via a telephone number that is answered or records messages, made available during normal business hours, and not more costly to use than the telephone call the consumer used to consent to the Negative Option Feature. (3) For cancellation of consent obtained in person, in addition to offering cancellation, where practical, via an in-person method similar to that the consumer used to consent to the Negative Option Feature, the Negative Option Seller must offer the simple mechanism through an Interactive Electronic Medium or by providing a telephone number. The alternate simple mechanism required by this paragraph must satisfy all requirements of paragraphs (c)(1) and (2) of this section, as applicable. If the Negative Option Seller offers the alternate mechanism by providing a telephone number, the seller shall not erect a cost-barrier to cancellation by imposing any unnecessary or unreasonable cost for the cancellation call. § 425.7 Relation to State laws. (a) In general. This part shall not be construed as superseding, altering, or affecting any State statute, regulation, order, or interpretation relating to negative option requirements, except to the extent it is inconsistent with the provisions of this part, and then only to the extent of the inconsistency. (b) Greater protection under State law. For purposes of this section, a State statute, regulation, order, or interpretation is not inconsistent with the provisions of this part if it affords any consumer greater protection than provided under this part. PO 00000 Frm 00065 Fmt 4701 Sfmt 4700 § 425.8 90539 Exemptions. Any person to whom this part applies may petition the Commission for a partial or full exemption. The Commission may, in response to petitions or on its own authority, issue partial or full exemptions from this part if the Commission finds application of this part’s requirements is not necessary to prevent the acts or practices to which this part relates. The Commission shall resolve petitions using the procedures provided in 16 CFR 1.31. If appropriate, the Commission may condition such exemptions on compliance with alternative standards or requirements to be prescribed by the Commission. § 425.9 Severability. The provisions of this part are separate and severable from one another. If any provision is stayed or determined to be invalid, the remaining provisions shall continue in effect. By direction of the Commission, Commissioners Holyoak and Ferguson dissenting. April J. Tabor, Secretary. Note: The following statements will not appear in the Code of Federal Regulations. Statement of Commissioner Rebecca Kelly Slaughter As is common in rulemaking proceedings, this Final Rule that the Commission promulgates is somewhat different from what it originally proposed—clarified, narrowed, and ultimately improved by the process of grappling with the substantial record of comments submitted by the public. I extend my heartfelt thanks to everyone who submitted comments; to the talented staff in our Division of Enforcement and the East Central Regional Office who diligently shepherded this proceeding, thoroughly considered all those comments, and recommended thoughtful revisions; and to my colleagues for their deep engagement with this issue of great importance, including former Chairman Joe Simons, under whose leadership the Commission initiated this rulemaking proceeding. I write separately to draw attention to the comment record about a provision that the Commission proposed but ultimately does not finalize, proposed § 425.7, which would have required annual reminders of subscriptions that do not involve the delivery of physical goods.1 Americans understand the importance and value of such a requirement; many have discovered that they or their parents had been paying for years or even decades for a service wholly unused, such as a dial-up internet service from the 1 See Negative Option Rule, 88 FR 24716, 24736 (proposed Apr. 24, 2023) (‘‘Annual reminders for negative option features not involving physical goods.’’) (to be codified at 16 CFR 425.7), https:// www.federalbregister.gov/documents/2023/04/24/ 2023-07035/negative-option-rule. E:\FR\FM\15NOR3.SGM 15NOR3 90540 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations 1990s.2 The reason that the Commission declines to finalize this proposal is not that it lacks policy merit but that the record in total does not support its inclusion in the Final Rule as proposed.3 Of course, we are always mindful that our authority under the FTC Act to issue rules under section 18 has limits; sometimes, as here, those limits prevent us from codifying in a rule practices that we might, as a matter of policy, prefer to require explicitly. Congress and State legislatures, by contrast, have plenary authority to require such a reminder. This spring, for example, in a show of bipartisanship, Virginia Governor Glenn Youngkin signed into law legislation sponsored by Delegate Michelle Lopes Maldonado, H.B. 744, which requires that subscriptions that renew annually provide to the consumer a notice of the upcoming renewal and the opportunity to cancel via between 30 and 60 days before the consumer is charged for the renewal.4 The comment record compiled in this rulemaking proceeding strongly supports the wisdom of Federal and State legislators’ carefully considering adopting such a law, and the Final Rule’s omission of such a provision should be understood only as a reflection of the Commission’s cautious approach to its jurisdictional limits and not as related to the merits of a policy that requires annual reminders for subscription services. Dissenting Statement of Commissioner Melissa Holyoak khammond on DSKJM1Z7X2PROD with RULES3 ‘‘Article I of the Constitution vests ‘all legislative Powers herein granted’ in 2 See, e.g., Cmt. of the Attorneys General of New York, Pennsylvania, Alabama, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Oklahoma, Oregon, Vermont, Washington, and Wisconsin (June 23, 2023), at 15 (‘‘Subscription management has become an entire industry; consumers can choose from a variety of companies that offer to monitor their recurring subscriptions. We believe that consumers should not have to sign up for yet another service—one that comes with privacy and security risks, as subscription monitoring services require sharing financial account and other sensitive information—in order to effectively manage their subscriptions.’’), https:// www.regulations.gov/comment/FTC-2023-00330886; Cmt. of Consumer Action, Consumer Federation of America, Demand Progress Education Fund, National Association of Consumer Advocates, National Consumer Law Center (on behalf of its low-income clients), and National Consumer League (June 23, 2023), at 7 (‘‘Consumers deserve to know when they are about to be charged automatically, with a chance to opt out.’’), https:// www.regulations.gov/comment/FTC-2023-00330880; Cmt. of Profs. Caruso, Raghavan, Sovern, Vladeck, Pridgen, Janger, Ondersma, and Block-Lieb (June 23, 2023), at 7–8 (encouraging the Commission to adopt the reminder requirement without narrowing it), https://www.regulations.gov/ comment/FTC-2023-0033-0861. 3 See Fed. Trade Comm’n, Negative Option Rule, Final Rule Statement of Basis and Purpose (Oct. 16, 2024) (draft as submitted to the Office of the Federal Register), at 138–44. 4 See 2024 Va. Acts, H. 744, Apr. 4, 2024 (to be codified at section 59.1–207.46(E)), https:// legacylis.virginia.gov/cgi-bin/legp604.exe?241+ ful+CHAP0452+pdf. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 Congress. ‘By vesting the lawmaking power in the people’s elected representatives, the Constitution sought to ensure not only that all power would be derived from the people, but also that those entrusted with it should be kept in dependence on the people.’ ’’ 1 Whenever we engage in rulemaking, the Commission should recall that Article I of the Constitution vests legislative powers in Congress, not with agencies. Because of that, it is elected officials that delineate the boundaries, and set the requirements, that we as Commissioners must adhere to. I believe the Commission exceeds those boundaries and requirements in amendments to the Negative Option Rule, 16 CFR part 425, (‘‘Rule’’) it finalizes today. Instead of pursuing targeted enforcement efforts or finalizing a rule consistent with the Commission’s authority under section 18 of the FTC Act,2 the Commission has used its limited resources to promulgate a broader regulation that may not survive legal challenge.3 The likely unlawful character of the rule is compounded by the Majority’s race to cross the finish line. Why the rush? There is a simple explanation. Less than a month from election day, the Chair is hurrying to finish a rule that follows through on a campaign pledge made by the Chair’s favored presidential candidate.4 The Majority votes today to approve a final trade regulation rule amendment to the existing negative option rule. This amendment greatly expands the prior rule, which had covered now-rare prenotification plans (e.g., book-of-the-month clubs)—and goes well beyond what existing laws, such as the Restore Online Shoppers’ Confidence Act (‘‘ROSCA’’),5 Telemarketing Sales Rule 1 Dissenting Statement of Comm’r Melissa Holyoak, Joined by Comm’r Andrew N. Ferguson, In the Matter of the Non-Compete Clause Rule, FTC Matter No. P201200, at 1 (June 28, 2024) (quoting U.S. Const. Art. I and W. Virginia v. EPA, 597 U.S. 697, 737–38 (2022) (Gorsuch, J., concurring)) (cleaned up), https://www.ftc.gov/system/files/ftc_ gov/pdf/2024-6-28-commissioner-holyoak-nc.pdf. 2 15 U.S.C. 57a. 3 Cf. Dissenting Statement of Comm’r Melissa Holyoak, Joined by Comm’r Andrew N. Ferguson, supra note 1, at 2 (‘‘My dissent should not, however, be interpreted to mean that I endorse all non-compete agreements. To the contrary, I would support the Commission’s prosecution of anticompetitive non-compete agreements, where the facts and law support such enforcement. That is why I am particularly disappointed that the Commission dedicated the Commission’s limited resources to a broad rulemaking that exceeds congressional authorization and will likely not survive legal challenge.’’) (citation omitted). 4 See, e.g., A New Way Forward for the Middle Class: A Plan to Lower Costs and Create an Opportunity Economy, KamalaHarris.com, at 33 (Sept. 2024) (‘‘Under her leadership as Vice President, the Administration has launched a historic effort to crack down on junk fees and save consumers time and money. This includes [a rule] to . . . make it as easy to cancel a subscription as it is to subscribe. . . . A Harris-Walz Administration will . . . continue to take on the everyday hassles that waste Americans’ time and money, [including] subscriptions. . . .’’) (citing FTC press release), https://kamalaharris.com/wpcontent/uploads/2024/09/Policy-Book-EconomicOpportunity.pdf. 5 15 U.S.C. 8401–8405. PO 00000 Frm 00066 Fmt 4701 Sfmt 4700 (‘‘TSR’’),6 or Regulation E,7 require. The nowcapacious Rule creates potential civil penalty liability for: any misrepresentation of material fact made in connection with the marketing of a product or service that has a negative option feature (§ 425.3); failure to disclose all material terms before obtaining billing information in connection with a negative option (§ 425.4); failure to obtain express informed consent before charging in connection with a negative option (§ 425.5); and failure to provide a simple mechanism for cancelling a negative option (§ 425.6). The Rule also preempts inconsistent State laws (§ 425.7). I respectfully dissent for three reasons. First, this rulemaking did not follow the FTC Act’s section 18 requirements for rulemaking because: (1) the Rule is much broader than the ‘‘area of inquiry’’ proposed by the advance notice of proposed rulemaking (‘‘ANPR’’); (2) the Rule fails to define with specificity acts or practices that are unfair or deceptive, improperly generalizing from narrow industry-specific complaints and evidence to the entire American economy; and (3) the Rule fails to demonstrate that the unfair or deceptive acts or practices related to negative option billing are ‘‘prevalent.’’ 8 Second, the Rule’s breadth incentivizes companies to avoid negative option features that honest businesses and consumers find valuable. Third, the Rule represents a missed opportunity to make useful amendments to the preexisting negative option rule within the scope of the Commission’s authority. Such amendments could have provided greater clarity to businesses about the patchwork of Federal laws pertaining to negative options and lawfully used our section 18 rulemaking authority to fill potential gaps including, for example, cancellation requirements. Indeed, I am very concerned that consumers are sometimes misled by companies using deceptive negative option features. The Rule represents a missed opportunity to devote scarce staff resources to bringing enforcement actions related to negative option features using the clear tools that Congress gave us, rather than conducting an overbroad rulemaking that cost years of staff time to propose and finalize, but will likely not survive legal challenge. Today’s rulemaking did not need to end this way. Had political leadership at the Commission taken more time to engage with other Commissioners to refine and improve the Rule, my vote and statement would look very different. Instead, less than a month from November 5, the Chair has put political expediency over getting things right. Unfortunately, pushing politically motivated rulemakings has not been the exception with the Majority.9 Today, I believe we are seeing another low in our abuse and misuse of the tools Congress has given us. Rather than engage in blatant electioneering to advance political ends, the Commission should have 6 16 CFR part 310. CFR 1005.10. 8 15 U.S.C. 57a. 9 See generally Dissenting Statement of Comm’r Melissa Holyoak, Joined by Comm’r Andrew N. Ferguson, supra note 1. 7 12 E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 instead focused on stewarding its resources effectively and in ways that restore our institutional legitimacy, not further undermine it. I. The historical context surrounding Congress’s enactment of rulemaking requirements in section 18 of the FTC Act is important. Congress passed the MagnusonMoss Warranty Act in 1975, which imposed exacting requirements and limitations on rulemaking regarding unfair or deceptive acts or practices.10 In the 1970s, the Commission tried to use its rulemaking and unfairness authority aggressively—for example, ‘‘to ban all advertising directed to children on the grounds that it was ‘immoral, unscrupulous, and unethical’ and based on generalized public policies to protect children.’’ 11 In response, Congress refused to fund the Commission, shutting it down for several days.12 Even this harsh rebuff did not completely cool Congressional ire with the ‘‘National Nanny’’ (as the Washington Post— no bastion of conservative thought— facetiously dubbed the Commission).13 A 1979 Senate Report found that the agency’s rulemaking efforts were filled with ‘‘excessive ambiguity, confusion, and uncertainty.’’ 14 In 1980, Congress legislated to limit the Commission’s authority, by imposing additional procedural obligations on section 18 rulemaking.15 Among other things, Congress created additional procedural rights, well beyond the Administrative Procedure Act’s baseline procedural requirements, such as requiring the FTC to issue an ANPR with numerous specific requirements, which the Commission must submit to Congress, for each rulemaking.16 Congress’ harsh reaction to the FTC’s overreach only makes sense if we understand that section 18 was created and then expanded not to give the Commission freeranging rulemaking authority, but to curb it. We should be exacting in following the requirements of section 18, lest we risk repeating history—drawing Congressional ire that that could further limit our authority and budget. Indeed, section 18’s rulemaking requirements, while demanding, are the means of assuring that we act within the parameters established by Congress. 10 Magnuson-Moss Warranty Act of 1975, Public Law 93–637, 88 Stat. 2183. 11 See J. Howard Beales III, The Fed. Trade Comm’n’s Use of Unfairness Authority: Its Rise, Fall, and Resurrection, 22 J. of Pub. Pol’y & Mktg. 192, 193 (2003) (citing FTC Staff Report on Television Advertising to Children (Feb. 1978); Notice of Proposed Rulemaking on Television Advertising to Children, 43 FR 17967 (Apr. 27, 1978)). In the 1970s, the Commission aggressively used its rulemaking authority—so aggressively that it has been called the ‘‘second most powerful legislature in America.’’ Timothy J. Muris, The Consumer Protection Mission: Guiding Principles and Future Direction, 51 Antitrust L.J. 625, 625 (1982). The approach of today’s Majority threatens to turn back the clock to this earlier, ill-advised approach. 12 Id. at 193. 13 Id. 14 S. Rep. No. 96–500, at 3 (1979). 15 Federal Trade Commission Improvements Act of 1980, Public Law 96–252, 94 Stat. 374. 16 Id. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 As an initial matter, this Rule’s procedural irregularities begin with how the Rule was finalized in a compressed time frame. Given the rigorous demands of section 18 rulemaking, historically, it has taken the Commission, on average, 5.57 years to issue a rule after the Magnuson-Moss procedures were enacted.17 That, apparently, was too much time and procedure for the Majority. In 2021, during the pendency of this rulemaking, the Commission made changes to its rules of practice,18 over objections from the Commissioners in the Minority, to limit the efficacy of section 18’s procedural safeguards and compress rulemaking timeframes.19 Among other things, the Commission revised the Rules of Practice so as to remove selection of the Presiding Officer from an independent judge and assign that role to the Chair; strip the Presiding Officer of significant control over the hearing process; and narrow opportunities for the public to help determine which factual issues are in dispute.20 Then-Commissioners Phillips and Wilson dissented, noting: ‘‘What the[se] changes—adopted without public input—in fact do is fast-track regulation at the expense of public input, objectivity, and a full evidentiary record.’’ 21 Apparently not content with even these procedural shortcuts and compressed timeframe, political leadership now speeds to the finish line with minimal opportunity for Commissioner engagement on the final Rule. There should be ample opportunity for robust consideration and dialogue leading up to a Commission vote on any regulation, and especially for a highly consequential rule. Such opportunity for dialogue may assuage concerns, produce constructive changes, and ultimately lead to a better result. Indeed, in the past where political leadership has been willing to engage and make needed modifications preceding votes, that consideration and engagement have been very valuable and led to bipartisan support for Commission actions. Here, however, the time period for me to review this economy-wide Rule was a matter of weeks. Those weeks were also packed with dozens of cases, one other rulemaking, and other policy matters. (Remarkably, the Chair had this draft final Rule for some time before it was circulated to the other Commissioners.) Reviewing the NPRM was no substitute for robust discussion and 17 Jeffrey S. Lubbers, It’s Time To Remove the ‘‘Mossified’’ Procedures for Removing FTC Rulemaking, 83 Geo. Wash. L. Rev. 1979, 1997 (2015). 18 Press Release, Fed. Trade Comm’n, FTC Votes to Update Rulemaking Procedures, Sets Stage for Stronger Deterrence of Corporate Misconduct (July 1, 2021), https://www.ftc.gov/news-events/news/ press-releases/2021/07/ftc-votes-updaterulemaking-procedures-sets-stage-strongerdeterrence-corporate-misconduct. 19 See Dissenting Statement of Comm’rs Christine S. Wilson and Noah Joshua Phillips, Regarding the Comm’n Statement On the Adoption of Revised Section 18 Rulemaking Procedures (July 9, 2021), https://www.ftc.gov/system/files/documents/ public_statements/1591702/p210100_ wilsonphillips_joint_statement_-_rules_of_ practice.pdf. 20 Id. at 3–5. 21 Id. at 3. PO 00000 Frm 00067 Fmt 4701 Sfmt 4700 90541 negotiation related to the final Rule’s language and statement of basis and purpose, as the final Rule differs in important ways from the rule as proposed. The push to finalize is inexcusable, particularly because it is a discretionary rulemaking with no due date (imposed by Congress or otherwise). For those tracking the Rule and national politics closely, this rush to the finish line (and less than a month from a Presidential election) is no surprise. This Rule is connected to the current administration’s efforts relating to socalled junk fees (which are beginning to make a regular appearance before elections 22), and it has been in the spotlight for some time, including at the White House 23 and now on the campaign trail.24 But elevating political goals comes at a high price, harms policy efforts that might otherwise benefit consumers, and undermines the Commission’s legitimacy. Publicly appearing to refuse to keep an open mind on a final rule or to prejudge complex policy questions, along with an apparent unwillingness to reconsider various aspects of a rulemaking may create PR buzz for the campaign trail and score political points. But that posture creates real legal risk for the Rule. Statements from the White House 25 22 See generally Betsy Klein et al., Biden Cracks Down on ‘‘Junk Fees’’ in New Economic Focus Ahead of Midterms, CNN (Oct. 26, 2022), https:// www.cnn.com/2022/10/26/politics/biden-bank-feesspeech/. 23 See, e.g., Biden-Harris Administration Announces Broad New Actions to Protect Consumers from Billions in Junk Fees, The White House (Oct. 11, 2023) (‘‘The FTC proposed a ‘click to cancel’ rule in March of 2023, that, if finalized as proposed, would require sellers to make it as easy for consumers to cancel their enrollment as it was to sign up. This rule would rescue consumers from seemingly never-ending struggles to cancel unwanted subscription payment plans for everything from cosmetics to gym memberships.’’), https://www.whitehouse.gov/briefing-room/ statements-releases/2023/10/11/biden-harrisadministration-announces-broad-new-actions-toprotect-consumers-from-billions-in-junk-fees/. 24 See, e.g., A New Way Forward, KamalaHarris.com, supra note 4. 25 See, e.g., President Biden (@POTUS), X.com (Aug. 12, 2024) (‘‘We’re making it easier to cancel subscriptions and memberships. You shouldn’t have to navigate a maze just to cancel unwanted subscriptions and recurring payments. The FTC is hard at work finalizing its ‘Click to Cancel’ rule that it proposed to make this process a requirement.’’), https://x.com/POTUS/status/ 1823037212885414107; see also FACT SHEET: Biden-Harris Administration Launches New Effort to Crack Down on Everyday Headaches and Hassles That Waste Americans’ Time and Money, The White House (Aug. 12, 2024) (‘‘Today, President Biden and Vice President Harris are launching ‘Time Is Money,’ a new governmentwide effort to crack down on all the ways that corporations . . . add unnecessary headaches and hassles to people’s days and degrade their quality of life. . . . The Federal Trade Commission (FTC) has proposed a rule that, if finalized as proposed, would require companies to make it as easy to cancel a subscription or service as it was to sign up for one. The agency is currently reviewing public comments about its proposal.’’), https://www.whitehouse.gov/ briefing-room/statements-releases/2024/08/12/factsheet-biden-harris-administration-launches-neweffort-to-crack-down-on-everyday-headaches-andhassles-that-waste-americans-time-and-money/. E:\FR\FM\15NOR3.SGM 15NOR3 90542 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 and related statements from the Chair 26 concerning this rule—and other matters related to her tenure or connected to her party’s campaign efforts 27—raise the 26 See, e.g., Lina Khan (@linakhanFTC), X.com (Aug. 12, 2024) (‘‘As @POTUS notes, @FTC’s proposal would require that firms make it as easy to cancel a subscription as it is to sign up. Too often people have to jump through endless hoops—or end up stuck paying for services they don’t want. Our rule would end this tax on your time & money.’’), https://x.com/linakhanFTC/status/ 1823094653962289640. That Tweet came in response to the President unequivocally saying, ‘‘[w]e’re making it easier to cancel subscriptions and memberships,’’ and signaling the proposal would be finalized consistent with the NPRM. See President Biden (@POTUS), supra note 25. Other statements are similarly probative of apparent conclusions being reached about the contours of the final rule. See, e.g., Chair Lina M. Khan, Remarks at Center for American Progress, at 3–4 (Sept. 25, 2024) (‘‘We’ve also unfortunately seen a rise in subscription traps. We’ve all been there. Every month, you’re paying for that gym membership you don’t really use, or streaming services you never signed up for in the first place. But it’s absurdly difficult to actually cancel these services. You have to call customer service and spend an hour on the phone with a bot before you finally get through to a human being. Customer Service then transfers you to Memberships. They transfer you to Cancellations. And then suddenly the call drops and you have to do it all over again. It can feel like you’re stuck in some type of endless doom loop. And many people understandably just give up—and pay dozens if not hundreds of dollars for subscriptions they don’t want or need. And of course, that’s kind of the point: to wear you down and keep taking your money, month after month. I’m excited that the Commission will be considering finalization of a ‘click to cancel’ rule that would require companies to make it just as easy to cancel a subscription as it is to sign up for one.’’), https://www.ftc.gov/ system/files/ftc_gov/pdf/20240925-remarks-chairkhan-center-for-american-progress.pdf; see also Chair Lina M. Khan, Remarks at Strike Force on Unfair and Illegal Pricing Public Convening, at 2 (Aug. 1, 2024) (‘‘We’re currently working toward finalizing our ‘click to cancel’ rule. Too often, businesses require people to jump through endless hoops just to cancel a subscription. Customers end up paying dozens if not hundreds of dollars a month in subscriptions they want to escape. Our proposed rule would require that companies make it as easy to cancel a subscription as it is to sign up for one—ending this tax on people’s time and money.’’), https://www.ftc.gov/system/files/ftc_gov/ pdf/2024.08.01-remarks-chair-khan-strike-forcepublic-convening.pdf. In light of such statements unambiguously reflecting a firm belief in the need for regulatory action—and all but committing to the proposed solution—it is risible to suggest this rule was not effectively baked well before the Commission’s vote. 27 See, e.g., Talmon Joseph Smith, Lina Khan Ends FTC Term. What’s Next for Her?, Seattle Times (Oct. 1, 2024) (‘‘Q: You’ve not gotten any whispers, any word that you will not be wanted in a Harris administration? A. No, I think to the contrary.’’), https://www.seattletimes.com/business/ lina-khan-ends-ftc-term-whats-next-for-her/; see generally Ben Brody, Lina Khan Hits the Road with Democrats Ahead of Election, Punchbowl News (Oct. 2, 2024), https://punchbowl.news/article/ campaigns/ftc-lina-khan-campaigns-withdemocrats/; cf. Letter from James Comer, Chair, Committee on Oversight and Accountability to Lina Khan, Chair, Fed. Trade Comm’n, at 1 (Oct. 8, 2024) (‘‘During this election season, you have engaged in partisan political activities with numerous Democrat congressional candidates, undermining the FTC’s independence and its mission to protect American consumers regardless of partisan VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 possibility that foreordained outcomes and political goals curtailed considering the rulemaking record with an open mind and without prejudgment, as law requires.28 Today’s sprint to the finish line has shortchanged the kind of deliberation and thoughtful engagement Congress deemed appropriate when it established rulemaking requirements under the Magnuson-Moss Act. In addition to my concern about these irregularities, I am convinced that this rulemaking has failed to satisfy section 18’s requirements for rulemaking in three ways. First, the Commission is issuing a broad final rule even though the ANPR was far narrower. This mismatch means that the Commission failed to provide in its ANPR the ‘‘brief description of the area of inquiry under consideration, the objectives which the Commission seeks to achieve, and possible regulatory alternatives under consideration by the Commission’’ that section 18 requires.29 The mismatch is the result of leadership changes and priorities. The ANPR was voted out in 2019 by a bipartisan Commission under then-Chair Joseph J. Simons.30 It sought public comments about centralizing existing legal requirements regarding negative options and filling gaps via section 18 rulemaking related to disclosures, consent, and cancellation.31 The affiliation’’), https://oversight.house.gov/wpcontent/uploads/2024/10/FTC-re-Chair-KhanCampaign-Season-Events_10.8.202423.pdf. 28 See generally 15 U.S.C. 57a(b)(1); 5 U.S.C. 553(c); cf. Air Transport Ass’n of Am. Inc. v. Nat’ Mediation Bd., 663 F.3d 476 (D.C. Cir. 2011); Int’l Snowmobile Mfrs. Ass’n v. Norton, 340 F. Supp. 2d 1249 (D. Wyo. 2004); Nehemiah Corp. of Am. v. Jackson, 546 F. Supp. 2d 830 (E.D. Cal. 2008). The Chair’s approach is highly unusual, given this legal risk and the Commission’s responsibility to keep an open mind—which is why, typically, Commissioners do not comment on pending rulemakings. 29 15 U.S.C. 57a(b)(2)(A). 30 Fed. Trade Comm’n, Press Release, FTC Seeks Public Comment on Ways to Improve Current Requirements for Negative Option Marketing (Sept. 25, 2019), https://www.ftc.gov/news-events/news/ press-releases/2019/09/ftc-seeks-public-commentways-improve-current-requirements-negativeoption-marketing. 31 84 FR 52393, 52394 (Oct. 2, 2019) (‘‘The Commission seeks comments on ways to improve its existing regulations for negative option marketing, a common form of marketing where the absence of affirmative consumer action constitutes assent to be charged for goods or services. Negative option offers are widespread in the marketplace and can provide substantial benefits for sellers and consumers. However, consumers cannot reap such benefits when marketers fail to make adequate disclosures, bill consumers without their consent, or make cancellation difficult or impossible. Over the years, such problematic negative option practices have remained a persistent source of consumer harm, often saddling consumers with recurring payments for products and programs they did not intend to purchase or did not want. In the past, the Commission has sought to address such practices through individual law enforcement cases and a patchwork of regulations. Nevertheless, problems persist, and consumers continue to submit thousands of complaints to the FTC each year about negative option marketing. To address these concerns, the Commission seeks comments on ways to improve existing regulatory requirements, including whether it should use its rulemaking authority under the FTC Act to expand the scope PO 00000 Frm 00068 Fmt 4701 Sfmt 4700 current Majority took the bipartisan ANPR and politically supercharged it. Importantly, the ANPR did not contemplate broader regulation prohibiting all misrepresentations of material fact related to products that have negative option features. The ANPR tailored its inquiry by ‘‘. . . highlighting five basic section 5 requirements that negative option marketing must follow to avoid deception’’: (1) disclosure of material terms of a negative option offer; (2) clear and conspicuous disclosures; (3) pre-purchase disclosures; (4) consent; (5) cancellation.32 Absent from this list is anything about prohibiting all misrepresentations of material fact related to any product that happens to have a negative option feature. Similarly, when the ANPR stated that the Commission was seeking comment ‘‘to reduce consumer harm created by deceptive or unfair negative option marketing,’’ it specified the Commission’s interest pertained to ‘‘disclosures, consumer consent, and cancellation.’’ 33 Again, absent from that list was anything about prohibiting all misrepresentations of material fact related to marketing of any product that has a negative option feature. When Commission leadership changed in 2021, the ‘‘area of inquiry’’ changed as well. Almost immediately, the Commission under Chair Khan disrupted this particular rulemaking process to issue an Enforcement Policy Statement Regarding Negative Option Marketing 34—sub-regulatory guidance on the very same topic as the rulemaking itself. The Commission then issued a Notice of Proposed Rulemaking (‘‘NPRM’’) in 2023 that introduced into the rulemaking—for the first time—the notion of prohibiting misrepresentations related to marketing of products with negative option features.35 Former Commissioner Christine S. Wilson dissented from the issuance of the NPRM for this (among other) reasons. In her dissenting statement, Commissioner Wilson explained: ‘‘Importantly, we did not seek comment in the ANPR about whether an expanded negative option rule should address general misrepresentations; no comments are cited in the NPRM to support the inclusion of these provisions.’’ 36 and coverage of the existing Negative Option Rule.’’). 32 Id. at 52395. 33 Id. at 52396. 34 Fed. Trade Comm’n, Press Release, FTC To Ramp Up Enforcement Against Illegal Dark Patterns that Trick or Trap Consumers Into Subscriptions (Oct. 28, 2021), https://www.ftc.gov/news-events/ news/press-releases/2021/10/ftc-ramp-enforcementagainst-illegal-dark-patterns-trick-or-trapconsumers-subscriptions. 35 Fed. Trade Comm’n, Press Release, Federal Trade Comm’n Proposes Rule Provision Making It Easier for Consumers to ‘‘Click to Cancel’’ Recurring Subscriptions and Memberships (Mar. 23, 2023), https://www.ftc.gov/news-events/news/pressreleases/2023/03/federal-trade-commissionproposes-rule-provision-making-it-easierconsumers-click-cancel-recurring. 36 Dissenting Statement of Comm’r Christine S. Wilson, Notice of Proposed Rulemaking, Negative Option Rule, at 3 (Mar. 23, 2023), https:// www.ftc.gov/system/files/ftc_gov/pdf/p064202_ commissioner_wilson_dissent_negative_option_ rule_finalrevd_0.pdf. E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations The Statement of Basis and Purpose (‘‘SBP’’) accompanying the final Rule cursorily dismisses concerns about the ANPR’s adequacy, dubiously arguing that section 18 requires no such ‘‘specificity’’ in describing the area of inquiry.37 But the whole purpose of section 18’s requirement of a description of what the Commission aims to do is to elicit public comment to inform the Commission about its choices. Indeed, section 18 requires an ANPR to invite interested parties to provide ‘‘suggestions or alternative methods for achieving such objectives.’’ 38 Parties cannot possibly include alternative methods if the ANPR wholly fails to identify the objective, i.e., regulating misrepresentations in marketing of products with negative option features. It is telling that the ANPR here only elicited 17 comments,39 while the NPRM (which made clear that the Commission was significantly expanding its focus) elicited 16,000 comments.40 The narrowness of the ANPR meant the Commission could not, consistent with section 18, proceed to a much broader NPRM.41 In choosing to interpret the ANPR (and the 17 comments it elicited) as sufficient predicate for the muchexpanded NPRM, the Commission cut itself off from valuable public comments at important early stages (especially as to regulatory alternatives) and ignored the rulemaking guardrails that Congress carefully established to forestall nondelegation concerns that might otherwise exist.42 The second procedural failing lies in the Commission’s failure to ‘‘prescribe . . . rules which define with specificity acts or practices which are unfair or deceptive acts or practices’’ as Section 18 requires.43 ‘‘Because the prohibitions of section 5 of the Act are quite broad, trade regulation rules are needed to define with specificity conduct that violates the statute and to establish requirements to prevent unlawful conduct.’’ 44 Section 425.3 of the Rule fails Section 18’s specificity requirements. Section 425.3 prohibits any misrepresentation of material fact made in connection with the sale or promotion of a product that has a negative option feature. 37 SBP at 37–38. U.S.C. 57a(b)(2)(A)(ii). 39 See Regulations.gov, Negative Option Rule (ANPR), FTC–2019–0082, https:// www.regulations.gov/docket/FTC-2019-0082. 40 The Commission published 1,162 unique comments. SBP at 18. See Regulations.gov, Negative Option Rule (NPRM), FTC–2023–0033–0001, https://www.regulations.gov/document/FTC-20230033-0001. 41 15 U.S.C. 57a(b)(2)(A) (‘‘Prior to the publication of any notice of proposed rulemaking pursuant to paragraph (1)(A), the Commission shall publish an advance notice of proposed rulemaking in the Federal Register.’’). 42 Cf. Dissenting Statement of Comm’r Andrew N. Ferguson, Joined by Comm’r Melissa Holyoak, In re Non-Compete Clause Rule, FTC Matter No. P201200, at 20–22 (June 28, 2024), https:// www.ftc.gov/system/files/ftc_gov/pdf/fergusonnoncompete-dissent.pdf (describing nondelegation doctrine). 43 15 U.S.C. 57a(a)(1)(B). 44 S. Rep. No. 93–1408 at 7702, 7755, 7763 (1974) (Conf. Rep.). khammond on DSKJM1Z7X2PROD with RULES3 38 15 VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 Unfairness explicitly requires a cost-benefit analysis relating to the practices at issue.45 Meanwhile, deception is a subset of the broader unfairness authority. With its focus on reasonableness and materiality, no costbenefit analysis is required because the Commission has historically argued that deceptive practices are always harmful. So far, so good. But both unfairness, and particularly deception, require the Commission to provide sufficient evidence for a reviewing court to evaluate whether the Commission has met the legal predicate for either theory (particularly as it relates to reasonableness and materiality). While the Rule provides examples of material misrepresentations, those are merely examples. Indeed, the Commission ignores the specificity requirement by generalizing from poorly sampled past agency cases. Whatever the merits of the past cases, the Majority does not remotely come close to explaining how the evidence in those limited cases is similar to the myriad contexts an economy-wide rule would inevitably apply to. Indeed, the Rule is not limited to misrepresentations relating to deceptive terms of negative option features (or some other specific, deceptive conduct), but instead, applies broadly to any material fact. Nor does the Rule require that the consumer actually use the negative option feature; the mere presence of a negative option feature would render any misrepresentation of material fact subject to the Rule. Taken together, the Rule is nothing more than a back-door effort at obtaining civil penalties in any industry where negative option is a method to secure payment. The Rule’s application to any misrepresentation therefore fails to meet Section 18’s ‘‘specificity’’ requirement,46 and will no doubt invite serious legal challenge on this basis.47 The Supreme Court’s decision in AMG, which held the language of Section 13(b) does not authorize the Commission to obtain equitable monetary relief,48 limited the Commission’s ability to seek money for firsttime violations of the FTC Act. The Commission is still able, however, to seek monetary remedies for violation of rules issued under Section 18.49 Here, the Final Rule effectively transforms Section 5’s broad prohibition on unfair or deceptive practices into a Section 18 rule, allowing the Commission to expand its ability to seek money. Indeed, because negative option features are widely used in a variety of industries, the Rule greatly expands that ability. While I generally support legislation 45 15 U.S.C. 45(n). Katharine Gibbs School (Inc.) v. FTC, 612 F.2d 658, 661–62 (2d Cir. 1979) (setting aside FTC rule under section 18 that did not, among other things, define unfair practices with sufficient specificity). 47 See, e.g., id. at 663 (‘‘When Congress provided that the Commission’s rules must define unfair and deceptive acts with specificity, it clearly intended that the Commission’s definition would be subject to judicial review.’’). 48 AMG Capital Mgmt., LLC v. FTC, 593 U.S. 67, 70 (2021). 49 15 U.S.C. 57b(a)(1). 90543 that would grant the FTC authority under Section 13(b) to obtain court orders for redress or disgorgement (with whatever guardrails Congress deems fit), the Commission should not circumvent legislative prerogative via improper Section 18 rulemaking. The third significant procedural flaw in this rulemaking is that the Commission failed to appropriately establish the ‘‘prevalence’’ of unfair and deceptive practices related to all negative option features for all products in all markets and all media (i.e., with respect to the scope of this rule). According to Section 18, the Commission may issue an NPRM ‘‘only where it has reason to believe that the unfair or deceptive acts or practices which are the subject of the proposed rulemaking are prevalent.’’ 50 Section 18 further provides: The Commission shall make a determination that unfair or deceptive acts or practices are prevalent under this paragraph only if— (A) it has issued cease and desist orders regarding such acts or practices, or (B) any other information available to the Commission indicates a widespread pattern of unfair or deceptive acts or practices.51 In the SBP, the Commission argues that it has satisfied this standard for its economywide rulemaking because it has issued more than 35 cases ‘‘challenging harmful negative option practices’’ and has received ‘‘tens of thousands of consumers complaints.’’ 52 This evidence may well suggest that some unfair and deceptive acts related to negative option offers are indeed prevalent. But these statistics do not establish prevalence of misrepresentations of material fact related to products with negative option features, any more than the number of FTC cases and consumer complaints involving the internet means that the entire internet should be the subject of a Section 18 rulemaking prohibiting misrepresentations. If similarity among complaints and cases only at the highest level of generality constitutes the ‘‘prevalence’’ sufficient to ground an economy-wide rulemaking, then a ‘‘prevalence’’ determination is in fact no meaningful guardrail on the Commission’s conduct at all, creating precisely the type of non-delegation concerns that Section 18’s guardrails were meant to prevent. Canons of ‘‘avoidance’’ warn us to avoid adopting interpretations that would render statutes unconstitutional.53 To avoid precisely that fate, ‘‘prevalence’’ must require more than what the Commission has shown here. A final concern here. The Rule’s failure to define with specificity the acts or practices which are unfair or deceptive, combined with the rule’s preemption of inconsistent 46 Cf. PO 00000 Frm 00069 Fmt 4701 Sfmt 4700 50 Id. 57a(b)(3). 51 Id. 52 SBP at 8. Clark v. Martinez, 543 U.S. 371, 381 (2005) (describing the canon of constitutional avoidance as ‘‘resting on the reasonable presumption that Congress did not intend the alternative which raises serious constitutional doubts’’); see also Adrian Vermeule, Saving Constructions, 85 Geo. L. J. 1945, 1949 (1997) (providing examples of cases in which the Supreme Court construed a statute so as to avoid a constitutional question). 53 See E:\FR\FM\15NOR3.SGM 15NOR3 90544 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES3 State laws,54 seems likely to create confusion and, ultimately, may harm consumers. The Second Circuit rebuked the Commission for a similar approach in a prior rulemaking after the Commission had ‘‘fail[ed] . . . to define with specificity the acts or practices which are unfair or deceptive.’’ 55 Absent ‘‘a specification of the acts or practices which the Commission deems deceptive,’’ the Court explained that ‘‘the breadth of the preemption provision is such that it places in issue an indefinite variety of [S]tate laws and regulations’’ that were relevant to the underlying contractual relationships. Similarly, here, State laws govern the types of conduct today’s Rule attempts to regulate.56 One risk of misguided Federal regulation is that it can confuse or jeopardize State laws and enforcement. Given the Rule’s lack of specificity, it raises that concern. II. The Rule is troubling not only procedurally but also substantively. By singling out representations made in connection with negative option billing models and subjecting these representations to civil penalties or other monetary relief, it tilts the playing field in ways that are likely to pervert business incentives. For example, businesses may avoid using negative option billing models, even when businesses and consumers could derive significant value from them. One might argue that no shift in incentives will happen for honest businesses because the Rule only addresses misrepresentations of material fact. In other words, all an honest business needs to do to avoid civil penalties is to tell the truth about products and services that involve negative option billing. But what constitutes a misrepresentation can sometimes be in the eye of the beholder (that is, a Commissioner).57 Even honest businesses will have reason to reconsider the use of negative option billing now that it means subjecting themselves to potential civil penalties for misreading Commission tea leaves.58 And businesses will also need to factor in the compliance costs associated with implementing this Rule’s disclosure, consent, and cancellation requirements— prescriptive requirements that are absent for 54 16 CFR 425.7(a) (‘‘Relation to State Laws’’) (‘‘In General. This part shall not be construed as superseding, altering, or affecting any State statute, regulation, order, or interpretation relating to negative option requirements, except to the extent it is inconsistent with the provisions of this part, and then only to the extent of the inconsistency.’’). 55 See Katharine Gibbs School, 612 F.2d at 667. 56 See, e.g., SBP at 145–46, 214. 57 Cf. Statement of Comm’r Christine S. Wilson Concurring In Part and Dissenting In Part, FTC v. Neurometrix, Inc., FTC Matter No. 1723130 (Feb. 28, 2020), (disagreeing with the majority of the Commission on claim interpretation and substantiation for certain claims), https:// www.ftc.gov/system/files/ftc_gov/pdf/2024.08.01remarks-chair-khan-strike-force-publicconvening.pdf. 58 Some businesses were already subject to disclosure requirements under existing laws such as ROSCA and the TSR. But those laws are more limited. For example, ROSCA section 8403 states that for goods or services sold through a negative option feature, the seller must ‘‘clearly and conspicuously disclose all material terms of the transaction before obtaining the consumer’s billing information.’’ 15 U.S.C. 8403. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 other billing models or less prescriptive under existing law, such as ROSCA. These shifting incentives matter to consumers because the reason that honest businesses adopt negative option billing is to lower transaction costs between consumers and firms. For example, say I want to watch a particular streaming service at my convenience. I don’t want to be bothered with signing up and paying a fee each month that I log on; I want negative option billing— a subscription—to reduce the friction in my streaming experience. Raising the transaction costs will reduce a business’s sales and the utility consumers derive from these services. In other words, in our good intentions, we may harm the consumers and competition we are supposed to protect.59 The Rule purports to address any overbreadth by including, consistent with the Commission’s Rules of Practice,60 an ‘‘Exemptions’’ provision, which provides: ‘‘Any person to whom this Rule applies may petition the Commission for a partial or full exemption.’’ 61 In response to such petition, ‘‘[t]he Commission may . . . issue partial or full exemptions from this part if the Commission finds application of the Rule’s requirements is not necessary to prevent the acts or practices to which the Rule relates.’’ 62 But the ‘‘Exemptions’’ provision does nothing to reduce the burden on firms from the overbreadth of the Rule’s coverage of all misrepresentations of material fact. Rather, taken together, they effectively shift the burden of crafting a tailored rule to regulated entities. And, once again, it appears that the Commission is tilting the playing field in a manner that is likely to harm both consumers and competition. Small businesses and new market entrants are less likely to be able to afford the potentially costly legal fees needed to petition the Commission to obtain an exemption. Even for businesses that can afford to use the exemption process, this process will impose costs on businesses, who will pass on those costs to consumers. 59 Concurring and Dissenting Statement of Comm’r Melissa Holyoak, Social Media and Video Streaming Services Staff Report, FTC Matter No. P205402, at 18–19 (Sept. 19, 2024) (‘‘The core of this agency’s mission is to protect consumers. Unfortunately, recent years have seen some Commissioners take a narrow view of that mission and where harms emanate from . . . . [W]e should also protect the American people from harms that follow when we fail to robustly and comprehensively scrutinize our own policy efforts and advocacy, including for economic effects, and to anticipate potential unintended consequence.’’), https://www.ftc.gov/system/files/ftc_gov/pdf/ commissioner-holyoak-statement-social-media6b.pdf; cf. Dissenting Statement of Comm’r Melissa Holyoak, Joined by Comm’r Andrew N. Ferguson, In re Rytr, LLC, FTC Matter No. 2323052, at 5 (Sept. 25, 2024) (‘‘We must protect consumers through robust enforcement. Indeed, the Commission is at its best when it does so. But we must also think carefully about the potential harms to consumers and innovation that attend misguided enforcement. Today’s misguided complaint and its erroneous application of section 5 will likely undermine innovation in the AI space. I therefore respectfully dissent.’’), https://www.ftc.gov/system/files/ftc_gov/ pdf/holyoak-rytr-statement.pdf. 60 16 CFR 1.25, 1.31. 61 16 CFR 425.8. 62 Id. PO 00000 Frm 00070 Fmt 4701 Sfmt 4700 Raising potential costs for consumers through an improperly promulgated rule is not a desirable outcome at any time, but especially not in an inflationary economy. Businesses and consumers will not be alone in bearing increased costs. Conducting the exemption process will continue to drain FTC staff resources—reducing the time that our talented staff could devote to enforcing the clear authorities Congress has given us, such as ROSCA.63 A final point here. I also have concerns about the Commission’s economic analysis of the quantifiable benefits that may result from the Rule’s substantive requirements. For example, the Commission’s estimate related to the upper bound of the Rule’s benefits for consumers who cancel subscriptions with inperson enrollment is based in part on the complaints of 25 individual consumers in a single industry,64 and a number of other simplifying assumptions.65 But this selfselected group of 25 consumers does not comprise a random sample, even among people who were not able to cancel subscriptions with in-person enrollment on their first attempt.66 It is at least possible that other individuals who cancelled subscriptions in person had different experiences or expectations than these particular consumers—and therefore did not voice any complaint. Indeed, given that consumer experiences and expectations may vary significantly across industries and products, there is no reason to believe that balancing of harms and benefits of these consumers can be appropriately extrapolated to the entire economy. Thus, the Commission’s estimated benefits are not based on what could be characterized as a representative sample. Without knowing the frequency of consumers having significant difficulty cancelling in-person subscriptions, it is not possible to assess how much weight to place on the estimate of the high end of the range of benefits from the proposed rule. Most of the difference between the low-end and high-end estimates of benefits is driven by the estimate of the high end of the benefits for in-person subscriptions. III. This Rule is particularly disappointing because it represents two missed opportunities. In 2019, a bipartisan Commission unanimously voted in favor of 63 To be clear, my concern is not with the exemption process itself (or its inclusion in the Rule), but with the enormous work it must do to compensate for the overbreadth of the provision regarding misrepresentations. 64 See, e.g., SBP at 171 (‘‘Notwithstanding IHRSA’s assertion that many fitness clubs offer online cancellation, at least 25 individual consumers submitted comments attesting to the difficulties of canceling gym memberships.’’). 65 Id. at 173 (‘‘Based on these comments, the Commission makes the simplifying assumption that the worst gym membership cancellation experiences involve three failed attempts at cancellation, each costing one hour of time, and that, because of those cancellation failures, three unwanted monthly charges were processed.’’); see id. at 169–70 (explaining how, in its economic analysis for the Rule, ‘‘the Commission proxies the per-cancellation benefits of an additional, remote, method of cancellation by looking at those benefits in the context of gym memberships’’). 66 See id. at 171. E:\FR\FM\15NOR3.SGM 15NOR3 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations issuing the ANPR, which was intended to (1) consolidate the requirements from various laws the FTC enforces, providing businesses who have to navigate this patchwork with greater clarity, thereby benefiting both consumers and businesses; and (2) explore whether a Section 18 rule should fill any gaps ‘‘when marketers fail to make adequate disclosures, bill consumers without their consent, or make cancellation difficult or impossible.’’ 67 Today’s final Rule could have stayed that prudent course rather than expanding in scope and complexity as it has under this Commission. The second missed opportunity has taken place every day since the Commission expanded the scope of the rulemaking. This Commission chose to devote scarce staff resources to this overbroad rulemaking—one that seems likely to be challenged in court, which will lead to even more taxpayerfunded expenses—rather than direct our talented staff to draft a rule within the scope of our authority or bring enforcement actions khammond on DSKJM1Z7X2PROD with RULES3 67 84 FR 52393, 52394. VerDate Sep<11>2014 16:41 Nov 14, 2024 Jkt 265001 using clear legal authorities like ROSCA and TSR. In my time at the Commission, I have voted in support of numerous ROSCA cases, including NGL,68 Care.com,69 and Legion Media,70 and numerous TSR cases, including Career Step,71 Carshield,72 and Panda Benefit Services.73 As I have said elsewhere, I believe 68 FTC v. NGL Labs, LLC, No. 2:24–cv–5753 (C.D. Cal.), https://www.ftc.gov/legal-library/browse/ cases-proceedings/ngl. 69 FTC v. Care.com, Inc., No. 1:24–cv–987 (W.D. Tex.), https://www.ftc.gov/legal-library/browse/ cases-proceedings/carecom-inc-ftc-v. 70 FTC v. Legion Media LLC, FTC Matter No. 2423034, https://www.ftc.gov/legal-library/browse/ cases-proceedings/242-3034-legion-media-llc-et-alftc-v. 71 FTC v. Career Step, LLC, FTC Matter No. 2323019, https://www.ftc.gov/legal-library/browse/ cases-proceedings/232-3019-career-step-llc-ftc-v. 72 FTC v. NRRM, LLC, FTC Matter No. 2223031, https://www.ftc.gov/legal-library/browse/casesproceedings/2223031-carshield. 73 FTC v. Panda Benefit Servs., LLC, FTC Matter No. 2423041, https://www.ftc.gov/legal-library/ browse/cases-proceedings/2423041-panda-benefitservices-llc-ftc-v. PO 00000 Frm 00071 Fmt 4701 Sfmt 9990 90545 the Commission is at its best when it focuses on enforcing the law, not writing it.74 But I am not reflexively opposed to rulemaking where Congress has delegated the Commission relevant authority and we act consistent with that authority.75 Unfortunately, that is not what today’s Rule is. Instead, we have an ill-disguised political maneuver from the Majority in the form of a rule, one rushed to publication to advance the prospects of the Chair’s preferred presidential candidate. I dissent. [FR Doc. 2024–25534 Filed 11–14–24; 8:45 am] BILLING CODE 6750–01–P 74 Prepared Statement of Comm’r Melissa Holyoak, Fed. Trade Comm’n, Before the Subcomm. on Innovation, Data, and Commerce of the Energy and Commerce Comm., U.S. House of Representatives, Concerning ‘‘The Fiscal Year 2025 Federal Trade Commission Budget,’’ at 2–4 (July 9, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/ commissioner-holyoak-testimony-7-5-24.pdf. 75 Id. E:\FR\FM\15NOR3.SGM 15NOR3

Agencies

FEDERAL TRADE COMMISSION

[Federal Register Volume 89, Number 221 (Friday, November 15, 2024)]
[Rules and Regulations]
[Pages 90476-90545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25534]



[[Page 90475]]

Vol. 89

Friday,

No. 221

November 15, 2024

Part III





 Federal Trade Commission





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16 CFR Part 425





Negative Option Rule; Final Rule

Federal Register / Vol. 89 , No. 221 / Friday, November 15, 2024 / 
Rules and Regulations

[[Page 90476]]


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FEDERAL TRADE COMMISSION

16 CFR Part 425

RIN 3084-AB60


Negative Option Rule

AGENCY: Federal Trade Commission.

ACTION: Final rule.

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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') 
issues final amendments to the Commission's trade regulation ``Rule 
Concerning Use of Prenotification Negative Option Plans,'' retitled the 
``Rule Concerning Recurring Subscriptions and Other Negative Option 
Programs'' (``Rule,'' ``final Rule'' or ``Negative Option Rule''). The 
final Rule now applies to all negative option programs in any media. 
This document also contains the text of the final Rule, the Rule's 
Statement of Basis and Purpose (``SBP''), and a final regulatory 
analysis.

DATES: 
    Effective date: This rule is effective January 14, 2025.
    Compliance date: Regulated entities have until May 14, 2025 to 
comply with Sec. Sec.  425.4 through 425.6.

ADDRESSES: Relevant portions of the record of this proceeding, 
including this document, are available at https://www.ftc.gov.

FOR FURTHER INFORMATION CONTACT: Katherine Johnson, Attorney, (202) 
326-2185, [email protected], Division of Enforcement, Bureau of 
Consumer Protection, Federal Trade Commission, 600 Pennsylvania Ave. 
NW, Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

I. Overview

    The Commission commenced this proceeding because it had reason to 
believe unfair and deceptive negative option practices are widespread 
in the marketplace. Negative option programs can provide substantial 
benefits for sellers and consumers. However, consumers cannot realize 
these benefits when sellers make material misrepresentations to induce 
consumers to enroll in such programs, fail to provide important 
information, bill consumers without their consent, or make cancellation 
difficult or impossible. Unfair and deceptive negative option practices 
have been a persistent source of consumer harm for decades, saddling 
shoppers with recurring payments for products and services they never 
intended to purchase nor wanted to continue buying. In the past, the 
Commission sought to address these practices through individual law 
enforcement actions and a patchwork of laws and regulations. 
Nevertheless, problems persist, as demonstrated by both a steady stream 
of State and Federal law enforcement actions and thousands of consumer 
complaints each year. To address these practices, the Commission 
proposed amending the current Negative Option Rule to establish clear, 
enforceable performance-based requirements for all negative option 
features in all media. The Commission solicited comments first in an 
advance notice of proposed rulemaking (``ANPR'') and then on proposed 
amendments in a notice of proposed rulemaking (``NPRM''). The 
Commission designed these amendments to ensure consumers understand 
what they are purchasing and allow them to cancel their participation 
without undue burden.
    Among other things, this final Rule (1) prohibits 
misrepresentations of any material fact made while marketing using 
negative option features; (2) requires sellers to provide important 
information prior to obtaining consumers' billing information and 
charging consumers; (3) requires sellers to obtain consumers' 
unambiguously affirmative consent to the negative option feature prior 
to charging them; and (4) requires sellers to provide consumers with 
simple cancellation mechanisms to immediately halt all recurring 
charges.
    The Commission now promulgates a final Rule. Pursuant to 15 U.S.C. 
57a(a)(1)(B), the Rule, inter alia, defines the following acts and 
practices as unfair or deceptive within the meaning of section 5 of the 
FTC Act:
     to misrepresent any material fact made while marketing 
using a negative option feature (Sec.  425.3);
     to fail to clearly and conspicuously disclose material 
terms prior to obtaining a consumer's billing information in connection 
with a negative option feature (Sec.  425.4);
     to fail to obtain a consumer's express informed consent to 
the negative option feature before charging the consumer (Sec.  425.5); 
and
     to fail to provide a simple mechanism to cancel the 
negative option feature and immediately halt charges (Sec.  425.6).
    Further, the Rule, consistent with the final sentence of 15 U.S.C. 
57a(a)(1)(B) includes requirements prescribed for the purpose of 
preventing such acts or practices.
    The final Rule differs from the proposed Rule in two significant 
ways. First, the proposed Rule would have required sellers to provide 
annual reminders to consumers of the negative option feature. Second, 
the proposed Rule would have prohibited sellers from forcing consumers 
to receive saves \1\ without first obtaining consumers' unambiguously 
affirmative consent. The Commission has considered comments both 
supporting and opposing these proposed provisions. As explained in the 
section-by-section analysis, the Commission declines to adopt these 
provisions of the proposed Rule at this time. Instead, the Commission 
plans to seek further comment through a supplemental NPRM (``SNPRM''), 
and therefore, keeps the record open on these issues.\2\
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    \1\ Save was defined in the proposed Rule to mean an attempt by 
a seller to present any additional offers, modifications to the 
existing agreement, reasons to retain the existing offer, or similar 
information when a consumer attempts to cancel a negative option 
feature. Proposed Rule Sec.  425.2(f).
    \2\ See 16 CFR 1.11 (``Commission's Rules of Practice'' or 
``Commission Rules''); cf. Impersonation Rule, 89 FR 15072 (Feb. 29, 
2024).
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    Finally, in response to the comments, the Commission adds two 
definitions and two provisions to the final Rule for clarity. The final 
Rule explicitly defines the terms ``material'' and ``interactive 
electronic medium'' consistent with how they were defined and discussed 
in the NPRM. Additionally, the final Rule includes a severability 
provision and a provision allowing requests for exemptions from the 
final Rule consistent with the Commission's Rules of Practice.\3\
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    \3\ See 16 CFR 1.16.
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II. Background

A. Statutory Authority

    The Commission promulgates the final Negative Option Rule, 16 CFR 
part 425 pursuant to section 18 of the FTC Act, 15 U.S.C. 57a, the 
Administrative Procedure Act (``APA''), 5 U.S.C. 533; and part 1, 
subpart B of the Commission's Rules of Practice, 16 CFR 1.7-1.20. 
Section 18 permits the Commission to promulgate, amend, and repeal 
trade regulation rules that define with specificity acts or practices 
that are unfair or deceptive within the meaning of section 5(a)(1) of 
the FTC Act, 15 U.S.C. 45(a)(1); and allows the Commission to prescribe 
requirements for the purpose of preventing these unfair or deceptive 
acts and practices.

B. Negative Option Marketing

1. Negative Option Programs
    Negative option programs come in a variety of forms, but all share 
a central feature: each contain a term or condition that allows a 
seller to interpret a customer's silence, or failure to take an

[[Page 90477]]

affirmative action, as acceptance of an offer.\4\ Negative option 
programs generally fall into four categories: prenotification plans, 
continuity plans, automatic renewals, and free trial (i.e., free-to-pay 
or nominal-fee-to-pay) conversion offers.
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    \4\ The Commission's Telemarking Sales Rule defines a negative 
option feature as a provision in an offer or agreement to sell or 
provide any goods or services ``under which the customer's silence 
or failure to take an affirmative action to reject goods or services 
or to cancel the agreement is interpreted by the seller as 
acceptance of the offer.'' 16 CFR 310.2(w).
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    Prenotification plans are the only negative option practice 
currently covered by the Commission's current Negative Option Rule, 
originally promulgated in 1973. Under such plans (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 take no action to decline the offer. The periodic 
announcements and shipments can continue indefinitely. In continuity 
plans, consumers agree in advance to receive periodic shipments of 
goods or provision of services (e.g., bottled water delivery), which 
they continue to receive until they cancel the agreement. In automatic 
renewals, sellers (e.g., a magazine publisher, credit monitoring 
service provider, etc.) automatically renew consumers' subscriptions 
when they expire, unless consumers affirmatively cancel the 
subscriptions. Finally, in free-to-pay plans, consumers receive goods 
or services for free (or at a nominal fee) for a trial period. After 
the trial period, sellers automatically begin charging a fee (or higher 
fee) unless consumers affirmatively cancel or return the goods or 
services.
    Some negative option offers include upsell or bundled offers, where 
sellers use consumers' billing data to sell additional products from 
the same seller or pass consumers' billing data to a third party for 
their sales. An upsell occurs, e.g., when a consumer completes a first 
transaction and then receives a second solicitation for an additional 
product or service. A bundled offer occurs, e.g., when a seller 
packages two or more products or services together.
    Importantly, negative option programs are distinct from other 
continuing agreements such as installment contracts. In an installment 
contract, consumers are obligated for the entire contractual period for 
the entire contract. A prime example of this type of transaction is a 
contract for purchasing a vehicle, which outlines terms, such as price, 
interest rate, and payment schedule. The contract thus allows the 
consumer to pay the purchase price of the vehicle over time. Consumers' 
failure to pay amounts due under an installment agreement may bring the 
total balance due, and may trigger halting performance, or provide the 
seller with other contractual rights.
    A negative option, in contrast, merely determines whether a seller 
may continue to send, and charge for, goods or provide services without 
the consumer's further action. Notably, a contract could have both 
installment and negative option features. Take, for instance, a 
software license agreement. A consumer may purchase a software license 
for a year, in which the consumer is obligated for the entire year, 
payable monthly, to renew automatically at the conclusion of the year 
unless the consumer cancels the agreement.\5\ Canceling the agreement 
during the first year does not void a consumer's obligation to pay for 
the whole first year, but it does terminate the consumer's 
responsibility for the next year.
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    \5\ See, e.g., United States v. Adobe, Inc., No. 5:24-cv-03630 
(N.D. Cal. 2024).
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2. Prevalence of Deceptive or Unfair Negative Option Acts and Practices
    Negative option programs are widespread in the marketplace and can 
provide substantial benefits for sellers and consumers. For businesses, 
the benefits of negative option marketing include ``greater revenue 
predictability, customer base continuity, and the ability to better 
plan in advance.'' \6\ For consumers, such benefits may include 
opportunities to explore new products prior to purchase (e.g., free 
trials),\7\ broader selections at lower prices and transaction 
costs,\8\ and the convenience of uninterrupted products or services.\9\ 
However, consumers cannot reap these benefits when marketers 
misrepresent material facts, fail to make adequate disclosures, bill 
consumers without their consent, or make cancellation difficult or 
impossible. Over the years, such problematic practices have remained a 
persistent source of consumer harm, saddling consumers with recurring 
payments for products and services they never intended to purchase nor 
wanted to continue buying.
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    \6\ News/Media Alliance (``N/MA''), FTC-2023-0033-0873; see also 
Association of National Advertisers (``ANA''), FTC-2023-0033-1001; 
National Retail Federation (``NRF''), FTC-2023-0033-1005. Citations 
herein to comments are cited as the name of commenter and unique 
identifier (e.g., FTC-2023-0033-__). Comments are available online 
at regulations.gov, Negative Option Rule (NPRM), FTC-2023-0033-0001, 
https://www.regulations.gov/document/FTC-2023-0033-0001.
    \7\ N/MA, FTC-2023-0033-0873; Sirius XM Radio Inc. (``Sirius 
XM''), FTC-2023-0033-0857; NCTA--The Internet & Television 
Association (``NCTA''), FTC-2023-0033-0858; Interactive Advertising 
Bureau (``IAB''), FTC-2023-0033-1000.
    \8\ See IAB, FTC-2023-0033-1000; Sirius XM, FTC-2023-0033-0857; 
Joint Comment from Entertainment Software Association, Digital Media 
Association, and Motion Picture Association (``ESA''), FTC-2023-
0033-0867.
    \9\ N/MA, FTC 2023-0033-0873; NRF, FTC-2023-0033-1005; ANA, FTC-
2023-0033-1001.
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    The Commission tried to address these practices through individual 
law enforcement cases and a patchwork of regulations (see discussion at 
sections III-IV). Nevertheless, problems persist, as demonstrated in 
part by the tens of thousands of complaints consumers submit about 
these practices to the FTC each year. Moreover, the Commission and 
States continue to regularly bring cases challenging harmful negative 
option practices, including more than 35 recent FTC cases.\10\ These 
matters involved a range of deceptive or unfair practices, including 
inadequate disclosures for ``free'' offers and other products or 
services, enrollment without consumer consent, and inadequate or overly 
burdensome cancellation and refund procedures.\11\ As discussed further 
below, the continuing stream of cases; the high volume of ongoing 
complaints; and comments on the record all demonstrate prevalent unfair 
and deceptive practices and unabated consumer harm.
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    \10\ See, e.g., FTC v. FloatMe Corp., No. 5:24-cv-00001 (W.D. 
Tex. 2024); United States v. Adobe, Inc., No. 5:24-cv-03630 (N.D. 
Cal. 2024); FTC v. WealthPress, Inc., No. 3:23-cv-00046 (M.D. Fla. 
2023); FTC v. Bridge It, Inc., No. 1:23-cv-09651 (S.D.N.Y. 2023); 
FTC v. Amazon.com, Inc., No. 2:23-cv-0932 (W.D. Wash. 2023); see 
also n.60.
    \11\ E.g., FTC v. Triangle Media Corp., No. 3:18-cv-01388 (S.D. 
Cal. 2018); FTC v. Credit Bureau Ctr., LLC, No. 1:17-cv-00194 (N.D. 
Ill. 2017); FTC v. JDI Dating, Ltd., No. 1:14-cv-08400 (N.D. Ill. 
2014); FTC v. One Techs., LP, No. 3:14-cv-05066 (N.D. Cal. 2014); 
FTC v. Health Formulas, LLC, No. 2:14-cv-01649 (D. Nev. 2014); FTC 
v. NutraClick, LLC, No. 2:16-cv-06819 (C.D. Cal. 2016); FTC v. XXL 
Impressions, LLC, No. 1:17-cv-00067 (D. Me. 2017); FTC v. AAFE 
Prods. Corp., No. 3:17-cv-00575 (S.D. Cal. 2017); FTC v. Pact, Inc., 
No. 2:17-cv-1429 (W.D. Wash. 2017); FTC v. Tarr, No. 3:17-cv-02024 
(S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 1:17-cv-09083 (S.D.N.Y. 
2017); FTC v. DOTAuthority.com, Inc., No. 0:16-cv-62186 (S.D. Fla. 
2016); FTC v. BunZai Media Grp., Inc., No. 2:15-cv-04527 (C.D. Cal. 
2015); FTC v. RevMountain, LLC, No. 2:17-cv-02000 (D. Nev. 2017).
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III. The FTC'S Existing Regulatory Scheme

A. The FTC's Current Negative Option Rule

    The Commission first promulgated the Rule in 1973 pursuant to the 
FTC Act, 15 U.S.C. 41 et seq., finding some negative option marketers 
committed

[[Page 90478]]

unfair and deceptive practices that violated section 5 of the Act, 15 
U.S.C. 45. Based on practices at the time, however, the Rule only 
applied to prenotification plans for the sale of goods, and therefore, 
does not reach the vast majority of modern negative option 
programs.\12\
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    \12\ The 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 that 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).
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    Specifically, the Rule required prenotification plan sellers to 
disclose their plans' material terms clearly and conspicuously before 
consumers subscribe. To do so, it required sellers to disclose seven 
material terms: (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.\13\ In addition, sellers had to disclose the 
specific periods during which they would 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.\14\
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    \13\ 16 CFR 425.1(a)(1)(i)-(vii).
    \14\ 16 CFR 425.1(a)(2) and (3); id. 425.1(b).
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B. Other Current Regulatory Requirements

    Several other statutes and regulations also address harmful 
negative option practices. First, section 5 of the FTC Act has served 
as the Commission's primary mechanism for addressing deceptive negative 
option claims. Additionally, the Restore Online Shoppers' Confidence 
Act (``ROSCA''), 15 U.S.C. 8401-8405, the Telemarketing Sales Rule 
(``TSR''), 16 CFR part 310, the Postal Reorganization Act (i.e., the 
Unordered Merchandise Statute), 39 U.S.C. 3009, and the Electronic Fund 
Transfer Act (``EFTA''), 15 U.S.C. 1693-1693r, all address various 
aspects of negative option marketing. ROSCA, however, is the only law 
primarily designed to do so, but only for online transactions.
1. Section 5 of the FTC Act
    Section 5(a) of the FTC Act, 15 U.S.C. 45(a), is the core consumer 
protection statute enforced by the Commission. That statute broadly 
prohibits ``unfair or deceptive acts or practices'' but does not 
specifically address negative option marketing.\15\ Therefore, in 
guidance and cases, the FTC has highlighted six basic requirements 
negative option marketing must follow to avoid deceptive and unfair 
practices.\16\ First, marketers must disclose the material terms of a 
negative option offer including, at a minimum: the existence of the 
negative option offer; the offer's total cost; the transfer of a 
consumer's billing information to a third party, if applicable; and how 
to cancel the offer. Second, section 5 requires these disclosures to be 
clear and conspicuous. Third, sellers must disclose the material terms 
of the negative option offer before consumers agree to the purchase. 
Fourth, marketers must obtain consumers' consent to such offers. Fifth, 
marketers must not impede the effective operation of promised 
cancellation procedures and must honor cancellation requests that 
comply with those procedures. Finally, marketers cannot make any 
material misrepresentation regarding any portion of the transaction.
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    \15\ Under the FTC Act, ``unfair or deceptive acts or 
practices'' include 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). Section 5(n) of the 
FTC Act provides that ``unfair'' practices are 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).
    \16\ See Negative Options: A Report by the Staff of the FTC's 
Division of Enforcement, 26-29 (Jan. 2009) (``Staff Report''), 
https://www.ftc.gov/reports/negative-options-federal-trade-commission-workshop-analyzing-negative-option-marketing-report-staff. In discussing the principal Section 5 requirements related to 
negative options, the report cites the following pre-ROSCA cases, 
FTC v. JAB Ventures, LLC, No. 2:08-cv-04648 (C.D. Cal. 2008); FTC v. 
Complete Weightloss Ctr., No. 1:08-cv-00053 (D.N.D. 2008); FTC v. 
Berkeley Premium Nutraceuticals, No. 1:06-cv-00051 (S.D. Ohio 2006); 
FTC v. Think All Publ'g, LLC, No. 4:07-cv-00011 (E.D. Tex. 2006); 
FTC v. HispaNexo, Inc., No. 1:06-cv-424 (E.D. Va. 2006); FTC v. 
Consumerinfo.com, No. 8:05-cv-00801 (C.D. Cal. 2005); FTC v. 
Conversion Mktg., No. 8:04-cv-01264 (C.D. Cal. 2004); United States 
v. Mantra Films, Inc., No. 2:03-cv-9184 (C.D. Cal. 2003); FTC v. 
Preferred Alliance, Inc., No. 1:03-cv-0405 (N.D. Ga. 2003); United 
States v. Prochnow, No. 1:02-cv-917 (N.D. Ga. 2002); FTC v. 
Ultralife Fitness, Inc., No. 2:08-cv-07655 (C.D. Cal. 2008); In re 
America Isuzu Motors, FTC Docket No. C-3712 (1996); FTC v. Universal 
Premium Servs., No. 2:06-cv-00849 (C.D. Cal. 2006); FTC v. Remote 
Response Corp., No. 1:06-cv-20168 (S.D. Fla. 2006). The report also 
cited the FTC's previously issued guidance, Dot Com Disclosures 
(2002), archived at https://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-staff-issues-guidelines-internet-advertising/0005dotcomstaffreport.pdf. See also nn.245-252.
---------------------------------------------------------------------------

    In addition to these deception-based requirements, the Commission 
has repeatedly stated billing consumers without consumers' express 
informed consent is an unfair act under the FTC Act.\17\
---------------------------------------------------------------------------

    \17\ Courts have found unauthorized billing to be unfair under 
the FTC Act. See, e.g., FTC. v. Neovi, Inc., 604 F.3d 1150, 1157-59 
(9th Cir. 2010), amended by 2010 WL 2365956 (9th Cir. June 15, 
2010); FTC v. Amazon.com, Inc., No. 2:14-cv-1038, 2016 WL 10654030, 
at *8 (W.D. Wash. Apr. 26, 2016); FTC v. Ideal Fin. Sols., Inc., No. 
2:13-cv-00143, 2015 WL 4032103, at *8 (D. Nev. June 30, 2015).
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2. ROSCA
    Enacted by Congress in 2010 to address, in part, ongoing problems 
with online negative option marketing, ROSCA contains general 
provisions related to disclosures, consent, and cancellation.\18\ 
Specifically, ROSCA prohibits charging or attempting to charge 
consumers for goods or services sold on the internet through any 
negative option feature unless the marketer: (1) clearly and 
conspicuously discloses all material terms of the transaction before 
obtaining the consumer's billing information, regardless of whether a 
material term directly relates to the terms of the negative option 
offer; \19\ (2) obtains a consumer's express informed consent before 
charging the consumer's account; and (3) provides simple mechanisms for 
the consumer to stop recurring charges.\20\ ROSCA, however, does not 
prescribe specific steps marketers must follow to comply with these 
provisions and is limited to online transactions.
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    \18\ 15 U.S.C. 8401-8405.
    \19\ ROSCA, 15 U.S.C. 8403(1); see also In re MoviePass, Inc., 
FTC Docket No. C-4751 (2021).
    \20\ 15 U.S.C. 8403. ROSCA incorporates the definition of 
``negative option feature'' from the TSR, 16 CFR 310.2(w).
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    Furthermore, pursuant to the statute, a violation of ROSCA is 
treated as 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, damages, and other 
relief under section 19 of the FTC Act.\24\
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    \21\ 15 U.S.C. 8404 (citing section 18 of the FTC Act, 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), (b).
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3. Telemarketing Sales Rule
    The TSR prohibits deceptive telemarketing acts or practices,

[[Page 90479]]

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.\25\ The TSR, 
however, only applies to negative option offers made over the 
telephone.
---------------------------------------------------------------------------

    \25\ 16 CFR 310.3(a).
---------------------------------------------------------------------------

4. Other Relevant Requirements
    EFTA \26\ and the Unordered Merchandise Statute \27\ also contain 
provisions relevant to unfair and deceptive negative option marketing. 
EFTA prohibits sellers from imposing recurring charges on a consumer's 
debit cards or bank accounts without written authorization.\28\ 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.\29\
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    \26\ 15 U.S.C. 1693-1693r.
    \27\ 39 U.S.C. 3009.
    \28\ EFTA provides that the Commission shall enforce its 
requirements, except to the extent that enforcement is specifically 
committed to some other Federal government agency, and that a 
violation of any of its requirements shall be deemed a violation of 
the FTC Act. Accordingly, the Commission has authority to seek 
injunctive relief for EFTA violations, just as it can seek 
injunctive relief for other section 5 violations.
    \29\ The Commission has authority to seek the same remedies for 
violations of the Unordered Merchandise Statute that it can seek for 
other section 5 violations. The Commission can seek civil penalties 
pursuant to section 5(m)(1)(B) of the FTC Act from violators who 
have actual knowledge that the Commission has found mailing 
unordered merchandise unfair. 15 U.S.C. 45(m)(1)(B).
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IV. Limitations of Existing Regulatory Requirements

    The existing patchwork of laws and regulations does not provide 
industry and consumers with a consistent legal framework across media 
and offers. For instance, as discussed above, the current Rule does not 
cover common practices such as continuity plans, automatic renewals, 
and free-to-pay conversions.\30\ In addition, ROSCA and the TSR do not 
address negative option programs in all media. Yet, harmful negative 
option practices that fall outside of ROSCA and the TSR's coverage 
still occur.\31\
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    \30\ Indeed, the prenotification plans covered by the Rule 
represent only a small fraction of negative option marketing. In 
2017, for instance, the Commission estimated that fewer than 100 
sellers (``clubs'') were subject to the current Rule's requirements. 
82 FR 38907, 38908 (Aug. 16, 2017).
    \31\ See, e.g., In re Dun & Bradstreet, Inc., FTC Docket No. C-
4761 (2022); FTC v. Nobetes Corp., No. 2:18-cv-10068 (C.D. Cal. 
2018); FTC v. Dill, No. 2:16-cv-00023 (D. Me. 2016); FTC v. Shopper 
Sys., LLC, No. 1:12-cv-23919 (S.D. Fla. 2012); FTC v. XXL 
Impressions, LLC, No. 1:17-cv-00067 (D. Me. 2017); FTC v. Health 
Rsch. Labs., LLC, No. 2:17-cv-00467 (D. Me. 2017); FTC v. Mktg. 
Architects, No. 2:18-cv-00050 (D. Me. 2018); see also Individual 
commenter, FTC-2023-0033-0007 (discussing deceptive and unfair 
negative option practices for in-person enrollment); Individual 
commenter, FTC-2023-0033-0129 (gym membership in-person enrollment); 
Individual commenter, FTC-2023-0033-0299 (same).
---------------------------------------------------------------------------

    Additionally, ROSCA lacks specificity about cancellation procedures 
and the placement, content, and timing of cancellation-related 
disclosures. Instead, the statute requires marketers to provide 
``simple mechanisms'' for the consumer to stop recurring charges 
without guidance about what is simple. While the statute provides more 
than adequate specificity to avoid blatant violations, it makes law 
enforcement actions much more difficult for closer calls, even when 
these practices cause significant harm.

V. Negative Option Rulemaking and Enforcement Efforts

    The Commission initiated its last regulatory review of the Negative 
Option Rule in 2009,\32\ following a 2007 FTC workshop and subsequent 
Staff Report.\33\ The Commission completed the review in 2014.\34\ At 
the time, the Commission found the comments supporting the Rule's 
expansion ``argue convincingly that unfair, deceptive, and otherwise 
problematic negative option marketing practices continue to cause 
substantial consumer injury, despite determined enforcement efforts by 
the Commission and other law enforcement agencies.'' \35\ It also noted 
practices not covered by the Rule (e.g., trial conversions and 
continuity plans) accounted for most of the Commission's enforcement 
activity in this area. Nevertheless, the Commission declined to expand 
or modify the Rule because the enforcement tools provided by the TSR 
and, especially, ROSCA, which had only recently become effective, might 
prove adequate to address the extant problems. The Commission 
emphasized, however, if ROSCA and its other enforcement tools failed to 
protect consumers, the Commission would consider whether and how to 
amend the Rule.\36\ Since that review, the problems with negative 
options have persisted.\37\
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    \32\ 74 FR 22720 (May 14, 2009).
    \33\ See Staff Report, n.16.
    \34\ 79 FR 44271 (July 31, 2014).
    \35\ 79 FR 44275. The Commission cited a number of its law 
enforcement actions challenging negative option marketing practices, 
including, for example, FTC v. Process Am., Inc., No. 2:14-cv-00386 
(C.D. Cal. 2014) (processing of unauthorized charges relating to 
negative option marketing); FTC v. Willms, No. 2:11-cv-00828 (W.D. 
Wash. 2011) (internet free trials and continuity plans); FTC v. 
Moneymaker, No. 2:11-cv-00461 (D. Nev. 2011) (internet trial offers 
and continuity programs); FTC v. Johnson, No. 2:10-cv-02203 (D. Nev. 
2010) (internet trial offers); and FTC v. John Beck Amazing Profits, 
LLC, No. 2:09-cv-04719 (C.D. Cal. 2009) (infomercial and 
telemarketing trial offers and continuity programs).
    \36\ 79 FR 44275-76.
    \37\ See sections VI-VII of this SBP.
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VI. Rule Review and Request for Comment

A. 2019 Advance Notice of Proposed Rulemaking

    Given the persistence of unfair and deceptive practices despite 
significant law enforcement attention at both the Federal and State 
level, the Commission published its 2019 advance notice of proposed 
rulemaking (``ANPR'') seeking comments on the current Rule, as well as 
possible new measures to reduce consumer harm created by deceptive or 
unfair negative option marketing.\38\ Specifically, the Commission 
sought comment on various alternatives, including amendments to 
existing rules to further address disclosures, consumer consent, and 
cancellation. The Commission also requested input on whether and how it 
should use its authority under section 18 of the FTC Act to expand the 
Negative Option Rule to address prevalent unfair or deceptive practices 
involving negative option marketing.\39\ In response, the Commission 
received 17 comments.\40\
---------------------------------------------------------------------------

    \38\ ANPR, 84 FR 52393 (Oct. 2, 2019).
    \39\ Section 18 of the FTC Act authorizes the Commission to 
promulgate rules that define with specificity acts or practices in 
or affecting commerce which are unfair or deceptive. 15 U.S.C. 
57a(a)(1)(B). The Commission may issue regulations ``where it has 
reason to believe that the unfair or deceptive acts or practices 
which are the subject of the proposed rulemaking are prevalent.'' 15 
U.S.C. 57a(b)(3). The Commission may make such a prevalence finding 
if it has issued cease and desist orders regarding such acts or 
practices, or any other available information indicates a widespread 
pattern of unfair or deceptive acts or practices. Rules under 
section 18 ``may include requirements prescribed for the purpose of 
preventing such acts or practices.''
    \40\ The comments are available online. See Regulations.gov, 
Negative Option Rule (ANPR), FTC-2019-0082, https://www.regulations.gov/docket/FTC-2019-0082.
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B. 2021 Enforcement Policy Statement

    On November 4, 2021, the Commission published an ``Enforcement 
Policy Statement Regarding Negative Option Marketing'' (``2021 
Enforcement Policy Statement'' or ``EPS'') to provide guidance 
regarding its enforcement of

[[Page 90480]]

various statutes and FTC regulations.\41\ The 2021 Enforcement Policy 
Statement enunciated various principles rooted in FTC case law and 
restated previous guidance related to the provision of information to 
consumers, consent, and cancellations. Among these principles, the 
Statement emphasized ROSCA's requirement that sellers disclose all 
material terms related to the underlying product or service that are 
necessary to prevent deception, regardless of whether that term relates 
directly to the terms of the negative option offer.\42\ In addition, 
consistent with ROSCA, judicial decisions applying section 5, and cases 
brought by the Commission, the 2021 Enforcement Policy Statement 
reiterated sellers should obtain consumers' acceptance of the negative 
option feature separately from any other portion of the transaction. 
Finally, the Statement explained sellers should provide cancellation 
mechanisms at least as easy to use as the method the consumer employed 
to initiate the negative option feature.
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    \41\ EPS, 86 FR 60822 (Nov. 4, 2021).
    \42\ The Commission recently alleged a negative option seller's 
failure to disclose it was impeding access to its movie subscription 
service violates ROSCA. In re MoviePass, Inc., FTC Docket No. C-4751 
(2021).
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C. 2023 Notice of Proposed Rulemaking

    After reviewing the comments received in response to the ANPR and 
issuing the 2021 Enforcement Policy Statement, the Commission issued a 
notice of proposed rulemaking (``NPRM'') on April 23, 2023 (88 FR 
24716). In the NPRM, the Commission proposed amending the existing Rule 
to prohibit material misrepresentations and to require sellers to 
provide important information to consumers, obtain consumers' express 
informed consent, and ensure consumers can easily cancel negative 
option programs if they choose. All these proposed changes would be 
applicable to all forms of negative option marketing across all media 
(e.g., telephone, internet, traditional print media, and in-person 
transactions).\43\
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    \43\ The Commission proposed to issue such amendments pursuant 
to section 18 of the FTC Act, which authorizes it to promulgate 
rules specifying acts or practices in or affecting commerce which 
are unfair or deceptive. 15 U.S.C. 57a(a)(1)(B). Several commenters 
raised concerns the Commission failed to follow section 18's 
procedures for two reasons. First, commenters argued the 
Commission's proposed Rule went beyond the scope of the ANPR. See, 
e.g., ESA, FTC-2023-0033-0867; USTelecom-The Broadband Association 
(``USTelecom''), FTC-2023-0033-0876; Retail Industry Leaders 
Association (``RILA''), FTC-2023-0033-0883; U.S. Chamber of Commerce 
(``Chamber''), FTC-2023-0033-0885; The Computer & Communications 
Industry Association (``CCIA''), FTC-2023-0033-0984; IAB, FTC-2023-
0033-1000; National Retail Federation (``NRF''), FTC-2023-0033-
1005). Second, they argued the Commission's proposed Rule did not 
satisfy the specificity and prevalence requirements of section 18. 
The Commission addresses these comments in section VII.A.
---------------------------------------------------------------------------

    The Commission designed the proposed amendments to curb deceptive 
or unfair practices occurring in negative option marketing. The 
Commission sought public comment on ``all aspects'' of the proposal, 
``including the likely effectiveness of the proposed Rule in helping 
the Commission combat unfair or deceptive practices in negative option 
marketing.'' \44\ The Commission further identified specific questions 
and areas where it solicited available data and evidence, including 
data and evidence supporting alternatives to the proposed 
regulations.\45\ The Commission did not identify any disputed issues of 
material fact that needed to be resolved at an informal hearing.\46\ 
The comment period closed on June 23, 2023.
---------------------------------------------------------------------------

    \44\ NPRM, 88 FR 24730.
    \45\ See NPRM, 88 FR 24728 (inviting comments on free trials); 
id. at 24729 (requesting comments on proposed annual reminder 
provision); id. at 24730 (inviting comments on conflicts with 
existing state requirements; id. (seeking comments on proposed 
material changes provision and exempted activities or entities); id. 
(inviting submissions of ``data, views, and arguments on the 
proposed amendments''); id. at 24732-33 (inviting comments on the 
impacts on small businesses, including any modifications to reduce 
costs or burdens for small entities); id. at 24734 (inviting 
comments on the Paperwork Reduction Act analysis). See also id. at 
24730 (NPRM section XIII, Request for Comments).
    \46\ See 16 CFR 1.11(e).
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    In response, the Commission received more than 16,000 comments, and 
published the 1,162 unique comments from stakeholders representing a 
wide range of viewpoints.\47\ Although some commenters raised concerns 
and recommended specific modifications or additions to the proposed 
Rule (some of which the Commission adopts as discussed herein), the 
majority generally supported the Rule. The Commission discusses these 
comments in section VII below.
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    \47\ Unique public comments to the NPRM are available online. 
See regulations.gov, Negative Option Rule (NPRM), FTC-2023-0033-
0001, https://www.regulations.gov/document/FTC-2023-0033-0001. The 
Commission published 1,162 unique comments. As explained at 
regulations.gov, agencies may withhold duplicate/near duplicate 
examples of a mass-mail campaign. See Gen. Servs. Admin., 
Regulations.gov Frequently Asked Questions, Find Dockets, Documents, 
and Comments FAQs, ``How are comments counted and posted to 
Regulations.gov?,'' https://www.regulations.gov/faq. The Commission 
cannot quantify the number of individuals or entities represented by 
the comments. The number of comments undercounts the number of 
individuals or entities represented by the comments because many 
comments, including those from different types of organizations, 
jointly represent the opinions or interests of many. Overall, the 
Commission received 16,612 comments. Of those, 15,449 were not 
posted online for various reasons (i.e., 14 unrelated, 23 
duplicates, and 15,412 that appear to be non-unique responses to 
mass media campaigns) and one comment was withdrawn. The Commission 
has considered all timely and responsive public comments it received 
in response to its NPRM.
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D. Informal Hearing and Recommended Decision

    Section 18 of the Federal Trade Commission Act, 15 U.S.C. 57a, and 
the Commission's Rules of Practice, 16 CFR 1.11(e),\48\ provide 
interested persons the opportunity to make an oral statement at an 
informal hearing upon request.\49\ The Commission received six \50\ 
such requests. Additionally, although the Commission did not designate 
any disputed issues of material fact in the NPRM, two interested 
commenters, IAB and NCTA, proposed the Commission consider several 
potential disputed issues of material fact.\51\
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    \48\ The FTC Act provides that ``an interested person is 
entitled to present his position orally or by documentary submission 
(or both).'' 15 U.S.C. 57a(c)(2)(A).
    \49\ 16 CFR 1.11(e).
    \50\ The six requesters were (1) International Franchise 
Association; (2) TechFreedom; (3) Performance Driven Marketing 
Institute; (4) NCTA--The Internet & Television Association; (5) 
Frontdoor; and (6) Interactive Advertising Bureau. All but one--
TechFreedom--identified their interest in the proceeding either as 
industry groups or private companies.
    \51\ See Notice of Informal Hearing (``Hearing Notice''), 88 FR 
85525, 85526 (Dec. 8, 2023).
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    On December 8, 2023, the Commission published an Initial Notice of 
Informal Hearing (88 FR 85525, ``Hearing Notice''). The Hearing Notice 
designated the Honorable Carol Fox Foelak, Administrative Law Judge for 
the Securities Exchange Commission, to serve as the presiding officer 
of the informal hearing and scheduled the informal hearing for January 
16, 2024. In the Hearing Notice, the Commission again did not designate 
any disputed issues of material fact, finding the issues raised by IAB 
and NCTA did not need to be resolved at the informal hearing through 
cross-examination.\52\
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    \52\ 88 FR 85526-27.
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    On January 16, 2024, Judge Foelak commenced the informal hearing, 
at which IAB, NCTA, Performance Driven Marketing Institute (``PDMI''), 
TechFreedom, and the International Franchise Association (``IFA'') 
appeared and made oral submissions subject to cross-examination.\53\ 
Included in their oral and written submissions, IAB and

[[Page 90481]]

NCTA renewed their requests to have the presiding officer designate 
disputed issues of material fact.\54\ Following the hearing, Judge 
Foelak designated two disputed issues: (1) will the proposed rule have 
an annual effect on the national economy of $100 million or more?; and 
(2) what will the recordkeeping and disclosure costs associated with 
the proposed rule be? Judge Foelak held subsequent hearings on January 
31, 2024, and February 14, 2024. She allowed post-hearing briefs filed 
by February 22, and February 28, 2024, respectively, and issued her 
recommended decision on April 12, 2024. Based on the evidence, the 
presiding officer found: (1) the proposed Rule will have an annual 
effect on the national economy of $100 million or more; and (2) there 
is insufficient evidence to make a finding regarding the size of the 
recordkeeping and disclosure costs associated with the proposed 
Rule.\55\
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    \53\ The Hearing Notice also allowed interested persons to make 
additional written submissions. The following interested parties 
timely filed additional written submissions on December 22, 2023: 
(1) BSA--The Software Alliance; (2) PDMI; (3) U.S. Chamber of 
Commerce; (4) IAB; (5) NCTA; and two individuals. All filings 
related to the Hearing Notice are available online at 
regulations.gov at https://www.regulations.gov/document/FTC-2023-0073-0001.
    \54\ Subsequently, IFA also asserted there were disputed issues 
of material fact regarding the impact to both small businesses and 
their consumers. IFA, FTC-2024-0001-0009.
    \55\ Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-2024-0001-0042.
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VII. Discussion of Final Rule

A. Legal Standard for Promulgating the Final Rule

    As explained above in section II, the Commission promulgates the 
final Rule, 16 CFR part 425, pursuant to section 18 of the FTC Act, 
also known as Magnuson-Moss rulemaking (``Magnuson-Moss''). Under 
section 18 and the Commission Rules,\56\ to promulgate a rule the 
Commission must: (1) issue a SBP with statements detailing: (a) the 
prevalence of the acts or practices treated by the rule; (b) the manner 
and context in which such acts or practices are unfair or deceptive; 
and (c) the economic effect of the rule, taking into account the effect 
on small business and consumers; and (2) ``define with specificity acts 
or practices which are unfair or deceptive.'' The Commission addresses 
these requirements in part A.1-2. In part A.3, the Commission addresses 
additional legal issues, including the ANPR's scope and the ``major 
questions'' doctrine.
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    \56\ 15 U.S.C. 57a and 16 CFR 1.14(a)(1).
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1. Statements Required Under Section 18(d) of the FTC Act
(a) Statement Regarding Prevalence of the Acts and Practices Treated by 
the Rule
    Under the Magnuson-Moss statute, the Commission may promulgate 
rules if it ``has reason to believe that the unfair or deceptive acts 
or practices which are the subject of the proposed rulemaking are 
prevalent.'' \57\ An act or practice is ``prevalent'' if the FTC has 
previously issued cease and desist orders regarding the act or 
practice, or if ``any other information available to the Commission 
indicates a widespread pattern of unfair or deceptive acts or 
practices.'' \58\ Based on the rulemaking record, the Commission has 
more than sufficient reason to believe unfair or deceptive acts and 
practices in the negative option marketplace are prevalent. These 
practices include: (1) material misrepresentations made while marketing 
using negative option features to induce consumers to enter into 
negative option programs; (2) failure to provide important information 
about material terms prior to billing consumers; (3) lack of informed 
consumer consent; and (4) failure to provide consumers with a simple 
cancellation method, including failure to honor cancellation requests, 
refusal to provide refunds to consumers who unknowingly enrolled in 
programs, denying consumers refunds, forcing them to pay to return the 
unordered goods, requiring consumers to cancel using a more difficult 
method than the one used to sign up for the program, and forcing 
consumers to contend with multiple upsells before allowing 
cancellation.\59\ These practices cause consumer harm by luring 
consumers into purchasing goods and services they do not want, or 
ensnaring consumers into unwanted recurring payments that are difficult 
or impossible to cancel.
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    \57\ 15 U.S.C. 57a(b)(3).
    \58\ 15 U.S.C. 57a(b)(3)(A)-(B); see also Compassion Over 
Killing v. FDA, 849 F.3d 849, 855 (9th Cir. 2017).
    \59\ NPRM, 88 FR 24725.
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    The Commission relies on substantial evidence in the record showing 
a widespread pattern of unfair or deceptive conduct in the negative 
option marketplace. This evidence generally falls into three 
categories: State, private, and Federal actions (including 
administrative and Federal court FTC law enforcement actions); consumer 
complaints and comments; and studies. The Commission discusses each in 
turn below.
    Federal, State, and Private Actions. As discussed in the ANPR and 
NPRM, the volume of enforcement efforts in recent years seeking to stem 
illegal negative option marketing is significant. These matters involve 
a range of deceptive and unfair practices, including: failure to 
adequately disclose the existence of negative options, including after 
the expiration of free trials; enrollment without consumer consent; and 
inadequate or unnecessarily burdensome cancellation and refund 
procedures. The FTC itself has brought at least 35 such cases in the 
years since ROSCA was enacted.\60\ The Consumer Financial Protection 
Bureau (``CFPB'') also has brought many of its own negative option 
cases.\61\ Truth in Advertising, Inc. (``TINA''),\62\ a consumer 
advocacy organization, stated in 2019 that more than 100 Federal class 
actions involving various negative option terms and conditions have 
been filed since 2014. Notwithstanding these actions, according to 
TINA, ``the incidence of deceptive negative option

[[Page 90482]]

offers continues to rise.'' \63\ TINA also reports that deceptive 
negative options ``have only continued to grow'' since its 2019 
comment.\64\
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    \60\ In the NPRM, the Commission cited a number of its law 
enforcement actions challenging negative option marketing practices, 
including, for example, FTC v. Process Am., Inc., No. 1:14-cv-00386 
(C.D. Cal. 2014) (processing of unauthorized charges relating to 
negative option marketing); FTC v. Willms, No. 2:11-cv-00828 (W.D. 
Wash. 2011) (internet free trials and continuity plans); FTC v. 
Moneymaker, No. 2:11-cv-00461 (D. Nev. 2011) (internet trial offers 
and continuity programs); FTC v. Johnson, No. 2:10-cv-02203 (D. Nev. 
2010) (internet trial offers); and FTC v. John Beck Amazing Profits, 
LLC, No. 2:09-cv-04719 (C.D. Cal. 2009) (infomercial and 
telemarketing trial offers and continuity programs). Further 
examples of these matters include: FTC v. Triangle Media Corp., No. 
3:18-cv-01388 (S.D. Cal. 2018); FTC v. Credit Bureau Ctr., LLC, No. 
1:17-cv-00194 (N.D. Ill. 2017); FTC v. JDI Dating, Ltd., No. 1:14-
cv-08400 (N.D. Ill. 2014); FTC v. One Techs., LP, No. 3:14-cv-05066 
(N.D. Cal. 2014); FTC v. Health Formulas, LLC, No. 2:14-cv-01649 (D. 
Nev. 2014); FTC v. NutraClick, LLC, No. 2:16-cv-06819 (C.D. Cal. 
2016); FTC v. XXL Impressions, LLC, No. 1:17-cv-00067 (D. Me. 2017); 
FTC v. AAFE Prods. Corp., No. 3:17-cv-00575 (S.D. Cal. 2017); FTC v. 
Pact, Inc., No. 2:17-cv-1429 (W.D. Wash. 2017); FTC v. Tarr, No. 
3:17-cv-02024 (S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 1:17-cv-
09083 (S.D.N.Y. 2017); FTC v. DOTAuthority.com, Inc., No. 0:16-cv-
62186 (S.D. Fla. 2016); FTC v. BunZai Media Grp., Inc., No. 2:15-cv-
04527 (C.D. Cal. 2015); and FTC v. RevMountain, LLC, No. 2:17-cv-
02000 (D. Nev. 2017); see also FTC v. WealthPress, Inc., No. 3:23-
cv-00046 (M.D. Fla. 2023); FTC v. Bridge It, Inc., No. 1:23-cv-09651 
(S.D.N.Y. 2023); FTC v. Amazon.com, Inc., No. 2:23-cv-0932 (W.D. 
Wash. 2023); FTC v. FloatMe Corp., No. 5:24-cv-00001 (W.D. Tex. 
2024); United States v. Adobe, Inc., No. 5:24-cv-03630 (N.D. Cal. 
2024).
    \61\ See, e.g., CFPB v. Transunion, No. 1:22-cv-01880 (N.D. Ill. 
2022); CFPB v. ACTIVE Network, LLC, No. 4:22-cv-00898 (E.D. Tex. 
2022); CFPB v. Sterling Jewelers, Inc., No. 1:19-cv-00448 (S.D.N.Y. 
2019); In re Equifax Inc., et al., CFPB No. 2017-CFPB-0001, 2017 WL 
1036710 (Jan. 3, 2017) (consent order); CFPB v. Prime Mktg. 
Holdings, LLC, No. 2:16-cv-07111 (C.D. Cal. 2016); In re Transunion 
Interactive, Inc., et al., CFPB No. 2017-CFPB-0002, 2017 WL 1036711 
(Jan. 3, 2017) (consent order); CFPB v. Student Financial Aid 
Servs., Inc., No. 2:15-cv-00821 (E.D. Cal. 2015); CFPB v. Affinion 
Group Holdings, Inc., No. 5:15-cv-01005 (D. Conn. 2015); CFPB v. 
Intersections Inc., No. 1:15-cv-835 (E.D. Va. 2015). Notably, the 
CFPB has independent authority to enforce FTC rules, and both 
agencies share some overlapping jurisdiction. See 12 U.S.C. 
5581(b)(5)(B)(ii).
    \62\ TINA, FTC-2019-0082-0014 (cmt. to ANPR, https://www.regulations.gov/comment/FTC-2019-0082-0014) and FTC-2023-0033-
1139 (cmt. to NPRM).
    \63\ NPRM, 88 FR 24720.
    \64\ TINA, FTC-2023-0033-1139.
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    Several state Attorneys General \65\ also referenced dozens of 
enforcement actions taken in recent years to address the proliferation 
of deceptive negative option practices they regularly encounter, 
including the ``lack of informed consumer consent, lack of clear and 
conspicuous disclosures, failure to honor cancellation requests and/or 
refusal to provide refunds to consumers who unknowingly enrolled in 
plans.'' \66\ These agencies explained their actions ``demonstrate that 
problems persist in this area and that additional regulatory action is 
needed.'' \67\ For example, over the last decade, New York alone has 
reached 23 negative option settlements involving a variety of products 
and services such as membership programs, credit monitoring, dietary 
supplements, and apparel.\68\ They also described several multi- and 
individual state law enforcement actions involving negative option 
offers for products and services such as satellite radio, social 
networking services, language learning programs, security monitoring, 
and dietary supplements. They further recounted numerous, illustrative 
complaints from consumers who ordered what they thought were free, no-
obligation samples but then found themselves enrolled in costly 
continuity programs.\69\
---------------------------------------------------------------------------

    \65\ Several State Attorneys General offered comments to the 
ANPR (FTC-2019-0082-0012 (State Attorneys General cmt. to ANPR, 
https://www.regulations.gov/comment/FTC-2019-0082-0012)), and 
additionally 26 Attorneys General for the States of Alabama, 
Arizona, California, Colorado, Connecticut, Delaware, District of 
Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, 
Michigan, Minnesota, Nebraska, Nevada, New Jersey, New York, North 
Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Vermont, 
Washington, and Wisconsin (``State AGs'') filed comments in response 
to the NPRM. See State AGs, FTC-2023-0033-0886 (cmt. to NPRM).
    \66\ NPRM, 88 FR 24720; State Attorneys General (ANPR), FTC-
2019-0082-0012. They further explained the nature of the underlying 
products often fails to alert consumers of their enrollment in a 
negative option program. For instance, many offers involve credit 
monitoring or anti-virus computer programs costing less than $20 a 
month and have no tangible presence for consumers. The State AGs 
explained consumers are often unaware of having ordered these 
products, never use them, and never notice them on their bills. The 
State AGs further explained these transactions often pull consumers 
into a stream of recurring payments by obtaining credit card 
information to ostensibly pay for a small shipping charge. 
Consequently, they commented many consumers have been billed for 
such services for years before discovering the unauthorized charges. 
Id.
    \67\ NPRM, 88 FR 24721.
    \68\ State Attorneys General (ANPR), FTC-2019-0082-0012.
    \69\ Id.
---------------------------------------------------------------------------

    Additionally, the State AGs outlined several ongoing investigations 
into deceptive or unfair negative option programs since 2019. These 
investigations include allegations of misrepresenting offers as free 
when they were not; and failure to clearly and conspicuously disclose 
negative option features.\70\
---------------------------------------------------------------------------

    \70\ State AGs, FTC-2023-0033-0886.
---------------------------------------------------------------------------

    Additionally, consumer advocacy organizations and others explained 
that the widespread prevalence of deceptive acts and practices 
underscores the ``ongoing need for [S]tate engagement to limit negative 
option abuses.'' \71\ Several commenters observed that more than half 
of States specifically regulate some aspect of negative option 
marketing.\72\ A group of law professors explain this ``ongoing 
engagement just shows that unscrupulous negative-option business models 
remain such a problem that [S]tates increasingly find themselves 
needing to step in.'' \73\
---------------------------------------------------------------------------

    \71\ See, e.g., Joint comment from Professor Kaitlin Caruso (U. 
of Maine School of Law), Professor Jeff Sovern (St. John's U. School 
of Law), Professor Dee Pridgen (U. of Wyoming College of Law), 
Professor Chrystin Ondersma (Rutgers Law School), Professor Vijay 
Raghavan (Brooklyn Law School), Professor David Vladeck (Georgetown 
U. Law Center), Professor Edward Janger (Brooklyn Law School), and 
Professor Susan Block-Lieb (Fordham U. School of Law) (collectively, 
``Law Professors''), FTC-2023-0033-0861.
    \72\ See, e.g., PDMI, FTC-2023-0033-0864 (stating over 27 states 
regulate negative option marketing); N/MA, FTC-2023-0033-0873 
(stating 35 states and the District of Columbia now have automatic 
renewal laws, and at least 20 address all forms of automatic 
renewals); Service Contract Industry Council (``SCIC''), FTC-2023-
0033-0879 (noting about half of U.S. states enacted auto-renewal 
laws); NRF, FTC-2023-0033-1005 (stating at least half of all states 
have statutes governing free-trial, negative-option, and/or 
automatic-renewal programs); see also Law Professors, FTC-2323-0033-
0861 (stating the ``number of states that have recently adopted 
specific laws targeting negative option marketing, on top of their 
general prohibitions on unfair and deceptive practices and ability 
to enforce ROSCA, is particularly noteworthy.''); IHRSA, The Global 
Health & Fitness Association (``IHRSA''), FTC-2023-0033-0863 (noting 
many states have laws on negative options). But see The Center for 
Consumer Law and Economic Justice at UC Berkeley School of Law 
(``Berkeley Consumer Law Center''), FTC-2023-0033-0855 (stating that 
``fewer than half the states have a law specifically addressing 
negative option marketing'').
    \73\ Law Professors, FTC-2023-0033-0861. This group also points 
out that private industry, too, has felt the need for more action in 
this area, noting that VISA and Mastercard have their own 
requirements for businesses that bill using a negative option model.
---------------------------------------------------------------------------

    Consumer Complaints and Comments. The FTC receives tens of 
thousands of complaints about negative options each year through its 
Sentinel complaint database, and marketers receive many more as 
demonstrated by evidence in FTC cases.\74\ Additionally, TINA explained 
that negative options are one of its top complaint categories. These 
complaints usually involve consumers who unwittingly enroll in programs 
and then find it difficult or impossible to cancel.\75\
---------------------------------------------------------------------------

    \74\ See, e.g., United States v. Adobe, Inc., No. 5:24-cv-03630 
(N.D. Cal. 2024) (ECF No. 40, Amd. Compl.); FTC v. Amazon.com, Inc., 
No. 2:23-cv-0932 (W.D. Wash. 2023) (ECF No. 67, Amd. Compl.).
    \75\ TINA, FTC-2023-0033-1139.
---------------------------------------------------------------------------

    Moreover, hundreds of consumer comments detailed specific practices 
(discussed more thoroughly in connection with the section-by-section 
analysis below) demonstrating the prevalence of unfair or deceptive 
negative option practices. Likewise, comments from public interest and 
consumer advocacy groups further describe existing deceptive or unfair 
practices prevalent in the negative option marketplace. For example, 
Berkeley Consumer Law Center explained businesses regularly use dark 
patterns \76\ to facilitate enrollment in subscription-based products 
and inhibit cancellation, and provided numerous examples of these 
activities.\77\ A group of law professors referenced the burgeoning 
industry offering to help consumers identify and cancel their unwanted 
subscriptions. As they explained: ``One might expect that, if consumers 
experienced the marketplace as one in which they are adequately 
informed of recurring payments and readily able to cancel them, there 
would not be an emerging industry to help them do just that.'' \78\
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    \76\ The term ``dark patterns'' has been used to describe design 
practices that trick or manipulate users into making choices they 
would not otherwise have made and that may cause harm See Bringing 
Dark Patterns to Light, FTC Staff Report (Sept. 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/P214800%20Dark%20Patterns%20Report%209.14.2022%20-%20FINAL.pdf.
    \77\ Berkeley Consumer Law Center, FTC-2023-0033-0855.
    \78\ Law Professors, FTC-2023-0033-0861.
---------------------------------------------------------------------------

    Members of Congress also detailed ongoing problems in this area. 
Citing the increase in consumer complaints and consumer harm in recent 
years, Representative Takano stated, ``deceptive online marketing and 
unclear recurring payment plans are leaving too many consumers on the 
hook for products they may not want or even know they purchased.'' \79\ 
Representatives Schiff and Norton noted their constituents' desire for 
greater protections in the negative option marketplace, stating the 
``proposed updates will help put the consumers

[[Page 90483]]

back in control of their purchases and subscriptions.'' \80\
---------------------------------------------------------------------------

    \79\ NPRM, 88 FR 24720-21.
    \80\ Schiff and Norton, FTC-2023-0033-0868.
---------------------------------------------------------------------------

    Studies. Finally, ``studies cited by commenters confirm a pattern 
of consumer ensnarement in unwanted recurring payments.'' \81\ A Better 
Business Bureau study of FTC data, titled ``Subscription Traps and 
Deceptive Free Trials Scam Millions with Misleading Ads and Fake 
Celebrity Endorsements,'' demonstrated complaints about free trials 
doubled between 2015 and 2017, with complaints during the period 
reaching nearly 37,000.\82\ The BBB study shows consumer losses in FTC 
``free trial offer'' cases exceeded $1.3 billion (over the ten years 
covered by the study).\83\ A group of consumer and public interest 
advocacy organizations, including the National Consumers League \84\ 
stated that, according to the BBB, the average consumer loss for a free 
trial is $186.\85\
---------------------------------------------------------------------------

    \81\ NPRM, 88 FR 24725.
    \82\ Steve Baker, Subscription Traps and Deceptive Free Trials 
Scam Millions with Misleading Ads and Fake Celebrity Endorsements, 
Better Business Bureau (Dec. 2018), https://www.bbb.org/article/investigations/18929-subscription-traps-and-deceptive-free-trials-scammillions-with-misleading-ads-and-fake-celebrity-endorsements.
    \83\ Id.; see also Better Business Bureau, BBB Investigation 
Update: Free Trial Offer Scams (Apr. 2020), https://www.bbb.org/article/news-releases/22040-bbb-update-free-trial-offerscams 
(reporting the total has risen to nearly $1.4 billion since the 2018 
BBB study); id. (observing that while celebrities, credit card 
companies and government agencies have increased their efforts to 
fight deceptive free trial offer scams, victims continue to lose 
millions of dollars to fraudsters after the release of a December 
2018 BBB study about the shady practices).
    \84\ The six public interest and consumer advocacy groups are: 
Consumer Action, Consumer Federation of America, Demand Progress 
Education Fund, National Association of Consumer Advocates, Nation 
Consumer Law Center (on behalf of its low income clients,) and 
National Consumers League (``NCL'') (collectively, the ``Public 
Interest Groups'').
    \85\ Steve Baker, Subscription Traps and Deceptive Free Trials 
Scam Millions with Misleading Ads and Fake Celebrity Endorsements, 
Better Business Bureau (Dec. 2018).
---------------------------------------------------------------------------

    Referring to another survey conducted in 2016, TINA noted unwanted 
fees associated with trial offers and automatically renewing 
subscriptions ranked as ``the biggest financial complaint of 
consumers.'' \86\ Similarly, TINA noted the FBI's internet Crime 
Complaint Center recorded a rise in complaints about free trial offers, 
growing from 1,738 in 2015 to 2,486 in 2017.\87\ A 2019 Bankrate.com 
survey cited by NCL found that 59% of consumers have been signed up 
``against their will'' for ``free trials'' that automatically converted 
into a recurring payment.\88\
---------------------------------------------------------------------------

    \86\ NPRM, 88 FR 24720 (citing Rebecca Lake, ``Report: Hidden 
Fees Are #1 Consumer Complaint,'' mybanktracker.com (updated Oct. 
16, 2018), https://www.mybanktracker.com/money-tips/money/hidden-fees-consumercomplaint-253387.)
    \87\ NPRM, 88 FR 24721.
    \88\ Bankrate, ``Despite safety concerns, 64% of U.S. debit or 
credit cardholders save their information online'' (Oct. 24, 2019), 
at https://www.bankrate.com/pdfs/pr/20191024-online-shopping-survey.pdf (as cited by Civil Society Organizations, FTC-2023-0033-
0870).
---------------------------------------------------------------------------

    NCL and others also cited a 2017 national telephone survey 
commissioned by CreditCards.com finding 35% of U.S. consumers have 
enrolled in at least one automatically renewing contract without 
realizing it.\89\ In response to the NPRM, the Public Interest Groups 
cited more recent studies confirming the continued prevalence of harms 
from deceptive and unfair negative option practices. For instance, 
consumer groups referenced a 2022 study, which concluded ``on average, 
consumers pay two-and-a-half times what they originally estimated on 
monthly subscriptions, likely due to the lack of adequate notice from 
sellers.'' \90\ They also noted burdensome cancellation procedures 
remain rampant. ``One survey found that more than half of respondents 
reported it took an average of three months to cancel unwanted 
recurring payments.'' \91\ That same study reported 71% of individuals 
lost more than $50 a month in unwanted subscriptions. Another study 
concluded consumers underestimate how much they pay to maintain their 
subscriptions by an average of $133/month (or $1,596 per year), and 42% 
of the consumers had forgotten about a subscription for which they 
continued to pay.\92\
---------------------------------------------------------------------------

    \89\ NPRM, 88 FR 24720.
    \90\ Public Interest Groups, FTC-2023-0033-0880 (citing 
``Subscription Service Statistics and Costs,'' C+R Research Blog 
(May 18, 2022)).
    \91\ Public Interest Groups, FTC-2023-0033-0880 (citing Chase, 
``Survey from Chase Reveals That Two-Thirds of Consumers Have 
Forgotten About At Least One Recurring Payment In The Last Year'' 
(Apr. 1, 2021), https://media.chase.com/news/survey-from-chase-reveals).
    \92\ State AGs, FTC-2023-0033-00866 (citing Sarah Brady and 
Korrena Bailie, ``5 Tools To Help You Cancel Unwanted 
Subscriptions,'' Forbes (July 13, 2022), https://www.forbes.com/advisor/personal-finance/manage-subscriptions). See also Einav, 
Liran, et al., ``Selling Subscriptions'' (Dec. 1, 2023), https://nmahoney.people.stanford.edu/sites/g/files/sbiybj23976/files/media/file/mahoney_subscriptions.pdf.
---------------------------------------------------------------------------

    Finally, TINA also noted a consumer survey by the Washington 
Attorney General's office finding ``59% of Washingtonians (3.5 million 
residents) may have been unintentionally enrolled in a subscription 
plan or service when they thought they were making a one-time 
purchase.'' \93\ TINA contended this is ``consistent with'' the 2022 
Bankrate survey finding more than half of U.S. adults experience 
unwanted charges from a subscription or membership.\94\ These findings 
are further supported by a Chase Bank study in 2021 finding nearly 
three-quarters of Americans waste more than $50 a month on unwanted 
subscription fees.\95\
---------------------------------------------------------------------------

    \93\ TINA, FTC-2023-0033-1139.
    \94\ Id.
    \95\ See n.91.
---------------------------------------------------------------------------

    Despite the robust evidence that unfair or deceptive practices are 
exceedingly prevalent, several trade organizations challenged the 
Commission's proposed prevalence determination. However, their 
arguments, as discussed below, are not persuasive.
    First, they argued the Commission must show prevalence in a 
specific industry in order to regulate negative option practices in 
that industry, but the Commission failed to do so. For instance, NCTA 
asserted there is no evidence of widespread deceptive negative option 
practices in the broadband, cable, or voice industries warranting 
regulation.\96\ Other commenters argued the Commission must identify 
the prevalence of a specific deceptive or unfair act to warrant 
regulating that specific act or practice under Section 18. For 
instance, IAB, NCTA, TechNet, and TechFreedom argued the Commission 
failed to show prevalence of misrepresentations about the underlying 
product or service in connection with negative option contracts. 
Similarly, three commenters argued the Commission should limit the 
scope of the Rule to business-to-consumer transactions and exclude 
business-to-business (``B2B'') transactions, in part, because the 
Commission failed to show ``the prevalence of harms created by 
automatically-renewing subscriptions entered into in the business-to-
business context.'' \97\
---------------------------------------------------------------------------

    \96\ NCTA, FTC-2023-0033-0858; see also SCIC, FTC-2023-0033-
0879.
    \97\ BSA, FTC-2023-0033-1015; see also Anonymous commenter, FTC-
2023-0033-1007; NCTA, FTC-2023-0033-0858.
---------------------------------------------------------------------------

    As demonstrated above, however, there is ample evidence in the 
record demonstrating the prevalence of the specific unfair and 
deceptive practices across numerous sectors of the economy, which the 
Commission now addresses in an industry-neutral fashion.\98\ Moreover, 
nothing in Section 18 requires the Commission to find prevalence 
regarding a specific industry or group.\99\ The Commission need only

[[Page 90484]]

find ``some basis or evidence'' demonstrating the practice the 
Commission seeks to regulate ``does indeed occur.'' \100\ Such evidence 
exists here in abundance. As NCTA itself pointed out, individual 
consumers complained of deceptive and unfair practices in its members' 
industries.\101\ Further, ``consumer subscription models are rapidly 
growing in popularity,'' \102\ and there is evidence of the 
proliferation of negative option features in virtually every 
industry.\103\ The harms outlined here resulted from the negative 
option transaction itself, and many businesses, regardless of industry, 
are incentivized to continue to leverage negative options to the 
possible detriment of consumers.\104\ The Commission also declines to 
limit the scope of the final Rule by excluding business-to-business 
transactions. As explained in Section VII.B.1, the Commission has a 
long history of protecting businesses, particularly small business, in 
their role as consumers; the practices and harms described here impact 
these consumers, as well.
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    \98\ See sections VII.A.1.a-b and section II.A.1.b of this SBP.
    \99\ See generally 15 U.S.C. 57a.
    \100\ Pennsylvania Funeral Dirs. Ass'n, Inc. v. FTC, 41 F.3d 81, 
87-88 (3d Cir. 1994) (holding the FTC did not need ``substantial, 
rigorous, quantitative studies'' or to show the practice occurs in a 
certain percentage of transactions through the country to find 
prevalence). ``Further, even where there is a limited record as to 
the prevalence of a practice on a nationwide basis or where the data 
reviewed only relates to a few states, the practice can be found to 
be prevalent enough to warrant a regulation.'' Id. at 87.
    \101\ NCTA, FTC-2023-0073-0008.
    \102\ CTA, FTC-2023-0033-0997. CTA reports that a 2022 study 
found the global subscription e-commerce market is expected to reach 
$904.2 billion by 2026, and between 2021 and 2022, existing 
subscription brands grew their customer bases by 31 percent.
    \103\ According to a 2018 McKinsey & Company study, the 
subscription e-commerce market increased more than 100% over a five-
year period prior to the study's publication. Tony Chen, Ken Fenyo, 
Sylvia Yang, and Jessica Zhang, ``Thinking Inside the Subscription 
Box: New Research on E-Commerce Consumers,'' McKinsey & Company 
(February 2018) (as cited by, e.g., TechNet, FTC-2023-0033-0869 and 
Individual commenter, FTC-2023-0033-0800). PDMI also observed that 
negative options are offered in a wide array of product and services 
from major brands including media services, meal preparation kits, 
shaving and beauty products, beer and wine, contacts and ordinary 
household consumables. FTC-2023-0033-0864. Digital Content Next 
(``DCN''), FTC-2023-0033-0983, reports the United States had more 
than one billion paid subscriptions in Q1 2023 across the digital 
media landscape, indicating almost all online U.S. households 
subscribe to one or more digital media subscription services. See 
also, e.g., Individual commenter, FTC-2023-0033-0137 (detailing 
difficulty cancelling recurring subscriptions for newspaper, mobile, 
and other businesses); Individual commenter, FTC-2023-0033-0217 
(reported spending hours on the phone and online to cancel mobile 
account); Individual commenter, FTC-2023-0033-0465 (reported 
difficulty cancelling rewards program subscription); Individual 
commenter, FTC-2023-0033-0674 (complaint reporting difficulty 
canceling mobile device protection subscription); Individual 
commenter, FTC-2023-0033-0965 (trying to cancel mobile phone service 
because they bill for different amount every month); Individual 
commenter, FTC-2023-0033-0003 (difficulty cancelling ``home 
warranty'' subscription); Individual commenter, FTC-2023-0033-0004 
(full cost and refund policy for gym contract not clearly 
disclosed); Individual commenter, FTC-2023-0033-0006 (``2 attempts 
and far too much time'' to cancel radio subscription); Individual 
commenter, FTC-2023-0033-0008 (discussing how ``subscription 
services in particular pervade the market. Even long-standing `buy-
it-once' products such as certain software suits have moved to 
subscription models''); Anonymous commenter, FTC-2023-0033-0013 
(difficulty canceling home security monitoring contract, including 
hearing unwanted upsells); Anonymous commenter, FTC-2023-0033-0023 
(webhosting service); Anonymous commenter, FTC-2023-0033-0024 (cable 
service); Individual commenter, FTC-2023-0033-0039 (language 
learning app); Anonymous commenter, FTC-2023-0033-0046 (software); 
Individual commenter, FTC-2023-0033-0049 (cannot cancel streaming 
service); Individual commenter, FTC-2023-0033-0050 (virus protection 
software and charity); Individual commenter, FTC-2023-0033-0052 (e-
news service subscription); Individual commenter, FTC-2023-0033-0057 
(magazine subscription service); Individual commenter, FTC-2023-
00330061 (newspaper); Individual commenter, FTC-2023-0033-0063 (big 
box retailer membership); Individual commenter, FTC-2023-0033-0064 
(cosmetics); Anonymous commenter, FTC-2023-0033-0066 (home warranty 
service); Individual commenter, FTC-2023-0033-0071 (lawncare 
service).
    \104\ See Prof. Chris Jay Hoofnagle, UC Berkeley 
(``Hoofnagle''), FTC-2023-0033-1137 (discussing the subscription 
economy). See also nn.245-252, collecting cases showing deceptive 
and unfair negative option practices occur across a wide range of 
industries and involve a variety of claims.
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(b) The Manner and Context in Which the Acts or Practices Are Unfair or 
Deceptive
    Pursuant to Section 18 and the Commission's Rules, the Commission 
must also state the manner and context in which the prevalent acts or 
practices are unfair or deceptive. The record demonstrates consumers 
are often lured into enrolling in negative option programs through 
seller misrepresentations about material facts--for instance, when a 
seller offers a product for ``free'' when it is not.\105\ Additionally, 
sellers misrepresent other aspects of the deal, such as product 
features, processing or shipping fees, billing information use, 
deadlines, consumer authorization, refunds, cancellations, among other 
facts.\106\
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    \105\ State AGs, FTC-2023-0033-0886 (consumer paid for shipping 
on ``free'' gift only to have it converted to a paid item because 
she retained the item); id. (Money Map Press), FTC v. Triangle Media 
Corp., No. 3:18-cv-01388 (S.D. Cal. 2018) (consumers who clicked on 
ads for risk free trials, paid for shipping and handling fees 
unwittingly enrolled in negative option programs).
    \106\ See nn.245-252 (collecting cases).
---------------------------------------------------------------------------

    Sellers also often fail to disclose important information about the 
offer prior to billing the consumer. As detailed in the comments from, 
inter alia, State AGs and TINA, sellers fail to disclose in a clear and 
conspicuous manner the existence of the negative option feature, refund 
and cancellation deadlines, or other material terms of the agreement, 
resulting in consumers purchasing goods or services they do not 
want.\107\ All of these unfair or deceptive acts are further supported 
in dozens of FTC, State AG, and class action cases.\108\
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    \107\ See State Attorneys General (ANPR), FTC-2019-0082-0012 and 
State AGs, FTC-2023-0033-0886; TINA, FTC-2019-0082-0014 and FTC-
2023-0033-1139.
    \108\ See, e.g., id.; see also FTC v. Pact, Inc., No. 2:17-cv-
1429 (W.D. Wash. 2017); United States v. MyLife.com, Inc., No. 2:20-
cv-6692 (C.D. Cal. 2020); FTC v. NutraClick, LLC, No. 2:20-cv-08612 
(C.D. Cal. 2020); In re Dun & Bradstreet, Inc., FTC Docket No. C-
4761 (2022). See generally Staff Report, n.16.
---------------------------------------------------------------------------

    The record also demonstrates sellers fail to obtain consumers' 
express informed consent to the negative option feature before charging 
them. For instance, as detailed in representative consumer complaints 
from State AGs and several FTC cases, consumers are often unwittingly 
enrolled into recurring subscriptions with promises of no- or low-cost 
or discounted rates (not knowing that agreeing will result in 
subscription to a costly membership), with consumers not realizing the 
deceptive and unfair enrollment until they see unexpected charges, 
often after several billing cycles.\109\
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    \109\ See, e.g., State Attorneys General (ANPR), FTC-2019-0082-
0012 and State AGs, FTC-2023-0033-0886; FTC v. FloatMe Corp., No. 
5:24-cv-00001 (W.D. Tex. 2024); United States v. Cerebral, Inc., No. 
1:24-cv-21376 (S.D. Fla. 2024); FTC v. Bridge It, Inc., No. 1:23-cv-
09651 (S.D.N.Y. 2023); FTC v. Benefytt Techs., Inc., No. 8:22-cv-
01794 (M.D. Fla. 2022); FTC v. First Am. Payment Sys., No. 4:22-cv-
00654 (E.D. Tex. 2022); FTC v. NutraClick, LLC, No. 2:20-cv-08612 
(C.D. Cal. 2020); FTC v. F9 Advert., LLC, No. 3:19-cv-01174 (D.P.R. 
2019); FTC v. Age of Learning, Inc., No. 2:20-cv-07996 (C.D. Cal. 
2020); FTC v. NutraClick, LLC, No. 2:16-cv-06819 (C.D. Cal. 2016); 
FTC v. AH Media Grp., LLC, No. 3:19-cv-04022 (N.D. Cal. 2019); In re 
Urthbox, Inc., FTC Docket No. C-4676 (2019); FTC v. Health Rsch. 
Labs., LLC, No. 2:17-cv-00467 (D. Me. 2017); FTC v HispaNexo, Inc., 
No. 1:06-cv-424 (E.D. Va. 2006).
---------------------------------------------------------------------------

    Finally, substantial record evidence shows sellers often fail to 
provide a simple cancellation method. If consumers cannot easily leave 
a negative option program when they wish, the negative option feature 
is merely a means of charging consumers for goods or services they no 
longer want. Commission cases, the Sentinel complaint database, and 
State Attorneys General's complaints all show sellers often use 
difficult and cumbersome cancellation mechanisms to prevent or curtail 
cancellations.\110\ This fact is further corroborated by studies 
discussed above.\111\
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    \110\ See section VII.B.6.
    \111\ Section VII.A.1.a.

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[[Page 90485]]

(c) Statement as to the Economic Effect of the Rule
    Finally, pursuant to section 18 and the Commission's Rules, the SBP 
must include a statement regarding the economic effect of the Rule. As 
part of these rulemaking proceedings, the Commission solicited and 
received comments on the economic impact of the proposed Rule. In 
issuing the final Rule, the Commission has carefully considered the 
comments and other information received as well as the costs and 
benefits of each provision, as discussed in more detail in section X, 
Final Regulatory Analysis. That analysis demonstrates the benefits of 
the Rule far exceed the costs. Benefits were evaluated on a per-
cancellation basis; that is, the analysis assumes the primary consumer 
benefit of the Rule will come in the form of faster cancellations. 
Costs were evaluated primarily to reflect resources spent by businesses 
to review and come into compliance with the Rule. The overall net 
benefit of the Rule is estimated to exceed $5.3B (and could be as much 
as $49.2B) over the first 10 years (in 2023 dollars).
2. Magnuson-Moss Specificity Requirement
    Pursuant to Magnuson-Moss, the Commission must also define with 
specificity acts or practices which are unfair or deceptive and either 
prohibit those activities or establish rules to prevent them. The 
Commission has done just that, despite some commenters' arguments to 
the contrary. Specifically, IAB and others \112\ argue the provision 
prohibiting material misrepresentations fails to define claims that 
fall within its scope, and therefore, ``fails to identify covered acts 
with the requisite level of specificity.'' \113\
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    \112\ IAB, FTC-2023-0033-1000; Coalition Comments from CCIA, 
Direct Selling Association, Information Technology Industry Council, 
IAB, Software & Information Industry Association, and Chamber 
(``Coalition''), FTC-2023-0033-0884; PDMI, FTC-2023-033-0864; 
TechNet, FTC-2023-0033-0869; TechFreedom, FTC-2023-0033-0872; ACT-
The App Association (``ACT App Association''), FTC-2023-0033-0874; 
USTelecom, FTC-2023-0033-0876.
    \113\ IAB, FTC-2023-0033-1000.
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    First, section 18 does not require the Commission to define claims 
with specificity, only acts or practices. The practice of 
misrepresenting the material facts of a transaction, for instance, is a 
deceptive practice, but could vary depending on the transaction's 
terms. Requiring the Commission to identify particular claims would 
make its rules no better than a leaky sieve, unable to effectively 
address consumer harm.
    Second, the NPRM and the final Rule do define with the requisite 
specificity the unfair or deceptive negative option acts and practices 
covered by the Rule.\114\ While those critical of the proposed Rule 
cite to Katharine Gibbs School v. FTC, 612 F.2d 658 (2d Cir. 1979), 
this case is inapposite. In Katharine Gibbs School, the Second Circuit 
held the Commission failed to connect elements of its trade regulation 
rule to specifically defined unfair or deceptive acts or practices. The 
opinion held the Commission may not merely set requirements and then 
define failure to meet those requirements as unfair or deceptive acts 
or practices. The Commission must instead identify some underlying 
deceptive or unfair conduct and connect the rule requirements to that 
conduct.
---------------------------------------------------------------------------

    \114\ See Section I; Section VII.A, defining the acts and 
practices covered in Sec. Sec.  425.3 through 425.6 as unfair or 
deceptive and a violation of the Rule. As acknowledged by USTelecom, 
the ``contours of the `specificity' requirement have not been 
precisely defined.'' FTC-2023-0033-0876.
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    In contrast here, the Commission specifically identified 
misrepresentation of material facts as a deceptive practice, and 
defined the term ``material'' with the same meaning it has under 
Section 5 of the FTC Act.\115\ Moreover, the misrepresentations 
provision goes further, providing categories of potentially material 
facts to assist the marketplace in understanding the provision and 
supporting those examples with cases.\116\ Thus, the final Rule's 
prohibition against material misrepresentations is not only connected 
to underlying deceptive or unfair conduct, but in fact prohibits that 
very conduct.
---------------------------------------------------------------------------

    \115\ See SBP Section VII.B.3 discussing Sec.  425.3.
    \116\ Id. As explained in the Katharine Gibbs School dissent, 
``Congress required specific definitions of such practices so that a 
rule would `reasonably and fairly inform those within its ambit of 
the obligation to be met and the activity to be avoided.' '' 612 
F.2d 658, 672 (quoting H.R. Rep. No.93-1107, 93d Cong., 2d Sess. 46 
(1974), reprinted in (1974) U.S.C.C.A.N., pp. 7702, 7727).
---------------------------------------------------------------------------

3. Other Legal Issues
    Several commenters raised additional challenges to the Commission's 
ability to promulgate the Rule. These challenges fall into two 
categories. First, some commenters argued the Commission failed to give 
adequate notice of the scope of the proposed amendments to the Rule in 
the ANPR in accordance with Section 57a(b)(2)(A) of the FTC Act. 
Second, four commenters argued the Commission exceeded its grant of 
Congressional authority under the ``major questions'' doctrine. The 
Commission addresses each argument below.
(a) ANPR
    Several commenters asserted the ANPR, issued in 2019, failed to 
provide adequate notice of the acts and practices to be covered by the 
proposed Rule. Specifically, ESA, USTelecom, RILA, a coalition of trade 
associations, Chamber, CCIA, IAB, and NRF argued the ANPR failed to 
provide notice the proposed Rule would cover misrepresentations of all 
material facts; would require express informed consent to opt-in to 
receive a save; \117\ and would require an annual reminder.\118\ Thus, 
according to these commenters, including these provisions in the final 
Rule would violate Section 18(b)(2)(A). They further argued the lack of 
these topics' inclusion in the ANPR meant that affected entities had 
inadequate opportunity to provide input, leading to an inadequate 
rulemaking record.\119\
---------------------------------------------------------------------------

    \117\ As discussed in Section VII.B.6, the Commission removes 
the proposed save provision from the final Rule.
    \118\ As discussed in Section VII.B.7, the Commission removes 
the proposed annual reminder provision from the final Rule.
    \119\ E.g., IAB, FTC-2023-0033-1000.
---------------------------------------------------------------------------

    These arguments, however, are unpersuasive. Section 18 imposes no 
requirement the ANPR have the level of specificity the commenters 
demand. In fact, the statute only says the ANPR must include ``a brief 
description of the area of inquiry under consideration, the objectives 
which the Commission seeks to achieve, and possible regulatory 
alternatives under consideration by the Commission.'' \120\ The 
Commission included a discussion of each of these topics in the 
ANPR.\121\ Moreover, the affected entities have had the chance to raise 
concerns with the Rule in their comments to the NPRM, which the 
Commission has considered and responded to in this Statement of Basis 
and Purpose.
---------------------------------------------------------------------------

    \120\ 15 U.S.C. 57a(b)(2)(A). ``The Advance Notice [of Proposed 
Rulemaking] is a formal invitation to participate in shaping the 
proposed rule and starts the notice[hyphen]and[hyphen]comment 
process in motion.'' Office of the Federal Register, ``A Guide to 
the Rulemaking Process,'' https://www.federalregister.gov/uploads/2011/01/the_rulemaking_process.pdf.
    \121\ ANPR, 84 FR 52393; see also id. 52396-8 (Request for 
Comments); Section VII.B.3.b.1 (discussing ANPR in context of Sec.  
425.3).
---------------------------------------------------------------------------

(b) Major Questions Doctrine
    Four commenters asserted the Rule implicates the ``major 
questions'' doctrine.\122\ According to the Supreme Court, the major 
questions doctrine is implicated in ``extraordinary cases . . . in 
which the history and the breadth of the authority that the agency has

[[Page 90486]]

asserted, and the economic and political significance of that 
assertion, provide a reason to hesitate before concluding that Congress 
meant to confer such authority.'' \123\ Citing this authority, the 
commenters argue Congress only granted the FTC ``limited and tailored 
authorities to regulate certain mediums and types of negative option 
marketing, but not all mediums and types as the NPRM encompasses.'' 
\124\ Further, they assert Congress never intended for the Commission 
to create a comprehensive regulatory scheme for negative option 
marketing that encompasses the variety of requirements proposed in the 
NPRM. Because negative option programs play an ever-increasing role in 
the economy, these commenters claim the proposed Rule would 
``dramatically alter'' how companies structure their subscription 
services.\125\ More specifically, they assert the prohibition against 
misrepresentations, together with the ability to seek civil penalties 
in Federal court, would expand the FTC's authority beyond that 
envisioned by Congress.
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    \122\ PDMI, FTC-2023-0033-0864; ACT App Association, FTC-2023-
0033-0874; Coalition, FTC-2023-0033-0884; Chamber, FTC-2023-0033-
0885.
    \123\ West Virginia v. EPA, 597 U.S. 697, 721 (2022) (internal 
quotations cleaned up). Accord Biden v. Nebraska, 143 S. Ct. 2355, 
2372 (2023).
    \124\ Coalition, FTC-2023-0033-0884.
    \125\ See, e.g., PDMI, FTC-2023-0033-0864.
---------------------------------------------------------------------------

    However, far from exceeding Congressional intent, the Rule merely 
effectuates that intent in a way wholly consistent with the specific 
requirements set forth in Section 18 of the FTC Act. Specifically, 
Congress explicitly authorized the Commission to prescribe ``rules 
which define with specificity acts or practices which are unfair or 
deceptive acts or practices in or affecting commerce (within the 
meaning of such section 5(a)(1)),'' which ``may include requirements 
prescribed for the purpose of preventing such acts or practices.'' 
\126\ As demonstrated below, each of the Rule's provisions identifies 
specific deceptive or unfair acts or practices that are prevalent 
throughout the marketplace and ties each Rule provision tightly to 
those findings.
---------------------------------------------------------------------------

    \126\ 15 U.S.C. 57a(a)(1)(B).
---------------------------------------------------------------------------

    As the Supreme Court explained, courts use the ``major questions 
doctrine'' when examining ``extraordinary cases'' where agency action 
would ``make a radical or fundamental change'' to a statutory scheme 
and assert ``extravagant'' authority over the national economy through 
``ambiguous statutory text,'' citing ``modest words,'' ``vague terms,'' 
``subtle device[s],'' or ``oblique or elliptical language.'' \127\ 
Here, no such extraordinary circumstance exists. The prohibitions and 
disclosures in the Rule do not effect a major change in the economy. In 
fact, all the substantive requirements in the Rule are already extant 
under section 5 of the FTC Act, ROSCA, or the TSR. Moreover, the Rules' 
terms, as explained below, are neither vague, oblique, or elliptical--
in fact, if anything, they are clearer than the legal authority just 
cited.
---------------------------------------------------------------------------

    \127\ West Virginia v. EPA, 597 U.S. at 723 (cleaned up).
---------------------------------------------------------------------------

B. Discussion of Specific Rule Provisions, Section-by-Section Analysis

    Below, for each provision of the proposed Rule, the Commission 
reviews the provision, summarizes comments received in response, and 
sets forth the final Rule with an analysis of the comments and other 
record evidence.
1. Proposed Sec.  425.1 Scope
    The Commission proposed eliminating the old Rule's prescriptive 
requirements applicable to prenotification plans and replacing them 
with flexible, but enforceable, standards. The proposed requirements 
would apply to all forms of negative option marketing, including 
prenotification and continuity plans, automatic renewals, and free 
trial offers.\128\ The expanded coverage would establish a common set 
of requirements applicable to all types of negative option marketing. 
The proposed Rule would cover offers made in all media, including 
internet, telephone, in-person, and printed material, and would apply 
to all ``negative option sellers.'' With certain exceptions, not 
applicable here, the FTC Act provides the agency with jurisdiction over 
nearly every economic sector.\129\
---------------------------------------------------------------------------

    \128\ The proposed Rule stated it applied to any form of 
negative option plan. Because ``negative option plan'' was a defined 
term in the old Rule specifically referring to prenotification 
plans, the Commission modifies the scope to apply to any form of 
``negative option program.''
    \129\ Certain entities or activities are wholly or partially 
exempt from FTC jurisdiction under the FTC Act, including most 
depository institutions, charities, transportation and 
communications common carriers, and the business of insurance. Under 
Sections 4 and 5 of the FTC Act, however, the Commission's 
jurisdiction extends to companies organized to carry on business for 
their own profit or that of their members, even if those companies 
are organized under state law as a not-for-profit entity. See 
California Dental Ass'n v. FTC, 526 U.S. 756 (1999). But see n.151.
---------------------------------------------------------------------------

(a) Negative Option Seller
(1) Comments
    The scope of the proposed Rule covered ``negative option seller,'' 
defined to mean ``the person selling, offering, promoting, charging 
for, or otherwise marketing goods or services with a negative option 
feature.'' Several commenters raised concerns regarding the scope of 
this definition.
    The Chamber, for example, suggested the Commission delete the term 
``promoting'' from the definition.\130\ It cited a wide variety of 
actors who could be swept in by the term, including ``advertising 
companies, web designers, [and] entities in the supply chain,'' who 
``may not actually play an active role in determining'' what consumers 
see and hear about negative option programs.\131\ An individual 
business commenter also criticized the term, saying to include 
``promoting'' ``would potentially burden our technicians and our 
business when we provide service for equipment manufacturers that have 
their own service contract programs.'' \132\
---------------------------------------------------------------------------

    \130\ Chamber, FTC-2023-0033-0885.
    \131\ Id.
    \132\ Individual commenter, FTC-2023-0033-1136.
---------------------------------------------------------------------------

    ETA, representing the payments industry, addressed the words 
``charging for'' in the definition.\133\ ETA interpreted those words 
not to cover ``intermediaries, such as payment processors, that merely 
effect the transfer of funds from the consumer buyer to the merchant 
seller resulting from a negative option feature.'' \134\ ETA noted that 
payment intermediaries typically ``do not control the terms of the 
negative option feature and do not control the interface with the 
consumer buyer.'' \135\ ETA therefore suggested the final Rule 
``include an express exemption for payment processors and other 
intermediaries.'' \136\
---------------------------------------------------------------------------

    \133\ Electronic Transactions Association (``ETA''), FTC-2023-
0033-1004.
    \134\ Id.
    \135\ Id.
    \136\ Id. IHRSA noted health and fitness membership charges are 
typically processed on a monthly basis from the time of agreement, 
and in many cases by a third-party service provider. IHRSA, FTC-
2023-0033-0863.
---------------------------------------------------------------------------

    Other commenters, while not specifically criticizing the definition 
of negative option seller, raised concerns about the scope of the 
proposed Rule where third parties are involved in marketing and 
cancellation. For example, several suggested the Rule exempt a seller 
who contracts with a third party for subscription enrollment, 
management, or cancellation services.\137\ PDMI argued, ``it is

[[Page 90487]]

imperative that the Proposed Rule exempt sellers from compliance with 
those provisions that are not under their direct control . . . [and] 
should also exempt the seller from any misrepresentations made by a 
third-party platform.'' \138\ NRF expressed concern a careful retailer 
could still ``face steep financial penalties for negligent 
misrepresentations (concerning, e.g., product efficacy) based on 
information provided by third-party vendors.'' \139\
---------------------------------------------------------------------------

    \137\ NCTA asserted, ``The proposed rule also fails to account 
for third-party sign-up arrangements. For example, programmers have 
arrangements with Roku, Amazon, Apple, and others that allow 
consumers to sign up through these third parties for their streaming 
services.'' NCTA, FTC-2023-0033-0858. N/MA suggested the Commission 
``should make clear that when a sale with a negative option feature 
is made through a third party that controls the process of 
purchasing and/or cancelling a subscription with a negative option 
feature, any new requirements would apply to the third party only, 
and not to the company that fulfills the subscription.'' N/MA, FTC-
2023-0033-0873. Marketplace Industry Association (``MIA'') requested 
``the Commission clarify that where there are third-party payment 
platforms managing Subscriptions on behalf of businesses . . . 
(collectively, ``Third Party Subscription Managers''), that such 
Third Party Subscription Managers be legally responsible and legally 
liable for compliance with the proposed Rule. As is the case with 
Third Party Subscription Managers, businesses that offer 
Subscriptions have zero control over such Subscriptions, including 
the initiation of Subscriptions or the cancellation of 
Subscriptions. Said another way, it is impossible for businesses to 
comply with the proposed Rule where there are Third Party 
Subscription Managers. As such, the Association requests that the 
Commission make clear that Third Party Subscription Managers be 
responsible for compliance with the proposed Rule, including any 
penalties for noncompliance.'' MIA, FTC-2023-0033-1008.
    \138\ PDMI, FTC-2023-003-0864.
    \139\ NRF, FTC-2023-0033-1005.
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(2) Analysis
    Based on the record, the Commission revises the definition of 
``negative option seller'' to remove the word ``promoting,'' but 
declines to create status-based exemptions.\140\ Moreover, the 
Commission clarifies it will enforce the final Rule in accordance with 
established section 5 principles regarding parties' responsibilities 
for, and involvement in, relevant activity. This approach should fully 
address commenters' concerns while maintaining the Rule's consumer 
protections.
---------------------------------------------------------------------------

    \140\ See also Section VII.B.1; Section VIII.A.1.
---------------------------------------------------------------------------

    As several commenters observed, a wide variety of actors may have 
secondary or tertiary roles in promoting products or services with a 
negative option feature. Further, as the Chamber noted, ``many of those 
participants . . . may not actually play an active role in determining 
how the negative option is presented to the consumer.'' \141\ 
Similarly, participants in the promotion process may have no role in 
cancellation. Deleting the word ``promoting'' from the definition of 
negative option seller addresses this issue by ensuring those who have 
no active participation in the negative option feature are outside the 
Rule's coverage. However, this amendment does not mean all actors 
involved in promotion are exempt from the Rule. A participant who 
promotes and takes on a further role ``selling, offering, charging for, 
or otherwise marketing goods or services with a negative option 
feature'' remains subject to the final Rule, including the provisions 
covering ``promoting'' such goods or services for those who meet the 
negative option seller definition.\142\
---------------------------------------------------------------------------

    \141\ Chamber, FTC-2023-0033-0885.
    \142\ See, e.g., FTC v. LeadClick Media, LLC, 838 F.3d 158, 172 
(2d Cir. 2016) (operator of affiliate marketing network liable where 
it did not create ads but ``directly participat[ed] in the deceptive 
scheme by recruiting, managing, and paying a network of affiliates 
to generate consumer traffic through the use of deceptive 
advertising and allowing the use of deceptive advertising where it 
had the authority to control the affiliates participating in its 
network.'').
---------------------------------------------------------------------------

    The Commission declines to adopt a status-based exemption for 
payment intermediaries. Such exemptions are overbroad, excluding actors 
engaged in the practices condemned by the Rule. For example, a payment 
processor selling its own services on a negative option basis, as 
opposed to just providing payment services for another negative option 
seller, is no different than any other business covered by the Rule. 
Additionally, as ETA correctly noted, the words ``charging for'' as 
used in the Rule do not cover intermediaries merely effecting the 
transfer of funds from the consumer buyer to the merchant seller. This 
is consistent with the Commission's interpretation of ROSCA's coverage 
of persons who ``charge or attempt to charge any consumer.'' \143\ 
Based on longstanding section 5 principles, the Commission has not 
enforced ROSCA against payment intermediaries solely for their conduct 
in effecting funds transfers.\144\ The Commission will apply the same 
principles to the Rule.\145\
---------------------------------------------------------------------------

    \143\ 15 U.S.C. 8403.
    \144\ See FTC v. Apex Capital Grp., LLC, No. 2:18-cv-09573 (C.D. 
Cal. 2018). In this ROSCA matter, the Commission amended its 
complaint to add payment intermediary defendants for their unlawful 
conduct in connection with the scheme. However, the Commission did 
not assert ROSCA claims against the payment intermediary defendants, 
instead asserting counts for credit card laundering and manipulation 
of chargeback levels as Section 5 violations.
    \145\ Id.; see FTC v. First Am. Payment Sys., No. 4:22-cv-00654 
(E.D. Tex. 2022) (ROSCA case against payment processor for its 
unlawful acts and practices against its merchant customers).
---------------------------------------------------------------------------

    Similarly, the Commission will not grant blanket exemptions to 
sellers who contract with third parties while offering subscription 
services. The Commission expects negative option sellers to evaluate 
their commercial relationships with the Rule's provisions in mind. Even 
where a seller does not directly manage its negative option feature 
disclosures, consent, or cancellation, it can satisfy its obligations 
under the Rule by choosing to contract with third parties who act in 
accordance with the Rule and monitoring those parties' performance. An 
exemption for all sellers who contract with third parties to manage 
aspects of their negative option programs would effectively nullify the 
Rule by incentivizing less than legitimate sellers to contract with 
actors engaged in deceptive practices to maximize negative option 
enrollments and frustrate cancellation with impunity. A seller cannot 
evade its responsibility to deal honestly with consumers by contracting 
with a third party who does not.\146\
---------------------------------------------------------------------------

    \146\ E.g., FTC v. LeadClick Media, LLC, 838 F.3d 158, 170 (2d 
Cir. 2016) (``A defendant may be held liable for its own acts of 
deception under the FTC Act, whether by directly participating in 
deception or by allowing deceptive acts or practices to occur that 
are within its control.''); see also FTC v. Inc21.com Corp., 688 F. 
Supp. 2d 927, 939 (N.D. Cal. 2010) (``Even if Inc21 did not approve 
of the fraud (and it seems likely that it did approve), the fact 
remains that Inc21 is responsible for organizing this engine of 
fraud and reaping its profits. As such, Inc21 may certainly be held 
accountable[.]'') (emphasis in original).
---------------------------------------------------------------------------

(b) Insurance
(1) Comments
    Several commenters asked the Commission to expressly exclude 
insurance and State-regulated service contracts from the Rule.\147\ 
They argued Congress prohibited the FTC from regulating the ``business 
of insurance'' in section 2 of the McCarran-Ferguson Act and the FTC 
exempted insurance sales in its Cooling-Off Rule.\148\ They also 
asserted, ``State regulations in every jurisdiction require an insurer 
to give notice of a policy renewal,'' and State rules prohibit negative 
options.\149\ Other commenters argued the Commission should exempt all 
service contract providers from the Rule due to existing State laws and 
regulations,\150\ regardless

[[Page 90488]]

of whether they are engaged in the ``business of insurance'' within the 
meaning of the McCarran-Ferguson Act.
---------------------------------------------------------------------------

    \147\ Asurion, FTC-2023-0033-0878; Florida Service Agreement 
Association, FTC-2023-0033-0882; American Property Casualty 
Insurance Association (``APCIA''), FTC-2023-0033-0996; National 
Association of Mutual Insurance Companies (``NAMIC''), FTC-2023-
0033-1143.
    \148\ See 15 U.S.C. 1012; 16 CFR 429(a)(6).
    \149\ NAMIC, FTC-2023-0033-1143.
    \150\ SCIC, FTC-2023-0033-0879 (noting SCIC's comment to the 
ANPR stated most states have substantial regulatory frameworks for 
service contracts and that industry operates nationwide consistent 
with the intent of the proposed Rule); CTIA, FTC-2023-0033-0866 
(noting service contracts are typically regulated by state 
departments of insurance and most states with autorenewal laws, 
including California, New York, and Oregon, provide an exemption for 
entities regulated by the state department of insurance); Frontdoor, 
Inc. (``Frontdoor''), FTC-2023-0033-0862 (noting majority of states 
have rigorous laws for the offering, sale, and renewal of home 
service contracts, including the use of automatic renewals and 
applicable cancellation rights).
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(2) Analysis
    The Commission declines to exempt insurance or service contracts 
from the Rule. The final Rule can be enforced by the Commission only 
against covered persons and activities within the Commission's 
jurisdiction.\151\ Restating or further specifying each jurisdictional 
limit in the final Rule's text, therefore, is not necessary.
---------------------------------------------------------------------------

    \151\ Nothing in this Rule, however, shall limit another 
agency's ability to enforce this Rule within its own statutory 
authority, even if that authority is different than the FTC's 
authority. See, e.g., 12 U.S.C. 5581(b)(5)(B)(ii).
---------------------------------------------------------------------------

    Additionally, the requested industry-wide exemption is considerably 
broader than the FTC's jurisdictional limitations. The McCarran-
Ferguson Act does not exempt entities engaged in the business of 
insurance from the Commission's jurisdiction unless such entities are 
subject to State regulation.\152\ Moreover, activities of entities 
within the insurance industry that are beyond the scope of the 
``business of insurance'' are subject to the Commission's 
jurisdiction.\153\ No commenter provided any compelling reason to 
exempt these otherwise covered activities from the Rule.
---------------------------------------------------------------------------

    \152\ FTC v. IAB Mktg. Assocs. LP, 746 F.3d 1228, 1235 (11th 
Cir. 2014) (``[T]he FTC Act applies to the business of insurance 
only to the extent that such business is not regulated by state 
law.'').
    \153\ The Supreme Court has explained that, under the McCarran-
Ferguson Act, a three-part factual inquiry is necessary to evaluate 
whether any particular activity constitutes the business of 
insurance. See Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 
129 (1982). First, does the activity have the effect of transferring 
or spreading a policyholder's risk; second, is the activity an 
integral part of the policy relationship between the insurer and the 
insured; and third, is the practice limited to entities within the 
insurance industry. Id. This inquiry requires a factual analysis of 
the activities in question.
---------------------------------------------------------------------------

    Finally, commenters' citations to existing State laws and 
regulations governing service contract sellers indicate these sellers 
already provide disclosures and protections consistent with the Rule. 
As a practical matter, sellers who already provide consumers the Rule's 
protections should not be burdened by its application.\154\
---------------------------------------------------------------------------

    \154\ Moreover, service contract sellers, like other interested 
persons, may seek full or partial exemption from the final Rule. See 
Section VIII.A.1 (discussing new Sec.  425.8, Exemptions provision).
---------------------------------------------------------------------------

(c) Business-to-Business
(1) Comments
    Nine commenters noted the NPRM did not expressly address whether 
the proposed Rule would apply to business-to-business (``B2B'') 
transactions. Seven, including five industry associations,\155\ said it 
should not apply.\156\ Two individuals disagreed.\157\
---------------------------------------------------------------------------

    \155\ BSA, FTC-2023-0033-1015 (B2B software sellers); CTIA, FTC-
2023-0033-0866 (wireless communication industry); ETA, FTC-2023-
0033-1004 (payments industry); NCTA, FTC-2023-0033-0858 (internet 
and television); USTelecom, FTC-2023-0033-0876 (broadband). A sixth 
association, the U.S. Chamber of Commerce, asked the Commission to 
ensure that the scope of its cost-benefit analysis includes 
business-to-business transactions. FTC-2023-0033-0885.
    \156\ Anonymous commenter, FTC-2023-0033-1007; BSA, FTC-2023-
0033-1015; CTIA, FTC-2023-0033-0866; ETA, FTC-2023-0033-1004; NCTA, 
FTC-2023-0033-0858; USTelecom, FTC-2023-0033-0876; ZoomInfo, FTC-
2023-0033-0865.
    \157\ Individual commenter, FTC-2023-0033-0755; Individual 
commenter, FTC-2023-0033-0042.
---------------------------------------------------------------------------

    Commenters advocating against including B2B sales in the Rule 
asserted the Commission should presume businesses are more 
sophisticated than individual consumers,\158\ and contended B2B 
contracts typically are individually negotiated.\159\ For example, 
ZoomInfo maintained business consumers are generally ``more 
sophisticated than individual consumers,'' explaining B2B contracts 
``are assumed to result from arm's-length negotiation and often benefit 
from professional legal counsel.'' \160\ Similarly, NCTA, an 
organization representing the internet and television industry, 
characterized business consumers as ``typically sophisticated,'' and 
said the Commission should not intervene in transactions based on 
``[n]on-form contracts that are the subject of extensive bargaining 
between sophisticated companies.'' \161\
---------------------------------------------------------------------------

    \158\ Anonymous commenter, FTC-2023-0033-1007; CTIA, FTC-2023-
0033-0866; NCTA, FTC-2023-0033-0858; ZoomInfo, FTC-2023-0033-0865.
    \159\ CTIA, FTC-2023-0033-0866; NCTA, FTC-2023-0033-0858; 
USTelecom, FTC-2023-0033-0876; ZoomInfo, FTC-2023-0033-0865.
    \160\ ZoomInfo, FTC-2023-0033-0865.
    \161\ NCTA, FTC-2023-0033-0858. NCTA requested any final rule 
exclude individually negotiated business-to-business contracts. FTC-
2023-0033-0858.
---------------------------------------------------------------------------

    Seller and consumer commenters differed on whether the harmful 
negative option practices discussed in the NPRM are extant for B2B 
consumers. In support of excluding B2B transactions, two commenters 
asserted there is insufficient evidence of harm in the B2B context to 
support a prevalence finding.\162\ A B2B consumer, however, noted 
individuals and small businesses both suffer from the harms of 
deceptive and unfair negative option practices. ``As a small business 
owner,'' the individual wrote, ``as well as a consumer, I am especially 
aware of how purposely difficult many companies make it to cancel their 
services. From telephone companies to travel channel companies . . . to 
email targeting campaigns . . . the cancelling process is ridiculously 
complex and at times hidden, if it exists at all on their websites.'' 
\163\
---------------------------------------------------------------------------

    \162\ BSA, FTC-2023-0033-1015; NCTA, FTC-2023-0033-0858. The 
Commission discusses the subject of prevalence more broadly at 
Section VII.A.
    \163\ Individual commenter, FTC-2023-0033-0755.
---------------------------------------------------------------------------

    Seller and consumer commenters also differed on the significance of 
existing State law B2B exclusions. Three B2B sellers recommended the 
Commission follow those States that exclude B2B transactions.\164\ A 
consumer, however, asserted such exclusions are why this Rule is 
necessary.\165\ Specifically, the commenter explained: ``negative 
option marketing also greatly affect[s] many individual sellers and 
small businesses,'' but due to B2B exclusions, ``some larger 
corporations or companies are able to take advantage of that loophole 
and use predatory negative option practices against individual sellers 
and small businesses.'' \166\
---------------------------------------------------------------------------

    \164\ Anonymous commenter, FTC-2023-0033-1007 (California); BSA, 
FTC-2023-0033-1015 (California, Colorado, Delaware); ZoomInfo, FTC-
2023-0033-0865 (California, Colorado, Connecticut, Delaware, Hawaii, 
New York, Oregon, Tennessee, Virginia).
    \165\ Individual commenter, FTC-2023-0033-0042.
    \166\ Id.
---------------------------------------------------------------------------

    Some sellers also referred to other Federal regulations to support 
excluding businesses from the scope of the Rule. For instance, ETA and 
NCTA each noted the Commission excluded most B2B transactions in the 
TSR. ETA made the same observation about the Cooling Off Rule.\167\ 
Both CTIA and USTelecom approvingly cited the FCC's approach. USTelecom 
explained, ``the FCC has limited certain consumer protection rules to 
`mass-market retail services' '' that are `` `marketed and sold on a 
standardized basis to residential customers, small businesses, and 
other end-user customers such as schools and libraries.' '' \168\ 
USTelecom further explained, ``Mass-market retail services stand in 
contrast to `customized or individually negotiated arrangements' that 
are typically offered to larger organizations.'' \169\
---------------------------------------------------------------------------

    \167\ 16 CFR 429.0-429.3.
    \168\ USTelecom, FTC-2023-0033-0876.
    \169\ Id.
---------------------------------------------------------------------------

    ETA questioned whether the Commission has authority to address B2B 
transactions. ETA argued the proposed Rule would let the Commission 
``interpose regulatory influence and law enforcement authority in 
contractual arrangements between businesses in a way that has not been 
authorized by Congress or

[[Page 90489]]

justified by the Commission's own rationale for the Proposed Rule.'' 
\170\ ETA cited the Commission's use of ROSCA in the First American 
Payment Systems case to illustrate its view the Rule's application in 
the B2B context would be impermissible regulation of ``an automatic 
renewal clause in an arm's length commercial agreement.'' \171\
---------------------------------------------------------------------------

    \170\ ETA, FTC-2023-0033-1004.
    \171\ Id. (citing FTC v. First Am. Payment Sys., No. 4:22-cv-
00654 (E.D. Tex. 2022)).
---------------------------------------------------------------------------

    Finally, ETA and ZoomInfo argued various provisions of the Rule, 
such as the disclosure and notice requirements, could present unusual 
implementation problems in B2B transactions. For instance, ETA asserted 
disclosure requirements could result in operational uncertainty because 
the Commission did not consider all the typical terms included in B2B 
agreements. Similarly, ZoomInfo explained ``B2B agreements are often 
complex, involving multiple decision-makers and points of contact, who 
might rotate or leave their roles over the course of a contract.'' 
\172\
---------------------------------------------------------------------------

    \172\ ZoomInfo, FTC-2023-0033-0865. ETA also raised a concern 
about the definition of negative option seller, addressed in Section 
VII.B.1.a.
---------------------------------------------------------------------------

(2) Analysis
    The final Rule, like the proposed Rule, covers B2B transactions. It 
has been the Commission's longstanding view that section 5 of the FTC 
Act \173\ protects business consumers as well as individual consumers. 
Moreover, commenters' arguments that, under section 5, all business 
consumers must be held to a heightened standard of sophistication are 
inconsistent with settled law.
---------------------------------------------------------------------------

    \173\ 15 U.S.C. 45(a).
---------------------------------------------------------------------------

    The Commission has long enforced the FTC Act against those who 
deceive and act unfairly to businesses and other organizations.\174\ As 
the Supreme Court explained in FTC v. Standard Educ. Soc., 302 U.S. 
112, 116 (1937), ``Laws are made to protect the trusting as well as the 
suspicious.'' This principle applies no less to the business consumer 
than to the individual.\175\ The Commission maintains a decades-long 
list of business protection cases on its website and dedicates 
significant effort to educate and protect small businesses.\176\ 
Indeed, the Commission has made protecting small businesses a 
priority.\177\
---------------------------------------------------------------------------

    \174\ See, e.g., Indep. Directory Corp. v. FTC, 188 F.2d 468 (2d 
Cir. 1951) (deceptive practices in selling directory ads to 
businesses).
    \175\ Indep. Directory Corp., 188 F.2d at 470 (applying Standard 
Educ. Soc.); see also, e.g., FTC v. LoanPointe, LLC, 525 F. App'x 
696, 701 (10th Cir. 2017) (FTC need only prove ``the likelihood that 
a consumer (here, employers)'' would be deceived); FTC v. 
Crittenden, 19 F.3d 26 (9th Cir. 1994) (Table) (noting stipulated 
judgment with B2B office supplier); FTC v. Inc21.com Corp., 688 F. 
Supp. 2d 927 (N.D. Cal. 2010) (preliminary injunction against 
deceptive and unfair B2B billing scheme); FTC v. IFC Credit Corp., 
543 F. Supp. 2d 925, 934 (N.D. Ill. 2008) (FTC Act applies to B2B 
sales).
    \176\ See Fed. Trade Comm'n, ``Protecting Small Businesses: 
Cases,'' https://www.ftc.gov/business-guidance/small-businesses/protecting-small-businesses-cases (last visited October 23, 2024); 
Fed. Trade Comm'n, ``Protecting Small Businesses,'' https://www.ftc.gov/business-guidance/small-businesses (last visited October 
23, 2024); Fed. Trade Comm'n, ``Scams and Your Small Business: A 
Guide For Business,'' https://www.ftc.gov/business-guidance/resources/scams-your-small-business-guide-business (last visited 
October 23, 2024).
    \177\ See Press Release, Fed. Trade Comm'n, ``FTC, BBB, and Law 
Enforcement Partners Announce Results of Operation Main Street: 
Stopping Small Business Scams Law Enforcement and Education 
Initiative'' (June 18, 2018), https://www.ftc.gov/news-events/press-releases/2018/06/ftc-bbb-law-enforcement-partners-announce-results-operation-main (last visited October 23, 2024).
---------------------------------------------------------------------------

    Moreover, the TSR never exempted B2B transactions entirely. 
Importantly, the Commission recently amended the TSR to cover a broader 
scope of B2B activity. Specifically, in 2024, the Commission expanded 
the TSR to prohibit material misrepresentations and false or misleading 
statements in B2B calls due to the ongoing harm to small businesses 
from such practices.\178\
---------------------------------------------------------------------------

    \178\ TSR, 89 FR 26760 (April 16, 2024).
---------------------------------------------------------------------------

    Additionally, recent Commission actions to protect small businesses 
underscore the fact deceptive practices pertaining to negative option 
features occur in B2B transactions just as they do with individual 
consumers. None of these cases present the arms-length negotiation of 
contracts by sophisticated parties that commenters claim to be 
universal. For example, in its 2022 action against First American 
Payment Systems,\179\ the Commission alleged the defendants violated 
section 5 and ROSCA by making false claims about fees and cost savings 
to persuade merchants in small- and medium-sized businesses, many of 
whom had limited English proficiency, to enter into payment processing 
agreements.\180\ Once enrolled, the defendants allegedly withdrew funds 
from merchants' accounts without consent, and made it difficult and 
expensive to cancel the service. Under a stipulated court order, the 
defendants must (among other things) make it easier for merchants to 
cancel their services.
---------------------------------------------------------------------------

    \179\ FTC v. First Am. Payment Sys., No. 4:22-cv-00654 (E.D. 
Tex. 2022).
    \180\ In describing the basis for the misrepresentations 
provision of the proposed Rule, the NPRM cited (among other cases) 
First Am. Payment Sys. NPRM, 88 FR 24726 n.65. See also ETA, FTC-
2023-0033-1004.
---------------------------------------------------------------------------

    In the Commission's 2022 Dun & Bradstreet ¹⁸¹ matter, 
the complaint alleged multiple deceptive practices pertaining to 
products the defendant marketed to small- and medium-sized businesses, 
in violation of section 5. The resulting consent order includes 
substantial provisions pertaining to negative option features.
---------------------------------------------------------------------------

    \181\ In re Dun & Bradstreet, Inc., FTC Docket No. C-4761 
(2022).
---------------------------------------------------------------------------

    The Commission's 2022 action against Vonage \182\ also illustrates 
this point. The complaint detailed the defendants' deceptive and unfair 
practices targeting both business and residential customers and alleged 
those practices violated section 5 and ROSCA.\183\ The stipulated court 
order includes multiple provisions relating to consent, cancellation, 
and disclosures pertaining to both individual and business consumers.
---------------------------------------------------------------------------

    \182\ FTC v. Vonage Holdings Corp., No. 3:22-cv-06435 (D.N.J. 
2022).
    \183\ The Adobe matter provides another recent example of a 
matter alleging unlawful negative option practices targeting both 
individual and business consumers. United States v. Adobe, Inc., No. 
5:24-cv-03630 (N.D. Cal. 2024).
---------------------------------------------------------------------------

    Nonetheless, two arguments for excluding B2B transactions warrant 
additional discussion. First, several commenters elide the distinction 
between B2B agreements generally and individually negotiated B2B 
agreements. It is neither the purpose nor the effect of the final Rule 
to prevent businesses from entering into agreements with individually 
negotiated negative option terms. By requiring the cancellation 
mechanism to be ``at least as easy to use'' as the consent mechanism, 
the final Rule incorporates a symmetrical standard that accounts for 
individually negotiated B2B agreements. A B2B consumer who consents to 
a negative option feature through an individually negotiated term of an 
agreement can also individually negotiate the cancellation mechanism. 
Moreover, as the Commission noted above, it will enforce this Rule in 
the same manner in which it enforces section 5 of the FTC Act.\184\ The 
Commission has not used its consumer protection authority in the type 
of large individually negotiated B2B transactions commenters are 
worried about.\185\ Unsurprisingly, no commenter cited any historical 
instance to the contrary. Thus, the Rule preserves the ability of 
sophisticated business consumers to individually negotiate B2B 
agreement terms.\186\
---------------------------------------------------------------------------

    \184\ See section VII.B.1.a.
    \185\ See 16 CFR 2.3.
    \186\ The Vonage order expressly exempts negative option feature 
provisions in B2B contracts where the defendants ``possess evidence 
that consumers negotiated significant terms of the negative option 
feature that are only negotiable with business consumers.'' FTC v. 
Vonage Holdings Corp., No. 3:22-cv-06435 (D.N.J. 2022). The final 
Rule is less prescriptive and more flexible than that order, thereby 
promoting more flexibility in the marketplace.

---------------------------------------------------------------------------

[[Page 90490]]

    Second, it appears several commenters mistakenly thought the 
required simple cancellation mechanism would necessarily terminate all 
aspects of any broader contract or agreement. In fact, this provision 
only pertains to cancellation of the negative option feature. Complex 
commercial agreements, such as those described by ETA, will have 
numerous provisions unrelated to negative option features. Nothing in 
this Rule prohibits these provisions from being subject to separate 
cancellation and termination terms.
2. Proposed Sec.  425.2 Definitions
    In the NPRM, the proposed Rule set forth several definitions. For 
example, the proposed Rule defined ``negative option feature'' as a 
contract provision under which the consumer's silence or failure to 
take affirmative action to reject a good or service or to cancel an 
agreement is interpreted by the negative option seller as acceptance or 
continuing acceptance of an offer. This definition is consistent with 
the TSR and ROSCA (which references the TSR's definition). The proposed 
term includes, but is not limited to, automatic renewals, continuity 
plans, free-to-pay conversion or fee-to-pay conversions, and pre-
notification negative option plans.\187\
---------------------------------------------------------------------------

    \187\ Section II of this Notice contains descriptions of these 
various plans.
---------------------------------------------------------------------------

    Additionally, the proposed Rule defined ``clear and conspicuous,'' 
``negative option seller,'' and ``save.'' To define ``clear and 
conspicuous,'' the FTC imported its definition developed through years 
of enforcement experience. As explained in the NPRM, the proposed 
definition substantially overlaps with the concepts provided in 
California and District of Columbia negative option laws,\188\ with one 
exception. Specifically, the District of Columbia definition requires 
disclosures to be visually proximate to any request for consumer 
consent. The final Rule incorporates this requirement in a separate 
consent section.
---------------------------------------------------------------------------

    \188\ Cal. Bus. & Prof. Code section 17601 and DC Code section 
28A-202.
---------------------------------------------------------------------------

(a) Summary of Comments
    The Commission did not receive any comments specifically supporting 
any proposed definition, though several commenters generally supported 
the concepts incorporated in the definitions, such as ``clear and 
conspicuous disclosures.'' Several commenters critiqued the 
Commission's omission of certain definitions, such as ``material'' in 
connection with Sec.  425.3 and Sec.  425.4,\189\ ``simple cancellation 
mechanism,'' \190\ ``practical,'' and ``normal business hours,'' \191\ 
because these terms are used throughout the Rule. Other commenters 
asked the Commission to add a definition for ``consumer'' that excludes 
businesses,\192\ while another asked the Commission to include small 
businesses in that definition.\193\ Similarly, other commenters asked 
the Commission to ``exempt'' certain industries from, or otherwise 
alter the scope of, the definition of ``negative option seller.'' \194\
---------------------------------------------------------------------------

    \189\ See, e.g., BSA, FTC-2023-0033-1015 (material is not 
defined); Chamber, FTC-2023-0033-0885 (same).
    \190\ Center for Data Innovation (``CDI''), FTC-2023-0033-0887; 
see also Act App Association, FTC-2023-0033-0874; NRF, FTC-2023-
0033-1005 (failed to defined ``as simple as'').
    \191\ International Carwash Association, FTC-2023-0033-1142.
    \192\ See, e.g., Anonymous commenter, FTC-2023-0033-1007; 
Zoominfo, FTC-2023-0033-0865; CTIA, FTC-2023-0033-0866; BSA, FTC-
2023-0033-1015.
    \193\ Individual commenter, FTC-2023-0033-0042.
    \194\ See, e.g., Asurion, FTC-2023-0033-0878 (exempt service 
contracts); Chamber, FTC-2023-0033-0885 (exclude promoting); ETA, 
FTC-2023-0033-1004 (exclude ``charging for''). These requests are 
more appropriately addressed in the scope and requested exemptions, 
and the Commission does not consider them here.
---------------------------------------------------------------------------

    Several commenters critiqued the proposed definitions. For example, 
ESA stated ``the definition of `save' \195\ is overly broad and would 
prohibit the presentation of useful, consumer-friendly details about a 
consumer's subscription before they cancel it.'' \196\ Other commenters 
questioned why the ``clear and conspicuous'' definitions says a 
disclosure is not clear and conspicuous, if a consumer must click on a 
hyperlink to see it.\197\
---------------------------------------------------------------------------

    \195\ Save was defined in the proposed Rule as an attempt by a 
seller to present any additional offers, modifications to the 
existing agreement, reasons to retain the existing offer, or similar 
information when a consumer attempts to cancel a negative option 
feature.
    \196\ ESA, FTC-2023-0033-0867. PDMI argued similarly as to the 
definition of save. FTC-2023-0033-0864 (arguing sellers should be 
able to be able to immediately discuss pause, skip or modification 
options without having to ask for permission, particularly because 
it is impossible to know which customers prefer to cancel as opposed 
to merely modify their current plan). Accord USTelecom, FTC-2023-
0033-0876 (definition of Save overly broad); RILA, FTC-2023-0033-
0883 (modify definition of save to allow short clarification and 
confirmation of intent follow-up communications); Chamber, FTC-2023-
0033-0885; CDI, FTC-2023-0033-0887 (``Commission should exclude 
information about permanent, irreparable harms that may result from 
cancellation, and is relevant to the current subscription or product 
plan.''); CCIA, FTC-2023-0033-0984; IAB, FTC-2023-0033-1000 
(definition of save overly broad and ``would prohibit the 
presentation of useful, consumer-friendly details about a consumer's 
subscription before they cancel it.'').
    \197\ See, e.g., NCTA, FTC-2023-0033-0858 (definition does not 
take into account small screens); Chamber, FTC-2023-0033-0885 (``The 
requirements that disclosure on the internet or mobile applications 
be `unavoidable' and `immediately adjacent' rase practical 
concerns.''); CCIA, FTC-2023-0033-0984 (definition should ``hew 
closely to the Commission's guidance in its .com Disclosures policy 
to ensure regulatory consistency.'').
---------------------------------------------------------------------------

    Additionally, several commenters requested the Commission revise 
certain of its proposed definitions for clarity. For instance, the 
National Federation of Independent Businesses (``NFIB'') asked the 
Commission to revise the definitions for ``clear and conspicuous'' and 
``negative option feature'' to ``make their meanings clearer'' \198\ 
by, for example, using simpler words in the clear and conspicuous 
definition (``words and grammar'' versus ``diction and syntax'') or by 
providing detailed examples of each type of program covered in the 
definition of negative option feature. NFIB further explained ``Those 
regulated by and served by subsection 425.2(d) most likely would 
understand the meaning of an automatic renewal, but perhaps not the 
meaning of the other examples.'' \199\
---------------------------------------------------------------------------

    \198\ NFIB, FTC-2023-0033-0789. Accord Kuehn, FTC-2023-0033-0871 
(proposed revised definition of negative option feature); Chamber, 
FTC-2023-0033-0885 (requests the definition of negative option 
feature to be revised to exclude monthly subscription services). See 
section VII.B.4 for further discussion of proposed modifications. 
See also ETA, FTC-2023-0033-1004 (clarify and narrow ``automatic 
renewal in the definition).
    \199\ NFIB, FTC-2023-0033-0789 (requesting specific examples of 
each type of program be included in the definition of negative 
option feature); see also IHRSA, FTC-2023-0033-0863 (observes the 
Commission does not define what ``automatic renewal, continuity 
plan'' and other examples of negative option features mean).
---------------------------------------------------------------------------

(b) Analysis
    Based on the record, the Commission makes several changes to the 
proposed definitions. First, as explained in sections VII.B.1.3 
(material) and VII.B.6.c.2.b.ii (interactive electronic medium), it 
adds definitions of material and interactive electronic medium for 
clarity. Further, as discussed in section VII.B.4, the Commission 
modifies the definition of clear and conspicuous.
    Second, the Commission removes the definition of save. As discussed 
in section VII.B.6.c the proposed saves provision did not achieve the 
right balance between protecting consumers from unfair tactics and 
allowing sellers to provide necessary and valuable information about 
cancellation. Therefore, the Commission declines to include the NPRM's 
proposed limitation on saves, and instead will consider issuing an 
SNPRM in the future for

[[Page 90491]]

further comment. Accordingly, without the saves provision, the 
Commission determines there is no need for a defined term at this time.
    Although several commenters critiqued the lack of definitions for 
such terms as ``simple cancellation mechanism,'' ``practical,'' or 
``normal business hours,'' the Commission addresses these concerns with 
further clarification, rather than with formal definitions, in the 
section-by-section analysis below. As to commenter requests for a 
definition of ``consumer'' expressly excluding (or including) business-
to-business transactions, the Commission similarly addresses these 
requests in the sections regarding scope and requested exemptions, 
above.
    Finally, NFIB asked the Commission to add specific examples of each 
type of negative option program to the text of the Rule, stating those 
served by the Rule would likely not understand these ``terms of art.'' 
\200\ The Commission discusses examples of each type of negative option 
program in more detail as part of the SBP at section II. Further, the 
Commission typically engages in robust consumer and business education 
campaigns when promulgating and issuing final rules and will do so 
here. The Commission therefore disagrees the Rule must incorporate 
these examples into the text.\201\
---------------------------------------------------------------------------

    \200\ NFIB, FTC-2023-0033-0789.
    \201\ Further, as explained in n.307, the Commission also 
declines to revise the definition of ``clear and conspicuous'' to 
replace the words ``diction and syntax'' with ``words and grammar.''
---------------------------------------------------------------------------

3. Proposed Sec.  425.3 Misrepresentations
    Section 425.3 of the proposed Rule prohibited sellers from 
misrepresenting ``any material fact related to the transaction, such as 
the negative option feature, or any material fact related to the 
underlying good or service.'' \202\ As explained in the NPRM, 
``misrepresentations in negative option marketing cases often involve 
deceptive representations not only related to the negative option 
feature but to the underlying product (or service) or other aspects of 
the transaction as well.'' \203\ These include ``misrepresentations 
related to costs, product efficacy, free trial claims, processing or 
shipping fees, billing information use, deadlines, consumer 
authorization, refunds, [and] cancellation.'' \204\
---------------------------------------------------------------------------

    \202\ NPRM, 88 FR 24734.
    \203\ NPRM, 88 FR 24726.
    \204\ Id. (citing e.g., FTC v. Tarr, No. 3:17-cv-02024 (S.D. 
Cal. 2017); FTC v. First Am. Payment Sys., No. 4:22-cv-00654 (E.D. 
Tex. 2022); FTC v. XXL Impressions, LLC, No. 1:17-cv-00067 (D. Me. 
2017); United States v. MyLife.com, Inc., No. 2:20-cv-6692 (C.D. 
Cal. 2020); FTC v. Health Rsch. Labs., LLC, No. 2:17-cv-00467 (D. 
Me. 2017); FTC v. Leanspa, LLC, No. 3:11-cv-01715 (D. Conn. 2011); 
FTC v. WealthPress, Inc., No. 3:23-cv-00046 (M.D. Fla. 2023); FTC v. 
BunZai Media Grp., Inc., No. 2:15-cv-04527 (C.D. Cal. 2015); FTC v. 
Willms, No. 2:11-cv-00828 (W.D. Wash. 2011); FTC v. Universal 
Premium Servs., No. 2:06-cv-00849 (C.D. Cal. 2006); FTC v. Remote 
Response Corp., No. 1:06-cv-20168 (S.D. Fla. 2006); and FTC v. 
Johnson, No. 2:10-cv-02203 (D. Nev. 2016).
---------------------------------------------------------------------------

    The FTC Act provides the legal basis for the Commission to prevent 
and remedy misrepresentations in the negative option context. 
Specifically, section 5(a)(1) of the FTC Act declares unfair or 
deceptive acts or practices in or affecting commerce to be unlawful. 
Negative option sellers making material misrepresentations are engaged 
in deceptive practices. Addressing these practices through the Rule 
prevents deception by giving the Commission the ability to seek civil 
penalties (where appropriate under 5(m)(1)(a)), where they are not 
already provided, thus deterring misrepresentations, protecting 
consumers, and leveling the playing field for ``honest sellers who must 
compete with those who engage in deception.'' \205\
---------------------------------------------------------------------------

    \205\ NPRM, 88 FR 24726.
---------------------------------------------------------------------------

(a) Summary of Comments
    The State AGs strongly supported this provision, stating, for 
example, it would ``combat[ ] seller misrepresentations, by providing 
the FTC with authority to seek civil penalties and consumer redress for 
material misrepresentations in all types of media.'' \206\ Echoing the 
NPRM, they explained, ``[l]ike the FTC, we have found that negative 
option marketing cases `often involve deceptive representations not 
only related to the negative option feature but to the underlying 
product (or service) or other aspects of the transaction as well.' '' 
\207\
---------------------------------------------------------------------------

    \206\ State AGs, FTC-2023-0033-0886.
    \207\ Id.
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    Law Professors further supported prohibiting ``material 
misrepresentations . . . whether or not the false claim is exclusively 
about the negative option feature.'' \208\ They, too, offered evidence 
of the prevalence of misconduct, stating ``entities like the Better 
Business Bureau have long reported, based on FTC and other data, the 
prevalence of misrepresentation in certain negative option 
arrangements, and non-FTC enforcement efforts confirm the problem.'' 
\209\ Citing multiple sources, they argued the ``Commission thus has 
more than ample `reason to believe that' co-occurring negative option 
violations and other misrepresentations `are prevalent.' '' \210\
---------------------------------------------------------------------------

    \208\ Law Professors, FTC-2023-0033-0861.
    \209\ Id., citing Better Business Bureau, ``BBB Investigation 
Update: Free Trial Offer Scams'' (Apr. 2020), https://www.bbb.org/article/news-releases/22040-bbb-update-free-trial-offerscams; C. 
Steven Baker & Better Business Bureau, ``Subscription Traps and 
Deceptive Free Trials Scam Millions with Misleading Ads and Fake 
Celebrity Endorsements'' (Dec. 2018), https://www.bbb.org/article/investigations/18929-subscription-traps-and-deceptive-free-trialsscam-millions-with-misleading-ads-and-fake-celebrity-endorsements. The Law professors further pointed to evidence found 
by searching BBB's ScamTracker for terms like ``subscription.'' See, 
e.g., Better Business Bureau, ScamTracker, ID #720953, https://www.bbb.org/scamtracker/lookupscam/720953. They additionally cited 
Consumer Financial Protection Bureau, ``CFPB Charges TransUnion and 
Senior Executive John Danaher with Violating Law Enforcement Order'' 
(Apr. 2022), https://www.consumerfinance.gov/about-us/newsroom/cfpb-charges-transunion-and-seniorexecutive-john-danaher-with-violating-law-enforcement-order/; David Pierson, `Santa Monica fitness brand 
Beachbody is fined $3.6 million over automatic renewals,'' L.A. 
Times (Aug. 29, 2017), https://www.latimes.com/business/la-fi-beachbody-20170829-story.html; Bruce A. Craig, Negative-Option 
Billing--Understanding the Stealth Scams of the `90s, 7 Loy. 
Consumer L. Rev. 5 (1994).
    \210\ Law Professors, FTC-2023-0033-0861.
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    These commenters further argued the Commission should not adopt a 
narrower provision limited strictly to the elements of a negative 
option feature because, in their view, it would be difficult ``to fully 
separate misrepresentations regarding the negative option feature from 
all other material misrepresentations.'' \211\
---------------------------------------------------------------------------

    \211\ Law Professors, FTC-2023-0033-0861.
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    Several commenters, largely trade groups and sellers, criticized 
the proposed provision. As discussed in section V.A, several questioned 
the prevalence of misrepresentations \212\ and asserted the provision 
was not within the scope of the ANPR.\213\ Additionally, several 
commenters argued the provision is overbroad, and suggested it is 
unnecessary in light of existing law. Finally, they proposed ways to 
narrow the proposed provision.
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    \212\ CTA, FTC-2023-0033-0997; ESA, FTC-2023-0033-0867; IAB, 
FTC-2023-0033-1000; N/MA, FTC-2023-0033-0873; RILA, FTC-2023-0033-
0883; TechFreedom, FTC-2023-0033-0872. See section VII.A for a 
discussion of prevalence addressing these comments.
    \213\ ANA, FTC-2023-0033-1001; CCIA, FTC-2023-0033-0984; 
Coalition, FTC-2023-0033-0884; ESA, FTC-2023-0033-0867; Frontdoor, 
FTC-2023-0033-0862; IAB, FTC-2023-0033-1000; NRF, FTC-2023-0033-
1005; RILA, FTC-2023-0033-0883. See section VII.A for a discussion 
addressing these comments.
---------------------------------------------------------------------------

    Several commenters objected to the scope of the proposed provision. 
Citing Commissioner Wilson's dissent to the NPRM, TechNet noted the 
proposed Rule ``would capture alleged misrepresentations regarding the 
underlying product or service `wholly unrelated' to the negative option 
feature.'' \214\ Three commenters asserted no current trade regulation 
rule

[[Page 90492]]

prohibits misrepresentations so broadly.\215\
---------------------------------------------------------------------------

    \214\ TechNet, FTC-2023-0033-0869.
    \215\ NCTA, FTC-2023-0033-0858; PDMI, FTC-2023-0033-0864; 
TechFreedom, FTC-2023-0033-0872.
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    Similarly on scope, some commenters also argued the proposed 
language lacked the specificity necessary to give sellers notice of 
what conduct would violate the Rule.\216\ For example, ACT App 
Association asserted, ``Notwithstanding best efforts, tech startups' 
ability to flawlessly adhere to the vague and broad language used in 
this rule is unrealistic.'' \217\
---------------------------------------------------------------------------

    \216\ For example, the Coalition and IAB both said, ``The NPRM 
fails, however, to identify which claims would constitute a material 
fact, and thus fails to identify covered acts with the requisite 
level of specificity.'' Coalition, FTC-2023-0033-0884; IAB, FTC-
2023-0033-1000. PDMI similarly claimed the proposed provision's lack 
of specificity ``renders [the proposed Rule] overly vague and 
unlawful.'' FTC-2023-0033-0864. See also ESA, FTC-2023-0033-0867; 
TechFreedom, FTC-2023-0033-0872; USTelecom, FTC-2023-0033-0876 
(citing Katharine Gibbs School v. FTC, 612 F.2d 658 (2d Cir. 1979)).
    \217\ ACT App Association, FTC-2023-0033-0874.
---------------------------------------------------------------------------

    A few commenters provided hypotheticals or asked rhetorical 
questions to illustrate concerns about the proposal's breadth. MIA, for 
example, stated, ``if a streaming service advertises, `movies that you 
will love,' but you do not `love' them, is that a violation of this 
rule subject to penalties? If a housekeeping service claims, `great 
cleaning every time,' but the resulting cleanliness is not up to the 
consumer's `standards,' will that trigger this provision and any 
resulting penalties?'' \218\ The Chamber asked, ``[c]ould a privacy 
policy, for example, be considered a material representation covered 
under this requirement?'' \219\
---------------------------------------------------------------------------

    \218\ MIA, FTC-2023-0033-1008.
    \219\ Chamber, FTC-2023-0033-0885. See also CDI, FTC-2023-0033-
0887 (``consumers could argue that the dish detergent they received 
through a subscription service did not clean dishes as 
advertised.'').
---------------------------------------------------------------------------

    Many of these commenters argued the reach of the proposed Rule 
would negatively impact consumers by discouraging negative option 
offerings. TechNet said, ``[f]or a variety of subscription services, 
the main drivers of consumer engagement are the subscription services' 
ability to provide financial savings, convenience, and access to 
premium services. . . . Unfortunately, the NPRM ignores these benefits 
and would discourage the offering of subscription services 
altogether.'' \220\ ESA feared ``this section will discourage industry 
members from developing and offering innovative negative option plans 
that consumers will enjoy.'' \221\
---------------------------------------------------------------------------

    \220\ TechNet, FTC-2023-0033-0869.
    \221\ ESA, FTC-2023-0033-0867; see also IAB, FTC-2023-0033-1000 
(predicting ``autorenewing (sic) subscriptions will become less 
common and significantly more costly because of the regulatory 
risks'' and ``businesses and consumers will be harmed by the loss of 
convenience and savings offered by autorenewal arrangements.''); 
Chamber, FTC-2023-0033-0885 (contending ``many entities may forgo 
negative options altogether. This decreases consumer choice in the 
marketplace given the clear popularity and use of negative option 
features across the economy.'').
---------------------------------------------------------------------------

    Several commenters asserted existing laws and regulations make the 
proposed provision unnecessary. Some argued section 5's prohibition 
against deceptive practices already provides the Commission sufficient 
authority on this issue.\222\ Others asserted State laws and 
regulations prohibiting misrepresentations are sufficient to protect 
the public.\223\
---------------------------------------------------------------------------

    \222\ ANA, FTC-2023-0033-1001; Consumer Technology Association 
(``CTA''), FTC-2023-0033-0997; N/MA, FTC-2023-0033-0873.
    \223\ NRF, FTC-2023-0033-1005; RILA, FTC-2023-0033-0883; SFE 
Energy, Inc. (``SFE''), FTC-2023-0033-1151.
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    Commenters were divided on ROSCA's coverage. NRF, for example, said 
``[i]n light of the Commission's decision that ROSCA already prohibits 
deceptive statements made in connection with a subscription, even if 
not directly related to subscription terms, many of the proposed 
amendments are unnecessary.'' \224\ In contrast, PDMI said while 
MoviePass ``perhaps reflects a colorable approach,'' the application of 
ROSCA there ``exceeded Congress' intent.'' \225\ Similarly, IAB 
asserted the proposed Rule would break new ground by ``grant[ing] the 
Commission authority to seek monetary remedies against a first-time 
offender for misrepresentations that would not give rise to monetary 
relief if made outside the context of an autorenewal agreement.'' \226\
---------------------------------------------------------------------------

    \224\ NRF, FTC-2023-0033-1005.
    \225\ PDMI, FTC-2023-003-0864.
    \226\ IAB, FTC-2023-0033-1000.
---------------------------------------------------------------------------

    Several commenters recommended changes if the proposed provision 
remains in the Rule. BSA, for example, suggested the Commission should 
define the term ``material,'' citing the TSR and the FTC Policy 
Statement on Deception as examples.\227\ Separately, RILA urged the 
Commission ``to include clear language stating a `reasonable person 
standard' will apply to determinations of `material facts' related to 
products.'' \228\
---------------------------------------------------------------------------

    \227\ BSA, FTC-2023-0033-1015; see also Chamber, FTC-2023-0033-
0885 (noting ``materiality'' not defined in NPRM).
    \228\ RILA, FTC-2023-0033-0883.
---------------------------------------------------------------------------

    Several commenters suggested the Commission limit the 
misrepresentation provision to the terms of the negative option 
feature. For instance, BSA advocated for limiting the provision ``to 
facts relating to the transaction and not every material fact relating 
to the underlying good or service.'' \229\ CCIA and CDI agreed, stating 
the final phrase should instead cover only those material facts related 
to the underlying negative option feature and exclude ``any material 
fact related to the underlying good or service.'' \230\
---------------------------------------------------------------------------

    \229\ BSA, FTC-2023-0033-1015.
    \230\ CCIA, FTC-2023-0033-0984; CDI, FTC-2023-0033-0887; see 
also TechFreedom, FTC-2023-0033-0872.
---------------------------------------------------------------------------

(b) Analysis
    Based on the record, the Commission adopts a clarified version of 
the material misrepresentation section and adds a definition for 
further clarification. Specifically, the final Rule omits the proposed 
language referring to ``any material fact related to the transaction, 
such as the negative option feature, or any material fact related to 
the underlying good or service'' and instead prohibits 
misrepresentation of ``any material fact,'' and defines ``material'' 
consistent with the TSR and section 5 of the FTC Act. Further, to 
enhance clarity and specificity, the text lists several examples of 
potentially material fact categories, taken from Commission precedent.
    As further explained below: (1) despite commenters' concerns to the 
contrary, this provision is consistent with the ANPR and prevalence 
requirements of section 18 of the FTC Act; (2) consistent with ROSCA, 
the final provision is not limited to material misrepresentations about 
the negative option feature itself; (3) the Commission declines to 
exclude any subset of material misrepresentations from the scope of the 
Rule; and (4) for clarity, the Commission adds a definition of 
``material'' consistent with established law of section 5 and other 
Commission Rules.
    (1) Adoption of a prohibition against misrepresentations is 
consistent with the ANPR and is appropriate to address prevalent unfair 
or deceptive acts or practices.
    Prior to the publication of any notice of proposed rulemaking 
promulgated under the Magnuson Moss Act, the Commission must publish an 
advance notice of proposed rulemaking (ANPR).\231\ That notice must 
contain a ``brief description of the area of inquiry under 
consideration, the objectives which the Commission seeks to achieve, 
and possible regulatory alternatives

[[Page 90493]]

under consideration by the Commission.'' \232\ The ANPR in this case 
meets this standard. Specifically, in the ANPR, the Commission stated 
the objective of the Rule was to prevent deceptive or unfair practices 
in the marketing of products and services with negative option 
features. Several industry associations submitted comments in response 
to the ANPR, illustrating the effectiveness of the ANPR in soliciting 
views of the interested public and affected industry before issuing the 
NPRM.\233\ Moreover, as detailed herein, the Commission has reviewed 
and carefully considered the views of the public and industry as 
expressed in response to both the ANPR and NPRM.
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    \231\ 15 U.S.C. 57a(b)(2).
    \232\ 15 U.S.C. (b)(2)(A)(i).
    \233\ Section 425.3 is the only remaining section as to which 
commenters made this ANPR argument.
---------------------------------------------------------------------------

    The record demonstrates misrepresentations made to induce consumers 
to enter into negative option programs are prevalent. Specifically, the 
Commission's enforcement experience (including consumer complaints, 
matters cited in the NPRM, and matters cited in this Statement of Basis 
and Purpose) as well as the experiences of the State AGs, the 
information cited by the Law Professors, and comments by consumer 
commenters all support this conclusion.\234\
---------------------------------------------------------------------------

    \234\ See section VII.1.a. In the cited Commission law 
enforcement matters, the Commission has applied its established 
materiality standard, limiting its actions to misrepresentations 
that are likely to affect consumers' choice of, or conduct 
regarding, goods or services. In re Cliffdale Assocs., Inc., 103 
F.T.C. 110 (1984). That is to say, in the cited matters the 
Commission alleged defendants made misrepresentations to induce 
consumers to enter into negative option programs.
---------------------------------------------------------------------------

    As several commenters critical of the proposed provision correctly 
note, misrepresentations to induce consumers to join negative option 
programs are already unlawful under section 5, as well as under other 
State and Federal laws and regulations, depending on (among other 
things) media used and jurisdiction. This fact, however, does not 
undermine the need for the Rule provision. By definition, a section 18 
trade regulation rule addresses conduct that is already prohibited 
under section 5. With such prohibited conduct defined, the trade 
regulation rule may also more broadly ``include requirements prescribed 
for the purpose of preventing such acts or practices,'' but the core of 
a trade regulation rule is the description of acts or practices already 
violative of section 5.\235\ The misrepresentations section of the Rule 
is narrower than the full scope of tools available under section 18. It 
simply prohibits conduct that is already deceptive. Such a provision 
promotes clarity and confidence in the marketplace and provides for 
more effective remedies (i.e., civil penalties, where appropriate) 
against wrongdoers.
---------------------------------------------------------------------------

    \235\ 15 U.S.C. 57a(a)(1)(B).
---------------------------------------------------------------------------

    Moreover, the fact that ROSCA's disclosure requirement \236\ 
already essentially prohibits material misrepresentations about online 
negative option transactions, means much of the rhetoric predicting the 
downfall of negative option marketing simply is ill-founded. Indeed, 
the Chamber pointed to the ``clear popularity and use of negative 
option features across the economy'' even as ROSCA has been law for 
over a decade.\237\ Far from undermining legitimate business, the 
Rule's express prohibition on misrepresenting material facts in 
connection with promoting or offering for sale a negative option 
feature should increase consumer confidence in negative option 
marketing, thus making it easier for legitimate businesses to market 
their products.
---------------------------------------------------------------------------

    \236\ 15 U.S.C. 8403(1).
    \237\ Chamber, FTC-2023-0033-0885.
---------------------------------------------------------------------------

    (2) Prohibiting misrepresentation of any material facts, not just 
those pertaining to the negative option feature, promotes clarity 
consistent with ROSCA and Commission precedent.
    The final Rule prohibits misrepresentation of ``any material 
fact.'' In doing so, it provides a non-exhaustive list of categories of 
potentially material facts (including transaction terms) and adds a 
definition of ``material,'' consistent with section 5 and the TSR. 
Specifically, consistent with section 5, ``material'' means ``likely to 
affect a person's choice of, or conduct regarding, goods or services.'' 
\238\ This approach both clarifies the terms most at issue and ensures 
the Rule accords with longstanding section 5 precedent.
---------------------------------------------------------------------------

    \238\ 16 CFR 310.2(t) (TSR); 16 CFR 461.1 (Impersonation Rule); 
Policy Statement on Deception (Oct. 14, 1983) (appended to In re 
Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)). See also BSA, FTC-
2023-0033-1015 (requesting definition of material consistent with 
TSR and Policy Statement); Chamber, FTC-2023-0033-0885 (criticizing 
the proposed Rule for not defining materiality).
---------------------------------------------------------------------------

    The Commission declines to limit the misrepresentations prohibition 
solely to elements of the negative option feature.\239\ First, the 
Commission finds imposing such a narrow restriction would be 
inconsistent with existing protections. Pursuant to ROSCA section 8403, 
sellers must ``clearly and conspicuously disclose all material terms of 
the transaction before obtaining the consumer's billing information.'' 
As Congress has explained, a healthy marketplace ``must provide 
consumers with clear, accurate information and give sellers an 
opportunity to fairly compete with one another for consumers' 
business.'' \240\ Limiting a misrepresentations prohibition solely to 
misrepresentations about the negative option feature itself would fall 
well short of the scope of ROSCA and the Commission's responsibility to 
protect the public.
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    \239\ E.g., ESA, FTC-2023-0033-0867; NFIB, FTC-2023-0033-0789; 
TechFreedom, FTC-2023-0033-0872.
    \240\ 15 U.S.C. 8401(2).
---------------------------------------------------------------------------

    Moreover, seller commenters themselves highlighted transaction 
elements other than negative option terms as critical to inducing 
consumers to choose negative option features. IAB, for example, pointed 
to the promise of ``broader selection and lower prices'' or 
``convenience and savings.'' \241\ Similarly, TechNet identified the 
``ability to provide financial savings, convenience, and access to 
premium services'' as ``the main drivers'' of varied 
subscriptions.\242\
---------------------------------------------------------------------------

    \241\ IAB, FTC-2023-0033-1000.
    \242\ TechNet, FTC-2023-0033-0869.
---------------------------------------------------------------------------

    Furthermore, such a distinction may invite dishonest actors to 
misrepresent material facts about a transaction so long as they felt 
they could evade monetary liability for such misrepresentations. 
Moreover, simply refraining from making material misrepresentations is 
hardly a significant burden given the fact that such misrepresentations 
are already illegal under section 5 of the FTC Act, and subject to 
civil penalties when made on the internet and over the telephone 
pursuant to ROSCA and the TSR, respectively.
    (3) The Commission declines to exclude any material facts from the 
scope of the provision.
    To further promote clarity, the Commission includes a list of non-
exclusive examples in the text of Sec.  425.3. In addition to the 
negative option feature itself, the examples include certain 
characteristics the Commission has identified as presumptively material 
for more than 40 years \243\ and which have in fact appeared as the 
subject of material misrepresentations in Commission negative option 
cases--cost,\244\ purpose

[[Page 90494]]

or efficacy,\245\ and health or safety.\246\ The record demonstrates 
the list must be non-exclusive because the Commission has observed the 
use of material misrepresentations other than those enumerated to 
induce consumers to enter into transactions with negative option 
features, including, for example, characteristics of the seller,\247\ 
the format of the ad or other sales communication,\248\ consumer 
authorization,\249\ consumer privacy or data security,\250\ and 
endorsements or testimonials.\251\ The Commission cannot predict what 
other material misrepresentations dishonest actors may employ in the 
future.
---------------------------------------------------------------------------

    \243\ Policy Statement on Deception (Oct. 14, 1983) (appended to 
In re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)) (describing 
and citing materiality of purpose, safety, efficacy, and cost); In 
re Thompson Medical Co., Inc., 104 F.T.C. 648, 816-17 (1984) 
(listing cost, purpose, efficacy, and safety as presumptively 
material characteristics).
    \244\ In the negative option context, material cost 
misrepresentations may include any cost (and total costs) from 
inception through the course of the commercial relationship, 
including misrepresentations as to recurring costs and refunds or 
guarantees. See, e.g., FTC v. FloatMe Corp., No. 5:24-cv-00001 (W.D. 
Tex. 2024); United States v. Cerebral, Inc., No. 1:24-cv-21376 (S.D. 
Fla. 2024); FTC v. Bridge It, Inc., No. 1:23-cv-09651 (S.D.N.Y. 
2023); FTC v. Benefytt Techs., Inc., No. 8:22-cv-01794 (M.D. Fla. 
2022); FTC v. First Am. Payment Sys., No. 4:22-cv-00654 (E.D. Tex. 
2022); FTC v. XXL Impressions, LLC, No. 1:17-cv-00067 (D. Me. 2017); 
FTC v. Cardiff, No. 5:18-cv-02104 (C.D. Cal. 2018); FTC v. Health 
Rsch. Labs., LLC, No. 2:17-cv-00467 (D. Me. 2017); FTC v. Tarr, No. 
3:17-cv-02024 (S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 1:17-cv-
09083 (S.D.N.Y. 2017); FTC v. Pact, Inc., No. 2:17-cv-1429 (W.D. 
Wash. 2017); FTC v. Leanspa, LLC, No. 3:11-cv-01715 (D. Conn. 2011); 
FTC v. Willms, No. 2:11-cv-00828 (W.D. Wash. 2011); FTC v. Universal 
Premium Servs., No. 2:06-cv-00849 (C.D. Cal. 2006).
    \245\ See, e.g., FTC v. FloatMe Corp., No. 5:24-cv-00001 (W.D. 
Tex. 2024); United States v. Cerebral, Inc., No. 1:24-cv-21376 (S.D. 
Fla. 2024); FTC v. NGL Labs, LLC, No. 2:24-cv-05753 (C.D. Cal. 
2024); FTC v. Bridge It, Inc., No. 1:23-cv-09651 (S.D.N.Y. 2023); 
FTC v. WealthPress, Inc., No. 3:23-cv-00046 (M.D. Fla. 2023); In re 
Dun & Bradstreet, Inc., FTC Docket No. C-4761 (2022); FTC v. First 
Am. Payment Sys., No. 4:22-cv-00654 (E.D. Tex. 2022); In re 
MoviePass, Inc., FTC Docket No. C-4751 (2021); United States v. 
MyLife.com, Inc., No. 2:20-cv-6692 (C.D. Cal. 2020); FTC v. 
RagingBull.com, LLC, No. 1:20-cv-03538 (D. Md. 2020); FTC v. Match 
Grp., Inc., No. 3:19-cv-02281 (N.D. Tex. 2019); FTC v. XXL 
Impressions, LLC, No. 1:17-cv-00067 (D. Me. 2017); FTC v. Cardiff, 
No. 5:18-cv-02104 (C.D. Cal. 2018); FTC v. JDI Dating, Ltd., No. 
1:14-cv-08400 (N.D. Ill. 2014); FTC v. Credit Bureau Ctr., LLC, No. 
1:17-cv-00194 (N.D. Ill. 2017); FTC v. Health Rsch. Labs., LLC, No. 
2:17-cv-00467 (D. Me. 2017); FTC v. Health Formulas, LLC, No. 2:14-
cv-01649 (D. Nev. 2014); FTC v. Leanspa, LLC, No. 3:11-cv-01715 (D. 
Conn. 2011); FTC v. Willms, No. 2:11-cv-00828 (W.D. Wash. 2011); FTC 
v. Johnson, No. 2:10-cv-02203 (D. Nev. 2010); FTC v. Remote Response 
Corp., No. 1:06-cv-20168 (S.D. Fla. 2006).
    \246\ See, e.g., FTC v. XXL Impressions, LLC, No. 1:17-cv-00067 
(D. Me. 2017); FTC v. Cardiff, No. 5:18-cv-02104 (C.D. Cal. 2018); 
FTC v. Health Rsch. Labs., LLC, No. 2:17-cv-00467 (D. Me. 2017); FTC 
v. Health Formulas, LLC, No. 2:14-cv-01649 (D. Nev. 2014); FTC v. 
Leanspa, LLC, No. 3:11-cv-01715 (D. Conn. 2011); FTC v. Willms, No. 
2:11-cv-00828 (W.D. Wash. 2011).
    \247\ E.g., FTC v. Elite IT Partners, Inc., No. 2:19-cv-00125 
(D. Utah 2019) (affiliation with well-known companies); In re 
Urthbox, Inc., FTC Docket No. C-4676 (2019) (independence of 
reviews); FTC v. BunZai Media Grp., Inc., No. 2:15-cv-04527 (C.D. 
Cal. 2015) (BBB accreditation and ratings); FTC v. DOTAuthority.com, 
Inc., No. 0:16-cv-62186 (S.D. Fla. 2016) (ratings); FTC v. FTN 
Promotions, Inc., No. 8:07-cv-1279 (M.D. Fla. 2007) (affiliation 
with consumer's bank).
    \248\ E.g., FTC v. XXL Impressions, LLC, No. 1:17-cv-00067 (D. 
Me. 2017) (radio news show); FTC v. Leanspa, LLC, No. 3:11-cv-01715 
(D. Conn. 2011) (news reports).
    \249\ E.g., In re Dun & Bradstreet, Inc., FTC Docket No. C-4761 
(2022) (charging for same product consumer previously purchased); 
FTC v. Benefytt Techs., Inc., No. 8:22-cv-01794 (M.D. Fla. 2022) 
(charging for authorized products); FTC v. Triangle Media Corp., No. 
3:18-cv-01388 (S.D. Cal. 2018) (completeness of order); FTC v. Apex 
Capital Grp., LLC, No. 2:18-cv-09573 (C.D. Cal. 2018) (completeness 
of order); FTC v. Moneymaker, No. 2:11-cv-00461 (D. Nev. 2011) 
(purpose of authorization).
    \250\ E.g., United States v. Cerebral, Inc., No. 1:24-cv-21376 
(S.D. Fla. 2024) (data security and privacy); In re MoviePass, Inc., 
FTC Docket No. C-4751 (2021) (data security).
    \251\ E.g., FTC v. XXL Impressions, LLC, No. 1:17-cv-00067 (D. 
Me. 2017); FTC v. Cardiff, No. 5:18-cv-02104 (C.D. Cal. 2018); FTC 
v. Willms, No. 2:11-cv-00828 (W.D. Wash. 2011).
---------------------------------------------------------------------------

    Some commenters asserted section 18 does not authorize the 
Commission to prohibit material misrepresentations in a given area of 
commerce. Section 18, however, permits the FTC to promulgate ``rules 
which define with specificity acts or practices which are unfair or 
deceptive acts or practices in or affecting commerce (within the 
meaning of [section 5(a)(1)]) . . . [and] may include requirements 
prescribed for the purpose of preventing such acts or practices.'' 
\252\ It places no additional restrictions on the scope of this 
rulemaking.
---------------------------------------------------------------------------

    \252\ 15 U.S.C. 57a(a)(1)(B).
---------------------------------------------------------------------------

    Several commenters appear to think section 18 requires the 
Commission to define specific claims as deceptive; for example, two 
commenters cited the Business Opportunity Rule's treatment of 
misrepresentations.\253\ While the cited Rules show one way to meet the 
statute's specificity requirements, the statute does not require the 
Commission to define claims with specificity, but instead acts or 
practices.\254\ For example, in the Business Opportunity Rule, the 
practice of misrepresenting ``any material aspect of any assistance 
offered to a prospective purchaser'' in a business opportunity 
transaction is a specific type of deceptive practice in or affecting 
commerce.\255\ By the same token, the practice of misrepresenting 
material facts to induce consumers to consent to negative option 
features constitutes a specific type of deceptive practice.
---------------------------------------------------------------------------

    \253\ PDMI, FTC-2023-003-0864 (contrasting the proposed Rule 
language with Business Opportunity Rule language, saying ``The 
Business Opportunity Rule does not prohibit any misrepresentation in 
connection with business opportunities. It prohibits specific 
misrepresentations about earnings claims.''); TechFreedom, FTC-2023-
0033-0872 (``For example, the Business Opportunity Rule prohibits no 
fewer than 21 different kinds of misrepresentation regarding 
business opportunities. This specificity is typical of trade 
regulation rules.'') (footnotes omitted).
    \254\ 15 U.S.C. 57a(a)(1)(B).
    \255\ 16 CFR 437.6(i).
---------------------------------------------------------------------------

    The record, including the submissions of many industry commenters, 
shows negative option features are found across industries, but are 
consistently distinguishable as a subset of general commercial 
practices. As commenters point out, negative option features offer many 
distinct benefits to consumers and sellers. These benefits do not lose 
their distinct character merely because they occur across different 
kinds of goods and services sold across different channels. While the 
record shows this practice offers distinct benefits, it also shows the 
practice is plagued by distinct abuse. This is not a hypothetical 
statement; the Commission is not promulgating the final Rule because 
negative option features may engender deception, whether relating to 
the feature itself or to other material facts, but rather because the 
record shows they have.\256\ Just as with the benefits of

[[Page 90495]]

negative option marketing, these problems do not lose their distinct 
character, in other words they are distinct practices, even though they 
appear in a variety of contexts.
---------------------------------------------------------------------------

    \256\ See, e.g., FTC v. FloatMe Corp., No. 5:24-cv-00001 (W.D. 
Tex. 2024); United States v. Cerebral, Inc., No. 1:24-cv-21376 (S.D. 
Fla. 2024); FTC v. NGL Labs, LLC, No. 2:24-cv-05753 (C.D. Cal. 
2024); FTC v. Bridge It, Inc., No. 1:23-cv-09651 (S.D.N.Y. 2023); 
FTC v. WealthPress, Inc., No. 3:23-cv-00046 (M.D. Fla. 2023); FTC v. 
Benefytt Techs., Inc., No. 8:22-cv-01794 (M.D. Fla. 2022); In re Dun 
& Bradstreet, Inc., FTC Docket No. C-4761 (2022); FTC v. First Am. 
Payment Sys., No. 4:22-cv-00654 (E.D. Tex. 2022); In re MoviePass, 
Inc., FTC Docket No. C-4751 (2021); United States v. MyLife.com, 
Inc., No. 2:20-cv-6692 (C.D. Cal. 2020); FTC v. RagingBull.com, LLC, 
No. 1:20-cv-03538 (D. Md. 2020); FTC v. Match Grp., Inc., No. 3:19-
cv-02281 (N.D. Tex. 2019); FTC v. Elite IT Partners, Inc., No. 2:19-
cv-00125 (D. Utah 2019); In re Urthbox, Inc., FTC Docket No. C-4676 
(2019); FTC v. Triangle Media Corp., No. 3:18-cv-01388 (S.D. Cal. 
2018); FTC v. Apex Capital Grp., LLC, No. 2:18-cv-09573 (C.D. Cal. 
2018); FTC v. XXL Impressions, LLC, No. 1:17-cv-00067 (D. Me. 2017); 
FTC v. Cardiff, No. 5:18-cv-02104 (C.D. Cal. 2018); FTC v. JDI 
Dating, Ltd., No. 1:14-cv-08400 (N.D. Ill. 2014); FTC v. Credit 
Bureau Ctr., LLC, No. 1:17-cv-00194 (N.D. Ill. 2017); FTC v. BunZai 
Media Grp., Inc., No. 2:15-cv-04527 (C.D. Cal. 2015); FTC v. 
DOTAuthority.com, Inc., No. 0:16-cv-62186 (S.D. Fla. 2016); FTC v. 
Health Rsch. Labs., LLC, No. 2:17-cv-00467 (D. Me. 2017); FTC v. 
Tarr, No. 3:17-cv-02024 (S.D. Cal. 2017); FTC v. AdoreMe, Inc., No. 
1:17-cv-09083 (S.D.N.Y. 2017); FTC v. Pact, Inc., No. 2:17-cv-1429 
(W.D. Wash. 2017); FTC v. RevMountain, LLC, No. 2:17-cv-02000 (D. 
Nev. 2017); FTC v. AAFE Prods. Corp., No. 3:17-cv-00575 (S.D. Cal. 
2017); FTC v. Health Formulas, LLC, No. 2:14-cv-01649 (D. Nev. 
2014); FTC v. Dill, No. 2:16-cv-00023 (D. Me. 2016); FTC v. Leanspa, 
LLC, No. 3:11-cv-01715 (D. Conn. 2011); FTC v. Willms, No. 2:11-cv-
00828 (W.D. Wash. 2011); FTC v. Moneymaker, No. 2:11-cv-00461 (D. 
Nev. 2011); FTC v. Johnson, No. 2:10-cv-02203 (D. Nev. 2010); FTC v. 
Inc21.com Corp., 745 F. Supp. 2d 975 (N.D. Cal. 2010); FTC v. JAB 
Ventures, LLC, No. 2:08-cv-04648 (C.D. Cal. 2008); FTC v. Ultralife 
Fitness, Inc., No. 2:08-cv-07655 (C.D. Cal. 2008); FTC v. FTN 
Promotions, Inc., No. 8:07-cv-1279 (M.D. Fla. 2007); FTC v. Think 
All Publ'g, LLC, No. 4:07-cv-00011 (E.D. Tex. 2007); FTC v 
HispaNexo, Inc., No. 1:06-cv-424 (E.D. Va. 2006); FTC v. Universal 
Premium Servs., No. 2:06-cv-00849 (C.D. Cal. 2006); FTC v. Remote 
Response Corp., No. 1:06-cv-20168 (S.D. Fla. 2006).
---------------------------------------------------------------------------

    In addressing this deceptive practice, the Commission remains 
guided by core principles articulated in its 1983 Deception Policy 
Statement. As the Commission explained, in considering whether to act 
against a deceptive practice, the Commission will observe the extent to 
which consumers themselves have been able to police and generate 
consequences for seller deception.

    Finally, as a matter of policy, when consumers can easily 
evaluate the product or service, it is inexpensive, and it is 
frequently purchased, the Commission will examine the practice 
closely before issuing a complaint based on deception. There is 
little incentive for sellers to misrepresent (either by an explicit 
false statement or a deliberate false implied statement) in these 
circumstances since they normally would seek to encourage repeat 
purchases. Where, as here, market incentives place strong 
constraints on the likelihood of deception, the Commission will 
examine a practice closely before proceeding.\257\
---------------------------------------------------------------------------

    \257\ Policy Statement on Deception (Oct. 14, 1983) (appended to 
In re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)).

    The record shows the practice of misrepresenting material facts to 
induce consent to negative option features has created distinct issues 
consumers have not been able to address themselves, enabling sellers to 
collect numerous recurring payments before consumers detect the 
misrepresentation and act to stop the charges. This problem is not 
confined to a particular subset of industries or misrepresentations but 
instead is a too-frequent practice throughout negative option 
marketing.\258\ Specifically, when a consumer makes a series of 
purchases from the same seller in ordinary circumstances (rather than 
through a negative option), each purchase requires the consumer to 
actively, even if only briefly, re-evaluate the transaction and 
affirmatively consent. Dishonest negative option sellers too easily 
bypass these typical guardrails of ``repeat purchases.'' Thus, up-front 
misrepresentations can induce consumers into recurring transactions 
lacking ordinary sales' built-in interruptions for re-evaluation and 
renewed consent. As with other areas where consumers have limited 
opportunities for critical up-front evaluation (for example, consumers 
cannot easily evaluate medical claims about dietary supplements), so 
too, here, the Commission finds additional protection warranted.
---------------------------------------------------------------------------

    \258\ See n.257.
---------------------------------------------------------------------------

    The Commission has considered commenters' section 18 specificity 
concerns pertaining to material misrepresentations and finds them 
unsupported by the record. These commenters suggest a hypothetical 
world where negative option features provide distinguishable commercial 
benefits without presenting distinguishable material misrepresentation 
challenges. The reality is otherwise. Thus, the final Rule prohibits 
the specific practice of sellers misrepresenting material terms or 
facts in connection with negative option sales.
    (4) For clarity, the final Rule adds a definition of ``material'' 
consistent with precedent.
    As noted above, and as suggested by commenters, the Commission 
defines ``material'' in the final Rule. This definition adds clarity 
and addresses the rhetorical questions raised by commenters regarding 
scope. Specifically, consistent with section 5, the TSR, and 
longstanding Commission policy and case law, the final Rule defines the 
term to mean likely to affect a person's choice of, or conduct 
regarding, goods or services.\259\ Thus, mere puffery is not 
material.\260\
---------------------------------------------------------------------------

    \259\ 16 CFR 310.2(t); In re Cliffdale Assocs., Inc., 103 F.T.C. 
110 (1984).
    \260\ See FTC v. Direct Mktg. Concepts, Inc., 624 F.3d 1, 11 
(1st Cir. 2010) (``Where a claim is merely `exaggerated advertising, 
blustering, and boasting upon which no reasonable buyer would rely,' 
it may be un-actionable puffery.'').
---------------------------------------------------------------------------

    The hypotheticals posed by MIA--``movies that you will love'' or 
``great cleaning every time''--are classic examples of puffery, and 
thus, are not within the scope of materiality.\261\ The response to the 
question posed by the Chamber--whether misrepresentation of a privacy 
policy would be covered--depends, as it always has, on whether the 
seller misrepresents its privacy policy in a way likely to affect 
consumer choice or conduct.
---------------------------------------------------------------------------

    \261\ The Commission declines to add language defining a 
``reasonable person standard'' as suggested by RILA, and refers 
instead to the discussion of reasonableness set forth in the 
Commission's Policy Statement on Deception (Oct. 14, 1983) (appended 
to In re Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)).
---------------------------------------------------------------------------

4. Proposed Sec.  425.4 Important Information
    Section 425.4 of the proposed Rule prohibited sellers from failing 
to disclose ``any material conditions related to the underlying product 
or service that is necessary to prevent deception, regardless of 
whether that term directly relates to the terms of the negative option 
offer.'' \262\ As explained in the NPRM, the Commission drafted this 
provision because ``many sellers fail to provide adequate disclosures, 
thereby luring consumers into purchasing goods or services they do not 
want.'' \263\ To address this issue, the proposed Rule required sellers 
to provide the following important information prior to obtaining a 
consumer's billing information: ``(1) that consumers' payments will be 
recurring, if applicable; (2) the deadline by which consumers must act 
to stop charges; (3) the amount or ranges of costs consumers may incur; 
(4) the date the charge will be submitted for payment; and (5) 
information about the mechanism consumers may use to cancel the 
recurring payments.'' \264\
---------------------------------------------------------------------------

    \262\ NPRM, 88 FR 24727.
    \263\ NPRM, 88 FR 24726-27.
    \264\ NPRM, 88 FR 24726.
---------------------------------------------------------------------------

    The Commission also proposed requirements regarding the form and 
location of this important information, as its ``law enforcement 
experience and consumer complaints are replete with examples of hidden 
disclosures, including those in fine print, buried in paragraphs of 
legalese and sales pitches, and accessible only through hyperlinks.'' 
\265\ Thus, under the proposed Rule, information ``directly related to 
the negative option feature . . . must appear immediately adjacent to 
the means of recording the consumer's consent for the negative option 
feature.'' Information ``not directly related to the negative option 
feature . . . must appear before consumers make a decision to buy 
(e.g., before they `add to shopping cart').''
---------------------------------------------------------------------------

    \265\ NPRM, 88 FR 24727.
---------------------------------------------------------------------------

    Further, the proposal stated all disclosures must be clear and 
conspicuous as defined in Sec.  425.2(c). Among other elements of the 
clear and conspicuous definition, the proposed Rule specified that in 
any communication using an interactive electronic medium, such as the 
internet, mobile application, or software, the disclosure must be 
unavoidable. The proposed Rule also specified that a disclosure is not 
clear and conspicuous if a consumer ``must take any action, such as 
clicking on a hyperlink or hovering over an icon, to see it.''
    Finally, the proposed Rule prohibited sellers from including any 
information that interferes with, detracts from, contradicts, or 
otherwise undermines the ability of consumers to read, hear, see, or 
otherwise understand the required disclosures. The final clause of this 
prohibition ``includ[ed] any

[[Page 90496]]

information not directly related to the material terms and conditions 
of any negative option feature.''
    Through these provisions, the Commission sought to prevent 
deception by businesses taking advantage of the gray areas in current 
law, to deter fraudulent actors through the possibility of monetary 
relief, and to ``level the playing field for legitimate businesses, 
freeing them from having to compete against those employing 
deception.'' \266\
---------------------------------------------------------------------------

    \266\ NPRM, 88 FR 24727.
---------------------------------------------------------------------------

(a) Summary of Comments
    Thousands of commenters supported the important information 
requirement, stating it is ``critically important that companies make 
it explicitly clear what consumers are signing up for.'' \267\ 
Consumers identified problematic practices the provision would address, 
including insufficient and unclear disclosures in small print or those 
appearing too late in the transaction. For example, an individual 
commenter said, ``[t]oo many [sellers] hide these details in extra fine 
print, and increasingly text is in a very light gray color, making it 
even harder to read.'' \268\ Another individual commenter noted, ``I 
ordered skin care from a tv infomercial only to find out it was a 
subscription thing though none of this was disclosed by famous 
actresses on the promotion. . . . I went back to my receipt of what I 
originally ordered and in fine print saw that I had been duped!'' \269\
---------------------------------------------------------------------------

    \267\ Thousands of consumers submitted the following identical 
comment in their own names: ``It's critically important that 
companies make it explicitly clear what consumers are signing up for 
and to make canceling fast and easy. If you signed up online, you 
should be able to cancel online. If it took one click to join, it 
should take one click to cancel. Implementing this consumer 
protection rule has the potential to save American consumers 
millions of dollars and I hope it is implemented as soon as 
possible.'' While apparently a response to a mass solicitation, many 
consumers further personalized their submission by adding their 
unique experiences and desire for the Rule. See, e.g., Individual 
commenter, FTC-2023-0033-0161; -0163; -0164; 0198; -0204; -0545; 
0658.
    \268\ Individual commenter, FTC-2023-0033-0268. Similarly, 
another individual commenter said, ``Businesses should not present 
agreements in tiny print on an agent's tablet for the customer to 
sign. I can't read the print.'' Individual commenter, FTC-2023-0033-
0349.
    \269\ Individual commenter, FTC-2023-0033-0345.
---------------------------------------------------------------------------

    Several individual commenters indicated clear upfront disclosures 
would help them make informed choices and improve their willingness to 
try negative option offerings, particularly if the disclosure provided 
an easy cancellation mechanism. As one put it, ``I am much more 
like[ly] to try--and buy--a new service if I know there is an easy way 
to cancel online.'' \270\ Another said, ``I actually subscribe to far 
fewer services than I would if I knew that I could easily cancel once I 
had tried a sample.'' \271\
---------------------------------------------------------------------------

    \270\ Individual commenter, FTC-2023-0033-0781.
    \271\ Individual commenter, FTC-2023-0033-0031. Accord 
Individual commenter, 0196 (``I have had to get to the point of not 
subscribing to any online offers, as far too many times I have found 
it nearly impossible to unsubscribe''); Individual commenter, FTC-
2023-0033-0306 (``you could win over more subscribers to your 
services if you took away the fear and doubts of the public that 
they will probably be hooked into something that would be more 
troublesome to get out of . . . I can tell you that I have passed 
over many opportunities that I was interested in for this very 
reason.''); Individual commenter, FTC-2023-0033-0333 (``I've had 
some difficulty in the past cancelling enrollments or subscriptions, 
so that now I've become very wary of products or services I would 
otherwise appreciate having. Implementing this consumer protection 
rule would help me feel more confident again.'').
---------------------------------------------------------------------------

    Public advocacy commenters also supported the provision. The 
Berkeley Consumer Law Center said, ``the requirement of `clear and 
conspicuous' disclosures of `any material term related to the 
underlying goods or services that is necessary to prevent deception' 
will help prevent cancellation terms from being shrouded in mystery 
through complicated terms and conditions, while also blocking the 
practice of hiding subscription services that are needed to fully use a 
product.'' \272\ Similarly, a coalition of consumer and public interest 
advocacy organizations asserted the proposed disclosure requirement 
``will clearly inform consumers of the terms of the contract and how 
they may terminate the agreement.'' \273\
---------------------------------------------------------------------------

    \272\ Berkeley Consumer Law Center, FTC-2023-0033-0855. 
Similarly, for the same reasons they provided in connection with the 
misrepresentations provision, the Law Professors encouraged the 
Commission to maintain the proposed disclosure provision's coverage 
of material terms necessary to prevent deception, regardless of 
whether such terms are exclusively about the negative option 
feature. Law Professors, FTC-2023-0033-0861.
    \273\ Public Interest Groups, FTC-2023-0033-0880.
---------------------------------------------------------------------------

    Law enforcement commenters likewise supported the important 
information requirements. The State AGs said they would ``repel the 
abusive practices of hidden disclosures, `including those in fine 
print, buried in paragraphs of legalese and sales pitches, and 
accessible only through hyperlinks.' '' \274\ They particularly 
emphasized their support for ``the required disclosure of `the 
information necessary for the consumer to cancel the negative option 
feature.' '' \275\ The California Auto-Renew Task Force (``CART''), a 
group of Southern California prosecutors, supported disclosures 
appearing ``immediately adjacent to the means of recording the 
consumer's consent for the negative option feature.'' \276\ CART 
asserted this provision, together with others, ``will greatly minimize 
consumer deception and ensure that consumers fully understand--and 
agree to--the nature of the transaction under consideration.'' \277\
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    \274\ State AGs, FTC-2023-0033-0886.
    \275\ Id.
    \276\ CART, FTC-2023-0033-0698.
    \277\ Id.
---------------------------------------------------------------------------

    Other commenters, mostly industry groups,\278\ expressed several 
concerns with the proposed requirements, specifically with the 
definition of ``clear and conspicuous,'' the scope and timing of the 
material terms to be disclosed, specific disclosure requirements, 
placement, and treatment of other information.\279\
---------------------------------------------------------------------------

    \278\ Not all industry groups criticized the provision. 
Specifically, MIA wrote, ``The Association agrees with the important 
information requirement under the proposed Rule.'' MIA, FTC-2023-
0033-1008.
    \279\ In addition, some commenters cited industry-specific laws 
and regulations pertaining to disclosures as rendering the proposed 
provision unnecessary or counterproductive. ACA Connects-America's 
Communications Association (``ACA''), FTC-2023-0033-0881; NCTA, FTC-
2023-0033-0858; SFE, FTC-2023-0033-1151; USTelecom, FTC-2023-0033-
0876.
---------------------------------------------------------------------------

    Multiple commenters claimed the requirement that disclosures using 
an interactive electronic medium must be ``unavoidable'' would be 
unworkable given the additional provision that a ``disclosure is not 
clear and conspicuous if a consumer must take any action, such as 
clicking on a hyperlink or hovering over an icon, to see it.'' \280\ 
Commenters noted it would be difficult or impossible to implement this 
requirement on small screens (such as mobile phones), and it may reduce 
rather than improve clarity.
---------------------------------------------------------------------------

    \280\ ANA, FTC-2023-0033-1001; CCIA, FTC-2023-0033-0984; 
Coalition, FTC-2023-0033-0884; ESA, FTC-2023-0033-0867; IAB, FTC-
2023-0033-1000; NCTA, FTC-2023-0033-0858; Chamber, FTC-2023-0033-
0885. NFIB suggested the Commission strike the provision ``The 
disclosure must use diction and syntax understandable to ordinary 
consumers'' and replace it with `` `The disclosure must use words 
and grammar that ordinary consumers would likely understand.' '' 
FTC-2023-0033-0789.
---------------------------------------------------------------------------

    Several commenters also objected to the requirement sellers 
disclose material terms other than those pertaining exclusively to the 
negative option feature, asserting this would be overbroad.\281\ 
Additionally, commenters questioned how the Commission would enforce a 
requirement to disclose material terms before obtaining a

[[Page 90497]]

consumer's billing information, especially where a consumer previously 
elected to save billing information with the seller.\282\ Commenters 
also found the requirement that material terms ``not directly related 
to the negative option feature . . . must appear before consumers make 
a decision to buy'' to be vague.\283\
---------------------------------------------------------------------------

    \281\ ACT App Association, FTC-2023-0033-0874; ANA, FTC-2023-
0033-1001; BSA, FTC-2023-0033-1015; CCIA, FTC-2023-0033-0984; NCTA, 
FTC-2023-0033-0858; NFIB, FTC-2023-0033-0789; NRF, FTC-2023-0033-
1005; PDMI, FTC-2023-003-0864; Sirius XM, FTC-2023-0033-0857; 
Chamber, FTC-2023-0033-0885.
    \282\ CTA, FTC-2023-0033-0997; ESA, FTC-2023-0033-0867; IAB, 
FTC-2023-0033-1000; NRF, FTC-2023-0033-1005; RILA, FTC-2023-0033-
0883. Sirius XM asserted this requirement could be interpreted to 
mean every advertisement must contain disclosure of all material 
terms. FTC-2023-0033-0857.
    \283\ Rebecca Kuehn (``Kuehn''), FTC-2023-0033-0871; NRF, FTC-
2023-0033-1005.
---------------------------------------------------------------------------

    Several commenters took issue with the five specific disclosures in 
the proposed Rule. For example, the requirement to disclose ``the date 
(or dates) each charge will be submitted for payment'' drew substantial 
criticism, with several commenters asserting appropriate disclosures 
regarding frequency should suffice.\284\ Commenters also criticized the 
requirements to disclose deadlines to act and the amount or range of 
costs.\285\ A group of direct marketers asserted, for example, ``the 
Proposed Rule goes too far in appearing to require a specific date by 
which consumers must act to stop charges when certain negative option 
plans are inherently more flexible and allow consumers to cancel 
anytime.'' \286\ Commenters also found the requirement to disclose 
``the information necessary for the consumer to cancel the negative 
option feature'' was vague and impractical. They contended the 
requirement would result in unnecessary details crowding out other 
disclosures.\287\ IAB contended ``[a] more effective strategy 
[regarding cancellation disclosures] would be to make clear but concise 
disclosures of where that information can be found.'' \288\
---------------------------------------------------------------------------

    \284\ CCIA, FTC-2023-0033-0984; CTA, FTC-2023-0033-0997; ESA, 
FTC-2023-0033-0867; IAB, FTC-2023-0033-1000; NRF, FTC-2023-0033-
1005; RILA, FTC-2023-0033-0883; Sirius XM, FTC-2023-0033-0857.
    \285\ IAB, FTC-2023-0033-1000 (deadlines); Comment from Kelley 
Drye & Warren LLP on behalf of certain direct marketing companies 
(``Direct Marketing Companies''), FTC-2023-0033-1016 (deadlines); 
NRF, FTC-2023-0033-1005 (amount or range of costs); Sirius XM, FTC-
2023-0033-0857 (amount or range of costs).
    \286\ Direct Marketing Companies, FTC-2023-0033-1016.
    \287\ CCIA, FTC-2023-0033-0984; ESA, FTC-2023-0033-0867; IAB, 
FTC-2023-0033-1000; NRF, FTC-2023-0033-1005.
    \288\ IAB, FTC-2023-0033-1000.
---------------------------------------------------------------------------

    Additionally, multiple commenters criticized the provision 
requiring the placement of material terms ``directly related to the 
negative option feature'' . . . ``immediately adjacent'' to recording 
the consumer's consent.\289\ Commenters asserted having numerous 
disclosures in a constrained space would impair consumers' ability to 
make informed choices. As an individual commenter explained, ``this 
important information may still become overwhelming to a user, or 
challenge the integrity of other disclosures if it must compete for 
space (especially because this disclosure must be placed immediately 
adjacent to where a user will consent to the negative option 
feature).'' \290\ NRF found unclear the distinction between which terms 
are or are not ``directly related to the negative option feature.'' 
\291\ Other commenters noted the ``immediately adjacent'' requirement 
may not be appropriate for voice transactions.\292\
---------------------------------------------------------------------------

    \289\ ANA, FTC-2023-0033-1001; CCIA, FTC-2023-0033-0984; 
Coalition, FTC-2023-0033-0884; CTA, FTC-2023-0033-0997; ESA, FTC-
2023-0033-0867; IAB, FTC-2023-0033-1000; Direct Marketing Companies, 
FTC-2023-0033-1016; NRF, FTC-2023-0033-1005; SFE, FTC-2023-0033-
1151; Sirius XM, FTC-2023-0033-0857; Chamber, FTC-2023-0033-0885.
    \290\ Individual commenter, FTC-2023-0033-0552.
    \291\ NRF, FTC-2023-0033-1005.
    \292\ Coalition, FTC-2023-0033-0884; Chamber, FTC-2023-0033-
0885.
---------------------------------------------------------------------------

    Finally, one commenter expressed uncertainty about the meaning of 
the ``other information'' provision. NRF said it ``asks companies to 
walk a tight rope between ensuring they contain all material terms, 
while risking liability if they include `any information not directly 
related to the material terms.' '' \293\
---------------------------------------------------------------------------

    \293\ NRF, FTC-2023-0033-1005 (emphasis in comment); see also 
Chamber, FTC-2023-0033-0885 (``[T]he [disclosure] requirement is 
also ambiguous considering it does not clearly outline the specific 
material terms that need to be disclosed, which is particularly 
important considering the requirement applies not just to the 
negative option feature, but all terms in the transaction.'').
---------------------------------------------------------------------------

    The State AGs also recommended three amendments to this proposal. 
First, they recommended requiring sellers to ``disclose all material 
policies concerning cancellation.'' Second, they recommended ``sellers 
be required to disclose `all the information necessary for the consumer 
to effectively cancel the negative option feature.' '' (Emphasis in 
comment.) They explained, ``[d]isclosures in the form of `click-here-
to-cancel' icons, which lead to terms and conditions pages, confusing 
cancellation flows, or do not otherwise explain how to cancel online, 
should not be permitted.'' Third, they recommended ``the FTC amend this 
provision to require that the important information identified by this 
proposed Rule be provided to the consumer in a manner that is capable 
of being retained by the consumer.'' \294\
---------------------------------------------------------------------------

    \294\ State AGs, FTC-2023-0033-0886.
---------------------------------------------------------------------------

(b) Analysis
    Based on the record, the Commission retains proposed Sec.  425.4 
with several clarifications. First, as explained in section VII.B.3 of 
this SBP, the Commission adds a definition of ``material'' at Sec.  
425.2(e). Second, in Sec.  425.4(a), the Commission clarifies three of 
the listed types of important information sellers must provide and 
omits one to address commenters' concerns. Third, as explained in 
section VII.B.4.b.2 of this SBP, the Commission revises the definition 
of ``clear and conspicuous'' in Sec.  425.2(c). Fourth, in Sec.  
425.4(b)(2) the Commission clarifies language regarding ``placement'' 
of disclosures. Finally, the Commission clarifies the language 
prohibiting sellers from including ``any other information'' that 
``interferes with, detracts from, contradicts, or otherwise 
undermines'' consumers' abilities to read, hear, see, or understand the 
required disclosures.
    (1) The Commission declines to limit the required important 
information under Sec.  425.4(a).
    The Commission declines to limit the scope of the required 
information under this provision to only information related to the 
negative option feature. Section 425.4(a)'s requirement that sellers 
disclose ``all material terms'' prior to obtaining the consumer's 
billing information is consistent with ROSCA and section 5 of the FTC 
Act. Moreover, in the Commission's law enforcement experience such a 
provision is necessary to prevent deception.\295\ Therefore, extending 
this requirement is well within the Commission's rulemaking 
authority.\296\
---------------------------------------------------------------------------

    \295\ See., e.g., In re MoviePass, Inc., FTC Docket No. C-4751 
(2021).
    \296\ 15 U.S.C. 57a(a)(1)(B).
---------------------------------------------------------------------------

    To address commenters' concerns about clarity, however, Sec.  
425.2(e) adds a definition of ``material;'' specifically, material 
means ``likely to affect a person's choice of, or conduct regarding, 
goods or services.'' \297\ This definition is consistent with 
longstanding section 5 case law and other Commission rules defining 
``material.'' \298\
---------------------------------------------------------------------------

    \297\ Additionally, the Commission changes ``any'' to ``all'' 
material terms, and deletes the phrase ``related to the underlying 
good or service that is necessary to prevent deception'' for 
clarity. Specifically, the Commission makes clear that sellers are 
required to disclose all material terms, consistent with the 
requirements of ROSCA.
    \298\ See In re Cliffdale Associates, Inc., 103 F.T.C. 110, 165 
(1984) (misleading impression created by a solicitation is material 
if it ``involves information that is important to consumers and, 
hence, likely to affect their choice of, or conduct regarding, a 
product.''); see also FTC v. Cyberspace.com, LLC, 453 F.3d 1196, 
1201 (9th Cir. 2006); 16 CFR 310.2(t) (TSR); 16 CFR 461.1 
(Impersonation Rule); Policy Statement on Deception (Oct. 14, 1983) 
(appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110, 174 
(1984)).

---------------------------------------------------------------------------

[[Page 90498]]

    Additionally, the Commission modifies the proposed list of 
important information.\299\ The Commission retains the first proposed 
requirement that sellers must disclose ``[t]hat consumers will be 
Charged 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.'' \300\ The Commission continues 
to find this requirement appropriate to combat deception.
---------------------------------------------------------------------------

    \299\ In the misrepresentations provision (Sec.  425.3), the 
final Rule uses the term ``including'' to provide examples of 
categories of potentially material facts. In the disclosures 
provision, the final Rule retains the proposed Rule's use of ``and 
including'' (rather than just ``including'') to establish all of the 
specifically listed disclosures as being always material.
    \300\ NPRM, 88 FR 24735 (proposed 425.4).
---------------------------------------------------------------------------

    The Commission revises the second proposed disclosure, that sellers 
provide ``the deadline (by date or frequency) by which the consumer 
must act in order to stop all charges.'' As revised, this provision 
requires sellers to disclose ``each deadline (by date or frequency) by 
which the consumer must act to prevent or stop the Charges.'' This 
change clarifies there may not be a single ``deadline'' by which a 
consumer must act to ``stop all charges.'' A single seller, for 
example, may offer a single consumer multiple goods or services, and 
the consumer may wish to stop some charges without terminating the 
entire relationship. The Commission also clarifies that ``frequency'' 
as used in the final Rule includes a description of an irregular 
frequency (e.g., within a certain period after the seller notifies the 
consumer a new item in a series has become available) as well as a 
regular one (e.g., the 15th of each month).
    The Commission also clarifies the third proposed disclosure. The 
proposed Rule required sellers to disclose ``[t]he amount (or range of 
costs) the consumer will be charged, and, if applicable, the frequency 
of such charges a consumer will incur unless the consumer takes timely 
steps to prevent or stop those charges'').\301\ The record suggests, 
however, that in some circumstances, the amounts to be charged may be 
inexact before the seller obtains the consumer's billing information. 
For example, taxes or delivery fees may depend in part on the billing 
information the consumer provides. Thus, the Commission clarifies under 
the final Rule as adopted, the ``amount (or range of costs)'' need not 
be exact if an exact figure is impossible, but the seller must give a 
reasonable approximation. For example, it is within the meaning of 
``amount (or range of costs)'' for a seller to disclose an amount 
``plus tax'' where the seller requires billing information to determine 
the actual amount of tax. However, a ``plus shipping'' disclosure may 
not be sufficient if the amount of shipping is beyond what a consumer 
would reasonably expect or is greater than the amount a seller would 
reasonably incur for shipping. In such a circumstance, the seller would 
need to provide an estimate of shipping costs. These clarifications 
should address commenters' concerns about having to disclose an exact 
cost when doing so is not possible.
---------------------------------------------------------------------------

    \301\ The final Rule requires sellers to disclose ``The amount 
(or range of costs) the consumer will be Charged and, if applicable, 
the frequency of the Charges a consumer will incur unless the 
consumer takes timely steps to prevent or stop those Charges.''
---------------------------------------------------------------------------

    The final Rule omits the proposed fourth disclosure: the date (or 
dates) each charge will be submitted for payment. The Commission is 
persuaded by commenters' concern that a specific date or dates may be 
cumbersome or impossible to calculate. For example, if the seller will 
submit a charge when it ships a new item in a series, the seller may 
not be able to predict the specific dates it will submit the charge in 
the future. In addition, in light of the change to the placement 
requirements of Sec.  425.4(b)(2)(i), discussed below, including these 
dates could reduce the clarity and conspicuousness of higher priority 
adjacent disclosures (especially cancellation deadlines, which will 
often occur before dates of charges). If, however, disclosure of the 
date (or dates) each charge will be submitted for payment is necessary 
to prevent deception in individual cases, such disclosure is required 
under Sec.  425.4(a). However, its placement is governed by revised 
Sec.  425.4(b)(2)(ii) rather than Sec.  425.4(b)(2)(i).
    Finally, the Commission clarifies the fifth proposed mandatory 
disclosure (the fourth in the final Rule). The proposed Rule required 
sellers to disclose ``[t]he information necessary for the consumer to 
cancel the negative option feature''. In contrast, the final Rule 
requires sellers to disclose ``The information necessary for the 
consumer to find the simple cancellation mechanism required pursuant to 
Sec.  425.6''. This change addresses commenters' concern the language 
of the proposed Rule, combined with the placement requirements of Sec.  
425.4(b)(2)(i), would result in detailed cancellation disclosures 
crowding out other important required disclosures.\302\ This new 
language should provide consumers with concise critical upfront 
information about how to cancel, while offering sellers flexibility to 
avoid obscuring other important information.\303\
---------------------------------------------------------------------------

    \302\ For example, IAB suggested the Commission should require 
sellers ``to make clear but concise disclosures of where 
[cancellation] information can be found, so consumers can find that 
information if and when it is relevant to them.'' IAB, FTC-2023-
0033-1000.
    \303\ The Commission declines to adopt the State AGs three 
suggestions to supplement this section. The Commission expects the 
final Rule will address two of those suggestions (disclosure of 
``all material policies concerning cancellation'' and of ``all the 
information necessary for the consumer to effectively cancel the 
negative option feature'') through the requirement that sellers 
disclose all material terms (Sec.  425.4), the prohibition of 
misrepresentations of material facts or terms including those 
pertaining to cancellation (Sec.  425.3), and the requirement of a 
simple cancellation mechanism (Sec.  425.6). The Commission expects 
to address the concerns underlying their third suggestion (``to 
require that the important information identified by this proposed 
Rule be provided to the consumer in a manner that is capable of 
being retained by the consumer''), through its further development 
of the reminders requirement. In the interim, the Commission expects 
the Rule provisions as adopted will encourage sellers to make 
important information easy to find and easy to retain.
---------------------------------------------------------------------------

    Some sellers expressed concern regarding the timing of disclosures 
where a consumer previously elected to save billing information with 
the seller. To address this concern the Commission now clarifies that, 
where a consumer has previously provided account information to the 
seller and expressly allowed the seller to store that information,\304\ 
the seller must make the required disclosures prior to obtaining the 
consumer's consent to use saved account information.\305\
---------------------------------------------------------------------------

    \304\ It is a violation of section 5 for a seller to retain and 
use a consumer's payment information without the consumer's consent. 
E.g., FTC v. Classic Closeouts LLC, No. 2:09-cv-2692 (E.D.N.Y. 
2009).
    \305\ See FTC v. Amazon.com, Inc., No. 2:23-cv-00932, 2024 WL 
2723812, at *11 (W.D. Wash. May 28, 2024) (``Nothing in ROSCA says 
that companies . . . may not give consumers the option to autofill 
the billing information already on file or simply to provide billing 
information after the disclosures, but ROSCA requires that consumers 
be given that choice after the disclosures.'') (emphasis in 
original).
---------------------------------------------------------------------------

    (2) The Commission modifies the requirements of Sec.  425.4(b) to 
promote clarity.
    Section 425.4(b)(1) provides, ``[e]ach disclosure required by 
paragraph (a) of this section must be clear and conspicuous.'' The 
Commission retains this requirement but revises the definition of clear 
and conspicuous at Sec.  425.2(c) to address commenters' concerns 
regarding space-constrained

[[Page 90499]]

disclosures.\306\ Specifically, the Commission deletes the sentence, 
``A disclosure is not Clear and Conspicuous if a consumer must take any 
action, such as clicking on a hyperlink or hovering over an icon, to 
see it.'' This prohibition would have made effective space-constrained 
disclosures of the terms required by the final Rule difficult if not 
impossible. However, a clear and conspicuous disclosure still must be 
``unavoidable.'' By this requirement, consumers are protected from 
buried or inconspicuous disclosures. Sellers, on the other hand, can 
make disclosures ``unavoidable'' even if the consumer must take some 
action to see it. Specifically, the seller could make it impossible for 
the consumer to consent to a transaction or feature unless and until 
the consumer has seen the disclosure. For example, a seller dealing 
with space constraints on a mobile device might not display a consent 
button until after the consumer has scrolled down to a clear disclosure 
and then clicked a button indicating they have seen the disclosure.
---------------------------------------------------------------------------

    \306\ The Commission declines to adopt NFIB's suggested change 
to strike the provision ``The disclosure must use diction and syntax 
understandable to ordinary consumers'' and replace it with `` `The 
disclosure must use words and grammar that ordinary consumers would 
likely understand.' '' Particularly in the context of audio 
disclosures, the terms ``diction and syntax'' provide clearer 
requirements than the terms ``words and grammar.'' NFIB, FTC-2023-
0033-0789.
---------------------------------------------------------------------------

    Section 425.4(b)(2) (``Placement'') retains the proposed Rule's 
structure requiring a subset of disclosures to ``appear immediately 
adjacent to the means of recording the consumer's consent for the 
negative option feature,'' while setting a more general timing 
requirement regarding other disclosures. However, the Commission has 
revised some terms to promote clarity.
    Specifically, final Sec.  425.4(b)(2)(i) requires only the four 
specific mandatory disclosures listed in Sec.  425.4(a) to appear 
``immediately adjacent to the means of recording the consumer's 
consent.'' The Commission is persuaded by commenters' concerns that 
requiring market participants to determine which required disclosures 
are ``directly related to the negative option feature,'' and which are 
not, is too great a burden and could lead to consumer confusion.\307\ 
Thus, rather than define ``directly related to the negative option 
feature,'' the Commission removes this phrasing and confines the 
``immediately adjacent'' requirement to a specific, narrow list of 
disclosures. This change provides clarity and improves predictability 
for consumers, and should prevent disclosure overload.
---------------------------------------------------------------------------

    \307\ NRF, FTC-2023-0033-1005; Law Professors, FTC-2023-0033-
0861.
---------------------------------------------------------------------------

    Several commenters requested clarification of the ``immediately 
adjacent'' requirement in the context of voice transactions.\308\ In 
response, the Commission clarifies to comply with this requirement, a 
voice transaction seller must make the required disclosures immediately 
before requesting and recording the consumer's consent to the negative 
option feature.
---------------------------------------------------------------------------

    \308\ Coalition, FTC-2023-0033-0884; Chamber, FTC-2023-0033-
0885.
---------------------------------------------------------------------------

    Two commenters expressed concern that requiring sellers to make 
disclosures ``before consumers make a decision to buy'' creates 
uncertainty because it is unclear when that triggering event 
occurs.\309\ The Commission agrees. Therefore, it revises Sec.  
425.4(b)(2)(ii) to provide generally for all required disclosures to 
appear before the seller obtains consumer consent to the transaction 
pursuant to Sec.  425.5. This amended language provides a triggering 
event based on a clear point in the process. Additionally, the 
Commission revises Sec.  425.4(b)(2)(ii) to remove the phrase ``not 
directly related to the negative option feature,'' doing so for the 
same clarity reasons described above for removing the phrase ``directly 
related to the negative option feature'' from Sec.  425.4(b)(2)(i).
---------------------------------------------------------------------------

    \309\ Kuehn, FTC-2023-0033-0871; NRF, FTC-2023-0033-1005.
---------------------------------------------------------------------------

    Finally, the Commission adopts a clarified version of Sec.  
425.4(b)(3) (``Other information''). The Commission retains the 
proposed Rule's requirement that sellers not employ ``other information 
that interferes with, detracts from, contradicts, or otherwise 
undermines the ability of consumers to read, hear, see, or otherwise 
understand the disclosures.'' However, the Commission finds the final 
clause in the proposed Rule (``including any information not directly 
related to the material terms and conditions of any negative option 
feature'') could be read to contradict other requirements of the Rule. 
Specifically, there may be necessary material disclosures not directly 
related to the terms and conditions of a negative option feature, and 
it is illogical to simultaneously require these disclosures (through 
Sec. Sec.  425.4(a) and (b)(2)) and prohibit them (through Sec.  
425.4(b)(3)). The Commission therefore omits the clause from the final 
Rule. This revision does not alter the requirement of Sec.  
425.4(b)(2)(i) that certain specific disclosures be made clearly and 
conspicuously immediately adjacent to the means of recording the 
consumer's consent. A seller who makes additional disclosures 
immediately adjacent to the means of recording the consumer's consent 
in a manner undermining the clarity and conspicuousness of the required 
Sec.  425.4(b)(2)(i) disclosures violates Sec.  425.4(b)(2)(i) and 
Sec.  425.4(b)(3).
5. Proposed Sec.  425.5 Consent
    Section 425.5(a) of the proposed Rule prohibited sellers from 
charging consumers before obtaining their express informed consent to 
the negative option feature. This provision mirrors 15 U.S.C. 8403(2) 
(ROSCA), but provided specificity for sellers covered by the Rule and 
to prevent unfair and deceptive practices. Specifically, the provision 
addressed one of the most pervasive problems of negative option 
marketing: sellers employing inadequate consent procedures to increase 
enrollment. Even for marketers trying to comply with the law, negative 
option programs present unique challenges. Specifically, consumers 
often focus on the aspects of an offer that mirror the offers they 
regularly encounter (e.g., the quality, functionality, and one-time 
price of the item) and think they are consenting to these core 
attributes while missing the negative option feature.
    To address this problem, Sec.  425.5(a)(1) of the proposed Rule 
required sellers to obtain a consumer's unambiguously affirmative 
consent to the feature separately from any other portion of the 
transaction. Section 425.5(a)(2) of the proposed Rule further required 
the seller to exclude any information that ``interferes with, detracts 
from, contradicts, or otherwise undermines'' the consumer's ability to 
provide express informed consent to the negative option feature. This 
prohibition is consistent with longstanding Commission precedent that 
consent can be subverted, including by so-called ``dark patterns,'' 
sophisticated design practices used to manipulate users into making 
choices they would not otherwise have made.\310\
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    \310\ See, e.g., FTC v. RevMountain, LLC, No. 2:17-cv-02000 (D. 
Nev. 2017); FTC v. Cyberspace.com, LLC, 453 F.3d 1196 (9th Cir. 
2006); United States v. Mantra Films, Inc., No. 2:03-cv-9184 (C.D. 
Cal. 2003); FTC v. Crescent Publ'g Grp., Inc., 129 F. Supp. 2d 311 
(S.D.N.Y. 2001).
---------------------------------------------------------------------------

    Additionally, under Sec.  425.5(a)(3) of the proposed Rule, sellers 
had to obtain consumers' unambiguously affirmative consent to the rest 
of the transaction to ensure consumers agreed to all elements of the 
agreement, even those not specifically related to the negative option 
feature. Further, Sec.  425.5(a)(4) of the proposed Rule required 
sellers to obtain and maintain (for three years or a year after 
cancellation, whichever is

[[Page 90500]]

longer) verification of the consumer's consent. The Commission 
specifically sought comment on the appropriate recordkeeping 
period.\311\
---------------------------------------------------------------------------

    \311\ NPRM, FR 88 24727 n.70; see also id. at 24734.
---------------------------------------------------------------------------

    To maintain consistency with the TSR, Sec.  425.5(b) contained a 
cross-reference to 16 CFR part 310 so sellers subject to the TSR know 
they must comply with all applicable provisions of that Rule, including 
those related to pre-acquired account information and free-to-pay 
conversions.
    Proposed Sec.  425.5(c) provided an exemplar consent mechanism for 
those making written offers (including those on the internet) to 
illustrate how sellers could obtain consumers' unambiguously 
affirmative consent to the negative option feature. Specifically, this 
provision stated for all written offers, sellers may obtain such 
consent through a check box, signature, or other substantially similar 
method, which the consumer must affirmatively select or sign to accept 
the negative option feature. This consent had to be independent from 
any other portion of the offer.\312\
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    \312\ To avoid potential conflict with EFTA, this proposed 
provision does not apply to transactions covered by the 
preauthorized transfer provision of that Act, 15 U.S.C. 1693e, and 
Regulation E, 12 CFR 1005.10. Those EFTA provisions, which apply to 
a range of preauthorized transfers include some used for negative 
options, contain various prescriptive requirements (e.g., written 
consumer signatures that comply with E-Sign, 15 U.S.C. 7001-7006, 
evidence of consumer identity and assent, the inclusion of terms in 
the consumer authorization, and the provision of a copy of the 
authorization to the consumer) beyond the measures identified in the 
proposed Rule. Consequently, compliance with the proposed Rule would 
not necessarily ensure compliance with Regulation E. For example, 
use of a check box for consent without additional measures may not 
comply with Regulation E's more specific authorization requirements.
---------------------------------------------------------------------------

    Finally, the Commission invited comments on whether sellers 
offering free trials should be required to obtain an additional round 
of consent before charging a consumer at the end of a free trial.\313\
---------------------------------------------------------------------------

    \313\ NPRM, 88 FR 24728.
---------------------------------------------------------------------------

(a) Summary of Comments
    Consistent with the Commission's and States' enforcement 
experience,\314\ individual consumers' comments confirm the need for 
clear, unambiguous, affirmative consent to a negative option feature. 
These comments identify numerous examples of consumers' unwitting 
enrollment in negative option programs.\315\
---------------------------------------------------------------------------

    \314\ See, e.g., State Attorneys General (ANPR), FTC-2019-0082-
0012; State AGs, FTC-2023-0033-0886 (citing cases); FTC v. 
Amazon.com, Inc., No. 2:23-cv-0932 (W.D. Wash. 2023); see also 
n.109.
    \315\ See, e.g., Anonymous commenter, FTC-2023-0033-0799 
(automatically enrolled in program without consent); Individual 
commenter, FTC-2023-0033-0039 (free-trial conversion to one year 
plan without consent); Individual commenter-FTC-2023-0033-0052 
(discount to full-price conversion without consent); Individual 
commenter, FTC-2023-0033-1119 (cancelled, then automatically re-
enrolled without consent); Individual commenter, FTC-2023-0033-0079 
(automatically re-enrolled without consent); Individual commenter, 
FTC-2023-0033-0083 (no disclosure account would be automatically 
renewed); FTC-2023-0033-0138 (charged after cancellation); 
Individual commenter, FTC-2023-0033-0275 (no affirmative consent to 
monthly charge).
---------------------------------------------------------------------------

    Sellers and trade groups also supported the requirement,\316\ as 
did consumer groups.\317\ However, sellers and trade groups expressed 
concern about the requirement that sellers obtain separate, 
unambiguously affirmative consent to the ``rest of the transaction,'' 
as opposed to the ``negative option feature'' itself. Specifically, 
these commenters asserted consumers may be confused where the product 
or service itself is only offered as a negative option, such as with 
streaming services or periodicals.\318\ As explained by one commenter, 
in these situations a second consent is likely unanticipated, and thus, 
could be confusing.\319\
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    \316\ Sirius XM, FTC-2023-0033-0857 (businesses should be 
required to obtain express informed consent to the negative option 
feature at the point of sale); PDMI, FTC-2023-0033-0864 (no 
objection to the general requirement that sellers obtain a 
consumer's consent to a transaction containing a negative option 
feature); MIA, FTC-2023-0033-1008 (agreeing with the consent 
requirement under the proposed Rule).
    \317\ Berkely Consumer Law Center, FTC-2023-0033-0855; State 
AGs, FTC-2023-0033-0886 (noting State Attorneys General support the 
FTC's proposed consent requirements and agree this provision is 
necessary given how easily marketers can enroll consumers in 
negative option programs without actual consent.). One individual 
consumer generally supported the separate consent requirements of 
the proposed Rule, but asked that the regulation prevent businesses 
from only offering goods and services through auto-renewal and 
subscription programs, i.e., consumers should have the option to 
purchase a good or service a la carte and not only on a recurring 
basis. Individual commenter, FTC-2023-0033-0026.
    \318\ Sirius XM, FTC-2023-0033-0857 (requiring an additional 
consent will only result in consumer confusion); NCTA, FTC-2023-
0033-0858 (``requiring two consents could lead to consumer confusion 
(to say nothing of their exasperation at being forced to read and 
provide consent to a plethora of successive and largely duplicative 
documents). They may wonder why they are being asked to consent 
twice to a single transaction. And might worry that they have 
somehow misunderstood one or both of the consent notices''); PDMI, 
FTC-2023-003-0864 (anecdotal evidence received from several PDMI 
members demonstrates that any time an additional choice or check box 
is offered to a consumer during a single transaction, such extra 
steps are likely to cause consumer confusion); N/MA, FTC-2023-0033-
0873 (``Requiring sellers to separate a single unified offer into 
separate components is not only unnecessary, it risks creating 
consumer confusion and fatigue'' and consumers may ``simply abandon 
the transaction''); RILA, FTC-2023-0033-0883 (``requirement for two 
distinct consents . . . may be confusing and not helpful to 
consumers.''); DCN, FTC-2023-0033-0983 (``We are concerned that 
requiring a separate consent would be confusing for the consumer who 
may not have the details of the entire contract readily available in 
the mandated separate context. For example, most consumers would 
likely want to review all of the benefits they would receive as part 
of a subscription including any discounts when deciding on whether 
to choose the option of automatic renewal.''); APCIA, FTC-2023-0033-
0996 (``Requiring a separate consent for a feature that is inherent 
in service contracts--continuous coverage--seems unnecessary and 
detrimental to consumers.'').
    \319\ IAB, FTC-2023-0033-1000 (``Furthermore, consumers are 
familiar with subscription sign-up experiences and do not expect to 
have to consent a second time once they choose to purchase an 
autorenewal plan.''). One individual consumer confirmed the comment. 
Individual commenter, FTC-2023-0033-0552 (``The rule specifically 
prescribes that users must affirmatively assent specifically to the 
negative option feature, but in cases where a user is only 
purchasing a negative option product, how should other disclosures 
be presented?'')
---------------------------------------------------------------------------

    Other groups asserted if consumers are confused, they may not 
affirmatively consent to the rest of the transaction, which could cause 
uncertainty about the existence of the contract.\320\ Commenters also 
noted too many required actions during the purchasing process may lead 
to ``fatigue'' and ``cognitive overload,'' causing consumers to abandon 
transactions they may have otherwise wanted.\321\ Finally, several 
commenters complained the separate consent requirements would be 
difficult (and costly) to implement, but without any benefit to 
consumers.\322\

[[Page 90501]]

Thus, these commenters asked the Commission to exclude transactions 
where the negative option feature is not independent of the good or 
service being sold, i.e., where the good or service is itself only 
offered as a negative option,\323\ or to delete the requirement that 
sellers obtain separate, unambiguous, affirmative consent ``to the rest 
of the transaction.'' \324\
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    \320\ NCTA, FTC-2023-0033-0858; Sonsini Alarm Clients, FTC-2023-
0033-0860 (``could lead to consumers inadvertently failing to 
consent to auto-renewal (because they did not notice the second 
check box) and having an unintended lapse in home security system 
coverage.''); Asurion, FTC-2023-0033-0878 (``many consumers who want 
and could benefit from auto-renewal protection provisions will 
neglect to make the requisite two separate affirmative consents and 
suffer real consequences when they find themselves with a broken 
device during a gap in coverage''); APCIA, FTC-2023-0033-0996 (``A 
consumer who wants a service contract but then inadvertently fails 
to check a box indicating separate consent for the negative option 
feature could find that they no longer have coverage at the time 
they most need it.'').
    \321\ See, e.g., DCN, FTC-2023-0033-0983 (could lead to over-
notification); CCIA, FTC-2023-0033-0984 (``Adding too much 
additional information or too many required actions in a purchase 
cart has diminishing returns for consumer comprehension and 
attention, and can increase the cognitive load for consumers to the 
point that they simply stop reading or give up on the purchase.''); 
ANA, FTC-2023-0033-1001.
    \322\ NCTA, FTC-2023-0033-0858 (``would require companies to 
change their current customer sign-up flows, at significant cost, 
without providing consumers with any additional benefits''); PDMI, 
FTC-2023-003-0864 (``requiring merchants to implement a double opt-
in would impose an extraordinary financial and resource burden on 
sellers.''); id. (double opt-in requirements ``makes absolutely no 
sense, where, as is often the case, there is no transaction separate 
from the negative option transaction''); SCIC, FTC-2023-0033-0879; 
Chamber, FTC-2023-0033-0885 (little to no evidence that double opt-
in will create any consumer benefit, instead will increase consumer 
fatigue); see also IAB, FTC-2023-0033-1000 (double opt-in could be 
especially burdensome for bundled services, requiring consumers to 
check an additional box for each service, without added benefit to 
clarity or disclosure); ICA, 2023-0033-1142 (``requiring recording 
keeping of ``express informed consent'' potentially expressed 
through verbal, digital, or written records for multiple years will 
be an onerous and expensive requirement for small business owners to 
fulfill.'').
    \323\ Chamber, FTC-2023-0033-0885 (``unless there is a negative 
promotional option, service providers should not be required to have 
a separate consent for monthly billing and the underlying 
transaction when the underlying transaction is for a monthly 
service.''); see also MIA, FTC-2023-0033-1008 (``an additional 
consent to initiate a Subscription is unnecessary and 
superfluous'').
    \324\ See, e.g., Direct Marketing Companies, FTC-2023-0033-1016.
---------------------------------------------------------------------------

    Two commenters asked the Commission to modify the proposed 
provision by merging consent to the transaction and the negative option 
feature. These commenters suggested a separate consent should only be 
necessary where there are two independent portions of the transaction: 
one related to the negative option feature and a second for the sale of 
a separate good or service (including a free trial).\325\ Without this 
change, commenter Kuehn suggested ``the proposed Rule could have the 
unintended result of diminishing the efficacy of other important terms 
of the contract.'' Accordingly, Kuehn suggested the Commission revise 
the definition of negative option feature to encompass the entire 
contract (rather than a provision of the contract).\326\ This 
alteration, along with changing ``rest of the transaction'' to ``the 
sale of another good or service,'' would make it clear separate consent 
is only required where the seller has both an auto renewal agreement 
and the sale of another good or service.
---------------------------------------------------------------------------

    \325\ Kuehn, FTC-2023-0033-0871; RILA, FTC-2023-0033-0883.
    \326\ Kuehn, FTC-2023-0033-0871.
---------------------------------------------------------------------------

    IAB, DCN, CTA, and several direct marketing companies asserted the 
Commission could achieve the same outcome--informed consent--through 
less restrictive means, e.g., by requiring a clearer disclosure of the 
negative option feature.\327\ For example, CTA posited: 
``[a]lternatively, to advance the same goal, and because the Proposed 
Rule already requires clear and conspicuous disclosure of material 
terms, the FTC could instead require subscription service providers to 
prominently disclose subscription terms in a manner that differentiates 
them from other disclosures, such as in bolded or underlined font, in 
the course of obtaining consumer consent to the transaction.'' \328\ 
Additionally, several commenters questioned ``why a seller should be 
precluded from including other material terms of the transaction in 
obtaining a single consent.'' \329\
---------------------------------------------------------------------------

    \327\ Direct Marketing Companies, FTC-2023-0033-1016 (``the 
Commission provides no evidence or rationale that a robust, clear 
and conspicuous disclosure proximate to the consumer's consent would 
be insufficient to prevent deception and remedy allegedly prevalent 
unfair or deceptive acts and practices'').
    \328\ CTA, FTC-2023-0033-0997.
    \329\ PDMI, FTC-2023-003-0864; Sirius XM, FTC-2023-0033-0857 
(``Businesses should be able to obtain such consent in conjunction 
with the other terms of an offer,[ ] as long as they clearly and 
conspicuously disclose the negative option features and the other 
material terms of the offer and refrain from ``includ[ing] any 
information that `interferes with, detracts from, contradicts, or 
otherwise undermines'' the negative option terms.'').
---------------------------------------------------------------------------

    Some commenters raised additional concerns. For instance, several 
commenters challenged the Commission's statement that a separate check 
box or similar method could be used to record a consumer's 
unambiguously affirmative consent. Specifically, PDMI contended the 
check box, signature, or ``substantially similar'' method of consent 
could quickly become obsolete and ``replaced by far more effective and 
consumer friendly mechanisms.'' \330\ Another, NRF, argued courts 
routinely hold a separate check box is not required for consumers to 
manifest asset to terms and conditions of the agreement, so long as the 
terms are reasonably conspicuous.\331\ Finally, a group of direct 
marketing companies, argued standalone consent is not necessary or 
reasonable, and other methods could suffice. They suggested the 
Commission include language that it ``shall be a question of fact'' 
whether the seller obtained consent through another means.\332\
---------------------------------------------------------------------------

    \330\ PDMI, FTC-2023-003-0864.
    \331\ NRF, FTC-2023-0033-1005 (citing Meyer v. Uber Techs., 
Inc., 868 F.3d 66, 79 (2d Cir. 2017)). It is unclear from NRF's 
comment whether it questioned separate consent generally, or the 
guidance on a check box.
    \332\ Direct Marketing Companies, FTC-2023-0033-1016.
---------------------------------------------------------------------------

    Additionally, several trade groups and sellers expressed concern 
about the NPRM's proposed recordkeeping requirements. For instance, one 
trade group explained the proposed requirements ``would require sellers 
to maintain records of consumer consent for at least three years, even 
for consumers who signed up for a free trial and cancelled it before 
being charged. As drafted, the proposed amendments would also require 
sellers to maintain records of consumer consent for eleven years for 
individuals who continuously subscribe to negative option features for 
at least ten years.'' \333\
---------------------------------------------------------------------------

    \333\ ANA, FTC-2023-0033-1001; see also BSA, FTC-2023-0033-1015 
(``the current language could be read to require a company to retain 
for three years the records of a customer who signed up for a free 
trial but cancelled before the trial ended--and was therefore never 
a paying customer.'').
---------------------------------------------------------------------------

    Numerous commenters asserted these recordkeeping requirements would 
increase costs, which could ultimately be passed onto consumers,\334\ 
or small businesses, especially with respect to in-person and telephone 
transactions.\335\ Others raised concern the proposed recordkeeping 
requirement could conflict with best privacy practices. For example, 
commenters noted the retention period is at odds with the need to 
minimize the amount of consumer data that businesses hold and to enable 
customers to request deletion of their data.\336\ Commenters also 
suggested the Commission reduce the length of the recordkeeping 
requirement, e.g., to six months,\337\ or revise the proposal to 
eliminate the requirement for those who do not allow customers to 
purchase without

[[Page 90502]]

accepting the terms of the negative option feature.\338\
---------------------------------------------------------------------------

    \334\ APCIA, FTC-2023-0033-0996; IAB, FTC-2023-0033-1000 (``this 
requirement will be significantly costly, as subscription businesses 
will need to overhaul their sign-up processes to comply with this 
requirement. Businesses seeking to offset this increased cost will 
be forced to pass this cost to consumers or avoid offering 
subscriptions at all'').
    \335\ NCTA, FTC-2023-0033-0858 (``The proposal fails to account 
for the immense burden the proposal would impose on companies using 
alternative means to sell their products and services by requiring 
them to create and implement ways to capture and store duplicative 
layers of consumer consent.'').
    \336\ CCIA, FTC-2023-0033-0984 (``This record retention rule 
also seems to be at odds with key principles of consumer privacy, 
namely the need to minimize the amount of consumer data that 
businesses hold and to enable customers to request deletion of any 
data in possession of a third party. A shorter mandatory retention 
period is more appropriate for both businesses and consumers.''); 
NCTA, FTC-2023-0033-0858 (``Not only is it expensive to maintain 
these records, it does not comport with privacy best practices.'').
    \337\ ICA, 2023-0033-1142 (``Decrease the duration of the 
record-keeping requirement to six months after the business and the 
consumer enters into the agreement.''); see also Direct Marketing 
Companies, FTC-2023-0033-1016 (change recordkeeping requirement to 
keep or maintain records ``for at least one year if the consumer is 
charged at least twice within six months after the initial charge; 
or for at least three years if the consumer is not charged at least 
twice within six months after the initial charge.'').
    \338\ PDMI, FTC-2023-003-0864; Chamber, FTC-2023-0033-0885.
---------------------------------------------------------------------------

    Two consumer groups supported the consent provision but asked the 
Commission to add clarifying language. Specifically, Berkeley Consumer 
Law Center asked the Commission to state the Rule strictly prohibits 
the use of dark patterns to obtain consent and that consent cannot be 
given through silence. A group of professors asked the Commission to 
clarify that disclosures ``appear in each language in which the 
representation that requires the disclosure appears.'' \339\
---------------------------------------------------------------------------

    \339\ Law Professors, FTC-2023-0033-0861.
---------------------------------------------------------------------------

    Finally, commenters split on whether the Rule should require 
separate affirmative consent for free-trial offers. Several consumers 
supported requiring separate consent at the conclusion of a free-trial 
period,\340\ with one consumer suggesting the Commission ban free-trial 
offers that require the prepurchase of the good or service.\341\ Other 
consumer interest and public advocacy groups reiterated consumers often 
forget, or are unaware they have signed up for, a negative option 
feature in connection with a free trial offer.\342\ Sellers and trade 
groups disagreed, specifically noting the Commission's own analysis 
indicating a separate consent may not be necessary given the other 
requirements of the Rule \343\ and existing State laws.\344\
---------------------------------------------------------------------------

    \340\ Individual commenter, FTC-2023-0033-0843 (``In addition to 
making it easy to cancel an online subscription, it should be 
illegal for companies offering a `free trial' to bill for any term 
of subscription without an opt-in step. If they really believe 
trying their product will prompt me to keep using it, then it needs 
to be a 2-step process in which at the end of the trial period they 
must ask for and receive an opt in before they place a charge on my 
card.''); Individual commenter, FTC-2023-0033-0615 (``Rather than 
automatic renewals, I think subscriptions should only be renewed 
following consumer approval. For example, after a 14-day trial of an 
app, consumers should be asked if they approve a purchase to 
continue. If approval isn't given, the default should be that the 
subscription expired and the consumer isn't charged.''); Individual 
commenter, FTC-2023-0033-0993 (``If it's a trial subscription the 
company should notify you that your trial is over and affirm your 
desire to continue.'').
    \341\ Individual commenter, FTC-2023-0033-0026; see also 
Individual commenter, FTC-2023-0033-0583 (``Require that any entity 
not require a credit card on file for a trial, or any free 
period.''); Individual commenter, FTC-2023-0033-0641 (``Consumers 
shouldn't have to be required to submit credit/debit card 
information for a trial usage. And, consumers shouldn't be 
automatically charged the day after the trial expires.''); 
Individual commenter, FTC-2023-0033-1069 (``A free trial should not 
create an automatic subscription!''); Individual commenter, FTC-
2023-0033-0607 (``A `trial offer' should be just that--a ONE-TIME 
purchase.'').
    \342\ State AGs, FTC-2023-0033-0886 (``the State Attorneys 
General again respectfully encourage the FTC to require sellers 
offering free trials to obtain an additional round of consent before 
charging a consumer at the completion of the free trial.''); Law 
Professors, FTC-2023-0033-0861 (``we ask that the Commission require 
additional consent from the consumer before a business may convert a 
free (or nominal-fee) trial into an expensive subscription. Indeed, 
it seems that Congress, in adopting ROSCA, validated consumer 
expectations that they would ``have an opportunity to accept or 
reject [a] membership club offer at the end of [a] trial period.''); 
TINA, FTC-2023-0033-1139 (``Such consumer complaints are consistent 
with survey data showing that 42 percent of consumers forget they 
are still paying for a subscription they no longer use.[ ] `Many of 
those happen after you get enticed by a free trial for an online 
streaming service or a monthly subscription service for clothes or 
personal items, and then you forget to cancel it after that trial is 
over.' '').
    \343\ Sirius XM, FTC-2023-0033-0857 (``As long as consumers are 
clearly informed about the terms of a free trial offer and evince 
affirmative consent, no further consumer consent should be required 
when the free trial period expires.'').
    \344\ CCIA, FTC-2023-0033-0984; Chamber, FTC-2023-0033-0885.
---------------------------------------------------------------------------

(b) Analysis
    Based on the record, the Commission removes the proposed 
requirement that sellers obtain separate consent to ``the rest of the 
transaction'' under Sec.  425.5(a)(3). Further, the Commission modifies 
the recordkeeping requirement to require sellers to maintain records 
only for three years from the date of consent. Alternatively, if 
sellers can show by a preponderance of the evidence they use processes 
that make it technologically impossible for a consumer to purchase the 
good or service without consent, sellers need not retain such 
records.\345\ Finally, the Commission declines to modify the consent 
provisions to require separate consent for free-trial offers. However, 
should the Commission seek additional comments about a provision to 
require annual reminders,\346\ it will consider addressing such offers 
at that time.
---------------------------------------------------------------------------

    \345\ This change will not affect a seller's obligation to 
maintain appropriate records under other regulations, e.g., the TSR.
    \346\ See section VII.B.7.
---------------------------------------------------------------------------

    Prior to addressing each of the issues listed above, it is 
important to clarify one point. A negative option feature is not itself 
a product or service--it is simply a mechanism for repeatedly 
consenting to the extension of a contract through silence. Thus, there 
are not situations in which the negative option feature is the product, 
as some commenters suggested. In the example provided above, a 
subscription to a streaming entertainment service can be offered with 
(e.g., the offer renews each month until cancellation) or without 
(e.g., the subscription lasts one year and then must be affirmatively 
renewed, or it cancels) a negative option feature. There are situations 
in which sellers only offer products or services on a negative option 
basis; however, doing so does not lessen the need to ensure consumers 
consent to the negative option mechanism within the agreement. 
Therefore, the analysis below does not separately address this issue.
    (1) The Commission does not adopt a requirement for separate 
consent to ``the rest of the transaction'' because it is unnecessary, 
confusing, and hard to implement.
    Based on the comments, the Commission finds requiring consumer 
consent to ``the rest of the transaction'' apart from the negative 
option feature is unnecessary, potentially confusing, and may be hard 
to implement. First, even without the separate consent requirement, the 
proposed Rule contained several elements that work together to ensure 
consumers know they are agreeing to a negative option feature. 
Specifically, the proposed Rule required sellers to obtain the 
consumer's unambiguously affirmative consent to the negative option 
feature separately from any other portion of the transaction \347\ 
through, for example, a separately presented check box.\348\ It also 
required sellers to clearly and conspicuously provide important 
information immediately adjacent to the request for consumer consent, 
including that the charge will be recurring, the deadline to act to 
stop charges, the amount of the charges, and information necessary to 
cancel.\349\ Further, the proposed Rule stated the seller cannot 
include any information or employ any techniques that interfere with 
the consumer's ability to understand these important disclosures and 
provide unambiguously affirmative consent to the negative option 
feature.
---------------------------------------------------------------------------

    \347\ Section 425.5(a)(1).
    \348\ Section 425.5(c) allows sellers to comply with the 
requirement to obtain unambiguously affirmative consent to the 
negative option feature through a check box, signature, or other 
substantially similar method.
    \349\ See Rule Sec.  425.4(a)(1)-(4).
---------------------------------------------------------------------------

    Given these protections, a separate consent requirement is not 
necessary.\350\ Second, the Commission agrees the separate consent 
requirement could cause consumer confusion. Moreover, compliance with 
the Rule's required disclosure and consent provisions should address 
the concerns commenters raised regarding deception. Finally, several 
sellers suggested, and there is no evidence to the contrary, that 
seeking consent to both the negative

[[Page 90503]]

option feature and the rest of the transaction could be hard to 
implement for many sellers. Thus, the final Rule does not contain the 
separate consent requirement.\351\
---------------------------------------------------------------------------

    \350\ The Commission further notes because the seller is 
obtaining express informed consent to the negative option feature 
separately from the rest of the transaction, consumers are, in 
effect, agreeing to both the negative option feature and the sale of 
the good or service separately.
    \351\ See Sec.  425.5(a)(3).
---------------------------------------------------------------------------

    (2) The Commission modifies the recordkeeping requirements to 
address legitimate privacy concerns and reduce undue burden on small 
businesses.
    Section 425.5(a)(4) of the proposed Rule required sellers to obtain 
and maintain (for three years or a year after cancellation, whichever 
was longer) verification of the consumer's consent to the negative 
option feature. Implementation of this requirement would undoubtably 
enhance the FTC's ability to enforce the Rule. However, the Commission 
agrees the proposal creates privacy concerns. The Commission has long 
recommended companies employ data retention policies that ``dispose of 
data once it has outlived the legitimate purpose for which it was 
collected.'' \352\ Therefore, the Rule's data retention requirement, 
could, in some instances, be at odds with this guidance. Further, 
several commenters asserted a longer recordkeeping requirement will be 
burdensome, particularly for small businesses.
---------------------------------------------------------------------------

    \352\ NCTA, FTC-2023-0033-0858 (citing FTC, ``Protecting 
Consumer Privacy in an Era of Rapid Change'' (2012) at 28, 
www.ftc.gov/reports/protecting-consumer-privacy-era-rapid-change-recommnedations-businessespolicymakers).
---------------------------------------------------------------------------

    Balancing the Commission's interest in robust Rule enforcement 
against privacy and burden concerns, the Commission modifies the 
proposed Rule. Specifically, Sec.  425.5(a)(3) of the final Rule 
requires sellers to keep or maintain verification of the consumer's 
consent for a period of three years from the date of consent (rather 
than three years or a year after cancellation, whichever is longer). 
Removing the requirement that sellers keep records until one year after 
cancellation prevents the retention of records for very long periods of 
time while the contract is still in force. Moreover, as some commenters 
stated,\353\ sellers can employ technological processes for online 
consent that could alter the balance of concerns. Specifically, it is 
technologically feasible to make it impossible for customers to enroll 
without providing unambiguously affirmative consent. The Commission 
therefore further modifies the recordkeeping requirement to eliminate 
the requirement entirely if a seller can demonstrate it meets this 
threshold. The final provision will allow sellers to destroy consumer 
records more quickly, while accomplishing the same goal.\354\ Finally, 
the Commission clarifies maintaining copies of advertisements or 
telephone scripts documenting the disclosures provided in general does 
not meet this requirement. Such information is easily manipulated by 
deceptive sellers and cannot show any particular consumer received the 
disclosures prior to giving consent. Therefore, sellers must either 
maintain records of each consumer's unambiguously affirmative consent 
or demonstrate they satisfy the technological exemption provision.
---------------------------------------------------------------------------

    \353\ ANA, FTC-2023-0033-1001; ESA, FTC-2023-0033-0867 (for 
purchases that cannot be completed without a consumer's consent, a 
business will be deemed compliant with any recordkeeping requirement 
and is not required to maintain an individual record of consent).
    \354\ Importantly, if the seller does not maintain records and 
cannot satisfy the technological exemption, the seller has violated 
the Rule.
---------------------------------------------------------------------------

    (3) Other concerns raised by commenters do not warrant 
modifications to the rule.
    As noted above, a few commenters questioned the Commission's 
proposed exemplar consent mechanism under Sec.  425.5(c). This proposed 
provision states for written offers, a check box, signature, or 
``substantially similar'' method can be used to obtain a consumer's 
unambiguously affirmative consent. The Commission notes the mechanism 
applies to the negative option feature only, and thus corrects the 
cross-reference contained in this provision from (a)(3) to (a)(1).
    The Commission further notes this provision does not require a 
check box or signature. The Commission offered these methods only as 
examples a seller can use to obtain unambiguously affirmative consent, 
not the only ways to do so. Thus, the exemplar does not conflict with 
caselaw holding that a check box is not required to manifest consent. 
The Commission also declines to include language in the final Rule, as 
one commenter suggested,\355\ stating whether a seller has complied 
with this provision is a question of fact. This is unnecessary because 
the Commission always evaluates sellers' practices on a case-by-case 
basis to determine whether they comply with the law.
---------------------------------------------------------------------------

    \355\ Direct Marketing Companies, FTC-2023-0033-1016.
---------------------------------------------------------------------------

    The Commission further declines to remove this provision's 
reference to ``substantially similar'' methods as some commenters 
requested. The language is intended to cover any method that affords 
consumers all the same protections as a check box or signature. The 
phrase ``substantially similar'' performs this function while allowing 
for technological advancement, innovation, and adaption without tying 
sellers to specific mechanism that may become obsolete.
    Further, the Commission declines to modify the final Rule to allow 
sellers to obtain express informed consent by merely ``disclosing'' the 
negative option more clearly through, e.g., bolded or underlined font, 
rather than obtaining expressed informed consent separately for the 
negative option feature. Although this change would be ``less 
restrictive,'' it would not adequately protect consumers from 
unknowingly enrolling in negative option programs. In the NPRM, the 
Commission balanced the need for clear, unavoidable disclosure of, 
inter alia, the negative option feature with the need for flexibility 
to allow sellers to best communicate their entire message to consumers. 
The proposed Rule strikes the right balance. As discussed above, 
proposed Sec.  425.4 (Important Information), required sellers to 
clearly and conspicuously disclose important information about the 
negative option feature, immediately adjacent to the means of recording 
consent to the feature, and, under Sec.  425.5 (Consent), separately 
from any other portion of the transaction. The Commission did not 
specify exact placement, language, or font size because doing so would 
have diminished flexibility without a sufficient corresponding benefit.
    While this balance is appropriate, the required disclosure of 
important information under Sec.  425.4 does not replace the 
requirement that sellers obtain consumers' express informed consent. To 
avoid harm from unfair and deceptive practices, it is imperative 
consumers unequivocally understand they are agreeing to enrollment in a 
negative option program and demonstrate their agreement.
    The Commission also declines to add language stating (1) the Rule 
strictly prohibits the use of dark patterns to obtain consent and (2) 
consent cannot be given through silence. The Rule already addresses 
both concerns. First, the Rule bars any information that ``interferes 
with, detracts from, contradicts, or otherwise undermines'' the 
consumer's ability to provide express informed consent. To the extent 
dark patterns run afoul of any of these requirements, they are 
prohibited. To the extent they do not, consumers' express informed 
consent as required by the Rule is not implicated. Second, under Sec.  
425.5, consumers already must give affirmative consent.
    Finally, the Commission does not need to clarify, as some 
commenters suggested, that required consents ``appear in each language 
in which the

[[Page 90504]]

representation . . . appears.'' \356\ To obtain a consumer's express 
informed consent, each disclosure must be clear and conspicuous and 
immediately adject to the means of recording the consumer's consent. To 
meet the clear and conspicuous standard as defined in the Rule, the 
disclosure must, among other things, ``appear in each language in which 
the representation that requires the disclosure appears.'' \357\
---------------------------------------------------------------------------

    \356\ Law Professors, FTC-2023-0033-0861.
    \357\ Rule Sec.  425.2(c)(6).
---------------------------------------------------------------------------

    (4) The Commission does not modify the Rule to require separate 
consent for free trial offers.
    In the NPRM, the Commission invited comments on whether the Rule 
should require an additional (or alternative) round of consent after 
the end of a free trial offer. As explained in the NPRM, if the seller 
follows the proposed Rule's disclosure and consent requirements, 
consumers should understand they are enrolled in, and will be charged 
for, the negative option feature once the free trial ends. As discussed 
above, however, several commenters explained with enough time between 
initial enrollment and charge after conversion, consumers are primed to 
forget the negative option feature.\358\ The Commission agrees this an 
important issue; however, clear upfront disclosures lessen the chance a 
negative option feature may be unfair or deceptive. Specifically, 
clear, accurate upfront disclosures reduce the risk of deception, and 
the potential harms caused are more likely to be reasonably avoidable 
(i.e., the consumer can simply refuse to enter into the contract). That 
said, taking advantage of consumers' ``forgetfulness'' is extremely 
troubling and thus ripe to be addressed by other means.
---------------------------------------------------------------------------

    \358\ Deceptive sellers also commonly delay shipment of goods or 
services until close to the end of the trial period, giving 
consumers little time to stop the charge or cancel the negative 
option. See, e.g., Individual commenter, FTC-2023-0033-0085.
---------------------------------------------------------------------------

6. Proposed Sec.  425.6 Simple Cancellation (``Click to Cancel'')
    Section 425.6 of the proposed Rule contains several requirements to 
ensure consumers can easily cancel negative option features. As 
explained in the NPRM, ``easy cancellation is an essential feature of a 
fair and non-deceptive negative option program,'' but one that has 
become ``far too often illusory.'' \359\ ``If consumers cannot easily 
leave a negative option program, the negative option feature is little 
more than a means of charging consumers for goods and services they no 
longer want.'' \360\
---------------------------------------------------------------------------

    \359\ NPRM, 88 FR 24729; see ANPR, 84 FR 52395 (discussing 
general requirements for nondeceptive negative options); id. at 
52396 (discussing the ongoing problems in the marketplace including 
inadequate or overly burdensome cancellation procedures).
    \360\ NPRM, 88 FR 24729.
---------------------------------------------------------------------------

    To prevent unfairly trapping consumers in a transaction they do not 
want, the proposed Rule directed sellers to provide a cancellation 
mechanism that (1) immediately halts recurring charges; (2) is as 
simple to use as the mechanism the consumer used to consent to the 
negative option feature; and (3) is readily accessible through the same 
medium the consumer used to provide that consent. The Commission 
intended these requirements to erect clear guardrails, while providing 
sellers with the flexibility to innovate. Therefore, rather than 
propose specific prohibitions, which may lose utility over time, or 
inadvertently provide a roadmap for deception, the proposed Rule 
outlined a performance-based standard mapping the contours of what 
constitutes a simple mechanism, without overly prescriptive 
requirements.
(a) Sec.  425.6(a) and (b) Simple Mechanism Required for Cancellation; 
and Simple Mechanism at Least as Simple as Initiation
(1) Summary of Comments
    Proposed Sec.  425.5(a) and (b) required a fast and easy 
cancellation mechanism that, at minimum, allows the consumer to cancel 
as easily as they enrolled in the program. The Commission received 
thousands of comments in support of this provision, with individual 
consumers uniformly expressing their desire for a simple easy to use 
cancellation mechanism.\361\ Such comments included: ``If you signed up 
online, you should be able to cancel online. If it took one click to 
join, it should take one click to cancel;'' \362\ ``I would like the 
option to cancel my subscriptions, [and] offers online just as easily 
as it was to sign up;'' \363\ ``As more and more services enter online 
use, it is ridiculous that consumers have to jump through so many hoops 
to cancel services when it is so easy to sign up for them;'' \364\ and 
``Consumers need the one-click option.'' \365\
---------------------------------------------------------------------------

    \361\ Individual commenter FTC-2023-0033-0029 (``Please 
implement this necessary rule to protect consumers and save us hours 
on the phone cancelling services we signed up for with one click 
online.''); Individual commenter, FTC-2023-0033-0072 (``I have had 
issues with some online subscriptions which were entered into purely 
online, but to cancel I had to call a phone number open only during 
certain business hours. I would like a rule that requires all 
subscriptions to be available to cancel through the same means as 
they were initiated, whether that is online, in person, phone, mail, 
or chat. I believe that would be fair to people of all technological 
levels while allowing businesses to conduct business how they feel 
comfortable without allowing them to create unnecessary hurdles for 
customers looking to end their service.'').
    \362\ Individual commenter, FTC-2023-0033-0111. Thousands of 
individual consumers repeated this phrase through a mass media 
campaign. See, e.g., Anonymous commenter, FTC-2023-0033-0013; 
Individual commenter, FTC-2023-0033-0016 (``If I can subscribe in 
one click, I should be able to unsubscribe in one click.''); 
Individual commenter, FTC-2023-0033-0017 (``It should be as easy as 
one click to cancel an online account.''); Individual commenter, 
FTC-2023-0033-0068 (``Being able to go online and with a simple 
click be able to cancel a subscription would be a dream.''); see 
also Individual commenter, FTC-2023-0033-0015 (``Ending a 
subscription should be as easy as it was to sign up. it makes no 
sense how hard it is to close out an account with some places.''); 
Individual commenter, FTC-2023-0033-0020 (``The time has come to 
make it as easy for consumers to cancel subscriptions as it has been 
to start them.''); Individual commenter, FTC-2023-0033-0087 (``I 
think any offer you can buy with a click should also be an offer to 
unsubscribe with a click.'').
    \363\ Individual commenter, FTC-2023-0033-0003; see also 
Individual commenter, FTC-2023-0033-0010 (``I for one would be for 
the Easing of subscription cancellation. Having it be much harder to 
cancel a subscription than start it simply shouldn't be.''); 
Anonymous commenter, FTC-2023-0033-0024 (``It should be no harder 
for consumers to stop giving a company their money than it is for 
them to start giving it to them.''); Individual commenter, FTC-2023-
0033-0025 (``In fact, it should be as easy to cancel as it is to 
sign up.'').
    \364\ Individual commenter, FTC-2023-0033-0231; Individual 
commenter, FTC-2023-0033-0109.
    \365\ Individual commenter, FTC-2023-0033-0403.
---------------------------------------------------------------------------

    Some commenters suggested unsubscribing should be easier than 
enrolling,\366\ and others, ``very easy.'' \367\ Indeed, several 
advocated for an ``Unsubscribe link,'' \368\ similar to those available 
under the CAN-SPAM Act.\369\ Numerous commenters complained they

[[Page 90505]]

often have to resort to disputing the charge with credit card companies 
(or cancelling the card altogether) because cancellation is so 
difficult or impossible.\370\ Additionally, commenters described the 
simple cancellation mechanism requirements as a ``no brainer,'' 
``common sense,'' and ``only fair'' to consumers.\371\ These and others 
commenters complained of the hundreds of dollars \372\ and hours \373\ 
wasted on unused and unwanted products and services they were not 
effectively able to cancel due to byzantine cancellation 
procedures.\374\
---------------------------------------------------------------------------

    \366\ ``Unsubscribing should be easier than subscribing.'' 
Individual commenter, FTC-2023-0033-0005. Accord Individual 
commenter, FTC-2023-0033-0021 (same); Anonymous commenter, FTC-2023-
0033-0040 (``I am in favor of making it easier to discontinue 
services.''); Individual commenter, FTC-2023-0033-0107 (``Canceling 
a subscription should be easier that setting up the 
subscription.'').
    \367\ Individual commenter, FTC-2023-0011 (``It should be very 
easy to cancel a subscription, artificially creating difficulty or 
hurdles only serves to hurt the consumer of a service as well as a 
company's image and deplete trust in a brand or service.''); 
Individual commenter, FTC-2023-0033-0036 (``It should be very easy 
to cancel a subscription!!!!!'').
    \368\ Individual commenter, FTC-2023-0033-0030; Individual 
commenter, FTC-2023-0033-0035; see also Individual commenter, FTC-
2023-0033-0188 (``If you sign up online, you should be able to 
cancel online. If it took one click to join, it should take one 
click to cancel. Kind of like `unsubscribing' from an email 
newsletter you don't want to get anymore.''); Individual commenter, 
FTC-2023-0033-0236 (``When I get an email from a politician I'm not 
interested in there is always an unsubscribe button. Why can't paid 
subscriptions be the same?'').
    \369\ Controlling the Assault of Non-Solicited Pornography and 
Marketing Act of 2003 (``CAN-SPAM Act''), 15 U.S.C. 7701-7713; 16 
CFR part 316.
    \370\ See, e.g., Individual commenter, FTC-2023-0033-0068; 
Individual commenter, FTC-2023-0033-0086; Individual commenter, FTC-
2023-0033-0203 (``Recently, I had to start a dispute case with my 
credit card company because I had subscribed to a service and there 
was no way to cancel that service.''); Individual commenter, FTC 
2023-0033-0211; Individual commenter, FTC-2023-0033-0225 (had new 
card issued); Individual commenter, FTC-2023-0033-0275 (disputed the 
charge and cancelled card); Individual commenter, FTC-2023-0033-0311 
(cancelled credit card); Individual commenter, FTC-2023-0033-0320 
(disputed charge); Individual commenter, FTC-2023-0033-0501 
(terminated credit card); Individual commenter, FTC-2023-0033-1134 
(cancelled credit card).
    \371\ See, e.g., Individual commenter, FTC-2023-0033-0256; 
Individual commenter, FTC-2023-0033-0408 (``common sense''); 
Individual commenter, FTC-2023-0033-0431 (``no brainer''); 
Individual commenter, FTC-2023-0033-0586 (``no brainer'').
    \372\ Individual commenter, FTC-2023-0033-0232; Individual 
commenter, FTC-2023-0033-0459 (``I once lost hundreds of dollars 
because I could not find how to cancel.''); Individual commenter, 
FTC-2023-0033-0509; Individual commenter, FTC-2023-0033-0232 (``I'm 
currently trapped in at least three subscriptions that are nearly 
impossible to cancel, costing me hundreds of dollars per year.''); 
Individual commenter, FTC-2023-0033-0509; Individual commenter, FTC-
2023-0033-0825 (``I have wasted hundreds of dollars for things that 
automatically renewed as a result of not being able to figure out 
easily how to cancel.''); Individual commenter, FTC-2023-0033-0572; 
Individual commenter, FTC-2023-0033-0697 (``I have been caught up in 
just this very unfair practice where I've been lured in and can't 
get out--to the tune of hundreds of dollars that I don't have.''); 
see also Public Interest Groups, FTC-2023-0033-0880.
    \373\ See, e.g., Individual commenter, FTC-2023-0033-029 
(``Please implement this necessary rule to protect consumers and 
save us hours on the phone cancelling services we signed up for with 
one click online.''); Anonymous commenter, FTC-2023-0033-0040 (``My 
negative experience was that it was a simple `click' on-line to sign 
up for a service but to cancel same service it took three phone 
calls and hours of my time.); Individual commenter, FTC-2023-0033-
0084 (``I spent over two hours of my time trying to cancel the 
subscription.''); Individual commenter, FTC-2023-0033-0106 (``I've 
definitely lost at least 30 hours of my life dealing with 
insufferable `retention specialists,' all of whom should be ashamed 
of what they do.''); Individual commenter, FTC-2023-0033-0431; 
Individual commenter, FTC-2023-0033-0385 (``This is not a bot 
generating a letter; it's an actual person, and I want to register 
strong support for the one Click rule you are considering. I have 
wasted hours trying to deal with customer service, whose only goal 
is to keep me on board.''); Individual commenter, FTC-2023-0033-0672 
(``It's about time! Trying to unsubscribe can waste many hours, 
induce stress, result in unwanted subscription or cancellation fees, 
and leave personal data subject to abuse.''); Individual commenter, 
FTC-2023-0033-0642 (``There needs to be a substantial penalty when a 
service is requested to be cancelled, but the charges continue. I 
dropped my TV service from Comcast 3 months ago and they continue to 
charge me. Every time I need to re-contact them I waste an hour.'').
    \374\ Individual commenter, FTC-2023-0033-0422 (``Implementing 
this consumer-protection rule has the potential to save American 
consumers millions of dollars, and prevent unscrupulous companies 
from using byzantine cancellation procedures to squeeze unwarranted 
funds out of their customers.''); Individual commenter, FTC-2023-
0033-0233 (``I had to navigate an endless labyrinth of dark-
patterned links in order to cancel an Amazon Prime subscription that 
took me one click to sign up for.''); Individual commenter, FTC-
2023-0033-0482 (``They make it a labyrinth of obscure phrases and if 
you don't know to click on just the right one, you'll never be able 
to cancel.'').
---------------------------------------------------------------------------

    As summarized by the Berkeley Consumer Law Center, ``requiring the 
mechanism of cancellation be as simple as enrollment'' will minimize 
``overly complex cancellation processes with multiple steps,'' and 
prevent sellers ``from trapping consumers in automatically renewing 
subscriptions through obstacles created by tedious processes or 
confusion.'' \375\
---------------------------------------------------------------------------

    \375\ Law Professors, FTC-2023-0033-0861; see also State AGs, 
FTC-2023-0033-0886 (``state attorneys general strongly endorse the 
FTC's efforts to ensure that consumers enrolled in subscription 
services or other negative option plans are continuing to pay for 
those plans because they want to maintain their subscriptions, and 
not because it is too much trouble to cancel.'').
---------------------------------------------------------------------------

    Sellers and trade organizations argued the proposed requirements 
were ``too vague.'' \376\ For instance, PDMI asserted the requirement 
that the simple cancellation mechanism be as easy to use as the one 
used to initiate the transaction provides no clear guidance on when a 
transaction is ``initiated.'' Several industry and trade groups echoed 
this comment, contending ``as easy as'' is a difficult, and often 
subjective, standard.\377\ Other businesses complained the proposed 
Rule fails to define ``simple mechanism'' \378\ and making cancellation 
as easy as enrollment was not possible because they serve different 
purposes.\379\ IAB asserted the proposed requirements were overbroad in 
relation to the prevalent acts or practices the Commission 
identified.\380\
---------------------------------------------------------------------------

    \376\ PDMI, FTC-2023-003-0864; ACT App Association, FTC-2023-
0033-0874 (elusive language); IAB, FTC-2023-0033-1000 (unclear how 
to measure simplicity).
    \377\ Chamber, FTC-2023-0033-0885 (``ambiguous and hard to 
implement requirement); NRF, FTC-2023-0033-1005 (as simple as not 
defined and no examples).
    \378\ ACT App Association, FTC-2023-0033-0874. The Commission 
does indeed define ``simple mechanism'' through the requirements of 
Sec.  425.6, as well as through existing caselaw and the 2021 
Enforcement Policy Statement. See n.385.
    \379\ ESA, FTC-2023-0033-0867; IHRSA, FTC-2023-0033-0863; 
Chamber, FTC-2023-0033-0885; BSA, FTC-2023-0033-1015.
    \380\ IAB, FTC-2023-0033-1000. The Commission addresses IAB's 
prevalence assertions elsewhere. See section VII.A.
---------------------------------------------------------------------------

(2) Analysis
    Considering the overwhelming support for a simple cancellation 
\381\ mechanism that immediately halts charges,\382\ and given 
substantial evidence supporting the need for such mechanism to prevent 
unfair and deceptive acts and practices, the Commission retains 
proposed Sec.  425.6(a) and (b).\383\ The Commission disagrees with 
commenters' argument that the ``as easy as'' standard is vague. The 
Commission has provided considerable guidance on what constitutes a 
simple or ``easy'' cancellation mechanism through numerous cases and 
its 2021 Enforcement Policy Statement.\384\
---------------------------------------------------------------------------

    \381\ Beyond the near universal support by consumers and 
consumer advocacy groups, some trade groups also supported the goal 
of ensuring consumers have a quick and easy mechanism to cancel. 
RILA, FTC-2023-0033-0883; see also Sirius XM, FTC-2023-0033-0857 
(``All parties want an easy-to-use and an accessible method of 
cancellation''); ZoomInfo, FTC-2023-0033-0865 (``We concur with the 
FTC's recognition that negative option terms, often concealed in 
`fine print', can be difficult for consumers to negotiate or even to 
comprehend fully, and that canceling these contracts can be unfairly 
burdensome.'').
    \382\ Some commenters asked for clarification regarding whether 
the requirement under Sec.  425.6(a) would also immediately cancel 
the entire contract. See, e.g., N/MA (``The FTC should also clarify 
that the ``Click to Cancel'' proposal applies only to the negative 
option portion of a subscription and not to the entire 
subscription.''). The language of the Rule is clear--cancellation 
under the Rule applies only to the negative option portion of the 
contract, and not the entire contract. Section 425.6 (``it is 
violation of this Rule . . . for the negative option seller to fail 
to provide a simple mechanism for a consumer to cancel the negative 
option feature''). Thus, when a consumer cancels, all terms and 
conditions continue until the expiration of the contract or 
agreement.
    \383\ BSA specifically requested the Commission revise 
subsection (a) to the following: ``We suggest revising this language 
to clarify the intended result by stating the obligation is `to 
cancel the negative option feature and immediately stop any 
recurring charges for the good or service.' '' BSA, FTC-2023-0033-
1015. However, this change could create ambiguity regarding 
application of the subsection to the initiation of charges under 
free- and fee-to-paid conversions. Accordingly, the Commission will 
not incorporate the suggested change.
    \384\ See, e.g., EPS, 86 FR 60822; FTC v. FloatMe Corp., No. 
5:24-cv-00001 (W.D. Tex. 2024); United States v. Cerebral, Inc., No. 
1:24-cv-21376 (S.D. Fla. 2024); FTC v. Bridge It, Inc., No. 1:23-cv-
09651 (S.D.N.Y. 2023); FTC v. Vonage Holdings Corp., No. 3:22-cv-
06435 (D.N.J. 2022); FTC v. Benefytt Techs., Inc., No. 8:22-cv-01794 
(M.D. Fla. 2022); FTC v. First Am. Payment Sys., No. 4:22-cv-00654 
(E.D. Tex. 2022); United States v. MyLife.com, Inc., No. 2:20-cv-
6692 (C.D. Cal. 2020); FTC v. RagingBull.com, LLC, No. 1:20-cv-03538 
(D. Md. 2020); FTC v. Age of Learning, Inc., No. 2:20-cv-07996 (C.D. 
Cal 2020); FTC v. Match Grp., Inc., No. 3:19-cv-02281 (N.D. Tex. 
2019); FTC v. Cardiff, No. 5:18-cv-02104 (C.D. Cal. 2018); FTC v. 
AdoreMe, Inc., No. 1:17-cv-09083 (S.D.N.Y. 2017); FTC v. AAFE Prods. 
Corp., No. 3:17-cv-00575 (S.D. Cal. 2017); FTC v. JDI Dating, Ltd., 
No. 1:14-cv-08400 (N.D. Ill. 2014).

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[[Page 90506]]

    Moreover, the ``as easy as'' standard is even clearer in context, 
i.e., a flexible measure that ensures consumers have similar 
cancellation and consent experiences in terms of time, burden, expense, 
and ease of use, among other things.\385\ The Commission is aware these 
experiences may not always be perfectly symmetrical. Consumers may have 
to verify or authenticate their identity, for instance,\386\ or they 
may be asked to confirm their intent to cancel.\387\ However, 
reasonable verification, authentication, or confirmation procedures 
should not create distinctly asymmetrical experiences, particularly if 
the cancellation mechanism is located within account or user settings 
secured by authentication requirements for access. Any authentication, 
verification, or confirmation procedure that creates unreasonable 
asymmetry runs afoul of section 5 of the FTC Act and the Rule. 
Moreover, given the extensive record and the Commission's experience 
with sellers using verification and authentication tools to thwart or 
delay cancellation,\388\ the Commission declines to create a safe 
harbor for these activities as some States have \389\ and as some 
commenters requested.\390\
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    \385\ Some commenters raised the concern that sellers might 
create complicated signup procedures to justify complex cancellation 
mechanisms. ESA, FTC-2023-0033-0867; State AGs, FTC-2023-0033-0886; 
IAB, FTC-2023-0033-1000. As pointed out by the State AGs sellers 
must comply with all requirements of a simple cancellation 
mechanism, including that consumers can promptly effectuate 
cancellation through an accessible means.
    \386\ Commenters insisted that reasonable authentication and 
verification procedures be allowed prior to cancellation to ensure 
that only authorized persons are making changes to an account. NFIB, 
FTC-2023-0033-0789; IHRSA, FTC-2023-0033-0863; ESA, FTC-2023-0033-
0867; N/MA, FTC-20230033-0873; RILA, FTC-2023-0033-0883; ANA, FTC-
2023-0033-1001.
    \387\ See, e.g., MIA, FTC-2023-0033-1008.
    \388\ Berkeley Consumer Law Center, FTC-2023-0033-0855; 
RocketMoney, FTC-2023-0033-0998; Anonymous commenter, FTC-2023-0033-
0024; Individual commenter, FTC-2023-0033-0411; Individual 
commenter, FTC-2023-0033-0850; Individual commenter, FTC-2023-0033-
0861; Individual commenter, FTC-2023-0033-0888; Anonymous commenter; 
FTC-2023-0033-0134; Individual commenter, FTC-2023-0033-0326; 
Individual commenter, FTC-2023-0033-0778.
    \389\ See, e.g., Cal. Bus. & Prof. Code Sec.  17602(d)(3); Colo. 
Rev. Stat. Sec.  6-1-732(2)(d)(I)(B).
    \390\ USTelecom, FTC-2023-0033-0876 (``expressly allow'' 
business to engage in privacy and data security measures prior to 
cancellation); ANA, FTC-2023-0033-1001.
---------------------------------------------------------------------------

    Nevertheless, as some commenters point out, the proposed initiation 
or purchase date trigger may provide insufficient clarity.\391\ Not all 
negative option features begin with a purchase (e.g., free trials), and 
when a transaction is initiated is subject to interpretation or 
possible manipulation. Given this ambiguity, businesses attempting to 
comply with the proposed Rule may have difficulty, and those attempting 
to evade the proposed Rule may find loopholes with the proposed 
initiation or purchase date trigger. Thus, the Commission revises Sec.  
425.6(b) \392\ to require the simple cancellation mechanism be ``as 
easy as'' the mechanism the consumer used ``to consent'' to the 
negative option feature, rather than ``initiate'' or ``purchase'' the 
feature. The moment of consent avoids the lack of clarity the terms 
``purchase'' and ``initiate'' introduce and clarifies the action to 
which the cancellation must be compared.
---------------------------------------------------------------------------

    \391\ For online cancellation, Sec.  425.6(c)(1) of the proposed 
Rule required sellers to provide a simple cancellation mechanism 
through the same medium consumers used ``to purchase the negative 
option feature.''
    \392\ The Commission also will make a conforming change to add 
``consent'' in section 425.6(c)(1).
---------------------------------------------------------------------------

(b) Proposed Sec.  425.6(c) Minimum Requirements for Simple Mechanisms
(1) Summary of Comments
    The proposed Rule required sellers to provide a simple cancellation 
mechanism through the same medium (internet, phone, in-person) the 
consumer used to consent to the negative option feature. Almost 
uniformly, consumers supported this requirement.\393\ However, a number 
of a trade groups disagreed, arguing, as explained below, the 
requirement is too prescriptive, or could lead to accidental or 
inadvertent cancellation.\394\ Instead, these commenters suggested the 
Commission allow consumers to choose their cancellation medium (e.g., 
based on ``consumer expectations,'' convenience, or common use by the 
seller).\395\
---------------------------------------------------------------------------

    \393\ See, e.g., Individual commenter, FTC-2023-0033-0072 (``I 
would like a rule that requires all subscriptions to be available to 
cancel through the same means as they were initiated, whether that 
is online, in person, phone, mail, or chat.''); Individual 
commenter, FTC-2023-0033-0252 (``the method provided for signing up 
for a service must also be provided for cancelling the same service, 
be just as easy to find, and require no more steps than it took to 
sign up.'').
    \394\ See, e.g., NCTA, FTC-2023-0033-0858; PDMI, FTC-2023-0033-
0864; CTA, FTC-2023-0033-0997; ANA, FTC-2023-0033-1001. See also 
Wilson Sonsini Goodrich & Rosati on behalf of certain of its alarm 
company clients (``Sonsini Alarm Clients''), FTC-2023-0033-0860 
(alarm companies should be able to speak to the customers to verify 
identity and confirm cancellation intent); N/MA-FTC-2023-0033-0873 
(A ``one click'' cancellation requirement for an entire 
subscription, especially absent some form of authentication, could 
also lead to accidental and/or malicious cancellations.); NRF, FTC-
2023-0033-1005 (data suggests that one-click-cancellation functions 
frequently cause accidental cancellations).
    \395\ See, e.g., Sirius XM, FTC-2023-0033-0857; N/MA, FTC-2023-
0033-0873; State AGs, FTC-2023-0033-0886.
---------------------------------------------------------------------------

    Consumer groups and law enforcement asked the Commission to add 
minimum requirements to the simple cancellation mechanism. For 
instance, the State AGs asked the Commission to include the various 
requirements stated in the 2021 Enforcement Policy Statement, e.g., 
require negative option sellers ``not [to] erect unreasonable barriers 
to cancellation or impede the effective operation of promised 
cancellation procedures, and must honor cancellation requests that 
comply with such procedures.'' \396\ They also urged the Commission to 
adopt language from New York's statute, which provides simple 
cancellation mechanisms must be ``cost effective, timely, and easy to 
use.'' \397\ Additionally, the Center for Data Innovation asked the 
Commission to create a working group to define simple mechanism 
further, including best practices for businesses.\398\
---------------------------------------------------------------------------

    \396\ State AGs, FTC-2023-0033-0886.
    \397\ Id.
    \398\ CDI, FTC-2023-0033-0887.
---------------------------------------------------------------------------

    Finally, some commenters suggested the record lacks evidence that 
it would be unfair or harmful to consumers to have a cancellation 
process different from the sign-up process.\399\ Accordingly, they 
argued promulgating a trade regulation rule requiring such symmetry is 
beyond the Commission's authority. Further, IAB argued the Commission 
cannot create new requirements defining simple cancellation methods 
beyond ROSCA's simplicity standard, i.e., that sellers provide simple 
mechanisms to stop recurring charges, because Congress already decided 
the appropriate standard.\400\
---------------------------------------------------------------------------

    \399\ CTA, FTC-2023-0033-0997; IAB, FTC-2023-0033-1000.
    \400\ IAB, FTC-2023-0033-1000.
---------------------------------------------------------------------------

(a) Proposed Sec.  425.6(c)(1): Online Cancellation
    Section 425.6(c)(1) of the proposed Rule specifically addressed 
online cancellation, requiring sellers to provide a cancellation 
mechanism over the same website or web-based application the consumer 
used to consent. Thousands of commenters repeated the mantra: ``If you 
signed up online, you should be able to cancel online,'' noting they 
often face hurdles finding a cancellation mechanism, and then must call 
and

[[Page 90507]]

spend significant time on the telephone to cancel their 
subscriptions.\401\
---------------------------------------------------------------------------

    \401\ Individual commenter, FTC-2023-0033-0215 (``If you signed 
up online, you should be able to cancel online. If it took one click 
to join, it should take one click to cancel.''); Individual 
commenter, FTC-2023-0033-0847; Anonymous commenter, FTC-2023-0033-
0040 (``My negative experience was that it was a simple `click' on-
line to sign up for a service but to cancel same service it took 
three phone calls and hours of my time. If I can sign up with a 
`click' then I SHOULD be able to cancel with a `click.' '').
---------------------------------------------------------------------------

    In contrast, RILA suggested consumers would not always expect to 
find a cancellation function through the same online medium the 
consumer used to enroll. ``For example, contracts are . . . 
increasingly concluded online through third parties or via social media 
apps. Regardless of how a customer initially signs up, once she/he 
establishes a purchasing arrangement with a seller, the customer will 
logically look to the seller to cancel.'' \402\ Several commenters 
agreed, stating where a consumer enrolls through a third party, or 
through an IoT device, the consumer may naturally look to the seller 
with whom the consumer has the agreement.\403\
---------------------------------------------------------------------------

    \402\ RILA, FTC-2023-0033-0883.
    \403\ ESA, FTC-2023-0033-0867; ANA, FTC-2023-0033-1001.
---------------------------------------------------------------------------

    Similarly, trade groups, such as NCTA and PDMI, argued mandating 
consumer cancellation through the same website or web-based application 
the consumer used to initiate the transaction is too prescriptive.\404\ 
Several of these commenters asserted the proposed requirement is 
unnecessary and contrary to consumer expectations.\405\ They further 
contended when consumers enroll online, any online cancellation 
mechanism should be adequate.\406\ Further, these commenters suggested 
it may not be possible to offer the same website or web-based 
application due to contractual obligations and limitations imposed by 
third parties.\407\
---------------------------------------------------------------------------

    \404\ NCTA, FTC-2023-0033-0858; PDMI, FTC-2023-0033-0864; CTA, 
FTC-2023-0033-0997; ANA, FTC-2023-0033-1001.
    \405\ See, e.g., ESA, FTC-2023-0033-0867; IAB, FTC-2023-0033-
1000.
    \406\ See, e.g., IAB, FTC-2023-0033-1000; MIA, FTC-2023-0033-
1008; see also RILA, FTC-2023-0033-0883 (enrollment online, e.g., 
internet-based mobile applications, should be allowed through 
seller's website).
    \407\ See, e.g., ESA, FTC-2023-0033-0867.
---------------------------------------------------------------------------

    Additionally, broadband, wireless, and streaming groups, such as 
NCTA and USTelecom, suggested the same-medium requirement is 
particularly troublesome for their industries because consumers often 
subscribe to multiple, or bundled, services, rendering cancellation 
online through a single click difficult or impossible. These industries 
posited consumers often do not, in fact, want to cancel, but rather 
seek to downgrade or modify services. Therefore, requiring a consumer 
to speak to a live agent best accomplishes this goal, regardless of how 
the consumer enrolled.\408\
---------------------------------------------------------------------------

    \408\ USTelecom, FTC-2023-0033-0876; CTIA, FTC-2023-0033-0866 
(``imperative that businesses are able to have a live representative 
speak with a customer seeking to cancel, regardless of the medium 
used to sign up''); NCTA, FTC-2023-0033-0858; (``Whatever these 
consumers' reasons for seeking to cancel or modify services, in most 
instances they are best served by speaking with a live agent, even 
if they enrolled online.''); see also Chamber, FTC-2023-0033-0885 
(subscriptions to multiple products or services ``require[ ] more 
time and personal assistance to address when a customer seeks to 
cancel only one of such related products or services'').
---------------------------------------------------------------------------

    Alarm companies raised a similar concern, i.e., there are no 
safeguards to ensure the consumer intended to cancel (rather than, 
e.g., unsubscribe from marketing emails) when cancelling online. They 
also emphasized the importance of verifying a consumer's identity prior 
to cancellation. As explained by a commenter representing various alarm 
company clients, alarm companies' ``cancellation procedures are 
designed to prevent inadvertent or malicious disabling of alarm 
monitoring services, often by directing consumers to call trained 
customer support representatives who can verify the consumer's identity 
via their secure passcode and ensure any changes made to the account 
are intentional and fully informed.'' \409\
---------------------------------------------------------------------------

    \409\ Sonsini Alarm Clients, FTC-2023-0033-0860; see also Joint 
Alarm Industry Comments--ESA, TMA, SIA and AICC, FTC-2023-0033-1014 
(asking for clarification that alarm companies can require written 
or verbal confirmation of online cancellation requests). The 
concerns raised by these industries are likely an artifact of the 
Saves provision, which, as proposed, could be interpreted to prevent 
verification procedures and cancellation intent. The Commission 
addresses these concerns in section VII.B.6.c.
---------------------------------------------------------------------------

(b) Proposed Sec.  425.6(c)(2): Telephone Cancellation
    Proposed Sec.  425.6(c)(2) addressed situations in which sellers 
obtain consumer consent by telephone. In these situations, the proposed 
Rule required sellers to provide a telephone number to consumers and 
``assure'' all calls are answered promptly during ``normal business 
hours'' and are no more costly than the call to enroll.
    Several commenters asked the Commission to modify this section. 
Specifically, N/MA asked that sellers be allowed to confirm telephone 
cancellations through email verification.\410\ A group of law 
professors asked the Commission to require sellers to answer 
cancellation calls in ``comparable timeframe to sign-up calls.'' \411\ 
They also suggested telephone answering systems should not be limited 
to normal business hours if they are entirely automated. The State AGs 
further asked the Commission to incorporate the guidance for telephone 
cancellation from the 2021 Enforcement Policy statement, for example, 
ensuring ``the calls are not lengthier or otherwise more burdensome 
than the telephone call the consumer used to consent to the negative 
option feature,'' and prohibiting sellers from ``hang[ing] up on 
consumers who call to cancel; plac[ing] them on hold for an 
unreasonably long time; provid[ing] false information about how to 
cancel; or misrepresent[ing] the reasons for delays in processing 
consumers' cancellation requests.'' \412\
---------------------------------------------------------------------------

    \410\ N/MA, FTC-2023-0033-0873.
    \411\ Law Professors, FTC-2023-0033-0861.
    \412\ State AGs, FTC-2023-0033-0886.
---------------------------------------------------------------------------

(c) Proposed Sec.  425.6(c)(3): In-person Cancellation
    For in-person sales, proposed Sec.  425.6(c)(3) required sellers to 
offer online or telephone call cancellation mechanisms in addition to 
the same in-person mechanism, where practical. The proposed Rule 
further required sellers not make telephone cancellation more costly 
than the method used to consent to the negative option feature.
    Individual consumers identified the many ways in which demanding 
in-person cancellation is unfair. For instance, they observed it may 
not always be possible to cancel in person, as was true during the 
COVID pandemic,\413\ after a consumer moves from the area,\414\ or for 
people with young children or who have difficulty leaving their 
home.\415\ Others

[[Page 90508]]

complained they showed up numerous times in person, only to be told 
they could not cancel because the manager was not available.\416\ One 
commenter complained sellers demanded consumers cancel by certified 
mail if they originally consented in person.\417\
---------------------------------------------------------------------------

    \413\ Individual commenter, FTC-2023-0033-0399 (``Even if I 
didn't sign up online, terminating, a membership in person isn't 
always possible. Lock down during Covid being a prime example.'').
    \414\ Individual commenter, FTC-2023-0033-0677 (``Companies are 
absolutely being deceptive about their practices when it comes to 
canceling a service, including their initial pitch to `Cancel 
anytime!' only for you to find out that canceling requires you to go 
in person to a business in a place you might not even live 
anymore'').
    \415\ Individual commenter, FTC-2023-0033-0741 (``[m]any places 
. . . require you to go in person to cancel--they won't even let you 
do it over the phone! This harms anyone that may have trouble 
leaving the house regularly, including disabled folks and parents of 
small children and those caring for older or ailing family 
members.''). See also TechFreedom, FTC-2023-0033-0872 (``Returning 
to the in-person venue where the initial sale occurred may be 
inconvenient, or even impossible, for the consumer.''); Individual 
commenter, FTC-202-0033-1141 (``Sometimes an unexpected move or 
unforeseen circumstances make it impossible to cancel in person. I 
would like to see an option to be able to cancel remotely, even if 
the subscription was purchased on site.'').
    \416\ See, e.g., Individual commenter, FTC-2023-0033-0510 (``I 
had to go in person 3 different times because the manager wasn't 
there so to cancel it'').
    \417\ Individual commenter, FTC-2023-0033-0007 (``I work dispute 
resolutions for a bank. I see so many cases where someone is trying 
to cancel something like a gym membership and, while they can sign 
up in person, they for some reason have to mail a certified letter 
to the [company's] home office. That has always seemed unreasonable 
and deliberately contrived.'').
---------------------------------------------------------------------------

    In contrast, two trade associations requested the Commission allow 
sellers to require consumers to cancel in person if they signed up in 
person. These commenters argued such a limitation is appropriate due to 
the unique challenges of their industries. For example, IHRSA, which 
represents the health and fitness industry, stated, ``it is appropriate 
for a brick-and-mortar business'' to require customers to cancel in 
person ``to verify their identity.'' The International Carwash 
Association (``ICA'') stated some of its members sell products and 
services exclusively in person; therefore, it asked the Commission to 
not ``force'' these small business owners ``to set up an online 
marketplace'' to process cancellations if the seller does not already 
have an online presence.\418\
---------------------------------------------------------------------------

    \418\ ICA, FTC-2023-0033-1142. ICA's comment seems to suggest a 
misunderstanding that the Rule would require both telephone and 
online cancellation for in-person consent. It does not. A business 
may elect either online or telephone (or both), but there must be at 
least one mechanism in addition to in-person cancellation.
---------------------------------------------------------------------------

(2) Analysis
    (a) The Commission retains the general ``same medium'' requirements 
of Sec.  425.6(c).
    Based on the record, the final Rule retains the general 
requirements proposed in Sec.  425.6(c); specifically, the negative 
option seller must provide a simple cancellation mechanism through the 
same medium (such as internet, telephone, mail, or in-person) the 
consumer used to consent to the negative option feature. Further, the 
final Rule retains Sec.  425.6(a) that requires sellers to provide 
consumers with a simple mechanism to immediately stop charges that is 
cost-effective, timely, and easy to use. Such a mechanism cannot 
include ``unreasonable barriers to cancellation or impede the effective 
operation of promised cancellation procedures.'' \419\ This provision 
makes adding language from the 2021 Enforcement Policy Statement or the 
New York statute unnecessary because the simple mechanism provision 
already includes it. Further, several commenters asked the Commission 
to allow consumers to choose additional, alternate means of 
cancellation.\420\ This modification, however, is also unnecessary. The 
``same medium'' requirement presents a floor, not a ceiling. That is, 
it only requires businesses to offer consumers the ability to cancel in 
the manner they were able to sign up. Sellers are free to provide 
additional cancellation mechanisms, giving consumers choices.
---------------------------------------------------------------------------

    \419\ EPS, 86 FR 60823; see also NPRM, 88 FR 24728 (explaining 
the simple cancellation mechanism proposed in the Rule should remove 
barriers, such as unreasonable hold times or verification 
requirements).
    \420\ See, e.g., N/MA, FTC-2023-0033-0873 (subscribers should be 
allowed to choose method most convenient; subscribers who sign up by 
mail may prefer to cancel online or by telephone, and consumers who 
subscribed by telephone may prefer to cancel online); Sirius XM, 
FTC-2023-0033-0857 (``For example, requiring a customer to use 
direct mail to cancel if the customer used direct mail to accept a 
subscription offer would be inconvenient for the customer and not 
the customer's expected or desired means for cancellation. Instead, 
the cancellation method should be an easy-to-use mechanism for a 
consumer to stop recurring charge which would closely track consumer 
expectations and allow for changes in technology.''); State AGs, 
FTC-2023-0033-0886 (``We respectfully suggest requiring sellers to 
allow all consumers to cancel through any medium that the seller 
uses to sell subscriptions or memberships, regardless of the medium 
through which that particular consumer signed up.'').
---------------------------------------------------------------------------

    Moreover, despite some commenters' assertions to the contrary, the 
Commission has clear authority to issue a rule requiring sellers to 
offer cancellation through the same medium as enrollment. As detailed 
in section VII.A, there is a substantial record demonstrating the 
negative option practices covered by this Rule are unfair or deceptive, 
prevalent, and have caused significant consumer harm.\421\ Moreover, 
Magnuson-Moss empowers the Commission to promulgate requirements 
designed to prevent any unfair or deceptive practice it identifies with 
specificity.\422\ By promulgating a rule that prevents sellers from 
making cancellation unreasonably difficult, the Commission has done so 
here. Further, while ROSCA does not provide for APA rulemaking, it does 
not limit the Commission's authority to issue a trade regulation 
rule.\423\ In fact, the Commission's Negative Option Rule predates 
ROSCA, and the statute does not rescind that Rule.
---------------------------------------------------------------------------

    \421\ See generally section VII.A.
    \422\ 15 U.S.C. 57a(a)(1)(B).
    \423\ NPRM, 88 FR 24716 n.9. Although, as stated in the NPRM, 
Congress did not direct the FTC to promulgate implementing 
regulations, it certainly did not preclude them, and the language 
contained in ROSCA confirms the FTC's authority to do so. 15 U.S.C. 
8404(a) (``Violation of this chapter or any regulation prescribed 
under this chapter shall be treated as a violation of a rule. . . 
.''); see also id. 8404(b) (``Any person who violates this chapter 
or any regulation prescribed under this chapter'' shall be subject 
to penalties); id. 8404(c) (``Nothing in this section shall be 
construed to limit the authority of the Commission under any other 
provision of law.'').
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    (b) The Commission modifies the requirements of Sec.  425.6(c)(1): 
Online Cancellation.
    In response to comments, the Commission makes several changes to 
clarify the online cancellation mechanism requirements. First, it 
removes the requirement that, for website or web-based applications, 
cancellation must be afforded through the same precise means as 
consent. Instead, the final Rule provides the simple cancellation must 
be easy to find. Second, the revised provision incorporates a 
definition of ``interactive electronic medium'' in place of 
``internet.'' Third, the Commission excludes cancellation mechanisms 
requiring interaction with a live or virtual agent, unless the consumer 
consented to the negative option feature through such mechanism. Each 
modification is discussed below.
    (i) The simple cancellation mechanism must be easy to find.
    Consumers uniformly opposed having to engage with a representative 
to cancel when they could simply click a button to enroll.\424\ They 
also expressed deep

[[Page 90509]]

frustration over having to hunt to find cancellation mechanisms, 
usually buried deep within a website or in fine print on a bill or 
other correspondence.\425\ The Commission has brought numerous cases 
alleging these practices are unfair or deceptive.\426\ The proposed 
Rule sought to prevent these unfair and deceptive practices by 
requiring sellers to provide an easily accessible online cancellation 
mechanism to consumers who enrolled online.\427\ As several commenters 
rightly noted, however, consumers may not always expect (and it may not 
always be possible) to use the same precise means for both enrollment 
and cancellation.\428\
---------------------------------------------------------------------------

    \424\ Individual commenter, FTC-2023-0033-0003 (``When signing 
up, I didnt talk to a single individual. So its fair that when 
cancelling, I should not have to talk to a single individual.''); 
Individual commenter, FTC-2023-0033-0006 (was forced to call ``and 
speak with several agents'' because unable to cancel online); 
Anonymous commenter, FTC-2023-0033-0044 (shouldn't be forced to make 
a phone call and sit on hold for hours if signed up online); 
Individual commenter, FTC-2023-0033-0072 (fair to consumers to allow 
consumers to cancel through same means as they were initiated); 
Individual commenter, FTC-2023-0033-0087 (``I think any offer you 
can buy with a click should also be an offer to unsubscribe with a 
click''; having to call instead is a scam); Anonymous commenter, 
FTC-2023-0033-0095 (``I would like to specify that [company] did not 
allow to terminate the account online. They specifically requested a 
phone call, which they then ignored for as long as possible. This 
practice is unfair and deceptive and needs to be outlawed.''); 
Anonymous commenter; FTC-2023-0033-0097 (FTC should ban practice of 
companies only offering cancellation via phone call, despite not 
requiring a phone call for signup); Individual commenter, FTC-2023-
0033-0274 (``having to call the company to cancel when the party 
clicked on the website is forced verbal speech''); Individual 
commenter, FTC-2023-0033-0356 (``If you signed up online, you should 
be able to cancel online. If it took one click to join, it should 
take one click to cancel. I am tried [sic] of calling some call 
center, waiting on hold, and then having someone go through a long 
script about why I should not cancel. Generally make it as easy to 
cancel as to sign up.''); Individual commenter, FTC-2023-0033-0379 
(``I have now been charged for a full month because I have to call 
and speak to a representative instead of clicking to cancel.''); 
Individual commenter, FTC-2023-0033-0443 (``If the public is allowed 
to set up an account online we should be allowed to cancel online 
without ever making a phone call. The consumer should have more 
rights than corporations.''); Individual commenter, FTC-2023-0033-
0617 (``It is truly obnoxious to be able to click to join but have 
to research to find the way to cancel, often involving making a 
phone call and being left on hold.''); Individual commenter, FTC-
2023-0033-0716 (``We shouldn't have to call the company to 
cancel!''); Individual commenter, FTC-2023-0033-0788 (requiring a 
call when enrolled online is ``coercive and unfair''); Individual 
commenter, FTC-2023-0033-0822 (``I am sick of having to call a phone 
number to cancel something I signed up for on line, and often 
speaking to someone who is snide, sarcastic, or downright rude!'').
    \425\ Individual commenter, FTC-2023-0033-0065 (``Often a 
company makes it significantly more difficult to even find out where 
or how to cancel a subscription.''); Individual commenter, FTC-2023-
0033-0024 (``It took a Google search to find the right Customer 
Service number because it was hidden or unavailable on the 
website.''); Individual commenter, FTC-2023-0033-0084 (finally found 
corporate number to cancel trampoline park after scouring website 
for a membership enrolled online); see also Individual commenter, 
FTC-2023-0033-0067 (``why are they allowed to sign you up for 
automatic renewal with no way to cancel nothing on their web page in 
order to cancel a subscription''); Individual commenter, FTC-2023-
0033-0071 (biggest annoyance is that subscriptions can be signed up 
for so easily with a few buttons on the remote but nearly impossible 
to cancel); Anonymous commenter, FTC-2023-0033-0108 (``I certainly 
hope this goes through. These companies make it incredibly difficult 
to even find the cancel or opt out option.''); Anonymous commenter, 
FTC-2023-0033-0123 (``Straight forward plain language cancelation 
instructions that are easy to locate should be required.''); 
Individual commenter, FTC-2023-0033-0124 (``Clearly there should be 
an easy way to unsubscribe that is easy to find.''); Individual 
commenter, FTC-2023-0033-0560 (cancellation page should be easy to 
find); Individual commenter, FTC-2023-0033-0642 (``If you signed up 
online, you should be able to cancel online. If it took one click to 
join, it should take one click to cancel. I have had trouble finding 
where to cancel on multiple subscription services. Often, they are 
confusing on purpose to keep customers like me trapped in the 
payment cycle. Some require an email or phone call to a separate 
customer service representative. Cancelling should not be harder 
than signing up for their service.''); Individual commenter, FTC-
2023-0033-0685 (``I am tired of having to screen grab the fine print 
to figure out my options for cancelling subscriptions-it just 
shouldn't be this hard!?!''); Ashley Sheil on behalf of Maynooth 
University and in collaboration with Radboud University, FTC-2023-
0033-1006 (observing that companies may take advantage of the ``as 
easy as'' requirement, and recommending any termination button 
should be highlighted and in an obvious location).
    \426\ See n.385 (citing simple cancellation cases).
    \427\ NPRM, 88 FR 24728 (``On the internet, this `Click to 
Cancel' provision requires sellers, at a minimum, to provide an 
accessible cancellation mechanism on the same website or web-based 
application used for sign-up.'').
    \428\ See, e.g., ESA, FTC-2023-0033-0867 (``Such a requirement 
would not be helpful for players seeking to cancel a subscription, 
as in-game is not the place that most players would expect to find a 
cancellation ingress.''); RILA, FTC-2023-0033-0883 (``The method 
that a consumer uses for initial sign-up may not be the place where 
that consumer would expect to find a simple cancellation function. 
For example, contracts are also increasingly concluded online 
through third parties or via social media apps. Regardless of how a 
customer initially signs up, once she/he establishes a purchasing 
arrangement with a seller, the customer will logically look to the 
seller to cancel the arrangement.'').
---------------------------------------------------------------------------

    Accordingly, to clarify the intent of the original language and to 
better match consumer expectation with actual cancellation procedures, 
the Commission now clarifies that where a consumer enrolls online, 
whether through a website, a mobile application, chat, email, or 
messaging, consumers must be afforded an equally simple online 
cancellation experience, i.e., one that allows them easily to find and 
use the cancellation mechanism.\429\
---------------------------------------------------------------------------

    \429\ The Chamber asked the Commission to clarify that web-based 
chat is an appropriate cancellation where a consumer signs up 
online. As is clear from the record, unless the seller required the 
consumer to engage with an agent through a web-based chat to enroll, 
the Rule will preclude requiring the consumer to do so to cancel. 
There is substantial evidence this asymmetrical practice of 
requiring consumers to engage with agents (live or virtual) for 
cancellation but not enrollment is one of the principal methods 
sellers use to create unfair and deceptive cancellation procedures. 
Accordingly, it is appropriate to include limitations within the 
Rule to prevent unscrupulous sellers from using such practices.
---------------------------------------------------------------------------

    Many commenters agreed consumers would consider a link or button 
located on a website or within a user's account or device settings to 
be ``easy to find.'' \430\ Providing a clearly-labeled cancellation 
button in a consumer's account or user settings is, thus, one example 
of a simple online cancellation mechanism.\431\ The Commission 
cautions, however, while such a mechanism need not be exactly the same 
as the consent mechanism, the seller cannot make it more difficult to 
use or find than the consent mechanism. For example, the seller cannot 
prominently label the mechanism within the account settings but make it 
difficult for consumers to find the account settings in the first 
instance.
---------------------------------------------------------------------------

    \430\ Individual commenter, FTC-2023-0033-0124 (``Clearly there 
should be an easy way to unsubscribe that is easy to find.''); 
Individual commenter, FTC-2023-0033-0252 (``I had been thinking of 
contacting my Governor to suggest just such a rule that the method 
provided for signing up for a service must also be provided for 
cancelling the same service, be just as easy to find, and require no 
more steps than it took to sign up.''); Individual commenter, FTC-
2023-0033-0560 (``And ensure the bill is explicit with requirement 
to make it EASY TO FIND HOW TO REACH the company or cancellation 
page.''); Individual commenter, FTC-2023-0033-0640 (``The Federal 
Trade Commission needs to make it mandatory for companies to have an 
easy to find button to cancel a subscriptions -online-.''); 
Individual commenter, FTC-2023-0033-0784 (``And the cancel button 
should be easy to find and as attractively marketed as an 
opportunity to extend a subscription (font size, colors, etc.).''); 
Individual commenter, FTC-2023-0033-1006 (cancellation should be 
highlighted and in an obvious location).
    \431\ See, e.g., Cal. Bus. & Prof. Code Sec.  1702(d)(1)(A); 
Conn. Gen. Stat. Ann. Sec.  42-158ff (d)(1)(A); N.J. Stat. Ann. 
Sec.  56:8-42.1.a.
---------------------------------------------------------------------------

    Further, the Commission emphasizes that the cancellation mechanism 
must be easy to find at the time the consumer decides to cancel. 
Providing an easy-to-find mechanism at consent does not mean the 
mechanism will be easy to find later when the consumer wants to cancel, 
and therefore will not prevent unreasonable barriers to cancellation. 
Thus, providing the information necessary to find the cancellation 
mechanism at enrollment (as required under Sec.  425.4) does not 
discharge the seller's obligation to ensure cancellation is easy to 
find when most relevant to the consumer.\432\
---------------------------------------------------------------------------

    \432\ See, e.g., Individual commenter, FTC-2023-0033-0022 
(``Note that subscriptions are by their very nature long lasting in 
time, therefor requirements should not just emphasize some fine 
print disclosure at the time of sign up but also it should be easy 
to check back with the company or their many layers of 
subcontractors to cancel at anytime in the future.'').
---------------------------------------------------------------------------

    (ii) ``Interactive electronic medium'' is broadly defined to 
include all methods of electronic communication.
    The State AGs asked the Commission specifically to address the 
requirements for cancellation by chat, text messaging, and email. The 
State AGs explained that although chat and text are increasingly common 
cancellation mechanisms, they share some of the same qualities and 
potential problems as telephone cancellation because they require 
interaction with a live or virtual customer representative.\433\ 
Further, the State AGs suggested email should not be an acceptable 
cancellation medium for online consent.\434\
---------------------------------------------------------------------------

    \433\ State AGs, FTC-2023-0033-0886.
    \434\ Id.
---------------------------------------------------------------------------

    To address these concerns, the Commission revises the proposed 
provision to refer to ``interactive electronic medium'' rather than 
``internet.'' This change clearly includes text, chat, and email within 
the scope of online cancellation mechanisms.

[[Page 90510]]

Specifically, the phrase ``interactive electronic medium'' used in the 
``clear and conspicuous'' definition includes all media that involve 
electronic communications (except telephone calls), whether or not they 
strictly use the internet (and thus would otherwise be ``online''). 
Consumers may not know whether a text or chat is MMS (online) or SMS 
(offline), for example. This broader definition should provide 
flexibility to sellers while continuing to require parallel 
cancellation and sign-up procedures to meet consumers expectations.
    Although the State AGs suggested prohibiting the use of email as a 
cancellation mechanism, the record provides no basis for doing so. 
Further, consistent with the Commission's definition of interactive 
electronic medium, several States specifically allow sellers to use 
email as an online cancellation method.\435\ Thus, the final Rule does 
not bar the use of email to effectuate online cancellation.
---------------------------------------------------------------------------

    \435\ See, e.g., Cal. Bus. & Prof. Code Sec.  17602 (``The 
business shall provide a method of termination that is online in the 
form of either of the following: By an immediately accessible 
termination email formatted and provided by the business that a 
consumer can send to the business without additional 
information.''); Conn. Gen. Stat. Ann. Sec.  42-158ff (an electronic 
mail message from the business to the consumer, which is immediately 
accessible by the consumer and to which the consumer may reply 
without obtaining any additional information); N.J. Stat. Ann. Sec.  
56:8-42.1 (a termination email formatted and provided by the 
subscription service provider that a consumer can email to the 
subscription service provider without being required to provide any 
additional information).
---------------------------------------------------------------------------

    (iii) No interaction with representatives for online cancellation.
    The State AGs noted, and consumer comments further support, the 
fact that sellers have often used chat, text, and messaging to 
perpetrate the same abuses documented for telephone cancellation. The 
Commission, therefore, reiterates all cancellation mechanisms, 
including chat, text, messaging, and email, are subject to the same 
``simple'' requirements, i.e., sellers may not erect unreasonable 
barriers or prevent consumers from immediately halting charges. 
Cancellation mechanisms must be as easy to use as the mechanism the 
consumer used to sign up, in terms of time, expense, burden, and ease 
of use; and the mechanism must be as readily accessible as the means 
the consumer used to consent in the first place.
    Consumer comments, as well as the Commission's and State AGs' 
enforcement experience demonstrate asymmetrical enrollment and 
cancellation experiences, such as requiring telephone cancellation when 
consumers can easily sign up online without speaking with an agent, are 
unfair. Specifically, this asymmetry creates unreasonable barriers to 
cancellation, such as unreasonable hold times, unreasonable 
verification requirements, and aggressive save tactics. Moreover, 
comments and the Commission's enforcement experience indicate consumers 
likely understand a simple online enrollment experience as an implied 
claim that the cancellation experience also will be simple.\436\ As 
consumers themselves explain, they do not anticipate engaging with a 
customer service representative (whether by phone, or through a web-
based chat or messaging) if they did not do so to sign up for the 
negative option feature.\437\ Thus, the Commission further clarifies, 
for online consent, the seller cannot require the consumer to engage 
with an agent or customer service representative to cancel unless the 
consumer did so at enrollment.\438\
---------------------------------------------------------------------------

    \436\ See nn.362-369; see also vlogbrothers, Why isn't this 
Illegal?, https://www.youtube.com/watch?v=FjAw1LMShIA&pp=ygUMdmxvZ2Jyb3RoZXJz (last visited Aug. 25, 
2024).
    \437\ See, e.g., Anonymous commenter, FTC-2023-0033-0024 (could 
not cancel online even though consumer could upgrade online and via 
TV); Individual commenter, FTC-2023-0033-0137 (``3 months to cancel, 
3 minutes to sign-up. Seriously?''); Individual commenter, FTC-2023-
0033-0252 (detailing three instances where consumer signed up online 
with a few clicks but was required to call to cancel, concluding 
``the method provided for signing up for a service must also be 
provided for cancelling the same service, be just as easy to find, 
and require no more steps than it took to sign up.''); Individual 
commenter, FTC-2023-0033-0457 (``If I enrolled in a subscription 
online, there are no good reasons why I can't disenroll that way as 
well. Forcing me to call a number to unsubscribe, which is only 
staffed during `normal business hours,' unnecessarily complicates 
the process''); Anonymous commenter, FTC-2023-0033-0802 (this 
practice of making someone call or chat to someone to cancel a 
membership is predatory).
    \438\ The Chamber asked the Commission to ``make clear that a 
web-based chat qualifies as an appropriate cancellation mechanism 
where a customer signed up for a service online.'' FTC-2023-0033-
0885. The Commission reiterates that a web-based chat cancellation 
mechanism may be appropriate, but only if the consumer enrolled 
through a virtual or live agent.
---------------------------------------------------------------------------

    Finally, the Commission declines to exclude industries providing 
bundled services from the same medium requirement. NCTA and other 
industries with such services insisted their customers are better 
served by speaking with a live representative, even when they enroll 
online.\439\ They expressed concern these sellers cannot confirm a 
consumer's cancellation intent (consumers may want to modify or 
renegotiate services) or apprise consumers of any negative consequences 
of cancellation (loss of access to emergency services, for example) 
without a live discussion.\440\ They further assert providing this 
information online could be complicated and expensive for the seller 
and not what the consumer would prefer.\441\ NCTA noted only 30% of its 
members' customers sign up online, with the remaining 70% enrolling in 
person or over the phone.\442\
---------------------------------------------------------------------------

    \439\ NCTA, FTC-2023-0033-0858; CTIA, FTC-2023-0033-0866.
    \440\ Id.
    \441\ Id.
    \442\ NCTA, FTC-2023-0073-0008.
---------------------------------------------------------------------------

    NCTA's comment seems to suggest the simple cancellation mechanism 
requirement demands a certain asymmetry--specifically, no matter how 
complex online enrollment is, the proposed Rule would require a simple 
``one click'' cancellation mechanism, which could preclude the seller 
from confirming cancellation intent or apprising consumers of negative 
consequences of cancellation. The Commission reiterates the simple 
cancellation requirement requires symmetry in terms of, inter alia, 
time, burden, expense, and ease of use. It does not require use of the 
exact same mechanism.
    Further, existing verification procedures, such as two-factor 
authentication, are routinely used to ensure a consumer's identity in 
highly sensitive situations. Thus, they are more than sufficient to 
ensure the correct person is cancelling and do not require the use of a 
cancellation mechanism different than enrollment. Moreover, at this 
juncture, the Commission has removed the proposed ``saves'' provision 
from the final Rule, making communication regarding material 
consequences of cancelling easier to convey (so long as communicating 
through the same medium).
    (c) The Commission adopts Sec.  425.6(c)(2): Telephone Cancellation 
as proposed, with one exception.
    The Commission adopts the telephone cancellation provision as 
proposed, except the final Rule removes the requirement sellers must 
assure all calls are answered during normal business hours. Instead, 
the final Rule requires sellers to promptly effectuate cancellation 
requests by consumers via a telephone number that is answered or 
records messages during normal business hours.
    Several commenters suggested specific changes were necessary to 
enhance the proposed telephone medium requirements. For instance, the 
State AGs asked the Commission to include the various requirements 
detailed in the 2021 Enforcement Policy Statement, e.g., require 
negative option

[[Page 90511]]

sellers ``not [to] erect unreasonable barriers to cancellation or 
impede the effective operation of promised cancellation procedures, and 
. . . honor cancellation requests that comply with such procedures.'' 
However, the proposed provisions already include these 
requirements.\443\
---------------------------------------------------------------------------

    \443\ E.g., the requirements that all cancellation mechanisms be 
simple and easy to use (Sec.  425.6), and the seller disclose where 
to find the cancellation mechanism prior to the sale (Sec.  425.4).
---------------------------------------------------------------------------

    Nonetheless, several commenters correctly pointed out requiring 
sellers to answer cancellation calls during normal business hours could 
create considerable costs for small businesses while not directly 
addressing the core problem identified by the Commission--the 
unreasonable delay of cancellation requests. To address these concerns, 
the Commission first clarifies normal business hours are those hours in 
which the business would normally engage with its customers. A seller, 
however, cannot make telephone cancellation available only at times 
that are so inconvenient they erect a barrier to cancellation. For 
instance, it would be improper to limit cancellation calls to only 
between midnight and 3 a.m., regardless of whether these are the 
seller's normal business hours. Importantly, however, the final Rule 
does not require a seller to physically answer the telephone call (a 
task that could be difficult for, e.g., a sole proprietorship). An 
answering machine that clearly provides for cancellation (e.g., a 
message stating: if you want to cancel your subscription please 
identify that subscription, and leave identifying information) would 
comply with this provision of the Rule. To effectuate the provision's 
intent, the final Rule states sellers, whether answering the 
cancellation call in person or not, must effectuate that cancellation 
promptly. Thus, a seller could not, for example, have an answering 
machine it does not regularly monitor or for which it does not promptly 
effectuate cancellation requests.
    Notably, the final Rule retains the requirement that, for the 
mechanism to be at least as simple as the one used to initiate the 
recurring charge, any cancellation call cannot be more expensive than 
the call used to enroll (e.g., if the sign-up call is toll free, the 
cancellation call must also be toll free). Consumers would not expect 
such fees, rendering them unfair or deceptive.\444\
---------------------------------------------------------------------------

    \444\ Cf. United States v. Adobe, Inc., No. 5:24-cv-03630 (N.D. 
Cal. 2024) (cancellation fees plead as a failure to disclose and 
failure to obtain consent to charge in violation of ROSCA); FTC v. 
FloatMe Corp., No. 5:24-cv-00001 (W.D. Tex. 2024) (extra cost in 
relation to timing of receipt of product deceptive in violation of 
section 5); United States v. Cerebral, Inc., No. 1:24-cv-21376 (S.D. 
Fla. 2024) (delays in cancellation deceptive and injured consumers 
in violation of section 5); FTC v. Bridge It, Inc., No. 1:23-cv-
09651 (S.D.N.Y. 2023) (claims to cancel at any time without paying 
any fees, interest, or other charges deceptive); FTC v. Vonage 
Holdings Corp., No. 3:22-cv-06435 (D.N.J. 2022) (requiring phone 
cancellation with roadblocks including long hold times, frequent 
disconnects, endless loops, and early termination fee unfair under 
section 5); FTC v. Benefytt Techs., Inc., No. 8:22-cv-01794 (M.D. 
Fla. 2022) (unexpected cost for additional product is deceptive and 
unfair); In re Dun & Bradstreet, Inc., FTC Docket No. C-4761 (2022) 
(renewal practices, including at end of designated time periods, 
deceptive); FTC v. First Am. Payment Sys., No. 4:22-cv-00654 (E.D. 
Tex. 2022) (misrepresentations in cancellation and unfair debiting); 
United States v. MyLife.com, Inc., No. 2:20-cv-6692 (C.D. Cal. 2020) 
(cancellation by phone discouraged or prevented by unavailable or 
uncooperative agents specified as a violation of ROSCA); FTC v. 
Match Grp., Inc., No. 3:19-cv-02281 (N.D. Tex. 2019) (pleading 
cancellation difficulties in violation of ROSCA); In re Urthbox, 
Inc., FTC Docket No. C-4676 (2019) (unexpected charges, including 
for a full 6 months following the first month of free trial, are a 
failures to disclose in violation of section 5); FTC v. Cardiff, No. 
5:18-cv-02104 (C.D. Cal. 2018) (unexpected charges a section 5 
misrepresentation and unfair charging); FTC v. BunZai Media Grp., 
Inc., No. 2:15-cv-04527 (C.D. Cal. 2015) (failure to disclose charge 
as deceptive and unfair); FTC v. Tarr, No. 3:17-cv-02024 (S.D. Cal. 
2017) (failure to disclose material terms deceptive and unfair); FTC 
v. AdoreMe, Inc., No. 1:17-cv-09083 (S.D.N.Y. 2017) (cancelling made 
difficult by phone, contributing to misrepresentations regarding 
store credit); FTC v. RevMountain, LLC, No. 2:17-cv-02000 (D. Nev. 
2017) (unexpected product deceptive); FTC v. AAFE Prods. Corp., No. 
3:17-cv-00575 (S.D. Cal. 2017); FTC v. Health Formulas, LLC, No. 
2:14-cv-01649 (D. Nev. 2014) (deceptive costs).
---------------------------------------------------------------------------

    (d) The Commission adopts Sec.  425.6(c)(3): In-Person Cancellation 
as proposed.
    Based on the Commission's experience and that of other States, as 
well as many comments in the record, requiring in-person cancellation 
presents significant opportunities for unfair and deceptive practices. 
To prevent such practices, the final Rule adopts provision 425.6(c)(3) 
essentially as proposed. Thus, the provision continues to require in-
person sellers to provide alternatives to in-person cancellation, 
either online or by phone, at the seller's choice. The Commission, 
however, corrects the requirement that if the alternative is a 
telephone call, the call cannot be more costly than the in-person 
consent. That proposal connected two unrelated costs and thus did not 
make logical sense. To effectuate the purpose of this provision, 
however, the Commission adds language stating the call cannot impose 
any cost that creates an unreasonable barrier to cancellation, 
including by making the call unreasonably expensive.\445\
---------------------------------------------------------------------------

    \445\ N/MA suggested there may be instances where the original 
method of consent is no longer available. FTC-2023-0033-0873. For 
example, if the person signed up a trade show in person, returning 
to the in-person venue may be impossible. The Commission notes the 
in-person method only must be made available, ``where practical.''
---------------------------------------------------------------------------

    To address ICA's concerns, the Commission clarifies the Rule does 
not require sellers who sell in-person to maintain an alternative 
online presence to process cancellations. Sellers who have no such 
presence can allow cancellations by phone if they comply with the 
simple telephone cancellation requirements detailed above.
(c) Sec.  425.6(d) Saves
(1) Summary of Comments
    Proposed Sec.  425.6(d) would have required sellers to immediately 
effectuate cancellation unless they obtained the consumer's 
unambiguously affirmative consent to receive a save prior to 
cancellation. The Commission explained the record shows many businesses 
have created unnecessary and burdensome obstacles to cancellation, 
including forcing uninterested consumers to sit through multiple 
upsells before allowing them to cancel.\446\ Individual consumer 
commenters corroborated the pervasive use of such unfair tactics to 
thwart cancellation.\447\
---------------------------------------------------------------------------

    \446\ NPRM, 88 FR 24729.
    \447\ See, e.g., Individual commenter, FTC-2023-0033-0006 
(``Last year I had the pleasure of trying to cancel a radio 
subscription which took 2 attempts and far too much time to 
accomplish. Unable to cancel online, I was forced to call and speak 
with several agents trying to convince me to keep their service. 
After nearly a half hour of insisting I wanted to cancel, they 
simply hung up on me which forced me to start the cancellation 
process all over again from the beginning.''); Anonymous commenter, 
FTC-2023-0033-0024 (able to cancel only after listening to a ``long 
sale pitch about why he shouldn't''); Anonymous commenter, FTC-2023-
0033-0066 (when you request a cancellation, will pass your call on 
to a more ``experienced representative'' in an attempt to convince 
you to keep your service. They do not listen to your concerns, 
instead make you jump through hoops for a cancellation which makes 
me not want to be one of their customers even more); Individual 
commenter, FTC-2023-0033-0071 (call to cancel and they repeatedly 
said ``well let's just see how we can save you money'' instead of 
canceling); Individual commenter, FTC-2023-0033-0082 (``You have to 
call them and endure a high pressure pitch to renew . . . . It 
wastes time and minutes on your phone bill''); Anonymous commenter, 
FTC-2023-0033-0097 (the only way to cancel a service is to call them 
on the phone, intended to allow for sales reps to make a pitch); 
Individual commenter, FTC-2023-0033-0120 (``However, when you 
attempt to cancel a continuous subscription you are told you cannot 
do that and you must call the provided phone number. You are 
connected to a sales person who then will negotiate with you to 
continue at a lower rate.''); Individual commenter, FTC-2023-0033-
0125 (``The only way for me to cancel this service was to CALL THEM 
DIRECTLY, whereupon they spent nearly half an hour trying to upsell 
me into a two year subscription.''); Individual commenter, FTC-2023-
0033-0130 (``It should not be required to call (and sit on hold 
forever), only to have to sit through a diatribe of hard-sell 
techniques to try to convince one not to cancel.''); Individual 
commenter, FTC-2023-0033-0233 (``I had to wait on hold and then get 
sales pitch after sales pitch after sales pitch to cancel a digital-
only [newspaper] subscription that I signed up for online.''); 
Individual commenter, FTC-2023-0033-0228 (had difficulty canceling a 
newspaper subscription of all things as it required consumer to call 
an 800 number during the day and then had to listen to multiple 
sales pitches and saying ``No! What part of `no' don't you 
understand'' to cancel); Individual commenter, FTC-2023-0033-0312 
(``I and members of my family have had to use valuable time to call 
corporations to cancel subscriptions, each time getting a long pitch 
to keep the subscription. If I wanted to keep it, I would not be 
calling to cancel it.''); Individual commenter, FTC-2023-0033-0356 
(``If it took one click to join, it should take one click to cancel. 
I am tired of calling some call center, waiting on hold, and then 
having someone go through a long script about why I should not 
cancel.''); Individual commenter, FTC-2023-0033-0457 (Forcing me to 
call a number to unsubscribe, which is only staffed during ``normal 
business hours,'' unnecessarily complicates the process for the 
provider's benefit: I don't need to give opportunity to upsell or 
persuade me to continue at a reduced price.); Individual commenter, 
FTC-2023-0033-0491 (``Some have even required me to make a phone 
call and listen to a hard sell before they will cancel the 
service.''); Individual commenter, FTC-2023-0033-0597 (have to sit 
and turn down multiple offers to cancel); FTC-2023-0033-0677 (sit 
and ``suffer through a long sales pitch'' to cancel); Individual 
commenter, FTC-2023-0033-0784 (``I suggest limiting the seller's 
efforts to pitch additional offers & modifications when trying to 
cancel . . . . no one wants to wade through too many of screens 
until the cancel `finally' appears.''); Anonymous commenter, FTC-
2023-0033-0785 (person being ``penalized by losing time waiting to 
speak to a customer service rep, having to decline further sales, or 
being stuck with recurring charges they don't want''); Individual 
commenter, FTC-2023-0033-0798 (difficult to cancel subscriptions, 
including by repeatedly forcing the customer to turn down ``special 
offers'' to entice the customer not to cancel); Individual 
commenter, FTC-2023-0033-0815 (No reason to have to call customer 
service reps who will keep trying to prevent me from canceling); 
Individual commenter, FTC-2023-0033-0835; Individual commenter, FTC-
2023-0033-0850 (Have to make a long awkward phone call and wait on 
hold or long repetitive live chat); Individual commenter, FTC-2023-
0033-0913 (``I've experienced having to call to cancel a 
subscription only to be forced to listen to a sales spiel in order 
to do so.''); Individual commenter, FTC-2023-0033-0967 (``Some have 
even required me to make a phone call and listen to a hard sell 
before they will cancel the service.''); Individual commenter, FTC-
2023-0033-0999 (Consumers should have an on-line option to cancel. A 
national media company ONLY provides a cancel option with a call to 
customer service. When doing so, you are met with a CS rep that will 
not accept your request to cancel, talks over you, continued 
harassment, making offer after offer. We must stop this deceptive 
practice.); Individual commenter, FTC-2023-0033-1063 (``Now I'm 
about to cancel my [company name] account. If it's anything like the 
last time when I moved, I expect to spend several hours dealing with 
multiple levels of salespeople, trying to convince me to stay.''); 
Individual commenter, FTC-2023-0033-1099 (Once customer service is 
contacted, it should not take more than about 90 seconds to cancel a 
subscription instead of the endless questions of why you want to 
cancel. Then try to keep you by offering a discounted rate on yet 
another year of useless service. Please make this end.); Individual 
commenter, FTC-2023-0033-1138 (The agent, made multiple attempts to 
sell me the service, disregarding my many direct statements that I 
just wanted to cancel.); Individual commenter, FTC-2023-0033-1150 
(They make you call their company so that sales retention can try to 
talk you into staying with freebies etc.); Individual commenter, 
FTC-2023-0033-1153 (There is no reason a person should be subjected 
to 20 minutes or repeated drilling if they say upfront that they 
want to cancel service.).

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[[Page 90512]]

    However, other commenters explained some of the ``barriers'' 
consumers complained about are necessary to prevent harm, at least in 
certain situations. Specifically, commenters noted consumers might not 
understand the negative consequences of cancellation,\448\ and the 
provision might prevent consumers from taking advantage of money-saving 
offers prior to cancellation.\449\ Some commenters also expressed 
confusion regarding whether verification or authentication procedures, 
or discussion of consumers' attempts to pause or modify their existing 
offers, would violate the Rule.\450\ Finally, commenters noted the 
proposed provision requiring consumers to opt-in to saves could 
interfere with the simplicity of a cancellation mechanism.\451\
---------------------------------------------------------------------------

    \448\ NCTA, FTC-2023-0033-0858; PDMI, FTC-2023-0033-0864; 
Chamber, FTC-2023-0033-0885.
    \449\ Id.
    \450\ See, e.g., PDMI, FTC-2023-0033-0864; ANA, FTC-2023-0033-
1001; CTIA, FTC-2023-0033-0866.
    \451\ See, e.g., CCIA, FTC-2023-0033-0984. Some commenters also 
argued the saves provision violates the First Amendment. E.g., PDMI, 
FTC-2023-0033-0864; Chamber, FTC-2023-0033-0885; ACT App 
Association, FTC-2023-0033-0874. The Commission rejects this 
proposition. See Mainstream Mktg. Servs., Inc. v. FTC, 358 F.3d 1228 
(10th Cir. 2004).
---------------------------------------------------------------------------

(2) Analysis
    Based on the record, the Commission determines revisions to this 
proposed provision are necessary, for which the Commission would need 
to seek additional comment. Therefore, the Commission does not adopt 
this provision in the final Rule at this time. On one hand, the record 
demonstrates saves are often used simply as a barrier to prevent 
cancellations.\452\ On the other, the proposed opt-in save provision 
could have unintended consequences.\453\ Specifically, the provision 
may thwart attempts to confirm consumers' intent or apprise consumers 
of any negative consequences of cancellation (e.g., losing data). 
Moreover, the opt-in save provision may prevent consumers from 
obtaining valuable concessions (e.g., lower prices), which they would 
otherwise want.
---------------------------------------------------------------------------

    \452\ See nn.447-448.
    \453\ See nn.449-452.
---------------------------------------------------------------------------

    Consequently, the proposed saves provision did not achieve the 
right balance between protecting consumers from unfair tactics and 
allowing sellers to provide necessary and valuable information about 
cancellation. Therefore, the Commission will consider issuing an SNPRM 
in the future seeking a better solution to this difficult problem.
    However, the Commission notes the removal of the saves proposal is 
not a license to erect unreasonable and unnecessary barriers to 
cancellation. The final Rule requires sellers to provide a simple, easy 
to use cancellation mechanism. Save attempts that interfere with this 
mandate by requiring consumers to navigate through upsells, jump 
through unreasonable hoops, or wait unreasonable amounts of time to 
cancel are neither simple nor easy.\454\
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    \454\ See, e.g., United States v. Adobe, Inc., No. 5:24-cv-03630 
(N.D. Cal. 2024); FTC v. Amazon.com, Inc., No. 2:23-cv-0932 (W.D. 
Wash. 2023).
---------------------------------------------------------------------------

7. Proposed Sec.  425.7 Annual Reminders
    In the NPRM, the Commission proposed requiring sellers to provide 
an annual reminder to consumers for non-physical goods sold with a 
negative option feature. Under this proposal, reminders would have 
needed to identify the product or service, the frequency and amount of 
charges, and the means to cancel. Additionally, the proposal required 
Negative Option Sellers to provide the reminders through the same 
medium the consumer used to consent to the negative option feature. The 
Commission opined the delivery of physical goods may remind consumers 
they enrolled in a negative option feature. Therefore, these consumers 
effectively already receive reminders and can reasonably avoid further 
payments by canceling their subscription. For services lacking a 
regular, tangible presence (e.g., data security monitoring or 
subscriptions for online services), however, many consumers may 
reasonably forget they enrolled and, consequently, incur charges for 
services they do not want or use. Thus, the Commission concluded, the 
failure to provide reminders for such contracts would meet all elements 
of unfairness.\455\ The Commission sought

[[Page 90513]]

comment on this proposal, including whether it should narrow the 
coverage of the proposed language, for example, by types of covered 
services or the duration between reminders.\456\
---------------------------------------------------------------------------

    \455\ NPRM, 88 FR 24729, citing FTC Policy Statement on 
Unfairness, appended to In re International Harvester Co., 104 
F.T.C. 949 (1984). ``To justify a finding of unfairness the injury 
must satisfy three tests. It must be substantial; it must not be 
outweighed by any countervailing benefits to consumers or 
competition that the practice produces; and it must be an injury 
that consumers themselves could not reasonably have avoided.'' Id.; 
see also 15 U.S.C. 45(n) (Commission has no authority to declare a 
practice unfair ``unless the act or practice causes or is 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'').
    \456\ NPRM, 88 FR 24729; see also id. at section XIII, Request 
for Comments (``The Commission seeks any suggestions or alternative 
methods for improving current requirements.'').
---------------------------------------------------------------------------

(a) Summary of Comments
    The Commission received 32 comments in response.\457\ Consumers, 
public interest and consumer advocacy groups, and academics, among 
others, generally supported the reminder requirement, observing, for 
example, that ``subscription-based products and services have become so 
widespread that consumers are having difficulty keeping track of them 
all.'' \458\ The commenters asserted the proposed ``annual notice will 
clearly inform consumers of the terms of the contract and how they may 
terminate the agreement.'' \459\ Despite this support, virtually every 
group of commenters--individuals, consumer advocates, trade 
organizations, and industry groups--suggested the Commission modify or 
clarify its proposal.
---------------------------------------------------------------------------

    \457\ The Commission received comments from, inter alia, 
individual consumers; cable/broadband/communications industry 
groups; public interest and consumer advocacy groups; various trade 
associations representing traditional and digital marketing, 
technology, news and magazine media, gaming and entertainment, and 
retail industries; academic and public policy groups; and service 
contract and alarm company industries.
    \458\ State AGs, FTC-2023-00330-0886.
    \459\ Public Interest Groups, FTC-2023-0033-0880.
---------------------------------------------------------------------------

    Only three commenters specifically requested the Commission 
jettison a reminder provision altogether. Specifically, ESA argued the 
requirement (1) would impose a significant burden on businesses because 
several State laws already require reminders or notices; (2) would be 
improper because the Commission did not raise reminders in the ANPR; 
and (3) would increase the overall number of notices consumers receive, 
which could result in consumers ignoring reminders, thus benefiting bad 
actors. NCTA suggested the Commission should instead ``allow businesses 
flexibility to determine whether to provide reminders.'' \460\ IAB also 
``recommend[ed] that the Commission remove this requirement for several 
reasons.'' \461\ Both ESA and NCTA conceded, however, the Commission 
could adopt the provision with additional modifications, such as making 
the reminders optional (NCTA) or offering consumers the ability to opt-
out of subscription reminders (ESA).\462\ Other commenters agreed, 
asking for ``less prescriptive'' requirements that would allow 
businesses more flexibility.\463\
---------------------------------------------------------------------------

    \460\ NCTA, FTC-2023-0033-0858.
    \461\ IAB, FTC-2023-0033-1000.
    \462\ ESA, FTC-2023-0033-0867; NCTA, FTC-2023-0033-0858.
    \463\ See, e.g., Sirius XM, FTC-2023-0033-0857 (asking 
Commission not to mandate exactly how renewal notices must be sent); 
N/MA, FTC-2023-0033-0873 (allow sellers to obtain consent to provide 
notice through alternate means); Chamber, FTC-2023-0033-0885 
(proposed revisions); DCN, FTC-2023-0033-0983 (make annual notice an 
option company could comply with to provide adequate notice of 
obligations); ACT App Association, FTC-2023-0033-0874 (adopt a less 
prescriptive approach so same medium can be used to comply with 
State and Federal requirements).
---------------------------------------------------------------------------

    Several commenters, while not urging the Commission to reject the 
reminder requirement, suggested the NPRM proposal did not satisfy the 
unfairness test. For instance, CTA, a technology trade association, 
questioned whether there was sufficient basis to find a lack of annual 
reminder is an unfair practice or causes consumer harm.\464\ Similarly, 
two other commenters from the communications industry questioned 
whether a lack of annual reminder would be unfair in the specific 
context of services that are ``always on,'' such as cable or wireless 
services.\465\
---------------------------------------------------------------------------

    \464\ CTA, FTC-2023-0033-0997 (no basis to conclude different 
medium is unfair, or that lack of reminders is unfair).
    \465\ NCTA, FTC-2023-0033-0858 (lack of notice for ``always on'' 
services not unfair, injury reasonably avoidable); USTelecom, FTC-
2023-0033-0876 (same).
---------------------------------------------------------------------------

    A few commenters asked to be exempted from the reminder requirement 
based on the nature of their industries or the frequency of existing 
notices.\466\ For instance, cable/broadband/wireless/streaming industry 
groups suggested they should be exempt for the same reasons they argued 
the unfairness test did not render the lack of reminders illegal in 
their industries. Similarly, these and other sellers, such as service 
contract providers, suggested consumers who receive monthly bills are 
already effectively receiving reminders, and therefore, these 
transactions should be exempt.\467\
---------------------------------------------------------------------------

    \466\ See, e.g., CTIA, FTC-2023-0033-0866 (exempt mobile 
services offered on a month-to-month basis); USTelecom, FTC-2023-
0033-0876 (exempt broadband and communication services). The 
Commission addresses exemptions elsewhere in the SBP at sections 
VII.B.1 and VIII.
    \467\ See, e.g., Chamber, FTC-2023-0033-0885.
---------------------------------------------------------------------------

    Several commenters questioned the proposed requirement that sellers 
provide the annual reminder through the same medium the consumer used 
to consent to the negative option feature.\468\ For example, several 
commenters observed that requiring reminders through a telephone call 
could violate the TCPA, the TSR, or at minimum, be a nuisance, and thus 
ignored by consumers.\469\ Many of these commenters advocated for 
letting consumers choose how they want to receive annual 
reminders,\470\ or allowing sellers to provide reminders through any 
medium they typically use to communicate with consumers.\471\
---------------------------------------------------------------------------

    \468\ Sirius XM, FTC-2023-0033-0857; Kuehn, FTC-2023-0033-0871; 
N/MA, FTC-2023-0033-0873; Act App Association, FTC-2023-0033-0874; 
CTA, FTC-2023-0033-0997; Chamber, FTC-2023-0033-0885; ANA, FTC-2023-
0033-1001.
    \469\ Sirius XM, FTC-2023-0033-0857; Kuehn, FTC-2023-0033-0871; 
N/MA, FTC-2023-0033-0873; Chamber, FTC-2023-0033-0885; SCIC, FTC-
2023-0033-0879.
    \470\ Sirius XM, FTC-2023-0033-0857; Kuehn, FTC-2023-0033-0871; 
Chamber, FTC-2023-0033-0885; Public Interest Groups, FTC-2023-0033-
0880.
    \471\ State AGs, FTC-2023-0033-0886.
---------------------------------------------------------------------------

    Additionally, several commenters disagreed with the Commission's 
observation that agreements involving delivery of physical goods 
inherently create a ``regular, tangible presence'' that serves as a 
reminder of the contract.\472\ For example, they noted some companies 
charge a monthly fee, but only deliver physical goods at the consumer's 
request.
---------------------------------------------------------------------------

    \472\ Individual commenter, FTC-2023-0033-0026; TINA, FTC-2023-
0033-1139.
---------------------------------------------------------------------------

    Some commenters stated that, without Federal preemption, the annual 
reminder requirement would create another layer of regulatory 
complexity because several State laws already require reminders or 
notices.\473\ In contrast, Professor Hoofnagle stated many ``credit 
card processing service'' providers likely afford a simple and 
inexpensive means for sellers to comply with State and Federal mandates 
``because policy changes can be made programmatically in dashboards.'' 
\474\
---------------------------------------------------------------------------

    \473\ NCTA, FTC-2023-0033-0858; ESA, FTC-2023-0033-0867; IAB, 
FTC-2023-0033-1000; ACT App Association, FTC-2023-0033-0874.
    \474\ Hoofnagle, FTC-2023-0033-1137.
---------------------------------------------------------------------------

    Several commenters suggested the Commission amend the proposal. For 
instance, TINA and several individual consumers recommended the 
Commission require reminders at the end of a free trial period.\475\ 
Others suggested the Commission require more frequent reminders, such 
as every six

[[Page 90514]]

months, or before each charge.\476\ They noted that under an annual 
notice requirement, a consumer could be charged up to 12 times before 
discovering a negative option feature.\477\ One commenter asked the 
Commission to require a reminder for so-called ``zombie'' agreements, 
ones that have long periods, e.g., 24 months, of inactivity.\478\
---------------------------------------------------------------------------

    \475\ Individual commenter, FTC-2023-0033-0039 (not reminded 
``that the free trial was up''); Individual commenter, FTC-2023-
0033-0045 (``consumer should get an email reminder their free period 
is about to end''); Individual commenter, FTC-2023-0033-0050 
(businesses should ``be required to provide advance notice that the 
free trial is about to expire.''); TINA, FTC-2023-0033-1139; ACT App 
Association, FTC-2023-0033-0874 (provide less prescriptive process).
    \476\ Public Interest Groups, FTC-2023-0033-0880 (``consumers 
deserve to know when they are about to be charged automatically, 
with a chance to opt out''); State AGs, FTC-2023-0033-0886; MIA, 
FTC-2023-0033-1008; Individual commenter, FTC-2023-0033-0026 
(notification within one month of renewal, stating specific renewal 
date); Individual commenter, FTC-2023-0033-0708 (commenting that 
companies do not provide reminders before being charged, possibly 
overdrawing an account).
    \477\ See, e.g., Public Interest Groups, FTC-2023-0033-0880.
    \478\ Law Professors, FTC-2023-0033-0861.
---------------------------------------------------------------------------

    In contrast, other commenters noted consumers may suffer from 
``notice fatigue'' given the increasing popularity of subscription 
services.\479\ Some argued there is no evidence of tangible consumer 
benefit from additional notices, and consumers should be given a choice 
whether to opt-in to receive annual reminders (or more frequent 
reminders), or to opt-out.\480\ Three commenters suggested sending 
annual reminder notices could increase opportunities for phishing and 
other deceptive practices.\481\
---------------------------------------------------------------------------

    \479\ NCTA, FTC-2023-0033-0858; USTelecom, FTC-2023-0033-0876; 
CCIA, FTC-2023-0033-0985 (recommending a biannual reminder for 
longer subscriptions); and Coalition, FTC-2023-0033-0884; see also 
DCN, FTC-2023-0033-0983 (incorrectly states the current proposed 
rule would require monthly notice for month-to-month renewals).
    \480\ NCTA, FTC-2023-0033-0858 (opt in); ESA, FTC-2023-0033-0867 
(opt out); Chamber, FTC-2023-0033-0885 (opt in); DCN, FTC-2023-0033-
0983 (opt out); Public Interest Groups, FTC-2023-0033-0880 (opt 
out).
    \481\ NCTA, FTC-2023-0033-0858; ESA, FTC-2023-0033-0867; DCN, 
FTC-2023-0033-0983.
---------------------------------------------------------------------------

    Finally, several commenters asked the Commission to clarify certain 
aspects of the reminder requirement. For instance, ANA asked the 
Commission to explain what constitutes the ``same medium,'' and a group 
of law professors asked for more detail about what constitutes an 
adequate telephone reminder.\482\ Additionally, some commenters asked 
the Commission to clarify that sellers can rely on contact information 
provided by the consumer at the time of consent,\483\ or to provide 
that abiding by State reminder requirements satisfies a seller's 
obligations under this provision.\484\
---------------------------------------------------------------------------

    \482\ ANA, FTC-2023-0033-1001 (same medium); Law Professors, 
FTC-2023-0033-0861 (adequate phone reminder).
    \483\ Sirius XM, FTC-2023-0033-0857; NFIB, FTC-2023-0033-0789.
    \484\ ACT App Association, FTC-2023-0033-0874.
---------------------------------------------------------------------------

(b) Analysis
    After reviewing these comments, the Commission determines it needs 
additional information on the scope and particularities of the proposed 
annual reminder requirement. The record suggests, given the 
proliferation of subscription and auto-renewal services, consumers have 
difficulty tracking all the negative option services and products in 
which they may be enrolled--so much so that there are now companies 
claiming to help consumers keep track of these services for a fee. As 
one commenter noted, consumers should not have to sign up for yet 
another service to manage all their subscriptions.\485\ Thus, limiting 
the reminder provision to just non-physical goods, and only annually, 
may not adequately mitigate the harm caused by negative option 
practices in the marketplace.
---------------------------------------------------------------------------

    \485\ State AGs, FTC-2023-0033-0886 (``Subscription management 
has become an entire industry; consumers can choose from a variety 
of companies that offer to monitor their recurring subscriptions. We 
believe that consumers should not have to sign up for yet another 
service--one that comes with privacy and security risks, as 
subscription monitoring services require sharing financial account 
and other sensitive information--in order to effectively manage 
their subscriptions.'').
---------------------------------------------------------------------------

    Additionally, the Commission shares some commenters' concerns that 
consumers may ignore these reminder calls. Further, as some commenters 
noted, the proposed provision does not specify the timing for these 
reminders (e.g., should sellers issue reminders annually from the date 
of initial purchase and a specific number of days before the charge?). 
Accordingly, the Commission will consider issuing a SNPRM seeking 
additional comment on these issues at a later date.
8. Proposed Sec.  425.8 Relation to State Laws
    In its NPRM, the Commission proposed that amendments to the Rule 
would not affect State laws, regulations, orders, or interpretations 
relating to negative options, except to the extent they are 
inconsistent with the final Rule, and then only to the extent of the 
inconsistency. A State provision would not be ``inconsistent'' with the 
proposed Rule if it affords any consumer greater protection than the 
Rule.\486\
---------------------------------------------------------------------------

    \486\ See proposed Sec.  425.8.
---------------------------------------------------------------------------

    The Commission received a range of comments in response. On one 
end, a commenter opined the ``FTC cannot preempt existing [State] 
laws,'' so it should instead strive for ``harmonization and consistency 
with existing laws.'' \487\ At the other end, multiple industry groups 
said the Commission should completely preempt State laws in this 
area.\488\ These commenters argued having both State and Federal 
standards may confuse consumers and create financial and operational 
burdens for sellers, thus raising consumer prices. For example, NCTA 
asserted that, without preemption, the proposed Rule ``would encourage 
the enactment of new [S]tate laws with differing standards.'' \489\ 
Another industry commenter suggested the Commission should work with 
lawmakers on one national standard.\490\
---------------------------------------------------------------------------

    \487\ ANA, FTC-2023-0033-1001.
    \488\ NCTA, FTC-2023-0033-0858; PDMI, FTC-2023-0033-0864; CCIA, 
FTC-2023-0033-0984; ESA, FTC-2023-0033-0867; IAB, FTC-2023-0033-
1000.
    \489\ NCTA, FTC-2023-0033-0858; see also Chamber, FTC-2023-0033-
0885 (``A floor just creates an increased [F]ederal burden without 
actually ensuring consistency of overall regulation on entities in 
the different [S]tates.'').
    \490\ IHRSA, FTC-2023-0033-0863 (national standard).
---------------------------------------------------------------------------

    Other industry groups and individual businesses supported 
preemption in various ways. For example, CTA argued the Rule should 
``preempt [S]tate laws with differing requirements.'' \491\ Two 
additional commenters, including a mixed group of industry 
associations, asserted the Rule should set the ceiling and preempt any 
State provision that is more stringent.\492\
---------------------------------------------------------------------------

    \491\ CTA, FTC-2023-0033-0997; see also Sirius XM, FTC-2023-
0033-0857; DCN, FTC-2023-0033-0983.
    \492\ Coalition, FTC-2023-0033-0884; CCIA, FTC-2023-0033-0984.
---------------------------------------------------------------------------

    NRF said the Rule should ``preempt any [S]tate law requirements 
that contradict or are inconsistent with the Rule . . . to the extent 
of the inconsistency.'' \493\ To effectuate this change, NRF suggested 
the Commission adopt language from California's Automatic Renewal Law, 
which it said other States have copied. NRF proposed State laws be 
deemed inconsistent if they require disclosures or actions ``that 
contradict . . . the [final rule],'' and requirements be deemed 
contradictory if they use the same terms differently from the final 
rule or require ``using a term different from the one required in the 
[final rule] to describe the same item.'' \494\
---------------------------------------------------------------------------

    \493\ NRF, FTC-2023-0033-1005.
    \494\ Id.
---------------------------------------------------------------------------

    Several industry groups expressed concern regarding potential 
confusion about preemption. For example, ACA Connects asserted it ``may 
be unclear whether and to what extent [a particular State law offers] 
`greater' or `lesser' protection than [the proposed Rule]'' and asked 
for more guidance generally or for a process that lets interested 
parties ask the Commission if a

[[Page 90515]]

particular State law is inconsistent.\495\ NRF noted such a system has 
worked well with gift card laws, explaining the CARD Act (Pub. L. 111-
24, 124 Stat. 2385) preempts less restrictive State laws.\496\
---------------------------------------------------------------------------

    \495\ ACA, FTC-2023-0033-0881 (greater or lesser); NRF, FTC-
2023-0033-1005 (more guidance); DCN, FTC-2023-0033-0983 (more 
guidance).
    \496\ NRF, FTC-2023-0033-1005.
---------------------------------------------------------------------------

    Finally, a group of law professors supported the Commission's 
proposed Rule. They noted ``more than half of [S]tates . . . regulate 
some negative option marketing practices,'' and said the Commission 
``does not occupy the field or displace non-conflicting [S]tate 
[laws].'' \497\ The professors added States ``can often move more 
nimbly to address problematic elements and evolving business models'' 
and should retain the ability to do so.\498\
---------------------------------------------------------------------------

    \497\ Law Professors, FTC-2023-0033-0861.
    \498\ Id.
---------------------------------------------------------------------------

    Having considered the foregoing comments, the Commission will 
streamline the text of the final Rule for clarity and efficiency, while 
maintaining the substance of the proposed Rule's proposed preemption 
language (renumbered in the final Rule as Sec.  425.7). The FTC Act 
does not expressly preempt State law, and the legislative history of 
the FTC Act indicates Congress did not intend the FTC to occupy the 
consumer protection regulation field.\499\ Therefore, any preemptive 
effect of the Rule must be limited to instances where it is not 
possible to comply with both State law and the Rule, or where 
application of State law would frustrate the purposes of the Rule.\500\ 
This approach preserves States' ability to continue to act as 
laboratories to handle new and changing business models. This approach 
is consistent with other Commission Rules.\501\
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    \499\ See, e.g., Am. Fin. Servs. Ass'n v. FTC, 767 F.2d 957, 989 
(D.C. Cir. 1985).
    \500\ Preemption would occur where there is an actual conflict 
between the two schemes of regulation such that both cannot stand in 
the same area. Fla. Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 
132, 141 (1963); see also Am. Fin. Servs. Ass'n v. FTC, 767 F.2d 957 
(D.C. Cir. 1985) (Credit Practices Rule); Harry & Bryant Co. v. FTC, 
726 F.2d 993 (4th Cir. 1984) (Funeral Rule); Am. Optometric Ass'n v. 
FTC, 626 F.2d 896 (D.C. Cir. 1980) (Ophthalmic Practices Rule).
    \501\ See, e.g., 16 CFR 437.9(b) (Business Opportunity Rule); 
id. 435.3(b) (Merchandise Rule); id. 436.10 (Franchise Rule); id. 
429.2 (Cooling-Off Rule).
---------------------------------------------------------------------------

    Therefore, Sec.  425.7 of the final Rule specifies the Rule does 
not supersede, alter, or affect State statutes, regulations, orders, or 
interpretations relating to negative option marketing, except to the 
extent a State statute, regulation, order, or interpretation is 
inconsistent with the Rule. The final language also continues to make 
clear State requirements are not inconsistent with the Rule to the 
extent they afford greater protection to any consumer. The manners in 
which a State law may provide greater protection are many. For example, 
a State law that requires sellers to remind consumers at the end of a 
free trial that they are about to be billed would provide greater 
protection to consumers and not be inconsistent with the Rule.

VIII. Modifications, Alternatives Considered

A. New Provisions in Final Rule for Clarification

1. New Sec.  425.8 Exemptions
    The NPRM sought comment on whether the Rule should exempt any 
entities or activities that are otherwise subject to the Commission's 
authority under the FTC Act.\502\ Several commenters requested Rule 
exemption for their business or industry.\503\ These commenters made 
various arguments based on the law and facts in their particular 
circumstances. For example, some argued existing State licensing and 
other requirements that already apply to their activities adequately 
address the problems identified in the NPRM and additional rules would 
only interfere with the existing regulatory structure. Because such 
decisions are highly fact dependent, the Commission must consider 
exemptions, even of larger groups, on an individualized basis pursuant 
to the FTC's Rules of Practice.\504\ Pursuant to these rules, 
interested persons may file petitions for exemption with relevant 
evidence and data. If the Commission deems the petition sufficient to 
warrant further consideration, it will follow the procedures outlined 
in Sec.  1.31 of its rules.
---------------------------------------------------------------------------

    \502\ See, e.g., NPRM, 88 FR 24730.
    \503\ Categories of products and services for which commenters 
sought exemptions include: alarm companies (FTC-2023-0033-0860; FTC-
2023-0033-1001); wireless carriers (FTC-2023-0033-0866); 
telecommunication providers (FTC-2023-0033-0876; FTC-2023-0033-
0881); service contracts (FTC-2023-0033-0877; FTC-2023-0033-0879; 
FTC-2023-0033-0882; FTC-2023-0033-0996; FTC-2023-0033-1136; FTC-
2023-0033-1143); insurance agreements, service contracts on consumer 
goods, and cancellable month-to-month agreements (FTC-2023-0033-
0878); and retail energy service (FTC-2023-0033-1151). Some of these 
and others sought to exclude B2B agreements. See section VII.B.1.c.
    \504\ See 16 CFR 1.25, 1.31; see also 86 FR 59851 (Oct. 29, 
2021) (amending Commission procedures and rules on the petition 
exemption process).
---------------------------------------------------------------------------

    The Commission adopts a new section, Sec.  425.8. Pursuant to this 
provision, and consistent with the Commission's Rules of Practice, 
sellers and other covered persons may seek full or partial exemptions 
if they can demonstrate application of the Rule's requirements to a 
particular product or service, or class of product or service, is not 
necessary to prevent the acts or practices to which the Rule relates.
2. New Sec.  425.9 Severability
    One commenter, NFIB, asked the Commission to address severability 
in the Rule.\505\ Specifically, NFIB proposed a provision stating if a 
court finds any part of the Rule to be invalid, then the remainder of 
the Rule remains in force. The Commission agrees with this proposal. It 
is the Commission's intent that the provisions of the final Rule are 
separate and severable from one another; therefore, if any provision is 
stayed or determined to be invalid, the remaining provisions shall 
continue in effect. Thus, the final Rule includes this language in a 
new section, Sec.  425.9.\506\
---------------------------------------------------------------------------

    \505\ NFIB, FTC-2023-0033-0789.
    \506\ This provision is comparable to the severability provision 
in other Commission Rules. See 16 CFR 437.10 (Business Opportunity 
Rule); 16 CFR 455.7 (Used Motor Vehicle Rule); 16 CFR 436.11 
(Franchising Rule); 16 CFR 453.8 (Funeral Industry Rule); 16 CFR 
310.9 (TSR).
---------------------------------------------------------------------------

B. Notice of Material Changes

    In the NPRM, the Commission sought comment on whether and how 
sellers should notify consumers when they make material changes to 
contracts with a negative option.\507\ As discussed in the NPRM, 
several commenters responding to the ANPR recommended the Commission 
require sellers to send consumers notices of such changes. TINA, for 
example, asserted the Commission should require such notice and provide 
consumers an opportunity to cancel before the terms become 
effective.\508\ Several States require similar notices.\509\ The 
Commission, however, did not require notice of material changes in the 
proposed Rule. As it explained at the time, whether a seller's failure 
to provide such notice is unfair or deceptive is a highly fact-specific 
inquiry that must be determined on a case-by-case basis. Given the 
importance of the issue, however, the Commission requested further 
comment.
---------------------------------------------------------------------------

    \507\ NPRM, 88 FR 24730.
    \508\ NPRM, 88 FR 24724.
    \509\ Those States include Virginia, California, and Oregon. 
NPRM, 88 FR 24724.
---------------------------------------------------------------------------

1. Summary of Comments
    Five commenters responded.\510\ TINA reiterated sellers should 
provide

[[Page 90516]]

consumers with notice of material changes to subscription terms.\511\ 
Further, it asserted the Commission's reasoning is at odds with State 
laws and the Commission's longstanding position on material terms, 
i.e., that they be ``clearly and conspicuously disclosed when relevant 
to the marketing being presented.'' \512\ TINA further argued allowing 
businesses to ``hide'' material changes to these contracts is likely to 
cause injury because consumers ``do not read these contracts (let alone 
monitor them for changes) and a significant minority of consumers are 
not even aware they are bound by these subscription contracts.'' \513\
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    \510\ ESA, FTC-2023-0033-0867; USTelecom, FTC-2023-0033-0876; 
ACA, FTC-2023-0033-0881; IAB, FTC-2023-0033-1000; and TINA, FTC-
2023-0033-1139.
    \511\ TINA, FTC-2023-0033-1139.
    \512\ Id.
    \513\ Id.
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    In contrast, ESA, USTelecom, ACA, and IAB supported the 
Commission's proposal. IAB and ESA said it is ``industry practice for 
subscription-based services and products to have regular price 
increases over time,'' and consumers expect it.\514\ USTelecom agreed 
with the Commission's rationale that ``whether such a practice is 
unfair or deceptive depends heavily on the facts presented in each 
case.'' \515\ ACA, a telecommunications trade association, noted the 
FCC and States already have notice requirements for contract term 
changes.\516\
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    \514\ IAB, FTC-2023-0033-1000; ESA, FTC-2023-0033-0867.
    \515\ USTelecom, FTC-2023-0033-0876.
    \516\ ACA, FTC-2023-0033-0881.
---------------------------------------------------------------------------

2. Analysis
    Based on the record, the Commission does not require notice of 
material changes to contract conditions in the final Rule. The final 
Rule requires the seller disclose important information prior to 
charging the consumer. Such information includes all material terms, 
including, e.g., the range of costs the consumer will be charged and 
the frequency of charges that will incur unless the consumer takes 
timely steps to prevent or stop them. The seller's failure to disclose 
such information upfront, clearly and conspicuously, violates the Rule.
    Moreover, State laws have different predicate requirements (e.g., 
less robust initial disclosures) and, importantly, are often based on 
different legal authority. Additionally, the Commission's final Rule 
does not conflict with its longstanding advice on clear upfront 
disclosure. The final Rule requires just such disclosure, Sec.  425.4; 
and the Commission has never required after sale disclosure based on 
its section 5 authority.
    Finally, as the Commission explained in the NPRM, whether a 
seller's failure to notify a consumer of material changes is unfair or 
deceptive could be heavily dependent on the particular facts and 
circumstances, such as the seller's upfront marketing claims. For 
example, based on a clear upfront agreement to allow periodic price 
increases, consumers may understand that firms can make small price 
increases over long periods of time. On the other hand, significant 
unilateral changes to the terms of the agreement, such as huge prices 
increases over short periods of time would probably be inconsistent 
with reasonable consumer expectation, and therefore, deceptive or 
unfair. Because the determination of whether a practice runs afoul of 
section 5 in this context is highly fact dependent, the Commission 
declines to address it at this time. Nevertheless, the Commission will 
continue to monitor the need for such a requirement and will continue 
to bring enforcement actions when appropriate.

C. Consumer Education

    The Commission solicited comments on alternative approaches such as 
additional consumer and business education, and received two comments 
in response.\517\ The Commission plans to continue its efforts to 
provide information to help consumers with their purchasing decisions 
and avoid ensnarement in unwanted recurring payment programs. However, 
consumer education is not a substitute for improving existing 
regulatory provisions. Consumer education is likely to have a limited 
benefit where sellers lure consumers into an agreement without 
consumers' knowledge, particularly with the use of dark patterns.
---------------------------------------------------------------------------

    \517\ See NPRM. 88 FR 24730; NFIB, FTC-2023-0033-0789 
(requesting a business education enforcement provision); Hoofnagle, 
FTC-2023-0033-1137 (consumer and business education probably 
uneconomical intervention).
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D. Implementation Date

    Several industry groups and one individual commenter asked the 
Commission to delay the final Rule's effective date. Three commenters 
sought a delay of at least 12 months or up to 18 months, citing 
generalized concerns that changes can take time ``given the 
complexities'' of the proposed Rule.\518\ The Chamber asked for a two-
year period ``depending on the scope and specific requirements of the 
final rule.'' \519\ By contrast, consumers generally encouraged the 
Commission to enact the Rule without delay.\520\
---------------------------------------------------------------------------

    \518\ IAB, FTC-2023-0033-1000 (at least 12 months); ESA, FTC-
2023-0033-0867 (12-18 months); Kuehn, FTC-2023-0033-0871 (12-18 
months).
    \519\ Chamber, FTC-2023-0033-0885.
    \520\ Individual commenter, FTC-2023-0033-0257; Individual 
commenter, FTC-2023-0033-0685.
---------------------------------------------------------------------------

    None of the commenters identified a precise period it would take to 
comply with a specific provision or otherwise detailed what would 
necessitate a particular length of time.\521\ They did, however, detail 
the general actions they would need to take. For example, NCTA 
explained, ``this proposal would require companies to change and update 
their customer processes and user interfaces to provide the mandated 
notices, obtain additional consent, and implement cancellation 
mechanisms,'' as well as troubleshoot those changes in a careful way to 
avoid ``glitches and issues that would affect service and frustrate and 
harm consumers.'' \522\
---------------------------------------------------------------------------

    \521\ ACA, FTC-2023-0033-0881; SCIC, FTC-2023-0033-0879 (noting 
many States require service contract forms be filed with State 
regulators for approval); ANA, FTC-2023-0033-1001; NCTA, FTC-2023-
0033-0858.
    \522\ NCTA, FTC-2023-0033-0858.
---------------------------------------------------------------------------

    The Commission recognizes changes to processes and disclosures 
typically require some time to address and has regularly provided a 
grace period for implementation of its rules.\523\ Small businesses in 
particular may require time to ensure their modified processes conform 
to the Rule. To address these concerns, the final Rule provides 180 
days from the date the final Rule is published to come into full 
compliance. However, sellers must comply with Sec.  425.3 60 days after 
publication of the Rule, consistent with 5 U.S.C. 801(a)(3). This 
section prohibits misrepresentations in connection with a negative 
option feature. Existing law already requires sellers not to make 
misrepresentations. Therefore, this provision should not impose an 
added time or cost burden on businesses operating lawfully.\524\
---------------------------------------------------------------------------

    \523\ E.g., 38 FR 33766 (Dec. 7, 1973) (original Negative Option 
Rule, 6-month grace period); 60 FR 43842 (Aug. 23, 1995) (TSR. 4-
month grace period); 89 FR 26767 (Apr. 16, 2024) (TSR amendment, 
180-day grace period); 79 FR 55615 (Sept. 17, 2014) (Merchandise 
Rule amendments, 3-month grace period).
    \524\ Similarly, the various procedural sections of the Rule, 
e.g., Sec.  425.1 (Scope), Sec.  425.2 (Definitions); Sec.  425.7 
(Relation to State Laws), Sec.  425.8 (Exemptions), and Sec.  425.9 
(Severability) are also operative 60 days after publication.
---------------------------------------------------------------------------

    The Commission recognizes the remainder of the final Rule may 
require some businesses to implement or modify systems, software, or 
procedures. As detailed in the NPRM, however, the existing legal 
landscape already includes a patchwork of relevant Federal laws and 
regulations in

[[Page 90517]]

addition to State laws to address sellers' negative option 
practices.\525\ The Commission has also issued guidance to businesses 
on the basic requirements that negative option marketers must follow to 
avoid deception.\526\ Compliance with these statutes and regulations 
should mean sellers have a significant head start on their compliance 
efforts.
---------------------------------------------------------------------------

    \525\ NPRM, 88 FR 24716-18.
    \526\ See EPS, 86 FR 60822; Staff Report, https://www.ftc.gov/sites/default/files/documents/reports/negative-options-federal-tradecommission-workshop-analyzing-negative-optionmarketing-report-staff/p064202negativeoptionreport.pdf {last visited on Aug. 26, 
2024{time} .
---------------------------------------------------------------------------

    Moreover, the Commission has streamlined the final Rule, 
significantly reducing the compliance burdens. Specifically, for 
reasons detailed in section VII, above, the final Rule omits or 
modifies proposed requirements that gave some commenters particular 
concern. Most notably, the Commission omitted the entire annual 
reminder and saves requirements. As commenters pointed out, these two 
sections imposed the greatest compliance burdens on sellers.\527\ Their 
removal, therefore, should substantially reduce the time and expense 
needed to ensure processes comply.
---------------------------------------------------------------------------

    \527\ See sections VII.B.6 (saves) and VII.B.7 (reminders).
---------------------------------------------------------------------------

    Similarly, other modifications should clarify and streamline 
requirements, making compliance easier. For example, the final Rule 
eliminates certain recordkeeping requirements.\528\ Additionally, the 
final Rule narrows the required disclosures.\529\ These changes 
combined with existing law obviate the need for a lengthy grace period.
---------------------------------------------------------------------------

    \528\ See Sec.  425.5(a)(4).
    \529\ See Sec.  425.4.
---------------------------------------------------------------------------

E. Anti-Abuse Provision

    The Law Professors suggested the Commission include an ``anti-
abuse'' provision to provide a mechanism for enforcement against 
sellers' attempts to evade the Rule.\530\ Such a provision would make 
it an ``unfair or deceptive act or practice'' for a seller to, for 
example, set up a facially complicated sign-up process to allow for a 
similarly complicated cancellation process, but in practice to simplify 
the sign-up process to maximize enrollment.\531\ As the Law Professors 
acknowledge, such attempts to evade the Rule already violate the Rule, 
and the record does not suggest a need for such an additional anti-
abuse provision.
---------------------------------------------------------------------------

    \530\ Law Professors, FTC-2023-0033-0861.
    \531\ Id.
---------------------------------------------------------------------------

IX. Congressional Review Act

    Pursuant to the Congressional Review Act, 5 U.S.C. 801 et seq., we 
anticipate the Office of Information and Regulatory Affairs will 
designate the final Rule as a ``major rule,'' as defined by 5 U.S.C. 
804(2).

X. Final Regulatory Analysis

    Under section 22(a) of the FTC Act, 15 U.S.C. 57b-3(a), the 
Commission must issue a preliminary regulatory analysis for a 
proceeding to amend a rule if the Commission: (1) estimates that the 
amendment will have an annual effect on the national economy of $100 
million or more; (2) estimates that the amendment will cause a 
substantial change in the cost or price of certain categories of goods 
or services; or (3) otherwise determines that the amendment will have a 
significant effect upon covered entities or upon consumers. Although 
the Commission preliminarily determined the proposed amendments to the 
Rule would not have such effects on the national economy; on the cost 
of goods and services offered for sale by mail, telephone, or over the 
internet; or on covered parties or consumers, several commenters raised 
concerns with the Commission's preliminary determination. Ultimately, 
the presiding officer determined, after receiving additional comments 
from interested stakeholders, the proposed amendments would have such 
effect.\532\ In accordance with section 22, the Commission therefore 
issues its final regulatory analysis below.
---------------------------------------------------------------------------

    \532\ Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-2024-0001-0042.
---------------------------------------------------------------------------

A. Introduction

    Under section 22 of the FTC Act, 15 U.S.C. 57b-3, the final 
regulatory analysis must contain (1) a concise statement of the need 
for, and objectives of, the final rule; (2) a description of any 
alternatives to the final rule which were considered by the Commission; 
(3) an analysis of the projected benefits, any adverse economic 
effects, and any other effects of the final rule; (4) an explanation of 
the reasons for the determination of the Commission that the final rule 
will attain its objectives in a manner consistent with applicable law 
and the reasons the particular alternative was chosen; and (5) a 
summary of any significant issues raised by the comments submitted 
during the public comment period in response to the preliminary 
regulatory analysis, and a summary of the assessment by the Commission 
of such issues.
    The Commission received comments from trade associations regarding 
the preliminary regulatory analysis in the NPRM, and three presented 
testimony and expert reports at the informal hearing. Comments and 
testimony, including reports submitted by experts, were largely 
conclusory in nature.\533\ The general theme of the comments and 
testimony, however, was that the compliance costs would be higher than 
those estimated in the NPRM's preliminary analysis, and the Commission 
herewith presents revised estimates of those compliance costs.
---------------------------------------------------------------------------

    \533\ Where specific components of the Rule, as anticipated when 
the NPRM was published, were discussed, commenters combined them, 
such that the concerns expressed cannot readily be separated to 
reflect what remains in the final Rule. For example, NCTA claims 
that ``(t)he rigid `Click-to-Cancel' requirements and limits on 
`saves' will harm consumers,'' but addresses these harms only in 
combined and qualitative ways. FTC-2023-0073-0008.
---------------------------------------------------------------------------

B. Regulatory Analysis

    1. Concise statement of the need for, and the objectives of, the 
final Rule.
    As discussed previously, the objective of the proposed amendments 
is to curb deceptive or unfair negative option practices . The legal 
basis for the proposed amendments is section 18(a)(1)(B) of the FTC 
Act, which provides the Commission with authority to issue ``rules 
which define with specificity acts or practices which are unfair or 
deceptive acts or practices in or affecting commerce.'' \534\
---------------------------------------------------------------------------

    \534\ 15 U.S.C. 57a(a)(1)(B).
---------------------------------------------------------------------------

    As described in this SBP, the amendments address unfair or 
deceptive negative option practices. The FTC, other Federal agencies, 
and State attorneys general have brought multiple administrative and 
judicial actions to stop and remedy harmful negative option practices. 
The record demonstrates, however, that existing legal authorities fall 
short because they leave consumers unprotected from certain practices 
and constrain the relief the Commission may obtain for law violations 
to redress consumers and deter future unlawful activity. In the ANPR 
and NPRM, the Commission explained it receives thousands of consumer 
complaints a year related to negative option marketing.
    As discussed above in sections III-VII, the final Rule clarifies 
existing requirements regarding negative option marketing currently 
dispersed in other rules and statutes administered by the FTC and 
provides a consistent legal framework across media and offers. It also 
consolidates all requirements, such as those in the TSR and ROSCA, 
specifically applicable to negative

[[Page 90518]]

option marketing. The final Rule also provides clarity about how to 
avoid deceptive negative option disclosures and procedures. For 
example, ROSCA lacks specificity about cancellation procedures and the 
placement, content, and timing of cancellation-related disclosures. The 
final Rule now provides clear standards for sellers about, inter alia, 
the content and timing of important information disclosures and what 
constitute ``simple mechanisms'' for the consumer to stop recurring 
charges. Further, the Rule allows the Commission to seek civil 
penalties and consumer redress under section 19(a)(1) of the FTC Act in 
contexts where such remedies are currently unavailable, such as 
deceptive or unfair practices involving negative options in print 
materials and face-to-face transactions (i.e., in media not covered by 
ROSCA or the TSR).
    2. A description of any alternatives to the final Rule which the 
Commission considered.
    In formulating the final Rule, the Commission makes every effort to 
avoid imposing unduly burdensome requirements on sellers. To that end, 
the Commission avoids, where possible, proposing specific, prescriptive 
requirements that could stifle marketing innovation or otherwise limit 
seller options in using new technologies. In the NPRM, the Commission 
sought comments on several alternatives, including provisions related 
to consent requirements (additional consent for free trials) and 
reminder requirements (narrowing the scope of product types requiring 
reminders). The Commission also sought comments on how it could modify 
the proposed amendments to reduce costs or burdens for small entities. 
In response to the comments, and as discussed in the section-by-section 
analysis, the Commission determines not to finalize the proposed Rule 
in its entirety. Instead, the Commission finalizes a Rule that limits 
the material terms to be disclosed immediately adjacent to consent for 
the negative option feature; removes the limitation on saves and the 
accompanying recordkeeping requirement; removes the annual reminder 
provision; and modifies the length of the recordkeeping requirement for 
verification of consent to three years and provides an alternative 
method of compliance.
    One alternative to the final Rule would be to terminate the 
rulemaking and rely instead on the existing legal framework to combat 
unfair or deceptive negative option practices. Another alternative 
would be to limit the scope of the final Rule to just those negative 
option plans that are marketed in person or through the mail and 
therefore, currently, are covered only by section 5 of the FTC Act and 
not by ROSCA or the TSR. However, failing to proceed in accordance with 
the final Rule would substantially reduce or eliminate the benefits of 
the Rule, including clarifying the requirements currently spread 
throughout statutes and regulations and covering negative options in 
media not subject to the TSR or ROSCA.
    Given that the Commission expects the unquantified benefits and 
unquantified costs of the final Rule to be small, and that there is 
considerable scope for the net benefits to remain positive and large 
even if compliance costs have been substantially underestimated, this 
regulatory analysis indicates that adoption of the Rule will result in 
benefits to the public that outweigh the costs.
    3. An analysis of the projected benefits and any adverse economic 
effects and any other effects of the final Rule.
(a) Summary of Benefits and Costs
    The primary consumer benefits of the final Rule, relative to the 
existing regulatory baseline,\535\ come in the form of faster 
cancellations when consumers wish to cancel subscriptions.\536\
---------------------------------------------------------------------------

    \535\ As explained in section III of the SBP, several other 
statutes and regulations address harmful negative option practices. 
Section 5 of the FTC Act, which prohibits unfair or deceptive acts 
or practices, has traditionally served as the Commission's primary 
mechanism for addressing deceptive negative option claims. ROSCA, 
the TSR, 1the Unordered Merchandise Statute, and EFTA all address 
various aspects of negative option marketing.
    \536\ The final Rule also requires that specific disclosures 
relating to negative option features be provided separately to 
consumers before consent is obtained, whereas the existing 
regulatory framework requires that all material terms of a negative 
option contract be disclosed in a clear and conspicuous manner. The 
new disclosure requirements will aid consumers in understanding both 
that they are entering a negative option contract and the terms and 
conditions of that contract, especially how they can cancel the 
contract and when such cancellation must occur to avoid future 
charges. No consumer testing of the final Rule's disclosure 
requirements, relative to a ``control'' of ``clear and conspicuous'' 
disclosure requirements under the existing regulatory baseline, has 
been done. Accordingly, it is not possible to quantify any 
incremental consumer comprehension of a negative option plan at the 
time a consumer provides consent to that plan that may result from 
the final Rule's disclosure requirements. Moreover, some academic 
studies claim that ``[n]ot only do consumers have a tendency to 
forget, but also a tendency to forget that they forget,'' suggesting 
that any gain in comprehension of the negative option features of an 
agreement that might be measured under consumer testing might not be 
durable. See Sophia Wang, ``One Size Does Not Fit All: The 
Shortcomings of Current Negative Option Legislation,'' 26 Cornell J. 
of L. & Pub. Policy, 197, 212 n.135 (2016) citing Keith M. Marzilli 
Ericson, ``Forgetting We Forget: Overconfidence and Memory,'' 9 J. 
Eur. Econ. Assoc. 43 (2011). Additionally, if the disclosures 
required by the final Rule come to be viewed as ``boilerplate'' 
language that consumers rush through, or consumers consider those 
disclosures to be less salient than other aspects of the 
transaction, such as acquiring a free trial of a product or service, 
the final Rule's disclosures may not offer any incremental benefit 
over existing ``clear and conspicuous'' because ``people have 
limited attentional resources and will overlook non-salient features 
of any transaction.'' See Tess Wilkinson-Ryan, ``A Psychological 
Account of Consent to Fine Print,'' 99 Iowa L. Rev. 1745 (2014). 
Concerns such as these are consistent with some consumer advocacy 
groups seeking amendments that would require a second round of 
consent to be obtained at the end of a free trial and before any 
recurring charges could be initiated in addition to routine 
reminders of recurring charges. See, e.g., TINA, FTC-2019-0082-0014 
(seeking amendments to require notice and re-affirmance of consumer 
consent, prior to being charged because consumers may forget about 
the trial and incur unwanted charges or enrollments at the end of 
the offer, particularly with long trial periods).
---------------------------------------------------------------------------

    The final Rule requires negative option sellers to provide 
cancellation mechanisms that are at least as easy to use as the 
mechanisms by which consumers consent to negative option plans. For 
negative option sales made online or over the telephone, ``at least as 
easy to use'' requires that the cancellation mechanism operate in the 
same medium and take no more time or effort than the consumer used when 
enrolling in the negative option plan. For negative option sales that 
are made in-person or through the mail, the final Rule requires that, 
in addition to offering cancellation through the specific method used 
for enrollment, the seller must also offer at least one alternate 
cancellation mechanism that can be used remotely, e.g., cancellation 
via a website, email, or a toll-free telephone number and, again, that 
the consumer can cancel the negative option contract at least as 
quickly as he or she completed enrollment in the negative option plan.
    In the following analysis, the Commission describes the anticipated 
effects of the final Rule. Where possible, it quantifies the benefits 
and costs. If a benefit or cost is quantified, it indicates the sources 
of the data relied upon. If an assumption is needed, the text makes 
clear which quantities are being assumed. The Commission measures the 
benefits and costs of the Rule against the existing regulatory baseline 
that consists primarily of ROSCA, the TSR, and section 5 
enforcement.\537\
---------------------------------------------------------------------------

    \537\ The Unordered Merchandise Statute and EFTA also address 
various aspects of negative option marketing, but violations of 
those laws in relation to negative option marketing are typically 
pleaded in conjunction with violations of other laws; without loss 
of generality, the regulatory analysis expressly considers only 
ROSCA, the TSR, and section 5 as the regulatory baseline against 
which incremental benefits and costs from the final Rule are 
measured.

---------------------------------------------------------------------------

[[Page 90519]]

    First, the likely per-cancellation benefits of the final Rule in 
relation to four scenarios under the existing regulatory baseline are 
considered. Next, the number of transactions relevant to each scenario 
are estimated. The product of average benefits-per-cancellation in each 
scenario multiplied by the likely number of consumer cancellation 
transactions for each scenario, summed across all scenarios, provides 
an estimate of the aggregate, quantifiable, consumer benefits produced 
by marketers' compliance with the final Rule's cancellation 
requirements. Quantifiable costs primarily reflect the resources spent 
by businesses to review the Rule and to take any preemptive or remedial 
steps to comply with its provisions, including, when and as needed, 
making changes to the manner they receive and process cancellation 
requests from consumers.
    The Commission estimates the present discounted value of quantified 
benefits over ten years, using a 2 percent discount rate, will range 
between $6.1 and $49.3 billion. Annualized over 10 years, the 
Commission estimates the quantified benefits will range between $682.8 
million and $5.5 billion per year. The Commission estimates the present 
discounted value of quantified costs over ten years, using a 2 percent 
discount rate, will range between $100.9 and $826.2 million. Annualized 
over ten years, the Commission estimates the quantified costs will 
range between $11.2 and $92.0 million per year. These estimates are 
presented in Table 1 below.

         Table 1--Summary of Total Quantified Benefits and Costs
                       [In millions, 2023 dollars]
------------------------------------------------------------------------
                                                Low            High
------------------------------------------------------------------------
        Present Discounted Value over 10 years, 2% discount rate
------------------------------------------------------------------------
Benefits................................       $6,133.57      $49,315.39
Costs...................................          100.89          826.15
                                         -------------------------------
    Net Benefits........................        5,307.43       49,214.50
------------------------------------------------------------------------
               Annualized over 10 years, 2% discount rate
------------------------------------------------------------------------
Benefits................................          682.83        5,490.11
Costs...................................           11.23           91.97
                                         -------------------------------
    Net Benefits........................          590.86        5,478.88
------------------------------------------------------------------------

(b) Benefits of the Final Rule
    This section describes the beneficial impacts of the Rule, provides 
quantitative estimates where possible, and describes benefits that are 
only assessed qualitatively.
    The quantifiable estimates reflect benefits stemming from the 
decreased amount of time and effort consumers will need to expend 
cancelling subscriptions, and in contexts where data are available, 
welfare gains from avoided expenditure for unwanted subscriptions, 
under the final Rule relative to marketers' compliance with the 
existing regulatory baseline. This section first estimates per-consumer 
savings from cancellation mechanisms that would become at least as easy 
to use as the mechanisms through which consent to the negative option 
transactions was given and then estimates the number of cancellation 
transactions to which those benefits apply.
    In addition to these quantified benefits, there are several 
benefits we do not quantify. First, marketers' compliance with the 
final Rule is likely to improve consumer confidence in using 
subscriptions \538\ and increase the number of consumers who are 
willing to subscribe and obtain the convenience, and often cost 
savings, that subscriptions can provide. Second, research in economics 
and psychology finds the perceived monetary and psychological costs 
from switching products or services can lead consumers to make sub-
optimal decisions. The final Rule, by reducing these costs through 
simpler cancellation methods, may improve consumer decision-making by 
reducing enrollments in subscriptions that consumers do not value and 
increasing enrollments in subscriptions that they do value.\539\ 
Marketers' compliance with the final Rule, and the consumer confidence 
that compliance inspires, may also ``exert additional competitive 
pressures on businesses who offer subscription contracts (and) could 
increase productivity in the sector.'' \540\
---------------------------------------------------------------------------

    \538\ One survey found that consumers without subscriptions were 
much more pessimistic about the ability to cancel subscriptions than 
were consumers who had subscriptions. See Jabil, ``Connected 
Packaging Perceptions and Attitudes: A Consumer Insights Survey'' 
(July 2021), https://www.jabil.com/dam/jcr:ecdb74e6-c34f-4c30-aa34-c10269617db6/2021-connected-packaging-survey.pdf#page=3. Another 
recent study finds that consumers are aware that they may be 
inattentive in future and not cancel subscriptions that they no 
longer desire, and so are less likely to sign up for negative-option 
subscriptions. See Klaus Miller, et al., ``Sophisticated Consumers 
with Inertia: Long-Term Implications from a Large-Scale Field 
Experiment'' (2023), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4065098.
    \539\ A large literature in economics has documented that 
consumers face switching costs and/or psychological biases towards 
inertia. See, e.g., Brigitte Madrian & Dennis Shea, ``The Power of 
Suggestion: Inertia in 401(k) Participation and Savings Behavior,'' 
116 Quarterly J. of Econ. 1149 (2001); William Samuelson and Richard 
Zeckhauser, ``Status Quo Bias in Decision Making,'' 1 J. of Risk & 
Uncertainty 7 (1988). Research has found that many consumers do not 
cancel subscriptions due to such inertia effects. See, e.g., Miller, 
et al. (2023); Liran Einav, et al., ``Selling Subscriptions'' 
(2023), https://harris.uchicago.edu/sites/default/files/mahoney_ppe_seminar_paper_9-26-23_0.pdf.
    \540\ See U.K. Department for Business and Trade, ``Impact 
Assessment--Digital Markets, Competition and Consumers Bill: 
Subscription Measures,'' at 3 (Apr. 20, 2023), https://publications.parliament.uk/pa/bills/cbill/58-03/0294/ImpactAssessmentAnnex2.pdf.
---------------------------------------------------------------------------

    Compliance with the final Rule may also result in some allocative 
effects when consumers can cancel online instead of by telephone. In 
such cases, consumers will be able to cancel subscriptions at times of 
the day that may be more convenient to them than the hours that 
subscription sellers staff their telephone lines and from devices that 
they find more convenient to use than telephones.\541\
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    \541\ In some instances, an online cancellation completed at, 
say, 11:59 p.m., compared to a counterfactual in which a call center 
closed at, say, 8 p.m., could result in sparing a consumer from a 
recurring charge that would take effect the next day, and such 
instances would result in actual monetary savings to consumers, but 
we are unable to estimate the frequency of such occurrences or the 
monetary savings they would engender.

---------------------------------------------------------------------------

[[Page 90520]]

    Finally, the Commission's estimates of quantified benefits are 
based on reductions in time and effort from cancelling subscriptions to 
non-business consumers. The Commission expects small businesses may 
also benefit in similar ways from less costly cancellations, but it 
does not quantify such benefits due to lack of data on business 
cancellation transactions.
    The following subsections then estimate the quantified benefits 
from reductions in time and effort from cancelling subscriptions. 
First, in subsection (1), the Commission estimates the per-cancellation 
benefit relative to the regulatory baseline for (i) online cancellation 
when only ROSCA-compliant telephonic cancellation was available, (ii) 
simpler online cancellation when only ROSCA-compliant online 
cancellation was available, (iii) simpler telephone cancellation when 
only TSR-compliant cancellation was available, and (iv) online or 
telephone cancellation when only in-person or mail cancellation was 
available. The Commission then estimates the number of cancellation 
transactions in subsection (2), and finally calculates benefits as the 
per-cancellation benefit in each scenario multiplied by the number of 
affected transactions in subsection (3).
(1) Estimating Per-Cancellation Benefits
    For each of the four scenarios below, the Commission estimates a 
range of benefits that a consumer will gain each time they cancel a 
negative option subscription. In these scenarios, the Commission 
assumes a final Rule-compliant online cancellation should take no more 
than 30 seconds to one minute, based on the Commission's experience 
that the average time for consumers to read required disclosures and 
provide consent to a negative option plan online is 30 seconds to one 
minute. For telephone cancellations under the final Rule, the 
Commission assumes that a rule-compliant cancellation should take no 
more than one to two minutes, based on the assumption it takes a 
telemarketer twice as long to read required disclosures to a consumer 
as it would take a consumer to read such disclosures to his or herself 
online.
(a) Estimated Per-Cancellation Benefit Relative to ROSCA-Compliant 
Telephonic Cancellation
    For consumers enrolling in negative option plans online, the 
existing regulatory baseline, ROSCA, requires marketers to provide 
``simple'' cancellation mechanisms. A facially ROSCA-compliant, 
``simple'' telephonic cancellation may, nonetheless, require more time 
and effort from consumers than was expended when enrolling in the 
negative option plan. Online subscription sellers' compliance with the 
final Rule will save consumers that extra measure of time and effort.
    To estimate the average time savings to consumers of a final Rule-
compliant ``click-to-cancel'' mechanism compared to a ROSCA-compliant 
simple telephonic cancellation, this analysis first assumes that ROSCA-
compliant simple telephonic cancellations take no more time than the 
``average handle time'' for all customer service requests made to call 
centers, which an industry source indicates is six minutes and three 
seconds.\542\ As discussed at the beginning of this subsection, the 
Commission assumes a final Rule-compliant cancellation should take no 
more than 30 seconds to one minute, saving consumers between five 
minutes and three seconds and five minutes and 33 seconds per 
cancellation relative to a simple telephonic cancellation.
---------------------------------------------------------------------------

    \542\ See Michelle Hawley and Shane O'Neill, ``21 Important Call 
Center Statistics to Know About,'' (Apr. 3, 2024), https://www.cmswire.com/contact-center/16-important-call-center-statistics-to-know-about. We use this proxy for the time a ROSCA-compliant 
telephonic cancellation takes only for the express purpose of 
estimating the incremental benefits to consumers of a final Rule-
compliant cancellation replacing a ROSCA-compliant telephonic 
cancellation. ``Average handle time'' has not been used as a 
standard for ROSCA enforcement and is not intended to set a standard 
here.
---------------------------------------------------------------------------

    The Commission then assumes consumers, on average, value their non-
work time at 82% of the mean hourly wage of $31.48, or $25.81 (i.e., 
.82 x $31.48) per hour.\543\ Accordingly, the Commission estimates the 
faster online cancellations the final Rule will provide, relative to 
ROSCA-compliant telephonic cancellations, will be valued at between 
$2.17 (i.e., 5:03 minutes x $25.81/hour) and $2.39 (i.e., 5:33 minutes 
x $25.81/hour).
---------------------------------------------------------------------------

    \543\ The Commission uses a mean hourly wage rate of $31.48; see 
Bureau of Labor Statistics, ``May 2023 National Occupational and 
Wage Estimates, Unites States,'' https://www.bls.gov/oes/current/oes_nat.htm. A meta-analysis of studies on how consumers value time 
used in traveling (an area in which ``a huge literature has 
arisen'') has determined that consumers value time used in that 
matter at 82% of their wage rate. See Daniel S. Hamermesh, ``What's 
to Know About Time Use?,'' 30 J. Econ. Surv. 1, 198-203 (2015). The 
Commission assumes for the purpose of the final Rule consumers value 
transaction costs savings in the same way that they value travel 
time.
---------------------------------------------------------------------------

(b) Estimated Per-Cancellation Benefit Relative to ROSCA-Compliant 
Online Cancellation
    For online cancellations of online-entered subscriptions, the 
Commission lacks a source of average cancellation times presumed to be 
ROSCA-compliant that is as comprehensive as that used for the average 
handle times of call centers. The Commission relies, instead, on an 
experiment that involved signing up for 16 online subscriptions between 
August 2 to October 4, 2022, then canceling each one, and recording the 
time it took to cancel, as well as the variety of other obstacles faced 
in canceling.\544\ To estimate the average time for online 
cancellations, the Commission subtracts the time incurred in canceling 
the three subscriptions that required telephonic cancellation from the 
aggregate time reported to cancel all 16 subscriptions. This yields an 
average of two minutes and 4 seconds per online cancellation.\545\
---------------------------------------------------------------------------

    \544\ See Caroline Sinders, ``How Companies Make It Difficult to 
Unsubscribe,'' https://pudding.cool/2023/05/dark-patterns. Among the 
obstacles noted for otherwise seemingly simple online cancellations 
were that some websites did not use straight forward terms, such as 
``unsubscribe'' or ``cancel,'' and instead put the cancellation path 
under titles such as ``auto-renew'' or ``edit plan.''
    \545\ The researcher reported the aggregate time expended to 
cancel all 16 subscriptions was 57 minutes and 31 seconds. Of the 
three subscriptions that required telephonic cancellations, one call 
took 17 minutes and 36 seconds, one took seven minutes, and the time 
to cancel the third one was not reported (apart from explaining that 
it was necessary to call three times due to the seller's ``technical 
difficulties''). The Commission replaces this missing value with the 
average handle time found by Hawley/O'Neill (2024) of six minutes 
and three seconds. The Commission therefore subtracted 30 minutes 
and 39 seconds from the aggregate cancellation time of 57 minutes 
and 31 seconds; measured in seconds, this becomes 3,451-1,839 = 
1,612. Dividing this result by 13 equals 124 seconds, or two minutes 
and 4 seconds. The Commission notes this average cancellation time, 
though relevant for this regulatory analysis, has not been used as a 
standard for ROSCA enforcement and is not intended to set a standard 
here. Moreover, while we have calculated this average, the study 
notes cancellation took under one minute for three large sellers of 
digital entertainment subscriptions. Last, the Commission notes one 
commenter opined, ``(f)or the most part,'' companies offer 
convenient, no-hassle, cancellation options that probably take about 
five clicks on average, though the commenter did not indicate a time 
duration. See Individual commenter, FTC-2023-0033-0780.
---------------------------------------------------------------------------

    Based on the Commission staff's experience, the average time needed 
to read the required disclosures and provide consent to a negative 
option feature is 30 seconds to one minute. An online cancellation that 
took no longer than the provision of online consent would therefore 
save the consumer between one minute and four seconds and one minute 
and 34 seconds. Valuing consumers' time at $25.81 per

[[Page 90521]]

hour, as assumed above, the final Rule would therefore save consumers 
who enroll online and cancel online time that they value at between 
$0.46 (i.e., 1:04 seconds x $25.81/hour) and $0.67 (i.e., 1:34 minutes 
x $25.81/hour).
(c) Average Per-Cancellation Benefit Relative to TSR-Compliant 
Cancellation
    For consumers enrolling in negative option plans via telemarketing, 
the existing regulatory baseline is the TSR. The TSR does not specify a 
performance standard specific to negative option cancellations. 
Although egregious cancellation delays can be pleaded against 
telemarketers under Sec.  310.3(a)(1)(vii) (requiring disclosure of all 
material terms and conditions of the negative option feature) or Sec.  
310.3(a)(2)(ix) (prohibiting misrepresentation directly or by 
implication of any material aspect of a negative option feature), the 
final Rule's requirement that the cancellation mechanism be at least as 
easy to use as the consent mechanism provides cancellation-specificity 
to negative options sold through telemarketing that is lacking under 
the existing regulatory baseline. Because telemarketers have 
substantial discretion in designing and implementing consent processes 
specific to their programs, telemarketers will have a clear benchmark 
for the speed with which they must complete a final Rule-compliant 
cancellation.
    As described at the beginning of this subsection, the Commission 
assumes it takes telemarketers between one and two minutes to read the 
required disclosures to consumers and receive their consent for 
enrollment in a negative option plan. Using the same average handle 
time measure of six minutes and three seconds used a previous scenario 
to proxy for baseline time spent for a telephonic cancellation, the 
Commission assumes the final Rule will save consumers who consent to a 
negative option sale via telemarketing, and cancel in the same manner, 
between four minutes and three seconds and five minutes and three 
seconds. Evaluating that time saving in the same manner as above, 
compliance with the final Rule results in a per-cancellation time 
saving that is worth between $1.74 (i.e., 4:03 minutes x $25.81/hour) 
and $2.17 (i.e., 5:03 minutes x $25.81/hour).
(d) Estimated Per-Cancellation Benefit Related to In-Person Enrollments
    Some sellers market negative option plans in ways that are not 
covered by ROSCA or the TSR. Those that involve in-person enrollment 
and only offer in-person or mail cancellation, in particular, may be 
highly burdensome to consumers. The final Rule requires sellers who 
offer in-person enrollment to offer at least one alternate cancellation 
method that consumers may use remotely, e.g., online \546\ or via 
telephone.
---------------------------------------------------------------------------

    \546\ At the seller's choice, an online cancellation method may 
be through a website or via email.
---------------------------------------------------------------------------

    Providing consumers with an alternative to in-person cancellations 
will give consumers a faster route to cancel a subscription and may 
also spare some consumers from incurring additional recurring charges 
which might accrue during the pendency of a slow cancellation 
mechanism, enabling consumers to reallocate their spending power in 
directions of greater utility, resulting in allocative efficiencies.
    Unlike negative option transactions entered into online (ROSCA) or 
by telephone (TSR), the Commission lacks comprehensive experience with 
negative option plans that require cancellation in person or through 
the mail. However, because many gym/fitness center/health studio 
memberships (hereafter, ``gym memberships'') are sold via negative 
options \547\ and may require cancellation via certified mail or in 
person (sometimes even when consumers can enroll online \548\), the 
Commission proxies the per-cancellation benefits of an additional, 
remote, method of cancellation by looking at those benefits in the 
context of gym memberships.\549\
---------------------------------------------------------------------------

    \547\ IHRSA, The Global Health & Fitness Association, commenting 
on behalf of itself and the industry (see FTC-2023-0033-0863) 
claimed there were clear distinctions between in-person, brick and-
mortar health and fitness businesses and online subscription 
services, explaining a month-to-month contract is a very different 
risk to consumers than a long-term contract that begins after a free 
trial or auto-renews without notice. IHRSA further claims short-term 
(e.g., month-to-month) continuous service agreements should be 
distinguished from purely online subscription services targeted by 
the rule. IHRSA further (mis-) characterizes the Rule as appearing 
to be concerned with paid contracts that initiate automatically 
after a free trial period or auto-renew without notice after a long, 
pre-paid initial term. IHRSA notes consumers with membership 
agreements with firms in its industry are on notice of the recurring 
cost because of the monthly charge and have the option to cancel 
each month under the terms of their contract. The Commission 
disagrees with IHRSA's characterization of the Rule; the Rule is not 
intended to exclusively, or even primarily, address online 
subscription services or long-term contracts that begin after a free 
trial or auto-renew without notice, but to address all recurring 
charge plans where the consumer's silence or failure to cancel is 
interpreted as consent to recurring charges. Accordingly, consumer 
memberships with firms in IHRSA's industry where consumers have the 
option to cancel each month squarely fit within the Rule's coverage 
of negative option plans.
    \548\ Individual commenter, FTC-2023-0033-0233.
    \549\ The International Carwash Association (``ICA''), however, 
commented many of its 60,000 U.S. members offer carwash 
subscriptions that offer a reduced price for carwashes to 
subscribers and strengthen the relationship with customers and 
reduce dependence on cash transactions for these businesses. See 
FTC-2023-0033-1142. These subscriptions may be purchased in person, 
on the world wide web, via a mobile app, or at an automated teller, 
which indicates at least some of those subscriptions are covered by 
ROSCA. ICA asserts cancellation through a means other than in person 
may be burdensome to the generally small businesses that operate 
carwashes. Id. Although commenter Rocket Money, FTC-2023-0033-0998, 
mentioned ``car wash chains that require consumers to visit a 
specific location to cancel their membership as an example of 
draconian cancellation requirements they experienced working with 
consumers, no individual consumer commenter mentioned difficulties 
with carwash subscriptions. Because no consumer commenter provided 
any other indication of the number of carwash subscriptions 
purchased or the costs of cancelling such subscriptions, even 
anecdotally, they are excluded from the analysis. The estimate of 
the consumer benefits that would flow from the final Rule's 
provision that an extra, remote, cancellation mechanism be required 
of marketers who currently offer only in person or mail cancellation 
mechanisms may therefore be an under-estimate of such benefits.
---------------------------------------------------------------------------

    As noted in the comment submitted by comment filed by IHRSA,\550\ 
The Global Health & Fitness Association, ``many (fitness club) 
operations allow several options for agreement termination through 
simple online solutions including online account management, email 
cancellation requests, and specific online cancellation buttons or 
forms'' and ``[m]any of these options are currently available for 
members who have purchased their membership either online or in 
person.'' IHRSA did not quantify the share of their member 
organizations that provide such cancellation opportunities or the 
number or share of consumer cancellation transactions in which online 
cancellation is available. Accordingly, the Commission assumes the low-
end of the range of quantifiable benefits to consumers who purchased 
negative option plans in person, but could currently cancel online is 
the same as the same the low-end of the range for consumers who 
purchased negative option plans online and had access to online 
cancellations: $0.46 per cancellation.
---------------------------------------------------------------------------

    \550\ FTC-2023-0033-0863.
---------------------------------------------------------------------------

    Notwithstanding IHRSA's assertion that many fitness clubs offer 
online cancellation, at least 25 individual consumers submitted 
comments attesting to the difficulties of canceling gym memberships. 
Some wrote in general terms of the difficulties consumers experience in 
canceling such memberships as something that contributed to their 
support for the Rule.

[[Page 90522]]

     ``What seems more troublesome tend to be stuff like gym 
memberships.'' \551\
---------------------------------------------------------------------------

    \551\ Individual commenter, FTC-2023-0033-0780.
---------------------------------------------------------------------------

     ``I work dispute resolutions for a bank. I see so many 
cases where someone is trying to cancel something like a gym membership 
and, while they can sign up in person, they for some reason have to 
mail a certified letter to the companies (sic) home office.'' \552\
---------------------------------------------------------------------------

    \552\ Individual commenter, FTC-2023-0033-0007.
---------------------------------------------------------------------------

     ``I have experienced so much frustration ending 
memberships with gyms, online subscriptions, etc. over many years and 
welcome help in this matter. So many friends I speak to share similar 
stories of how they were roped into paying for longer memberships and 
subscriptions that they no longer wanted.'' \553\
---------------------------------------------------------------------------

    \553\ Individual commenter, FTC-2023-0033-1046.
---------------------------------------------------------------------------

     ``Many places, like [specific fitness center chain], 
require you to go in person to cancel--they won't even let you do it 
over the phone! This harms anyone that may have trouble leaving the 
house regularly, including disabled folks and parents of small children 
and those caring for older or ailing family members, not to mention 
being horribly inconvenient for everyone else.'' \554\
---------------------------------------------------------------------------

    \554\ Individual commenter, FTC-2023-0033-0741.
---------------------------------------------------------------------------

    Many others conveyed personal experiences with burdensome gym 
membership cancellation. The Commission relies upon these comments to 
estimate the high-end of the range of quantifiable benefits that the 
final Rule will provide to consumers who purchase negative option plans 
in-person. Examples of these include:
     ``I had to write a letter and physically mail it to cancel 
a gym membership I singed [sic] up for on an iPad.'' \555\
---------------------------------------------------------------------------

    \555\ Individual commenter, FTC-2023-0033-0233.
---------------------------------------------------------------------------

     ``Recently it took me three days and several hours to 
cancel a gym membership (that) had taken less than 20 minutes to join, 
on line [sic].'' \556\
---------------------------------------------------------------------------

    \556\ Individual commenter, FTC-2023-0033-1076.
---------------------------------------------------------------------------

     ``I had to go in person 3 different times because the 
manager wasn't there so [sic] to cancel it.'' This consumer attached a 
screen shot of the gym's cancellation policy, which read, in part, 
``There is no contract and you are free to cancel your Direct Debit at 
any time. If you do decide to cancel your membership, you must allow at 
least 7 days before the fifth of the month to ensure your payment is 
cancelled and advise Reception of the cancellation.'' Both ``(a)t least 
7 days before the fifth of the month,'' and the failure to specify 
whether ``7 days'' is seven business days or seven calendar days 
introduce considerable uncertainty as to when, precisely, the consumer 
must tender a cancellation to avoid the next recurring payment.\557\
---------------------------------------------------------------------------

    \557\ Individual commenter, FTC-2023-0033-0510.
---------------------------------------------------------------------------

     ``Years ago, I had signed up for a gym membership, and 
after a change in job situation, was no longer able to make use of it. 
Repeated attempts to reach the gym membership department and cancel my 
membership went unheeded--a [sic] got a classic runaround, and as often 
forwarded to unattended phone numbers--and I kept racking up monthly 
bills for a membership I didn't want . . . . It was only through a 
personal relationship with someone who worked in the corporate office 
that I was finally able to get past their automatic renewals and effect 
a cancellation.'' \558\
---------------------------------------------------------------------------

    \558\ Individual commenter, FTC-2023-0033-0968.
---------------------------------------------------------------------------

     ``We wanted to cancel the [gym] membership, but when we 
called and emailed, we were told we couldn't cancel that way. We had to 
send a certified letter or go in person. We have gone in person twice 
to try to cancel or [sic] membership and it has been a nightmare.'' 
\559\
---------------------------------------------------------------------------

    \559\ Individual commenter, FTC-2023-0033-0387.
---------------------------------------------------------------------------

     ``Personally, I have been impacted by my local gym's 
undisclosed policies and shady cancelation policies that have costed me 
hundreds of dollars.'' \560\
---------------------------------------------------------------------------

    \560\ Individual commenter, FTC-2023-0033-0572.
---------------------------------------------------------------------------

     ``They bill you monthly for your gym membership but when 
you want to cancel your membership that's when the problems arise. You 
cannot do it over phone or on their website. You have to go into the 
gym personally to cancel said membership. Not only that I was told that 
I'd have to go to the gym [home gym] where I signed up in order to 
cancel membership. I could only imagine what this would be like had I 
moved out of the state. Please help us stop these practices.'' \561\
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    \561\ Individual commenter, FTC-2023-0033-0299.
---------------------------------------------------------------------------

     ``I am currently trying to cancel a gym membership and 
have been overwhelmed by how difficult it has been . . . . I just 
called my gym . . . and the pre-recorded automated answering message 
literally says there is no direct line to the gym! That's 
outrageous!!!'' \562\
---------------------------------------------------------------------------

    \562\ Individual commenter, FTC-2023-0033-1163.
---------------------------------------------------------------------------

     ``My personal experience is with my gym membership . . . . 
Getting out of it was terrible, and I'd hate to see it happen to anyone 
else.'' \563\
---------------------------------------------------------------------------

    \563\ Individual commenter, FTC-2023-0033-0545.
---------------------------------------------------------------------------

    Based on these comments, the Commission makes the simplifying 
assumption that the worst gym membership cancellation experiences 
involve three failed attempts at cancellation, each costing one hour of 
time, and that, because of those cancellation failures, three unwanted 
monthly charges were processed. The Commission assumes a fourth 
cancellation attempt, also costing one hour of time, succeeds in 
halting the recurring payments.
    As above, the Commission values consumers' time at $25.81/hour. The 
typical gym membership costs between $40 and $70 a month.\564\ The 
Commission therefore assumes, at the high-end, consumers incur gym 
membership cancellation costs of $313.25 (i.e., (4 x $25.81) + (3 x 
$70)) in the absence of this Rule.\565\ As stated previously, the 
Commission assumes a final Rule-compliant cancellation should take no 
more one minute at the high end, which has a value of consumers' non-
market time of $0.43. Then, to estimate the high-end avoided burden 
that such consumers would experience under the final Rule, the 
Commission takes the difference between the high-end cancellation costs 
in the absence of this Rule ($313.25) and the high-end final Rule-
compliant cancellation costs ($0.43), which equates to $312.82. 
Accordingly, the low-to-high range of benefits provided by the final 
Rule to consumers who purchase negative option plans in person or 
through the mail ranges from $0.46 to $312.78.\566\
---------------------------------------------------------------------------

    \564\ See Dana George, ``This Is How Much the Average American 
Really Spends on Gym Memberships,'' Jan. 7, 2024, https://www.fool.com/the-ascent/personal-finance/articles/this-is-how-much-the-average-american-really-spends-on-gym-memberships. Because this 
report is from January 2024, the Commission assumes it measured gym 
membership costs in 2023 dollars.
    \565\ Note the avoided recurring payments associated with 
delayed cancellations may overstate the amount of consumer surplus 
gained attributable to the final Rule if consumers continue to use 
their gym membership during that period of delayed cancellation. 
However, it is difficult to estimate the extent to which that occurs 
due to lack of data. A part of those gains may also be transfers of 
producer surplus from firms to consumers.
    \566\ Other cancellation methods gyms may currently offer, such 
as in-person visits that succeed in cancellation and cancellation 
via certified mail, would fall in between these low/high endpoints, 
as would the benefits to consumers if those methods were augmented 
under the final Rule not with online cancellations but with 
telephonic cancellations.
---------------------------------------------------------------------------

(e) Summary of Per-Cancellation Benefits
    Table 2 presents a summary of the per-cancellation benefit the 
Commission estimates would result from this final Rule. For 
subscriptions that are currently cancelled over the phone but would be 
cancelled online under this final Rule, the Commission estimates

[[Page 90523]]

consumers would experience a benefit of between $2.17 and $2.39 per 
cancellation. For subscriptions that are currently cancelled online and 
would move to a simpler online cancellation under this Rule, the 
Commission estimates consumers would experience a benefit of between 
$0.46 and $0.67 per cancellation. For subscriptions that are currently 
cancelled over the phone and would move to a simpler telephone 
cancellation under this Rule, the Commission estimates consumers would 
experience a benefit of between $1.74 and $2.17 per cancellation. For 
subscriptions enrolled in person that would be required to provide 
online or telephone cancellation under this Rule, the Commission 
estimates consumers would experience a benefit of between $0.46 and 
$312.82 per cancellation.

             Table 2--Estimates of Benefit per Cancellation
                            [In 2023 dollars]
------------------------------------------------------------------------
                                                Low            High
------------------------------------------------------------------------
Phone to Online Cancellation............           $2.17           $2.39
Online to Simpler Online Cancellation...            0.46            0.67
Phone to Simpler Phone Cancellation.....            1.74            2.17
In-Person to Online or Phone                        0.46          312.82
 Cancellation...........................
------------------------------------------------------------------------

(2) Estimating the Number of Consumer Cancellation Transactions
(a) Baseline Number of Subscriptions
    The Commission regards ``consumers'' for the purposes of this 
analysis as the U.S. population over the age of 18; \567\ this is 
estimated to be 269 million in 2025,\568\ the first year in the ten-
year period over which the Commission estimates the benefits and costs 
of the final Rule (``Year 1'').
---------------------------------------------------------------------------

    \567\ Although this final Rule also benefits small businesses 
that purchase negative option plans, the Commission does not have 
sufficient data to quantify those effects in this analysis.
    \568\ See U.S. Census, ``Demographic Turning Points for the 
United States: Population Projections for 2020 to 2060: Population 
Estimates and Projections,'' Feb. 2020, https://www.census.gov/library/publications/2020/demo/p25-1144.html. The Commission 
linearly extrapolated between the report's figures for the 
population over the age of 18 in 2020 and its estimates of the same 
population in 2030 to estimate the number of consumers in years 2025 
through 2029. Similarly, the Commission linearly extrapolated 
between the report's estimates of the over age 18 population in 2030 
and 2040 to estimate the over age 18 population in the years 2031 
through 2034.
---------------------------------------------------------------------------

    Because negative option sales are a form of marketing of goods and 
services, and not an industry or type of output, and because no 
occupational category is uniquely associated with negative option 
marketing, no publicly produced data source, such as the Economic 
Census, tracks the use of negative option marketing in the United 
States. Accordingly, the Commission must look to other data sources, to 
estimate the number of subscription cancellations and the channels 
through which consumer consent was obtained and cancellation mechanisms 
provided.
    To estimate the aggregate number of consumer cancellation 
transactions, the Commission relies upon a credible source that found 
that, as of mid-2023, 83% of American consumers had at least one 
subscription.\569\ The Commission assumes, for the purposes of this 
analysis, that the percentage of American consumers with at least one 
subscription remains constant over ten years. Accordingly, in Year 1 
the Commission assumes 223.27 million consumers (i.e., .83 x 269 
million) have at least one subscription.
---------------------------------------------------------------------------

    \569\ See Julia Stoll, ``SVOD service user shares in the U.S. 
2015-2023'' (Sept. 7, 2023) (noting 83 percent of U.S. consumers 
used a subscription video-on-demand service in 2023), https://www.statista.com/statistics/318778/subscription-based-video-streaming-services-usage-usa.
---------------------------------------------------------------------------

    To estimate the total number of subscriptions held by U.S. 
consumers the Commission looks to data on the average number of 
subscriptions per subscriber. One source, relying upon a large sample 
of U.S. consumers conducted in late 2023 and early 2024, reported, 
``[t]he average subscriber now has 4.5 subscriptions.'' \570\ The 
Commission therefore applies a multiplier of 4.5 to the number of 
consumers estimated to have at least one subscription to estimate the 
aggregate number of subscriptions held by consumers in each year. 
Continuing with the Year 1 example from above, the Commission assumes 
the 223.27 million U.S. consumers who have subscriptions collectively 
hold 1,004,715 subscriptions (i.e., 223.27 million x 4.5). The 
Commission acknowledges some uncertainty in these estimates which could 
lead to overestimation since subscriptions may be held by households of 
multiple individual consumers or underestimation due to potential 
growth in subscription-based goods and services.
---------------------------------------------------------------------------

    \570\ Bango, ``Subscription Wars: Super Bundling Awakens,'' at 4 
(2024) (based on data from 5,000 U.S. subscribers), https://bango.com/resources/subscription-wars-super-bundling-awakens.
---------------------------------------------------------------------------

(b) Baseline Number of Cancellations
    The Commission next considers how many subscriptions consumers may 
want to cancel. To do so, we look to subscription ``churn,'' or 
cancellation, rate data. Churn rates can reflect intentional 
cancellations as when a consumer completes a merchant's cancellation 
process, but can also reflect involuntary or passive cancellations, 
which occur when the payment mechanism the consumer has on file with 
the merchant is unable to be processed by the merchant.\571\ Churn 
rates may be calculated on a monthly, quarterly, or annual basis,\572\ 
and some rates do not disclose a time dimension; mischaracterizing a 
monthly churn rate as an annual churn rate could vastly underestimate 
the volume of annual cancellations.
---------------------------------------------------------------------------

    \571\ See Stripe, ``Subscription churn 101: A complete guide for 
businesses'' (Jan. 23, 2024), https://stripe.com/resources/more/subscription-churn-101.
    \572\ Id. (noting the choice often depends on your business 
cycle and how often you want to assess your performance).
---------------------------------------------------------------------------

    One source reports an aggregate measure of voluntary \573\ churn of 
3% per month.\574\ The Commission assumes

[[Page 90524]]

this rate is constant from month to month and from year to year and 
therefore assume that the average annual churn rate across all 
subscriptions is 36%.\575\ This churn rate, multiplied by the number of 
subscriptions held by consumers each year, provides the yearly estimate 
of how many subscriptions are cancelled by consumers.\576\ Continuing 
with the Year 1 example from above, the Commission therefore estimates 
361.70 million cancellations (i.e.,.36 x 1,004.72 million) will occur 
in Year 1 of the analysis and that this number will increase to 384.82 
million by Year 10. Table 3 presents the number of subscriptions and 
total number of cancellations expected in each year.
---------------------------------------------------------------------------

    \573\ Some consumers may welcome an ``involuntary'' cancellation 
of a subscription, and other cancellations that payment processors 
perceive as ``involuntary'' may reflect consumers' deliberate 
cancellation of a credit card as a means of escaping a subscription 
that was difficult to cancel. The Commission's analysis nonetheless 
uses only the reported ``voluntary'' churn rate to avoid the 
possibility of over-estimating the consumer benefits of the final 
Rule.
    \574\ Recurly, a subscription management platform used across 
multiple industries, reports an overall churn rate of 4.1% per month 
and parses this rate into that arising from voluntary cancellations, 
3%, and involuntary cancellations, 1%, with, presumably, 0.1% lost 
to rounding. Recurly explains its methodology in producing these 
estimates is based on a sample of over 1,200 subscription sites on 
the Recurly platform over 12 months (January to December 2023); its 
churn rates are monthly, calculated by dividing the number of 
subscribers who churn during the month by the total number of 
subscribers and uses median, 25th, and 75th percentile values to 
eliminate outliers and provide a more accurate representation of the 
data in its view. See Recurly, ``What is a good churn rate?,'' 
https://recurly.com/research/churn-rate-benchmarks. Other payment 
processors report similar churn rates but provide fewer details on 
the data underlying their churn rate estimates or do not distinguish 
voluntary from involuntary churn rates.
    \575\ Because consumers may cancel a subscription and then 
enroll in a different subscription (or even re-enroll in a recently 
canceled subscription), the Commission assumes average, aggregate, 
monthly voluntary churn rates are additive across months and that 
the number of consumers with subscriptions do not ``decay'' at a 
rate of 3% per month. Indeed, another report found one-quarter of 
U.S. consumers cancelled a streaming video service in the past 12 
months and resubscribed to the same service, with younger 
generations significantly more likely to return. See Deloitte, 
Digital Media Trends Survey: 16th Edition (2022), https://www2.deloitte.com/us/en/insights/industry/technology/digital-media-trends-consumption-habits-survey/summary.html. The Deloitte report 
also notes the average churn cancellation rate has remained 
consistent since 2020 at about 37% across all paid streaming video 
on demand services. Similarly, a comment from NCTA, FTC-2023-0073-
0008, quotes Congressional testimony from Consumer Reports that 36% 
of consumers who subscribed to streaming services, switched and 
resubscribed multiple times over a period of 12 months.
    \576\ The Commission is aware a recent survey of U.S. 
subscribers found 75% identified one subscription as one they will 
never cancel or even pause. See Bango (2024) at 8. The Commission 
assumes no adjustment is needed to the reported ``churn'' rate in 
light of this finding as subscriptions with such loyalty are already 
reflected in the denominator of the reported churn rate.

    Table 3--Number of Subscriptions and Total Cancellations per Year
                              [In millions]
------------------------------------------------------------------------
                  Year                     Subscriptions   Cancellations
------------------------------------------------------------------------
1.......................................        1,004.72          361.70
2.......................................        1,012.48          364.49
3.......................................        1,020.25          367.29
4.......................................        1,028.02          370.09
5.......................................        1,035.79          372.88
6.......................................        1,043.56          375.68
7.......................................        1,049.91          377.97
8.......................................        1,056.26          380.25
9.......................................        1,062.61          382.54
10......................................        1,068.96          384.82
------------------------------------------------------------------------

(c) Number of Cancellations by Enrollment and Baseline Cancellation 
Method
    As discussed in the estimates of per-cancellation benefits, the 
estimated per-cancellation benefits stemming from the final Rule depend 
on the regulatory baseline cancellation methods relative to those that 
would be made available under the final Rule. To determine the number 
of cancellations for which the four categories of per-cancellation 
benefits estimates would apply, the Commission uses data on its 
enforcement experience to determine the share of cancellations likely 
to occur through online and telephone methods. For cancellations of 
subscriptions that are enrolled in person, the Commission uses data on 
gym membership cancellations as a proxy.
(i) In-Person Subscriptions
    As a proxy for the number of subscriptions entered into in person, 
the Commission uses a report from Renew Bariatrics that claims 19 
percent of the U.S. population are members of gyms or health 
clubs.\577\ The Commission assumes gym members are uniformly 
distributed by age and multiplies the U.S. adult population by 19 
percent to estimate that 51.11 million adults will have active gym 
membership subscriptions when this final Rule goes into effect. An 
IHRSA article from 2019 stated the average health club has an annual 
attrition rate of 28.6 percent.\578\ Interpreting this to mean 28.6 
percent of all adult gym members cancel their memberships each year, 
the Commission estimates 14.62 million gym membership subscriptions 
will be cancelled in the first year of this Rule. In Year 10, the 
Commission estimates 15.55 million gym membership subscriptions will be 
cancelled. The Commission uses these estimates as a proxy for the total 
number of subscriptions that are entered into in person and cancelled 
each year.
---------------------------------------------------------------------------

    \577\ See ``28 Gym Membership Statistics: Average Cost of 
Memberships,'' Renew Bariatrics (Jan. 4, 2024), https://renewbariatrics.com/gym-membership-statistics/.
    \578\ See ``Why Health Club Retention Requires a Technology 
Solution,'' IHRSA (May 20, 2019), https://www.healthandfitness.org/
improve-your-club/why-health-club-retention-requires-a-technology-
solution/
#:~:text=Acquiring%20a%20new%20customer%20is%20five%20times,rates%20b
y%205%%20increases%20profits%20from%2025%%2D95%.
---------------------------------------------------------------------------

    The Commission acknowledges several limitations with this proxy. To 
begin, there are likely many other types of businesses, such as car 
washes, lawn care, pest control, and personal care and grooming 
establishments, that may offer in-person subscription enrollment. To 
the extent these subscriptions are not included in the count, the 
estimates may be understated. Further, the source that states 19 
percent of the population are members of gyms does not specify the age 
distribution of the gym members. The Commission has assumed children 
and adults are distributed uniformly across that 19 percent; however, 
if adults are more likely to have gym memberships than children, the 
estimates of gym memberships and cancellations among adults will be 
understated. On the other hand, gym memberships are not always 
individual memberships; multiple family members may share a single-
family membership. In estimating the number of gym memberships and 
cancellations, the Commission has assumed each adult gym member has 
their own subscription, which may overestimate the number of 
subscriptions and cancellations.
(ii) Online and Telephone Subscriptions
    The Commission assumes all subscriptions that are not entered into 
in person are instead entered into either online or over the phone. 
Subtracting the in-person subscription, as proxied by gym membership 
cancellations, from the total number of cancellations, the Commission 
estimates 347.08 million subscriptions entered into either online or 
over the phone will be canceled in the first year of this Rule. This 
number would increase to 369.27 million cancellations in Year 10.
    To estimate the distribution of cancellation methods for these 
subscriptions that are entered into online and over the phone, the 
Commission reviewed matters it has brought and resolved \579\ in which 
complaints specifically alleged negative option cancellation mechanisms 
that violated ROSCA, the TSR, or section 5.\580\ The Commission found 
54 matters met these criteria.
---------------------------------------------------------------------------

    \579\ This tally does not include ongoing matters or matters 
that obtained ``fencing-in'' relief encompassing the sale of 
negative options without expressly pleading complaint counts related 
to cancellation mechanisms.
    \580\ In many instances, ROSCA and TSR counts were cross-pled as 
section 5 counts; in parsing cancellation transactions by their 
enrollment methods, we use ``section 5'' to refer to instances in 
which neither ROSCA nor TSR violations were pled.
---------------------------------------------------------------------------

    Online \581\ enrollment was possible in 42 of 54 matters that met 
the review

[[Page 90525]]

criteria. In the remaining 12 matters, enrollment occurred over the 
phone. Among the 42 matters in which online enrollment was possible, 
only six firms offered online \582\ cancellation,\583\ and the 
remaining 36 firms offered only telephonic cancellation.\584\ Among the 
12 matters in which enrollment occurred over the telephone; none of the 
firms offered online cancellation, therefore, the Commission treats 
these 12 matters as if only telephone cancellation was available.\585\ 
To summarize, the Commission finds that, among subscriptions that are 
entered into online and over the phone, 66.7 percent (i.e., 36/54) 
offered online enrollment and only telephone cancellation, 11.1 percent 
(i.e., 6/54) offered online enrollment and online cancellation, and 
22.2 percent (i.e., 12/54) offered telephone enrollment and telephone 
cancellation. Extrapolating the baseline cancellation methods from 
enforcement matters may weight the online enrollment/telephone 
cancellation subscriptions and the telephone enrollment/telephone 
cancellation subscriptions more heavily than is currently experienced 
in the market. It also assumes that there are no subscriptions offered 
in the baseline with cancellation methods that are already compliant 
with the provisions of this Rule. The Commission explores the impacts 
of these limitations in a sensitivity analysis in section (d).
---------------------------------------------------------------------------

    \581\ For ease, the Commission includes in this tally two 
negative option plans that enrolled consumers via phone apps. 
Similarly, the Commission regards matters involving online marketing 
of negative options that were resolved before the passage of ROSCA 
(and some others that were resolved after the passage of ROSCA, but 
addressed online marketers' conduct that occurred prior to the 
passage of ROSCA), as ROSCA matters for the purposes of assessing 
the incremental benefits of the final Rule relative a regulatory 
baseline of ROSCA's simple cancellation mechanism.
    \582\ In a few of these matters, online cancellation was offered 
in addition to telephonic cancellation, and to simplify the 
analysis, the Commission attributed half to the measure of 
telephonic cancellations and half to the measure of online 
cancellations. In a few other instances the Commission's designation 
of ``online'' cancellation includes cancellation by email or within 
the marketer's app.
    \583\ In contrast, other evidence indicated that 81.25% of U.S. 
online marketers offered online cancellation. See, e.g., Sinders 
(2023). Different research looked at nine U.S. news media publishers 
that sold subscriptions online. When two ``personas'' created by the 
researchers subscribed to each of the nine publications, and then 
attempted to cancel, 17 of the 18 subscriptions could be canceled 
online; one publication permitted only the California resident 
persona to cancel online and offered only telephonic cancellation to 
the persona posing as a Texas resident. See Ashley Sheil, et al., 
``Staying at the Roach Motel: Cross-Country Analysis of Manipulative 
Subscription and Cancellation Flows,'' in Mueller, F.F. (ed.), CHI 
`24: Proceedings of the CHI Conference on Human Factors in Computing 
Systems (May 11-16, 2024), https://repository.ubn.ru.nl/handle/2066/30690.
    \584\ In some of the 36 matters, no cancellation method was 
disclosed by the seller, and in a few other matters consumers were 
required to return merchandise through the mail to prevent a free 
trial from rolling over into a subscription or to obtain a refund 
for merchandise that was shipped to a consumer, and for which the 
consumer was charged. Such instances generally occurred before the 
passage of ROSCA, and it is highly unlikely that an online marketer 
who offered only a mailed-in cancellation could be in compliance 
with ROSCA's requirement that cancellation mechanisms be ``simple.'' 
Without loss of generality, the Commission therefore treats 
instances in which online cancellation was not offered as instances 
in which only telephonic cancellation was offered to consumers.
    \585\ Some required the return of merchandise through the mail 
if consumers wanted refunds. In two matters, no cancellation 
mechanism was revealed. Without loss of generality, we assume that 
cancellation could take place telephonically.
---------------------------------------------------------------------------

    Multiplying the distribution of cancellation methods for 
subscriptions entered into online and over the phone by the total 
number of cancellations of online and telephone subscriptions, the 
Commission estimates the annual number of cancellations that fall into 
each of these categories. In Year 1, the Commission estimates that, in 
the absence of this final Rule, there would be 231.39 million 
cancellations by telephone of subscriptions entered into online, 38.56 
million online cancellations of subscriptions entered into online, and 
77.13 million telephone cancellations of subscriptions entered into 
over the phone.
(iii) Summary of Subscription Cancellations by Enrollment and Baseline 
Cancellation Method
    Table 4 provides the number of subscription cancellations each year 
distributed across the four enrollment and regulatory baseline 
cancellation method categories: online enrollment and telephone 
cancellation; online enrollment and online cancellation; telephone 
enrollment and telephone cancellation; and in-person enrollment.

                      Table 4--Cancellations by Enrollment and Baseline Cancellation Method
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                                      Online          Online         Telephone
                                                    enrollment,     enrollment,     enrollment,      In-person
                      Year                           telephone        online         telephone      enrollment
                                                   cancellation    cancellation    cancellation
----------------------------------------------------------------------------------------------------------------
1...............................................          231.39           38.56           77.13           14.62
2...............................................          233.18           38.86           77.73           14.73
3...............................................          234.96           39.16           78.32           14.84
4...............................................          236.75           39.46           78.92           14.96
5...............................................          238.54           39.76           79.51           15.07
6...............................................          240.33           40.06           80.11           15.18
7...............................................          241.79           40.30           80.60           15.27
8...............................................          243.26           40.54           81.09           15.37
9...............................................          244.72           40.79           81.57           15.46
10..............................................          246.18           41.03           82.06           15.55
----------------------------------------------------------------------------------------------------------------

(3) Total Quantified Benefits
    To estimate total benefits from this final Rule, the Commission 
first matches the enrollment and baseline cancellation method 
categories from the previous section to the four scenarios used to 
estimate the per-cancellation benefit. The Commission assumes that, 
under this final Rule, subscriptions enrolled online and cancelled over 
the phone in the baseline would move to online cancellations; 
subscriptions enrolled online and cancelled online would move to 
simpler online cancellation; subscriptions enrolled over the phone and 
cancelled over the phone would move to simpler telephone cancellation; 
and subscriptions enrolled in person would allow online or phone 
cancellation.
    Next, the Commission multiplies the number of cancellations in each 
baseline category by the matched per-cancellation benefit on the low- 
and the high-end and then sums across all four categories to obtain 
total benefits each year. Those totals are presented in Table 5. In the 
first year following implementation of the final Rule, the Commission 
estimates the benefits will

[[Page 90526]]

range between $661.52 million and $5.32 billion. In Year 10, the 
Commission estimates the benefits will range between $703.82 million 
and $5.66 billion. Using a 2 percent discount rate, the Commission 
estimates the present discounted value of benefits over 10 years to 
range between $6.13 and $49.32 billion. Annualized over 10 years using 
a 2 percent discount rate, the Commission estimates the benefits to 
range between $682.83 million and $5.49 billion per year.

                   Table 5--Total Quantified Benefits
                       [In millions, 2023 dollars]
------------------------------------------------------------------------
                  Year                          Low            High
------------------------------------------------------------------------
1.......................................         $661.52       $5,318.76
2.......................................          666.63        5,359.88
3.......................................          671.75        5,401.01
4.......................................          676.86        5,442.14
5.......................................          681.98        5,483.26
6.......................................          687.09        5,524.39
7.......................................          691.27        5,558.00
8.......................................          695.45        5,591.62
9.......................................          699.63        5,625.23
10......................................          703.82        5,658.84
                                         -------------------------------
    Present Discounted Value of Benefits        6,133.57       49,315.39
     over 10 years, 2% discount rate....
    Annualized Benefits over 10 years,            682.83        5,490.11
     2% discount rate...................
------------------------------------------------------------------------

(c) Estimated Costs of the Final Rule
    This section describes the costs associated with firms coming into 
compliance with the final Rule, provides quantitative estimates where 
possible, and describes costs that are only assessed qualitatively. 
Whereas benefits were estimated based on cancellation transactions, 
compliance costs are estimated on the basis of firms covered by the 
final Rule. The Commission first examines the comment record on 
compliance costs and then estimates the compliance costs for the 
initial year and subsequent nine years following implementation of the 
final Rule.
(1) The Comment Record
    The comment record has not provided specific data useful to the 
estimation of the costs of compliance with the disclosure, 
cancellation, and recordkeeping requirements of the final Rule.
    Some industry commenters addressed compliance costs by providing 
broad, aggregate, conclusory cost estimates; because those costs were 
not itemized by specific features of the Rule as proposed in the NPRM, 
the Commission is unable to use those comments to estimate compliance 
costs relevant to the substantially narrowed scope of the final Rule in 
comparison to the Rule proposed in the NPRM.\586\ The same is generally 
true of testimony and expert reports submitted in conjunction with the 
informal hearing. Those materials did not focus on providing specific, 
relevant, data that would permit estimating compliance costs of the 
final Rule.\587\
---------------------------------------------------------------------------

    \586\ For example, NCTA, FTC-2023-0073-0008, indicated some 
major cable operators estimate it could cost $12-$25 million per 
company and take 2-3 years to rebuild their systems and one of its 
members thought annual costs could be 15-20% of the implementation 
costs (an industry rule of thumb). This comment does not itemize 
costs across different elements of the specific rules adopted. 
Additionally, estimates of the annual costs of maintaining systems 
may be blanket costs that include a host of programming maintenance 
features that are unrelated to the specific disclosures and ``click 
to cancel'' features of the final Rule. Moreover, NCTA's comment 
indicated customers of top cable operators enrolled over the phone 
(43%), online (30%), and in person (24%) and calls to customer 
service are answered within 30 seconds and lines are available 24 
hours a day, 7 days a week. Accordingly, no extra compliance steps 
may be necessary with respect to offering final Rule-compliant 
cancellations for enrollments made by telephone, and compliance with 
the final Rule's requirement that firms offer an extra cancellation 
mechanism for in-person enrollments likely could be met through 
reliance on these firms' existing telephonic cancellation 
capabilities. Accordingly, the provision of an online cancellation 
mechanism will be required only for the 43% of their consumers who 
presently enroll online, and NCTA has not provided estimates of 
compliance costs that are specifically tailored to that segment of 
their consumer base. Because NCTA members who enroll consumers 
online already, clearly, have websites, the Commission rejects the 
notion that adding ``click to cancel'' functionality to websites 
that already include an order path for enrolling, and likely also 
include functionality for registering a payment mechanism for 
automated billing, would cost $12-$25 million, particularly in light 
of NCTA's discussion of compliance with the 2019 Television Viewer 
Protection Act (``TVPA'') which, NCTA claims, already regulates the 
very same practices the FTC is attempting to regulate here. NCTA 
further claims major cable operators estimate that it cost 
approximately $2.5 to 4 million per company and took about one year 
for TVPA compliance. However, having already incurred the costs to 
comply with ``the very same practices'' the final Rule addresses in 
the course of complying with the TVPA, there would appear to be no 
incremental costs to comply with the final Rule. Therefore, because 
the final Rule is narrower in scope than as proposed in the NPRM and 
because it offers firms the opportunity to apply to be excluded, the 
Commission rejects NCTA's claim compliance with the Rule would be 
multiples of TVPA compliance costs and require building online 
cancellation systems virtually from the ground up and expensive 
ongoing recordkeeping requirements across all services. Accordingly, 
the Commission does not include in the estimates of compliance costs 
the aggregate, non-specific, and possibly idiosyncratic compliance 
costs NCTA cites. Similarly, an expert's survey submitted by IAB 
(attachment B to FTC-2024-0001-0010) found only six respondents (out 
of more than 100,000 companies subject to the proposed Rule) 
indicated the annual cost of compliance would be a total of $50 
million, but provided no itemization of these costs, such that they 
cannot be disaggregated to comport with the narrower scope of the 
final Rule.
    \587\ For example, an expert report (Christopher Carrigan and 
Scott Walster, FTC-2024-0001-0026) filed by IAB concluded the 
effects of the proposed Rule, if finalized, on the U.S. economy 
would surpass $100 million annually. The Commission agrees with this 
conclusion. The Commission disagrees, however, with both the initial 
and on-going compliance costs used by Carrigan-Walster; both were 
liberally based on replicating assumptions made in the preliminary 
regulatory analysis in the NPRM. Further, their assumptions are 
inappropriate to this cost analysis because they fail to account for 
the fact firms subject to the final Rule, unlike firms subject to 
the proposed Unfair or Deceptive Fees Rule, are already required to 
provide clear and conspicuous disclosures of all material facts 
relating to the sale of negative option contracts under the totality 
of ROSCA, the TSR, and section 5 of the FTC Act, and to provide 
simple cancellation mechanisms under ROSCA for those firms covered 
by ROSCA. In addition, firms subject to the final Rule are also 
required to comply with a variety of other laws relating to negative 
option sales, including the current Prenotification Rule, EFTA, the 
Unordered Merchandise Statute, numerous State laws, various laws and 
regulations that effect specific industries, such as the Television 
Viewer Protection Act of 2019 (TVPA), other FCC regulations, and, 
for multi-national entities, various foreign laws. Accordingly, the 
units of specialized labor, e.g., lawyer, web developer, and 
business analyst time, that Carrigan-Walster adopt from the Unfair 
or Deceptive Fees NPRM are not valid representations of the usage of 
such inputs that are incremental to compliance with the final Rule 
relative to its existing regulatory baseline.

---------------------------------------------------------------------------

[[Page 90527]]

    Another commenter addressed the Paperwork Reduction Act cost 
estimate in the NPRM in a way that conflated it with the totality of 
compliance costs. IFA, which represents firms, including small firms, 
in the fitness, preventative healthcare, personal wellness or 
children's extracurricular activities industries, commented, ``the 
FTC's estimate (in the NPRM) that it will cost companies merely three 
hours annually at $22.15/hr to comply is grossly understated for IFA's 
members.'' \588\ The Commission agrees the final Rule's compliance 
costs will exceed the Paperwork Reduction Act costs discussed in the 
NPRM because the Paperwork Reduction Act costs only include burden 
associated with information collection requirements, such as 
recordkeeping and disclosure costs, while the total compliance costs 
include those costs as well as costs of familiarization with the Rule 
and costs to bring cancellation mechanisms into compliance. IFA did 
not, however, provide a sufficiently detailed alternative estimate of 
annual or ongoing general compliance or recordkeeping costs for its 
members.\589\ Similarly, IFA provided no information on the enrollment 
mechanisms used by its members nor an estimate of what share of its 
members offer negative option plans.\590\
---------------------------------------------------------------------------

    \588\ See IFA, FTC-2024-0001-0001.
    \589\ IFA provided an extreme example relevant to what it 
identified as a preventative healthcare franchise system without 
disclosing how many individual firms belonged to that system. In the 
context of that system, IFA stated it would take thousands of hours 
to access if modifications are necessary to existing contracts, 
marketing, and operational processes and implement any requirements, 
costing hundreds of thousands of dollars. IFA did not, however, 
provide detailed, itemized, estimates of compliance costs that 
relate to the specific features of the final Rule, which has been 
substantially streamlined relative to what was proposed in the NPRM, 
making IFA's highly aggregated notion of compliance costs for one 
particular group system' inapplicable to the current cost analysis. 
The same lack of specificity is present in IFA's discussion of 
``Fitness franchise systems.'' With somewhat greater specificity, 
IFA estimates costs to comply with disclosure and recordkeeping 
requirements are 24 hours annually, but IFA did not disclose what 
type of labor inputs are involved in those tasks nor the number of 
fitness facilities that will incur these costs. Moreover, IFA 
reveals its members estimate the impact to member lifetime value 
will exceed $100,000 per fitness center and lost revenue is expected 
to be nearly $40,000 annually per fitness center, but these figures 
cannot properly be considered compliance costs as they may, in fact, 
represent benefits consumers receive from speedier exits from 
fitness club memberships that are no longer wanted by consumers.
    \590\ Some of its members may offer yearly contracts that do not 
auto-renew, but that apportion payments over 12 months for the 
convenience of consumers. Such contracts are installment plans, and 
not negative option plans. Others may conduct business on a pay-as-
you-go basis.
---------------------------------------------------------------------------

    IFA did, however, comment that many of its members already offer 
consumers the ability to pause or ``freeze'' memberships, noting, 
``consumers take advantage of alternatives to membership cancellation 
at rates of 10% to 40%, with many consumers electing to reactivate 
their memberships, saving thousands of dollars annually in increased 
membership rates and additional initiation fees.'' While pause/freeze 
capabilities are indeed beneficial to consumers, they do not relieve a 
firm from an obligation to offer a cancellation mechanism. IFA did not 
provide similar data on what percentage of its member firms' consumers 
are dissatisfied with pause/freeze opportunities and seek authentic 
cancellations or what cancellation mechanisms its member firms make 
available to consumers.
    The technological capability to pause or freeze subscriptions 
suggests the presence of software architecture ``scaffolding'' upon 
which a cancellation mechanism could be built at a modest incremental 
cost. Alternatively, the offering of subscription pauses or freezes by 
some IFA members may suggest those members use the services of third-
party e-commerce hosting platforms or payment processors who routinely 
provide consumer subscription account management tools relied on by 
businesses, including small businesses. As discussed, below, existing 
software scaffolding and the utilization of third-party consumer 
subscription management tools can facilitate low- (and even no-) cost 
compliance with some of the final Rule's requirements.
(2) Initial Compliance Costs
    The Commission has previously estimated that 106,000 firms offer 
negative option plans.\591\ The Commission assumes that to come into 
compliance with the final Rule, all 106,000 firms selling negative 
option plans will need to expend some resources to familiarize 
themselves with the final Rule and some firms will incur costs related 
to improvements in their pre-consent disclosures and cancellation 
mechanisms.
---------------------------------------------------------------------------

    \591\ As explained in the NPRM, this estimate is based primarily 
on data from the U.S. Census North American Industry Classification 
System (NAICS) for firms and establishments in industry categories 
wherein some sellers offer free trials, automatic renewal, 
prenotification plans, and continuity plans. Based on NAICS 
information as well as Commission staff's own research and industry 
knowledge, the Commission identified an estimated total of 530,000 
firms involved in such industries. However, the Commission estimates 
only a fraction of the total firms in these industry categories 
offer negative option features to consumers. For example, few 
grocery stores and clothing retailers, which account for 
approximately a third of the of the total estimate from all industry 
categories, are likely to regularly offer negative option features. 
In addition, some entities included in the total may be exempt from 
the Commission's authority. Accordingly, the Commission estimates 
approximately 106,000 business entities (20%) offer negative option 
features to consumers. See 88 FR 24733. Although no commenter 
proposed a different number, ETA, FTC-2023-0033-1004, challenged the 
Commission's estimated number of firms selling negative option plans 
on the basis that it did not account for ``the many providers of 
goods and services to business where automatic renewal clauses are 
used.''
---------------------------------------------------------------------------

    Familiarization costs: No commenters presented estimates expressly 
related to the costs of legal and managerial review of the final Rule 
and front-line staff training needed to come into compliance. The U.K. 
``Impact Assessment,'' using surveys and interviews with managers of 
firms that sold goods and services via negative options, found that 
firms would need between four and 16 hours of ``senior staff'' time, 
depending upon the size of the firm, to gain familiarization with their 
proposed rule, and between zero and 80 hours of ``service staff'' time, 
again depending upon the size of the firm.\592\ The Commission assumes 
that similarities between American and British firms are such that the 
same units of time are relevant for American firms to gain familiarity 
with the final Rule. In the American context, the Commission assumes 
``senior staff time'' is proxied by ``attorney time,'' and uses the 
mean hourly wage for attorneys, $84.84 per hour, to estimate those 
costs.\593\ Similarly, the Commission assumes ``service staff time'' is 
proxied by the average of mean wages for salespersons and clerical 
workers, which is $23.27.\594\ Accordingly, the

[[Page 90528]]

Commission estimates the aggregate initial year familiarization costs 
as ranging between $35.97 million and $341.22 million.
---------------------------------------------------------------------------

    \592\ See U.K. ``Impact Assessment'' (2023) at 26. While the 
U.K.'s rule may not be directly analogous to the final Rule, it 
addresses similar problems associated with consent and cancellation 
associated with negative option practices. Therefore, the burden the 
U.K.'s rule places upon subscription sellers, in terms of executive 
and staff resources to read and understand the rule and assess 
whether existing procedures are in compliance or need to be revised, 
may be highly similar to the familiarization steps that U.S. 
businesses will need to undertake.
    \593\ The mean hourly wage for lawyers in 2023 was $84.84; see 
Bureau of Labor Statistics, ``Occupational Employment and Wages, May 
2023, 23-1011 Lawyers,'' https://www.bls.gov/oes/current/oes231011.htm.
    \594\ The Commission uses a mean hourly wage for sales personnel 
of $25.62; see Bureau of Labor Statistics, ``Occupational Employment 
and Wages, May 2023, 41-0000 Sales and Related Occupations (Major 
Group),'' https://www.bls.gov/oes/currenT/oes410000.htm. The 
Commission uses a mean hourly wage for clerical workers of $20.94, 
see Bureau of Labor Statistics, ``Occupational Employment and Wages, 
May 2023, 43-9061 Office Clerks, General,'' https://www.bls.gov/oes/currenT/oes439061.htm. The average of these two mean wage rates is 
$23.27.
---------------------------------------------------------------------------

    Disclosures: Clear and conspicuous disclosures are already required 
by the existing regulatory baseline; Sec.  425.4(a)(1)-(4) of the final 
Rule adds specificity to those disclosures, albeit in a flexible 
way.\595\ As estimated below, the Commission assumes some marketers are 
already in compliance with the disclosure requirements of the final 
Rule; for these marketers, there are no incremental costs of compliance 
with the disclosure requirements of the final Rule.
---------------------------------------------------------------------------

    \595\ The final Rule requires disclosure of: the fact consumers 
will be charged; the amount(s) they will be charged; when the 
consumer must act (by deadline or frequency) to prevent or stop 
charges; and the information needed for the consumer to find the 
simple cancellation mechanism.
---------------------------------------------------------------------------

    For online marketers, the current regulatory baseline is ROSCA, 
which requires marketers to clearly and conspicuously disclose all 
material terms of the transaction before obtaining the consumer's 
billing information. To the extent ROSCA-covered marketers' current 
disclosures lack the specificity required by the final Rule, the 
Commission estimates changes will be needed only to textual elements of 
such marketers' websites and that no changes to the underlying website 
architecture will be needed. The Commission further assumes any such 
changes, if needed, will be made by website developers, whose mean 
hourly wage is $45.95.\596\ Similarly, some telemarketers and in-person 
negative option marketers may need to modify their sales agents' 
scripts to incorporate the disclosures required by the final Rule. 
Without loss of generality, the Commission assumes the mean wage rates 
of marketers' staff who will make such script changes is proxied by the 
mean wage rates of web developers.\597\ Although in the Commission's 
experience these changes should take very little time, perhaps as 
little as one hour, the Commission adopts a range of one to 10 hours to 
complete this task.\598\
---------------------------------------------------------------------------

    \596\ See Bureau of Labor Statistics, ``Occupational Employment 
and Wages, May 2023, 15-1254 Web Developers,'' https://www.bls.gov/oes/2023/may/oes151254.htm.
    \597\ This is consistent with the approach taken in the expert 
report submitted by IAB. See Carrigan-Walster, FTC-2024-0001-0026 
(noting many firms using negative option marketing present offers 
through the internet and, for firms presenting offers through other 
means, web developer time is used as a proxy for worker time to 
create the presentation of the offers).
    \598\ The assumed range of one to 10 hours is consistent with 
the time estimate used for compliance checks and minor modifications 
of websites in the Unfair or Deceptive Fees NPRM. See 88 FR 77420 
(Nov. 9, 2023).
---------------------------------------------------------------------------

    Accordingly, the Commission estimates that for those marketers 
whose disclosures are not already in compliance with the requirements 
of the final Rule, disclosure compliance costs will range between 
$45.95 and $459.50.
    Cancellation mechanisms: Section 425.6 of the final Rule requires 
negative option marketers to provide a simple cancellation mechanism 
that is in the same medium, and at least as simple for the consumer to 
use, as the mechanism by which the consumer provided consent to the 
negative option plan. Additional requirements are medium-specific. For 
example, when consent is provided through an interactive electronic 
medium, the cancellation mechanism (also provided through an 
interactive electronic medium) must be easy for the consumer to find 
when the consumer seeks cancellation information (for example, on a 
website, the cancellation mechanism cannot be hidden in ``terms and 
conditions'' or otherwise difficult to find) and cannot require 
interactions with live or virtual representatives (such as chatbots) if 
no such interactions were required when the consumer consented.
    When consent is provided over the telephone, the final Rule 
requires that telephonic cancellation must be available during normal 
business hours and not be more costly for the consumer to use than the 
telephone call the consumer used to consent to the negative option 
feature.
    When consumer consent to a negative option plan is provided via an 
in-person method, the marketer must offer cancellation opportunities, 
where practical, in a like manner. In addition, the marketer must offer 
an alternative simple cancellation mechanism through an interactive 
electronic medium or by providing a telephone number that satisfies all 
final Rule requirements related to use of those cancellation media.
    The costs negative option sellers will incur in the initial year 
following implementation of the final Rule to bring their cancellation 
mechanisms into compliance with the final Rule will depend upon their 
pre-existing cancellation mechanisms. No commenter provided research or 
data on the frequency of use of different cancellation mechanisms 
across negative option marketers or on the incremental costs to make 
the existing cancellation mechanism compliant with the requirements of 
the final Rule.\599\
---------------------------------------------------------------------------

    \599\ Trade association commenters who addressed cancellation 
mechanisms used by their members, and whether those mechanisms were 
or were not symmetric with enrollment mechanism or as easy to use as 
enrollment mechanisms did so only in a very general manner. For 
example, NCTA (FTC-2024-0001-0011) commented that, in 2021 and 2022, 
customers of top cable operators enrolled over the phone (43%), 
online (30%), and in person (24%)'' but provided no information on 
available cancellation mechanisms. Additionally, NCTA stated its 
analysis shows complaints received about cancellation are very 
limited (approximately 0.017% of cancellations) out of the 
approximately 14 million customers who cancelled some or all of 
their services from NCTA's largest cable operator members in 2022. 
Anecdotes such as these, about ``top'' or ``largest'' companies do 
not provide sufficiently reliable data for the instant analysis. 
Similarly, IHRSA's comment about ``many'' fitness club operations 
allowing options to cancel by simple online solutions is not 
specific enough to be helpful (see FTC-2023-0033-0863).
---------------------------------------------------------------------------

    Because the comment record has not provided sufficient data to 
estimate the costs of compliance with the final Rule's cancellation 
requirements, the Commission turns to data from the U.K.'s ``Impact 
Assessment'' on regulating subscriptions there. Based on these sources, 
the Commission finds some sellers of negative option plans are already 
in compliance with the cancellation requirements of the final Rule, and 
many others will incur only minimal costs to make their cancellation 
flows compliant with the final Rule.
    The relevant experimental research looked at the cancellation 
practices of 16 online subscription sellers, many of them large and 
well-known firms, and noted the cancellation mechanisms made available 
to consumers and how easy those mechanisms were for consumers to locate 
and use.\600\ Although the number of firms sampled in this research was 
small, publicly available data on total enrollments, located for just 
seven of the 16 firms, collectively numbered over 350 million,\601\ 
which may lend significance

[[Page 90529]]

to this research beyond what might otherwise be associated with a 
sample size of 16 firms. Moreover, the methodology of the study 
suggests that the researcher's experiences with enrollment and 
cancellation likely would be typical of any consumer undertaking the 
same enrollment and cancellation tasks with those firms.
---------------------------------------------------------------------------

    \600\ See Sinders (2023).
    \601\ The Commission located subscriber estimates for seven 
(Amazon, Ancestry, Hulu, Netflix, Paramount+, The Boston Globe, and 
The New York Times) of the 16 firms included in the research. The 
number of U.S. subscribers to Amazon Prime is estimated to reach 
171.8 million in 2024. See https://www.yaguara.co/amazon-prime-statistics. At year-end 2023, Ancestry.com had over 3 million 
subscribers. See https://www.ancestry.com/corporate/newsroom/press-releases/ancestry-releases-2023-annual-impact-report--underscoring-corpor. As of the second quarter of 2024, Hulu had 50.2 million paid 
U.S. subscribers. See https://www.statista.com/statistics/258014/number-of-hulus-paying-subscribers). Also as of the second quarter 
of 2024, Netflix had 84.11 million subscribers in the U.S. and 
Canada. See https://www.statista.com/statistics/483112/netflix-subscribers. Even if the Commission makes the extreme assumption 
that every Canadian held a Netflix subscription, that would still 
leave approximately 50 million U.S. subscribers. Paramount+ had over 
71 million subscribers as of the first quarter of 2024. See https://www.theverge.com/2024/4/29/24144766/paramount-plus-now-has-over-71-million-subscribers). The Boston Globe had 260,000 (mostly digital) 
subscribers in 2023. See https://pressgazette.co.uk/north-america/us-local-news-subscribers-ranking. As of mid-year 2024, the New York 
Times had 10.8 million subscribers. See https://www.nytimes.com/2024/08/07/business/media/new-york-times-earnings.html. The 
Commission was unable to locate subscriber data for some of the 
other firms sampled (e.g., Savage Fenty, Daily Harvest, Deliveroo) 
and in some other instances found subscriber data reported only on a 
global basis (e.g., Google One, Adobe).
---------------------------------------------------------------------------

    The experimental research found that 18.75% (i.e., 100 x 3/16) of 
the online marketers studied offered online cancellations in a 
straightforward, easy to use manner such that it took the researcher 
less than one minute to complete a subscription cancellation. The 
Commission therefore assumes that 18.75% of online sellers of negative 
option plans will not need to change their websites to come into 
compliance with the cancellation requirements of the final Rule. 
Although this research did not specifically measure the adequacy of 
pre-consent disclosures, the Commission assumes that companies who make 
cancellation so easy for consumers perform equally well in making 
disclosures. Accordingly, the Commission assumes that the 18.75% of 
online firms selling negative options that will not incur incremental 
costs to comply with the final Rule's cancellation requirements also 
will not incur any incremental costs to comply with the final Rule's 
disclosure requirements. The Commission assumes that the remaining 
81.25% of online negative option sellers that lacked such easy-to-use 
cancellation mechanisms also performed less well in making the 
disclosures required by the final Rule, such that they would incur 
initial year compliance costs of improving their disclosures as 
indicated by the range estimated above.
    The same research found that 62.5% (i.e., 100 x 10/16) of sampled 
online negative option sellers had cancellation paths that took longer 
for consumers to complete as a result of nomenclature, not website 
architecture. These sites, rather than using straightforward terms such 
as ``unsubscribe'' or ``cancel,'' put the cancellation path under 
titles such as ``auto-renew'' or ``edit plan,'' \602\ and locating the 
cancellation mechanism delayed the researcher in completing the 
cancellation task because of the non-intuitive labeling of the entry 
point into the cancellation mechanism. In such instances, more 
intuitive, consumer-friendly labeling of the existing cancellation 
architecture is assumed to be what is needed for these sites to come 
into compliance with the cancellation requirements of the final Rule. 
The Commission assumes such relabeling will not require any additional 
programming or changes to the underlying website architecture. In the 
Commission's experience, such ``cosmetic'' changes can be made quickly 
and inexpensively, possibly in as little as one hour of a website 
developer's time. The Commission notes, however, that the U.K. ``Impact 
Assessment,'' in considering ``general updates to websites such as 
reflecting the clearer communication on contract conditions and 
updating cancellation options,'' estimated that such changes would 
``require eight hours' work from an IT professional and that these 
costs are uncorrelated with the size of the business.'' \603\ The 
website changes contemplated in that assessment likely exceed those 
required to merely relabel consumer-facing elements of an existing 
cancellation architecture. Out of an abundance of caution, however, the 
Commission uses the U.K.'s estimate of eight hours as an upper bound on 
the time required to make the needed changes and further assumes that 
the relevant ``IT professionals'' are website developers, which, as 
noted previously, have a mean wage rate of $45.95. Accordingly, the 
Commission assumes each firm that needs to relabel existing 
cancellation mechanisms to make those mechanisms easy for consumers to 
locate and use will spend between $45.95 (i.e., 1 x $45.95) and $367.60 
(i.e., 8 x $45.95) to come into compliance with the final Rule's 
cancellation requirements.
---------------------------------------------------------------------------

    \602\ In the researcher's view, this kind of naming is confusing 
and adds unnecessary friction to the cancellation process. See 
Sinders (2023).
    \603\ U.K. ``Impact Assessment'' (2023) at 26.
---------------------------------------------------------------------------

    Lastly, the aforementioned research found that 18.75% (i.e., 100 x 
3/16) of online negative option sellers offered only telephonic 
cancellation. Such firms, because they were online sellers, clearly had 
online ordering and payment website architecture in place, and so had 
``scaffolding'' upon which online cancellation architecture could be 
built. No commenter provided relevant data on the costs of building-out 
a ``click-to-cancel'' mechanism in such instances, and the U.K ``Impact 
Assessment'' indicated it ``lacked high quality evidence on the costs 
businesses would incur'' to integrate ``easy exiting mechanisms into 
websites.'' As a result, the ``Impact Assessment'' turned to ``external 
estimates'' from ``[t]he U.S. eCommerce agency OuterBox [which] 
indicates a possible range of costs. It suggests that integrating 
simple tools into an existing eCommerce platform would cost most 
businesses approximately $500'' in 2022.\604\ In 2023 dollars, that 
amount is $532.05.\605\ The Commission notes, however, that many 
payment processors and website hosting platforms used by many 
businesses, particularly small and medium-sized businesses, provide 
marketers with consumer subscription account management tools that 
provide consumers with ``click-to-cancel'' functionality at no direct 
\606\ incremental cost to marketers.\607\ As no commenter

[[Page 90530]]

provided information on (1) how many negative option sellers comply 
with ROSCA by offering only telephonic cancellation, (2) what specific 
costs they would face to provide an online cancellation mechanism, or 
(3) whether they would build such functionality themselves or use a 
third-party payment processor or hosting platform to provide it for 
them, we estimate such costs to range between $0 and $532.05 per firm.
---------------------------------------------------------------------------

    \604\ U.K. ``Impact Assessment'' (2023) at 27 (citing a report 
from 2022).
    \605\ See Bureau of Labor Statistics, ``CPI Inflation 
Calculator,'' https://www.bls.gov/data/inflation_calculator.htm. We 
note that this amount is equal to 10.25 hours of computer programmer 
time valued at a mean hourly wage rate of $51.90; see Bureau of 
Labor Statistics, ``Occupational Employment and Wages, May 2023, 15-
1251 Computer Programmers,'' https://www.bls.gov/oes/current/oes151251.htm. As such, this is consistent with the outcome of the 
approach used by Carrigan-Walster, FTC-2024-0001-0026, in proxying 
the first-year costs of compliance costs with each of the six 
provisions of the Rule proposed in the NPRM (which differed, 
substantially, from the narrowed final Rule, although not with 
respect to ``click to cancel'' provisions). That approach made the 
ad hoc assumption that technological changes required by the Rule 
would require the same labor inputs as similar requirements in the 
NPRM for the FTC's Rule on Unfair or Deceptive Fees, notwithstanding 
the two rules differ substantially in their regulatory baselines. 
See 88 FR 77420.
    \606\ To the extent that a marketer uses the easy subscription 
account management and cancellation tools offered by hosting 
platforms or payment processors and the presence of such tools 
reduces consumers' perception of the risks of entering into a 
subscription agreement with the marketer, the marketer's sales may 
increase along with any payments to the platform or processor that 
are based on the number of transactions or aggregate sales.
    \607\ See, for example, Shopify's help page at https://help.shopify.com/en/manual/products/purchase-options/shopify-subscriptions/customer-experience#subscription-management-for-customers, ``Shopify Subscriptions displays subscription information 
to customers in the checkout. For example, when buying a 
subscription product, the order frequency and discount amount for 
the subscription is displayed in the order summary . . . . During 
checkout, your customer needs to agree to the cancellation policy 
terms to confirm that they understand they're purchasing a 
subscription. They can't complete their purchase without agreeing to 
this policy . . . . Customers can log in to their customer account 
to view and manage their subscription orders. Customers can resume, 
skip, and cancel their subscriptions, and manage their payment 
methods and shipping address.'' Moreover, Shopify offers a variety 
of consumer subscription management tools to merchants that use 
Shopify for payment processing (``checkout'') or website hosting at 
no incremental cost to merchants See https://apps.shopify.com/categories/selling-products-purchase-options-subscriptions. The fees 
Shopify charges merchants varies with a number of merchant-specific 
features, including website design elements, whether merchants want 
``Shopify checkout'' to work on social media platforms in addition 
to the merchant's own website, how many of the merchant's employees 
will have the ability to log-in to the merchant's Shopify account, 
etc. (see https://aureatelabs.com/blog/shopify-website-development-cost). So, although what merchants pay to use Shopify may vary 
across firms, the incremental cost of using Shopify for consumer 
subscription account management is assumed to be zero. See also 
Hoofnagle, FTC-2023-0033-1137 (``There are scores of companies like 
Chargebee that help companies manage subscriptions . . . . 
Compliance with new rules is inexpensive because policy changes can 
be made programmatically in dashboards'' provided by entities such 
as Chargebee.'').
---------------------------------------------------------------------------

    Accordingly, the Commission assumes that most online marketers of 
negative option plans will face minimal IT costs of coming into 
compliance with the cancellation requirements of the final Rule.\608\
---------------------------------------------------------------------------

    \608\ No commenter to the ANPR or NPRM, and no comment, expert 
report, or testimony in relation to the informal hearing provided 
estimates of compliance costs firms would incur that were specific 
to the features of the Rule as then-proposed that remain in the 
final Rule.
---------------------------------------------------------------------------

    As noted previously, telemarketers have substantial control over 
both how long the consent process takes and how long it takes a 
consumer to complete a cancellation over the telephone. If compliance 
with the final Rule expedites the cancellation process over the phone, 
telemarketers may experience cost-savings associated with such 
resources. Furthermore, no telemarketers or call centers that provide 
services to telemarketers submitted comments relating to what costs 
telemarketers would incur to bring cancellation mechanisms into 
compliance with the final Rule. Because of this, and because the 
Commission has previously found that only 2,000 \609\ of 106,000 firms 
selling negative options were telemarketers (and no commenter has 
disputed this finding), the Commission proceeds as if telemarketers 
face no incremental costs in complying with the final Rule's 
cancellation requirements. However, to reduce any potential downward 
bias \610\ this might introduce into the compliance cost estimate, the 
Commission does not subtract the estimated number of telemarketers 
(2,000) from the total estimated number of online negative option 
marketers in its calculations of costs. Similarly, the Commission lacks 
data on how many of the 106,000 firms selling negative option plans 
currently offer only in-person or by-mail cancellations.\611\ The final 
Rule requires such firms to add a cancellation mechanism that consumers 
can easily use in a remote manner, e.g., through interactive electronic 
media or by telephone.
---------------------------------------------------------------------------

    \609\ See NPRM, 88 FR 24733.
    \610\ Because telemarketing firms are such a small share of all 
firms that will be covered by the final Rule, the Commission does 
not expect this treatment of telemarketers (or, indeed, even a total 
exclusion of telemarketers from the analysis) to impart a 
significant bias.
    \611\ Three trade associations, who have some members who either 
sell or offer cancellation mechanisms in-person, submitted comments 
that were not sufficiently detailed to permit Commission staff to 
estimate the number of firms that both sell and cancel in-person or 
through the mail. For example, IHRSA (FTC-2023-0033-0863) commented 
many of its members allow several options for agreement termination 
through simple online solutions including online account management, 
email cancellation requests, and specific online cancellation 
buttons or forms, adding many of these options are currently 
available for members who have purchased their membership either 
online or in person. The International Carwash Association 
(``ICA''), FTC-2023-0033-1142, commented on subscription-related 
revenues of member firms (noting more than half, and sometimes more 
than 80%, of store revenues can be attributable to subscription 
sales), but not on the number of firms that sell subscriptions or 
how many subscriptions they sell. Similarly, although it commented 
subscriptions could be purchased in person, on the world wide web, 
via a mobile app, or at an automated teller, it provided no data on 
the relative shares of subscription purchases through these channels 
or the cancellation mechanisms made available to consumers. The 
objections ICA raised to a Rule requiring its members to offer 
cancellation by any method other than in-person strongly suggests 
that most member firms currently only offer cancellation that way, 
suggesting that those who sell on the internet, via a mobile app and 
(possibly) at an automated teller may already be in violation of 
ROSCA if in-person cancellations are a violation of ROSCA's ``simple 
cancellation mechanism'' requirement. IFA (FTC-2023-0033-0856) 
provided data from its database on the number of franchisees 
operating fitness establishments, spa/massage studios, entertainment 
facilities, and preventative healthcare facilities in the U.S., but 
provided no information on what share of firms sold subscriptions or 
the media through which consent was obtained or cancellation 
mechanisms were offered. In a later comment (FTC-2024-0001-0009), 
IFA noted consumers of member firms used the alternative of 
``freezing'' their memberships at rates of 10%-40% but did not 
provide information on what the ``freezing'' mechanism was or what 
cancellation mechanisms were available to consumers.
---------------------------------------------------------------------------

    Lastly, the Commission considers the initial year recordkeeping 
costs required by the Rule, which are estimated in section XIII to be 
$6.54 million when aggregated across all 106,000 firms.
    Because of the aforementioned data limitations emerging from the 
comment record, the Commission applies the findings of the experimental 
research above, which looked only at online sellers, to the full number 
of firms, 106,000, that it has previously estimated to be marketers of 
negative option plans. This approach comports with a general 
proposition made by the report submitted by IAB.\612\
---------------------------------------------------------------------------

    \612\ See Carrigan-Walster, FTC-2024-0001-0026 (employing a 
similar assumption: ``Many firms using negative option marketing 
present their offers through the web. For those firms that present 
offers through other means, web developer time is used as a proxy 
for worker time to create the presentation of the offers.'').
---------------------------------------------------------------------------

    Accordingly, the Commission makes the following estimates of 
initial year compliance costs.
    Familiarization costs: All 106,000 firms selling negative options 
will collectively incur final Rule familiarization costs of between 
$35.97 million and $341.22 million.
    Disclosure costs: 19,875 firms (i.e., .1875 x 106,000) will incur 
no costs in bringing their disclosures into compliance with the 
requirements of the final Rule because their disclosures are already 
compliant. The remaining 86,125 firms will collectively incur costs of 
between $3.96 million (i.e., $45.95 x 86,125) and $39.58 million (i.e., 
$459.50 x 86,125) to make their disclosures compliant with the final 
Rule.
    Cancellation costs: 19,875 firms (i.e., .1875 x 106,000) will incur 
no costs in bringing their cancellation mechanisms into compliance with 
the final Rule. 66,250 firms (i.e., .625 x 106,000) collectively will 
incur costs of between $3.04 million (i.e., 1 x $45.95 x 66,250) and 
$24.35 million (i.e., 8 x $45.95 x 66,250) to bring their online 
cancellation mechanisms into compliance with the final Rule by 
relabeling consumer-facing elements of their existing cancellation 
architecture. 19,875 firms (i.e., .1875 x 106,000) collectively will 
incur costs of between $0 and $10.57 million (i.e., 19,875 x $532.05) 
to bring their telephonic cancellation mechanisms into compliance with 
the final Rule.
    The Commission notes that this analysis does not quantify costs for 
the firms selling negative option plans that offer only in-person or 
by-mail cancellation. The Commission assumes that, in complying with 
this final Rule, these firms will choose to provide the alternative 
cancellation method (by phone, online, or both) that makes the most 
economic sense. The Commission also assumes that the cost of processing 
a cancellation over the phone should be similar to or less than the 
cost of processing a cancellation in person or by-mail for these firms. 
Therefore, the Commission assumes that these firms will not incur 
significant compliance

[[Page 90531]]

costs to provide an alternative cancellation method.
    Recordkeeping costs: Collectively, firms will incur recordkeeping 
costs of $6.54 million annually.
    Total Initial Year Costs: Summing costs enumerated above, the 
Commission estimates the costs of the Rule in the first year will range 
between $49.52 and $422.26 million. These costs are presented in Table 
6. The Commission assumes that these costs will be incurred by the end 
of the initial year following the Rule's implementation.

              Table 6--Total Initial Year Compliance Costs
                       [In millions, 2023 dollars]
------------------------------------------------------------------------
                                                Low            High
------------------------------------------------------------------------
Familiarization Costs...................          $35.97         $341.22
Disclosure Costs........................            3.96           39.57
Cancellation Mechanisms Costs...........            3.04           34.93
Recordkeeping Costs.....................            6.54            6.54
                                         -------------------------------
    Total Initial Year Costs............           49.52          422.26
------------------------------------------------------------------------

(3) Ongoing Compliance Costs, Years 2 Through 10
    Compliant disclosures, cancellation paths, and consumer-facing 
information about cancellation mechanisms will form a ``template'' that 
can be used without any incremental compliance costs as new 
subscription products are added to a marketer's retinue of products 
offered for sale via a negative option plan. The information relevant 
to the sale of a new product may be ``dropped'' into the template in a 
fill-in-the-blank way. The Commission assumes marketers, in the 
ordinary course of business, know what is required for the disclosures 
(e.g., the amounts consumers will be charged, when, by date or 
frequency, such charges will occur, when consumers must act to stop 
recurring charges, etc.) and consider the costs of entering this 
information into established disclosure templates to be a routine cost 
of doing business, not an incremental cost required by compliance with 
the final Rule. The same will also be true for negative option plans 
that are telemarketed or sold in person; once a telemarketing script or 
an in-person sales disclosure form is developed in the initial year of 
compliance, it becomes a template that readily can be used as new 
subscription products are offered over time. Accordingly, once a 
marketer comes into compliance with the final Rule there should be no 
incremental costs of ongoing compliance with respect to disclosures and 
cancellation mechanisms, and the costs of adding, changing, or deleting 
products the marketer offers for sale via negative option will be no 
different from what they would have been absent the final Rule.
    The Commission can seek redress or civil penalties for violations 
of the final Rule. Absent the final Rule, enforcement actions against 
unfair or deceptive negative option practices would be brought under 
section 5 where civil penalties are not available and where, post-AMG, 
it is difficult to obtain redress. Accordingly, some negative option 
marketers may pay closer attention to underlying claims made for 
products marketed using negative option sales because of the monetary 
relief available for violations of the final Rule relative to a section 
5 enforcement action. This, however, is no different than what any firm 
should do to assure that it is not in violation of section 5, and the 
Commission considers the costs of attentiveness to section 5 compliance 
as part of the existing regulatory baseline, not as costs that are 
incremental to complying with the final Rule.
    The U.K.'s ``Impact Assessment'' of its regulatory treatment of 
subscription plans did not estimate ongoing compliance costs because 
``the size of these costs . . . are likely small in comparison to the 
one-off cost and benefits.'' \613\ In further support of this, the 
``Impact Assessment'' cited a report that found that on-going costs 
were meaningful only in relation to sending reminders to consumers 
about their subscriptions, and only for firms that used postal mail 
delivery and not electronically delivered reminders.\614\ The final 
Rule does not contain a ``reminder'' requirement, and so the ongoing 
costs of sending reminders to consumers, small though they may be, are 
not ongoing costs of compliance with the final Rule.
---------------------------------------------------------------------------

    \613\ U.K. ``Impact Assessment'' (2023) at 30.
    \614\ ``We note for example, that Ofcom assessed . . . the 
business costs of providing customers with notifications at the end 
of their contracts. These involved possible ongoing costs related to 
identifying customers that needed notifications on an ongoing basis 
and providing them with the notification. After consultation with 
stakeholders, Ofcom only estimated the costs of providing consumers 
with letters, on the basis that only this medium had significant 
ongoing costs.'' Id.
---------------------------------------------------------------------------

    The experts' report submitted by IAB estimated 10 hours of attorney 
time for annual compliance checks for the Rule proposed in the NPRM. 
Because the final Rule has removed the most complex (and, therefore, 
costly) features of the proposed Rule (e.g., double consent, the 
treatment of ``saves'' in cancellation flows, and the issuance of 
annual ``reminders'' for some subscriptions), the Commission assumes 
half of the annual compliance check hours assumed in IAB's experts' 
report, five hours, is an upper bound on attorney hours needed for 
annual compliance checks. Moreover, the Commission assumes that some 
firms will incur no incremental annual compliance check costs, either 
because their pre-existing business practices followed what the final 
Rule requires or because the platforms or payment processors they use 
provide compliant disclosures and cancellation flows.\615\
---------------------------------------------------------------------------

    \615\ See discussion in section VII.B.1.a.2 of this SBP and 
n.146.
---------------------------------------------------------------------------

    Accordingly, the Commission estimates the aggregate annual costs of 
compliance checks to range between $0 and $44.97 million (i.e., 106,000 
x 5 hours x $84.84/hour). Inclusive of recordkeeping costs, total 
ongoing costs range between $6.54 million (i.e., $0 + $6.54 million) 
and $51.51 million (i.e., $44.97 million + $6.54 million).
(4) Summary of Total Costs
    Table 7 presents the initial and recurring costs of this Rule in 
each year, as well as the present discounted value and annualized costs 
over 10 years using a 2 percent discount rate. The Commission estimates 
that in Year 1, the initial costs will range between $49.52 and $422.26 
million. In each of the following years, the Commission estimates that 
the recurring costs will range between $6.54 and $51.51 million. The 
Commission estimates that the

[[Page 90532]]

present discounted value of costs over ten years, using a 2 percent 
discount rate, will range between $100.89 and $826.15 million. The 
Commission estimates that these costs, annualized over ten years using 
a 2 percent discount rate, would range between $11.23 and $91.97 
million per year.

                     Table 7--Total Quantified Costs
                       [In millions, 2023 dollars]
------------------------------------------------------------------------
                  Year                          Low            High
------------------------------------------------------------------------
1.......................................          $49.52         $422.26
2.......................................            6.54           51.51
3.......................................            6.54           51.51
4.......................................            6.54           51.51
5.......................................            6.54           51.51
6.......................................            6.54           51.51
7.......................................            6.54           51.51
8.......................................            6.54           51.51
9.......................................            6.54           51.51
10......................................            6.54           51.51
                                         -------------------------------
    Present Discounted Value of Costs             100.89          826.15
     over 10 years, 2% discount rate....
    Annualized Costs over 10 years, 2%             11.23           91.97
     discount rate......................
------------------------------------------------------------------------

(d) Sensitivity Analysis
    As a sensitivity analysis, the Commission considers an alternative 
method that does not rely on data from historical enforcement matters 
for distributing subscription cancellations across the baseline 
cancellation methods used to estimate quantified benefits. This 
alternative method assumes the majority of subscriptions are enrolled 
online and can be cancelled online in the baseline; whereas, in the 
main analysis, the majority of subscriptions are enrolled online and 
can only be cancelled by phone in the baseline. Compared with the main 
analysis, this alternative method produces lower total quantified 
benefits by $419.77 to $449.53 million annualized per year, yet the 
estimated range of quantified benefits still exceeds the estimated 
range of quantified costs.
(1) Number of Cancellations by Enrollment and Baseline Cancellation 
Method
    Under this sensitivity analysis, the Commission assumes that the 
baseline number of subscriptions and cancellations is the same as in 
the main analysis. The Commission also assumes the number of in-person 
subscriptions, as proxied for by gym memberships, is the same as in the 
main analysis. What differs here is the approach for determining the 
share of cancellations likely to occur through online and telephone 
methods.
    The main analysis uses enforcement data to determine the share of 
cancellations likely to occur through online and telephone methods. 
This data may suffer from selection bias if, among other factors, only 
the more egregious violations are pursued through enforcement methods. 
This approach also assumes no marketers of negative option plans comply 
with this Rule in the baseline. Further, because the data only include 
resolved cases and resolved cases tend to be older, they are less 
likely to reflect the current state of the market.
    In this alternative analysis, the Commission uses statistics 
discussed in the NPRM--that 106,000 firms offer negative option plans 
and 2,000 of those firms are telemarketers.\616\ Based on that, the 
Commission assumes 1.9 percent (i.e., 2,000/106,000) of subscriptions 
and cancellations are enrolled and cancelled over the phone in the 
baseline. The Commission then assumes the remaining cancellations of 
subscriptions that were not enrolled over the phone or in person were 
instead enrolled online.\617\
---------------------------------------------------------------------------

    \616\ See NPRM, 88 FR 24733.
    \617\ The Commission acknowledges this excludes subscriptions 
that are enrolled by mail, likely resulting in an overestimate of 
the number of subscriptions enrolled online.
---------------------------------------------------------------------------

    To estimate the distribution of baseline cancellation methods of 
subscriptions enrolled online, the Commission uses the results from an 
experiment in which a researcher consented to 16 online subscriptions 
between August 2 to October 4, 2022 and then canceled each one, 
recording the time it took to cancel along with a variety of other 
obstacles faced in cancelling.\618\ Of the 16 online subscriptions, 
three were found to be easy to cancel online, indicating they are 
likely in compliance with this Rule; three required phone calls to 
cancel; and the remaining 10 had a non-straightforward online 
cancellation method. Based on these results, the Commission assumes 
18.75 percent (i.e., 3/16) of online subscriptions have Rule-compliant 
cancellation methods in the baseline; 18.75 percent (i.e., 3/16) of 
online subscriptions require telephone cancellation in the baseline; 
and 62.5 percent (i.e., 10/16) of online subscription offer non-Rule-
compliant online cancellations in the baseline.
---------------------------------------------------------------------------

    \618\ See Sinders (2023). Among the obstacles noted for 
otherwise seemingly simple online cancellations were that some 
websites did not use straight forward terms, such as ``unsubscribe'' 
or ``cancel,'' and instead put the cancellation path under titles 
such as ``auto-renew'' or ``edit plan.''
---------------------------------------------------------------------------

    Table 8 provides the number of subscription cancellations each year 
distributed across the enrollment and regulatory baseline cancellation 
methods: online enrollment and telephone cancellation; online 
enrollment and non-Rule-compliant online cancellation; online 
enrollment and Rule-compliant online cancellation; telephone enrollment 
and telephone cancellation; and in-person enrollment.

[[Page 90533]]



           Table 8--Sensitivity Analysis: Cancellations by Enrollment and Baseline Cancellation Method
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                                      Online          Online
                                      Online        enrollment,     enrollment,      Telephone
              Year                  enrollment,    non-compliant     compliant      enrollment,      In-person
                                     telephone        online          online         telephone      enrollment
                                   cancellation    cancellation    cancellation    cancellation
----------------------------------------------------------------------------------------------------------------
1...............................           63.79          212.63           63.79            6.87           14.62
2...............................           64.28          214.27           64.28            6.93           14.73
3...............................           64.78          215.92           64.78            6.98           14.84
4...............................           65.27          217.56           65.27            7.03           14.96
5...............................           65.76          219.21           65.76            7.08           15.07
6...............................           66.26          220.85           66.26            7.14           15.18
7...............................           66.66          222.19           66.66            7.18           15.27
8...............................           67.06          223.54           67.06            7.22           15.37
9...............................           67.46          224.88           67.46            7.27           15.46
10..............................           67.87          226.23           67.87            7.31           15.55
----------------------------------------------------------------------------------------------------------------

(2) Estimating Total Benefits
    To estimate total quantified benefits under this sensitivity 
analysis, the Commission uses the same matching of enrollment and 
baseline cancellation methods to per-cancellation benefit estimates as 
in the main analysis. The only difference here is that the Commission 
assumes consumers who experience Rule-compliant online cancellations in 
the baseline will not see any additional benefit as a result of this 
final Rule.
    As in the main analysis, the Commission multiplies the number of 
cancellations in each category by the matched per-cancellation benefit 
on the low- and the high-end and then sums across all five categories 
to obtain total quantified benefits each year. Those totals are 
presented in Table 9 below. In the first year following implementation 
of the final Rule, the Commission estimates the benefits under this 
sensitivity analysis will range between $254.85 million and $4.88 
billion. In Year 10, the Commission estimates the benefits will range 
between $271.15 million and $5.20 billion. Using a 2 percent discount 
rate, the Commission estimates the present discounted value of benefits 
over 10 years to range between $2.36 and $45.28 billion. Annualized 
over 10 years using a 2 percent discount rate, the Commission estimates 
the benefits to range between $263.06 million and $5.04 billion per 
year. These annualized benefits estimates are between $419.77 and 
$449.53 million less per year than the estimates from the main 
analysis.

          Table 9--Sensitivity Analysis: Estimates of Benefits
                       [In millions, 2023 dollars]
------------------------------------------------------------------------
                  Year                          Low            High
------------------------------------------------------------------------
1.......................................         $254.85       $4,883.26
2.......................................          256.82        4,921.01
3.......................................          258.79        4,958.77
4.......................................          260.76        4,996.53
5.......................................          262.73        5,034.29
6.......................................          264.70        5,072.05
7.......................................          266.31        5,102.91
8.......................................          267.92        5,133.77
9.......................................          269.54        5,164.63
10......................................          271.15        5,195.49
                                         -------------------------------
    Present Discounted Value of Benefits        2,362.97       45,277.43
     over 10 years, 2% discount rate....
    Annualized Benefits over 10 years,            263.06        5,040.58
     2% discount rate...................
    Difference in Annualized Benefits            -419.77         -449.53
     from Main Analysis.................
------------------------------------------------------------------------

    4. An explanation of the reasons for the determination of the 
Commission that the final Rule will attain its objectives in a manner 
consistent with applicable law and the reasons the particular 
alternative was chosen.
    As discussed above in sections I, II, and VII.A, the Commission 
determines the following deceptive or unfair practices are widespread 
in the negative option marketplace and cause consumer harm: (1) 
material misrepresentations made while marketing goods or services with 
negative option features; (2) failure to provide important information 
about material terms prior to obtaining consumers' billing information 
and charging consumers; (3) lack of informed consumer consent; and (4) 
failure to provide consumers with a simple cancellation method, 
including failure to honor cancellation requests, refusal to provide 
refunds to consumers who unknowingly enrolled in programs, denying 
consumers refunds and forcing them to pay to return the unordered 
goods, and requiring consumers to cancel using a different method than 
the one used to sign up for the program.
    The final Rule amendments prohibit sellers from misrepresenting 
material facts in connection with promoting or offering for sale a good 
or service with a negative option feature, require negative option 
sellers to disclose certain important information about negative option 
features, obtain a consumer's express informed consent and maintain 
records of consumer consent for three years after the initial 
transaction (unless the seller satisfies

[[Page 90534]]

the technological exemption), and provide consumers a simple mechanism 
for cancellation. In promulgating the final Rule, the Commission sought 
to enhance consumer protections while avoiding detailed, prescriptive 
requirements that would impede innovation.
    5. A summary of any significant issues raised by the comments 
submitted during the public comment period in response to the 
preliminary regulatory analysis and a summary of the assessment by the 
Commission of such issues.
    Several commenters (e.g., NCTA, IAB) raised concerns over the 
Commission's conclusions regarding the economic effect of the proposed 
Rule. NCTA asserted the NPRM lacked any meaningful cost-benefit 
analysis, suggesting compliance with the proposed Rule would result in 
significant costs to its members.\619\ Among other things, NCTA said 
its members would be required to implement changes to their existing 
customer processes, review and revise existing disclosures, and revamp 
recordkeeping systems. During the informal hearing process, NCTA 
further argued it could cost major cable operator members between $12-
25 million to comply with the proposed Rule.\620\ Additional commenters 
also suggested compliance with the proposed Rule would cost more than 
what the Commission estimated. None of them, however, offered any 
empirical analysis of the issue. In response to these comments, and 
following the presiding officer's recommended decision, the Commission 
provides the detailed cost-benefit analysis above in Section X.B.3.
---------------------------------------------------------------------------

    \619\ NCTA, FTC-2023-0033-0858; IAB, FTC-2023-0033-1000. See 
also IFA, FTC-2023-0033-0856; USTelecom, FTC-2023-0033-0876; RILA, 
FTC-2023-0033-0883; Coalition, FTC-2023-0033-0884; Chamber, FTC-
2023-0033-0885 (urging the Commission to refine its cost benefit 
analysis).
    \620\ FTC-2024-0001-0011; see also Asurion, FTC-2023-0033-0878 
(stating the Commission's estimated annual labor costs are 
understated, and projecting the costs to Asurion and its clients 
would be millions of dollars); SCIC, FTC-2023-0033-0879 (cost of 
compliance for the service contract industry would be substantially 
higher than cost of compliance for unregulated entities, and 
disproportionately borne by small businesses; APCIA, FTC-2023-0033-
0996 (same).
---------------------------------------------------------------------------

XI. Final Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-612, 
requires the Commission to conduct an Initial Regulatory Flexibility 
Analysis (``IRFA'') with a proposed rule and a Final Regulatory 
Flexibility Analysis (``FRFA''), if any, with a final rule, unless the 
Commission certifies the rule will not have a significant economic 
impact on a substantial number of small entities.\621\ The Regulatory 
Flexibility Act further states the required elements of the FRFA may be 
performed in conjunction with or as part of any other agenda or 
analysis required by any other law if such other analysis satisfies the 
provisions of the FRFA.\622\
---------------------------------------------------------------------------

    \621\ See 5 U.S.C. 603-605.
    \622\ 5 U.S.C. 605.
---------------------------------------------------------------------------

    In the NPRM, the Commission provided an IRFA, stating its belief 
that the proposal will not have a significant economic impact on small 
entities, and solicited comments on the burden on any small entities 
that would be covered. Specifically, the Commission acknowledged it did 
not have sufficient empirical data to determine whether the proposed 
amendments may affect a substantial number of small entities; 
therefore, the Commission sought comment on the percentage of affected 
companies that qualify as small businesses.
    The Commission reviewed and considered the comments in response to 
the NPRM and determined, as an alternative to finalizing the proposed 
Rule in its entirety, to modify the Rule. In particular, the Commission 
decided to limit the material terms to be disclosed immediately 
adjacent to consent for the negative option feature; remove the 
limitation on saves and the accompanying recordkeeping requirement; 
remove the annual reminder provision; and modify the length of the 
recordkeeping requirement for verification of consent by fixing it to 
three years and provide an alternative method of compliance. After 
careful consideration of the comments and following the Commission's 
determination not to finalize the proposed Rule in its entirety, the 
Commission certifies that the final Rule will not have a significant 
economic impact on a substantial number of small entities. 
Nevertheless, because the Commission included an IFRA in the NPRM, the 
Commission has also performed an FRFA below, and comments to the IFRA 
are discussed below.
    A. A statement of the need for, and objectives of, the Rule.
    The Commission describes the need for and the objectives of the 
final Rule in section X.B.1 to the Final Regulatory Analysis.
    B. A statement of the significant issues raised by the public 
comments in response to the Initial Regulatory Flexibility Analysis, a 
statement of the assessment of the agency of such issues, and a 
statement of any changes made in the proposed Rule as a result of such 
comments.
    Several commenters raised issues about the proposed Rule's economic 
impact on small businesses. For instance, NFIB asked the Commission to 
adopt a special provision that would limit enforcement of the Rule 
against small businesses (fewer than 50 employees) to instances of 
willful or repeated violations, and set up a program for education on 
compliance.\623\ IFA and IHRSA encouraged the Commission to conduct a 
``Small Business Regulatory Impact Analysis'' to determine how the 
proposal will impact small businesses.\624\ IHRSA stated that small 
businesses in the health and fitness industry operate at ``much 
different capacity'' than larger industries, noting 44% of U.S. small 
businesses have less than three months of cash reserves, making them 
more vulnerable to disruptions.\625\ Similarly, ACT App Association 
noted that roughly 20% of small business startups fail in the first 
year due to scarcity in financial resources.\626\
---------------------------------------------------------------------------

    \623\ NFIB, FTC-2023-0033-0789.
    \624\ IFA, FTC-2023-0033-0856; IHRSA, FTC-2023-0033-0863.
    \625\ IHRSA, FTC-2023-0033-0863.
    \626\ ACT App Association, FTC-2023-0033-0874.
---------------------------------------------------------------------------

    Other commenters, including PDMI, ESA, Joint Small Business Digital 
Economy Innovators, and ICA, generally stated the proposed Rule would 
impose unnecessary and undue burdens on small businesses, but did not 
offer any detailed empirical data for the Commission to consider.\627\
---------------------------------------------------------------------------

    \627\ PDMI, FTC-2023-0033-0864; ESA, FTC-2023-0033-0867; Joint 
Small Business Digital Economy Innovators, FTC-2023-0033-0875; ICA, 
FTC-2023-0033-1142.
---------------------------------------------------------------------------

    In response, the Commission first notes its sensitivity to small 
businesses' concerns. It provides numerous free resources through the 
Bureau of Consumer Protection Business Center web page \628\ to assist 
businesses of all sizes in complying with the law and will engage in 
consumer and business education campaigns about this Rule. Second, in 
consideration of comments regarding regulatory burden, the Commission 
clarifies or modifies the Rule in several significant ways: (1) it 
defines ``material'' and provides several concrete categories of 
material facts to ensure businesses have a clear understanding of how 
it will interpret materiality under the Rule; (2) it limits the number 
of terms that must mandatorily appear ``immediately adjacent'' to the 
request for consent to

[[Page 90535]]

the negative option feature; (3) it removes the requirement to obtain 
separate affirmative consent to ``the rest of the transaction'' and 
modifies the recordkeeping requirement; (4) it removes the saves and 
annual reminder requirements, which also should reduce recordkeeping 
and compliance burdens. Additionally, the Commission delays the 
effective date of the final Rule for 180 days to allow time for 
implementation (except for the provisions related to misrepresentations 
and other procedural requirements, which should not be an added burden 
for businesses already complying with the law and which take effect 60 
days after publication of the final Rule).
---------------------------------------------------------------------------

    \628\ https://www.ftc.gov/business-guidance.
---------------------------------------------------------------------------

    C. The response of the agency to any comments filed by the Chief 
Counsel for Advocacy of the Small Business Administration in response 
to the proposed Rule, and a detailed statement of any change made to 
the proposed rule in the final Rule as a result of the comments.
    The Small Business Administration did not file comments in response 
to the proposed Rule.
    D. A description of and an estimate of the number of small entities 
to which the Rule will apply or an explanation of why no such estimate 
is available.
    The final Rule affects sellers, regardless of industry, engaged in 
making negative option offers, defined by the final Rule to mean any 
person ``selling, offering, charging for, or otherwise marketing goods 
or services with a Negative Option Feature.'' \629\ Small entities in 
potentially any industry could incorporate a negative option feature 
into a sales transaction.\630\ The Commission is unaware, however, of 
any source of data identifying across every industry the number of 
small entities that routinely utilize negative option features. 
Although the NPRM requested comments on the percentage of affected 
companies that qualify as small businesses, and some trade association 
commenters indicated that some of their members were small businesses, 
these comments did not identify either the number or share of their 
small business members that sold negative option contracts.
---------------------------------------------------------------------------

    \629\ Rule Sec.  425.2(g).
---------------------------------------------------------------------------

    E. A description of the projected reporting, recordkeeping, and 
other compliance requirements of the Rule, including an estimate of the 
classes of small entities which will be subject to the requirement and 
the type of professional skills necessary for preparation of the report 
or record.
    The estimates of the recordkeeping requirements under the final 
Rule are set out within the Paperwork Reduction Act analysis in section 
XII below. As mentioned above, the Commission preliminarily determined 
the impact of the proposed requirements on small entities is most 
likely not significant. The small entities potentially covered by these 
amendments will include all such entities subject to the Rule (e.g., 
all entities selling goods or services through negative option 
programs). The professional skills necessary for compliance with the 
proposed amendments would include sales and clerical personnel. The 
Commission requested comment on these issues.
    In the NPRM, The FTC estimated the majority of firms subject to the 
recordkeeping requirements already retained these types of records in 
the normal course of business. The FTC anticipated many transactions 
subject to the final Rule would be conducted via the internet, 
minimizing burdens associated with compliance. Additionally, most 
entities subject to the final Rule were likely to store data though 
automated means, which reduces compliance burdens associated with 
record retention. Furthermore, regarding the disclosure requirements, 
the Commission stated it was likely the substantial majority of sellers 
routinely provide these disclosures in the ordinary course as a matter 
of good business practice. Moreover, many State laws already require 
the same or similar disclosures as the Rule would mandate. Finally, 
some negative option sellers are already covered by ROSCA and the TSR 
and thus subject to similar disclosure requirements.
    Commenters provided additional comments, suggesting small 
businesses will be significantly impacted, and the Commission 
underestimated the burdens. Recordkeeping and disclosure costs 
associated with the Rule became one of the issues designated for the 
informal hearing, after which the presiding officer determined ``the 
issue is not genuinely disputed,'' noting the failure of interested 
parties to ``provide any evidence to establish what the costs would 
be,'' as opposed to generalized complaints ``costs will be higher than 
the NPRM's estimates.'' \631\ As explained in the Paperwork Reduction 
Act estimates below and elsewhere in this SBP, the Commission made 
changes to the Rule based on the record. Specifically, the Commission 
determined to specify and thereby limit the types of disclosures 
required, narrow the scope of entities covered (by excluding those 
solely involved in ``promoting'' negative option plans), curtail the 
length of time for retaining records (to only three years), and 
establish an option for sellers to eliminate having to keep records of 
consent if they have the requisite processes in place. Because neither 
the Commission nor the presiding officer at the informal hearing 
received evidence to dispute the recordkeeping and disclosure costs 
figures in the NPRM, the Commission adopts the NPRM's analysis. Given 
the narrower scope of the final Rule, that analysis should be more 
conservative and tend to overstate the burden.
---------------------------------------------------------------------------

    \631\ Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-2024-0001-0042 (emphasis in 
original).
---------------------------------------------------------------------------

    F. A description of the steps the agency has taken to minimize the 
significant economic impact on small entities consistent with the 
stated objectives of applicable statutes, including a statement of the 
factual, policy, and legal reasons for selecting the alternative 
adopted in the final Rule and why each one of the other significant 
alternatives to the Rule considered by the agency which affect the 
impact on small entities was rejected.
    In formulating the proposed amendments, the Commission made every 
effort to avoid imposing unduly burdensome requirements on sellers. To 
that end, the Commission avoided, where possible, proposing specific, 
prescriptive requirements that could stifle marketing innovation or 
otherwise limit seller options in using new technologies.
    As explained above, in response to comments regarding regulatory 
burden, the Commission clarifies or modifies the Rule in several 
significant ways: (1) it defines ``material'' and provides several 
concrete categories of material facts to ensure businesses have a clear 
understanding of how it will interpret materiality under the Rule; (2) 
it limits the number of terms that must mandatorily appear 
``immediately adjacent'' to the request for consent to the negative 
option feature; (3) it removes the requirement to obtain separate 
affirmative consent to ``the rest of the transaction'' and modifies the 
recordkeeping requirement; (4) it removes the saves and annual reminder 
requirements, which also should reduce recordkeeping and compliance 
burdens. Additionally, the Commission delays the effective date of the 
final Rule for 180 days to allow time for implementation (except for 
the provisions related to misrepresentations and other procedural 
requirements, which should not be an added burden

[[Page 90536]]

for businesses already complying with the law and which take effect 60 
days after publication of the final Rule).

XII. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA''), 44 U.S.C. 3501 et seq., 
requires Federal agencies to obtain Office of Management and Budget 
(``OMB'') approval before collecting information directed to ten or 
more persons. The current Rule contains various provisions that 
constitute information collection as defined by 5 CFR 1320.3(c), the 
OMB regulations implementing the PRA. In January 2024, OMB approved 
continuation of the Rule's existing information collection (OMB Control 
No. 3084-0104). The final Rule makes changes in the Rule's 
recordkeeping and disclosure requirements that will increase the PRA 
burden as detailed below. Accordingly, the Commission is submitting the 
final Rule and a Supplemental Supporting Statement to OMB for review 
under the PRA.\632\ The associated burden analysis follows.
---------------------------------------------------------------------------

    \632\ The PRA analysis for this rulemaking focuses strictly on 
the information collection requirements created by and/or otherwise 
affected by the amendments.
---------------------------------------------------------------------------

A. The Proposed Rule

    In the NPRM, the Commission provided time and cost estimates for 
the proposed Rule's recordkeeping and disclosure requirements, and 
solicited comments about their associated costs, including on: (1) 
whether the disclosure, recordkeeping, and reporting requirements are 
necessary, including whether the resulting information will be 
practically useful; (2) the accuracy of our burden estimates, including 
whether the methodology and assumptions used are valid; (3) how to 
improve the quality, utility, and clarity of the disclosure 
requirements; and (4) how to minimize the burden of providing the 
required information to consumers.\633\
---------------------------------------------------------------------------

    \633\ 88 FR 24734.
---------------------------------------------------------------------------

    The NPRM also included staff's estimate that the burden for 
recordkeeping compliance would be 53,000 hours and the estimated burden 
for disclosures would be 212,000 hours, for a total of 265,000 hours. 
These estimates are explained below.
    Number of Respondents. FTC staff estimated there are 106,000 
entities offering negative option features to consumers. This estimate 
is based primarily on data from the U.S. Census North American Industry 
Classification System (NAICS) for firms and establishments in industry 
categories wherein some sellers offer free trials, automatic renewal, 
prenotification plans, and continuity plans. Based on NAICS information 
as well as its own research and industry knowledge, FTC staff 
identified an estimated total of 530,000 firms involved in such 
industries.\634\ However, FTC staff estimated that only a fraction of 
the total firms in these industry categories offer negative option 
features to consumers. For example, few grocery stores and clothing 
retailers, which account for approximately a third of the of the total 
estimate from all industry categories, are likely to regularly offer 
negative option features. In addition, some entities included in the 
total may qualify as common carriers, exempt from the Commission's 
authority under the FTC Act. Accordingly, the Commission estimated 
approximately 106,000 business entities (20%) offer negative option 
features to consumers.
---------------------------------------------------------------------------

    \634\ Examples of these industries include sellers of software, 
streaming media, social media services, financial monitoring, 
computer security, fitness services, groceries and meal kits, 
dietary supplements, sporting goods, home service contracts, home 
security systems, office supplies, pet food, computer supplies, 
cleaning supplies, home/lawn maintenance services, personal care 
products, clothing sales, energy providers, newspapers, magazines, 
and books. The NAICS does not provide estimates for all of these 
categories. Where such data is unavailable, the staff has used its 
own estimates based on its knowledge of these industry categories.
---------------------------------------------------------------------------

    Recordkeeping Hours. FTC staff estimated the majority of firms 
subject to the Rule already retain the types of records in the normal 
course of business that would be required by the proposed Rule. Under 
such conditions, the time and financial resources needed to comply with 
disclosure requirements do not constitute ``burden'' under the 
PRA.\635\ Moreover, staff anticipated that many transactions subject to 
the Rule are conducted via the internet and most entities subject to 
the Rule are likely to store data though automated means, which reduces 
compliance burdens associated with record retention. Accordingly, staff 
estimated that 53,000 entities subject to the Rule will require 
approximately one hour per year to comply with the Rule's recordkeeping 
requirements, for an annual total of 53,000 burden hours.
---------------------------------------------------------------------------

    \635\ Under the PRA, the time, effort, and financial resources 
necessary to comply with the collection of information that would be 
incurred by persons in the normal course of their activities (e.g., 
in compiling and maintaining business records) does not constitute a 
burden under the Rule where the associated recordkeeping is a usual 
and customary part of business activities. 5 CFR 1320.3(b)(2).
---------------------------------------------------------------------------

    Disclosure Hours. Staff anticipated that the substantial majority 
of sellers already routinely provide the disclosures that would be 
required by the proposed Rule. For these sellers, the time and 
financial resources associated with making these disclosures do not 
constitute a ``burden'' under the PRA because they are a usual and 
customary part of regular business practice. 5 CFR 1320.3(b)(2). 
Moreover, many State laws require the same or similar disclosures as 
the Rule mandates. In addition, approximately 2,000 negative option 
sellers are already covered by the TSR and subject to its disclosure 
requirements. Accordingly, FTC estimated the disclosure burden required 
by the Rule will be, on average, two hours each year for each seller 
subject estimated to be subject the Rule, for a total estimated annual 
burden of 212,000 hours.
    Estimated Annual Labor Cost. To estimate labor costs for 
recordkeeping requirements, staff multiplied the 53,000 hours to comply 
with the proposed Rule's recordkeeping provisions by a clerical wage 
rate of $18.75/hour.\636\ The result is an annual cost of approximately 
$993,750.
---------------------------------------------------------------------------

    \636\ This figure is derived from the mean hourly wage shown for 
Information and Record Clerks. See Bureau of Labor Statistics, 
``Occupational Employment and Wages--May 2021,'' at Table 1 (Mar. 
31, 2022) (National employment and wage data from the Occupational 
Employment Statistics survey by occupation, May 2021), https://www.bls.gov/news.release/pdf/ocwage.pdf.
---------------------------------------------------------------------------

    To estimate annual labor costs for disclosures for all entities, 
staff multiplied the 212,000 hours to comply with the proposed Rule's 
disclosure provisions by a sales personnel wage rate of $22.15/
hour.\637\ The result is an annual cost of approximately $4,695,800.
---------------------------------------------------------------------------

    \637\ This figure is derived from the mean hourly wage shown for 
Sales and related occupations. See id.
---------------------------------------------------------------------------

    Thus, the estimated annual labor costs were $5,689,550 [($993,750 
recordkeeping) + ($4,695,800 disclosure)].
    Estimated Annual Non-Labor Cost. The NPRM stated capital and start-
up costs associated with the Rule's recordkeeping provisions are de 
minimis. Any disclosure or recordkeeping capital costs involved with 
the Rule, such as equipment and office supplies, would be costs borne 
by sellers in the normal course of business.

B. Comments Received and Informal Hearing

    The NPRM sought comments on the PRA analysis and stated, ``comments 
should provide any available evidence and data that supports their 
position, such as empirical data.'' \638\ The Commission did not 
receive such evidence. A few commenters from businesses and industry 
groups, however, raised generalized concerns

[[Page 90537]]

that the NPRM underestimated PRA-related costs.\639\
---------------------------------------------------------------------------

    \638\ 88 FR 24730.
    \639\ Sirius XM, FTC-2023-0033-0857; SCIC, FTC-2023-0033-0879; 
Coalition, FTC-2023-0033-0884; ETA, FTC-2023-0033-1004; Direct 
Marketing Companies, FTC-2023-0033-1016. In addition, one commenter 
seemingly confused PRA-related costs with full implementation of the 
Rule, but still offered only generalized points. See Asurion, FTC-
2023-0033-0878. Another commenter queried whether the Commission's 
estimate of the number of firms offering negative option features 
include B2B sales with automatic renewal clauses. ETA, FTC-2023-
0033-1004. The staff estimate did not seek to exclude such sellers.
---------------------------------------------------------------------------

    As noted earlier, the Commission set an informal hearing, at the 
request of interested parties, and appointed Administrative Law Judge 
Carol Fox Foelak as the presiding officer.\640\ Based on submissions by 
interested parties, and other information in the record, the presiding 
officer designated two disputed issues of material fact, including, 
``What will the recordkeeping and disclosure costs associated with the 
proposed rule be?'' \641\
---------------------------------------------------------------------------

    \640\ Hr'g Notice, 88 FR 85525.
    \641\ Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-2024-0001-0042.
---------------------------------------------------------------------------

    Based on the record, the presiding officer concluded, ``There is 
insufficient evidence to make a finding concerning the . . . 
recordkeeping and disclosure costs associated with the proposed rule,'' 
and ``in the absence of evidence, the issue is not genuinely 
disputed.'' \642\ The presiding officer further explained: ``IAB made a 
well-reasoned argument that the costs will be higher than the NPRM's 
estimates, generalizing from limited estimates that it, IFA, and NCTA 
provided. However, it did not provide any evidence to establish what 
the costs would be.'' \643\
---------------------------------------------------------------------------

    \642\ Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-2024-0001-0042.
    \643\ Recommended Decision by Presiding Officer, https://www.regulations.gov/comment/FTC-2024-0001-0042.
---------------------------------------------------------------------------

C. Final PRA Analysis

    As previously discussed, the Commission made changes to the Rule 
based on the record. Some of these changes, in turn, affect the PRA 
analysis. Specifically, the Commission determined to specify and 
thereby limit the types of disclosures required, narrow the scope of 
entities covered (by excluding those solely involved in ``promoting'' 
negative option plans), curtail the length of time for retaining 
records (to only three years), and establish an option for sellers to 
eliminate having to keep records of consent if they have the requisite 
processes in place. Neither the Commission nor the presiding officer at 
the informal hearing received evidence to dispute the specific PRA-
related figures in the NPRM. For the final Rule, the Commission adopts 
the following PRA analysis.
    Number of Respondents. The Commission received no evidence to 
dispute the NPRM's statements on the number of entities offering 
negative option features to consumers, so the Commission adopts the 
NPRM estimate that there are 106,000 such entities. Although the final 
Rule is narrower in that it excludes the term ``promote'' from its 
scope, the Commission retains the estimate of 106,000 entities for the 
purposes of this analysis, which would be more conservative and tend to 
overstate the burden.
    Recordkeeping Hours. The Commission received no evidence to dispute 
the NPRM's statements on recordkeeping under the PRA. As the final Rule 
is narrower, the time and financial resources needed to comply with 
disclosure requirements still do not constitute ``burden'' under the 
PRA.\644\ Accordingly, the Commission adopts the NPRM estimate that 
53,000 entities subject to the Rule will require approximately one hour 
per year to comply with the Rule's recordkeeping requirements, for an 
annual total of 53,000 burden hours.
---------------------------------------------------------------------------

    \644\ Under the PRA, the time, effort, and financial resources 
necessary to comply with the collection of information that would be 
incurred by persons in the normal course of their activities (e.g., 
in compiling and maintaining business records) does not constitute a 
burden under the Rule where the associated recordkeeping is a usual 
and customary part of business activities. 5 CFR 1320.3(b)(2).
---------------------------------------------------------------------------

    Disclosure Hours. Similarly, the Commission received no evidence to 
dispute the NPRM's statements on disclosure hours under the PRA. As the 
final Rule narrowed and delineated the types of disclosures required, 
the time and financial resources associated with making these 
disclosures is even less than under the proposed Rule, which also did 
not constitute a ``burden'' under the PRA because they are a usual and 
customary part of regular business practice. 5 CFR 1320.3(b)(2). 
Accordingly, the Commission adopts the NPRM estimate that the 
disclosure burden required by the Rule will be, on average, two hours 
each year for each seller subject estimated to be subject the Rule, for 
a total estimated annual burden of 212,000 hours.
    Estimated Annual Labor Cost. The Commission received no evidence to 
dispute the NPRM's statements on labor costs under the PRA. For the 
final Rule, the Commission updates its labor cost estimates by using 
more recent wage data. For recordkeeping, staff multiplied the 53,000 
estimated hours to comply with the Rule's recordkeeping provisions by a 
clerical wage rate of $20.94/hour,\645\ to yield an annual cost of 
approximately $1,109,820. For disclosure compliance, staff multiplied 
the 212,000 estimated hours by an hourly wage rate for sales personnel 
of $25.62,\646\ to yield an annual cost of $5,431,440. Thus, the 
estimated total annual labor costs are $6,541,260 [($1,109,820 
recordkeeping) + ($5,431,440 disclosure)].
---------------------------------------------------------------------------

    \645\ This figure is derived from the mean hourly wage shown for 
Information and Record Clerks. See Bureau of Labor Statistics, 
``Occupational Employment and Wages, May 2023, 43-9061 Office 
Clerks, General,'' https://www.bls.gov/oes/currenT/oes439061.htm.
    \646\ This figure is derived from the mean hourly wage shown for 
Sales and related occupations. See id.
---------------------------------------------------------------------------

    Estimated Annual Non-Labor Cost. The Commission received no 
evidence to dispute the NPRM's statements that capital and start-up 
costs associated with the Rule's recordkeeping provisions are de 
minimis under the PRA. The Commission adopts those findings.

List of Subjects in 16 CFR Part 425

    Advertising, Consumer protection, Trade practices.

0
For the reasons stated in the preamble, the Federal Trade Commission 
revises 16 CFR part 425 to read as follows:

PART 425--RULE CONCERNING RECURRING SUBSCRIPTIONS AND OTHER 
NEGATIVE OPTION PROGRAMS

Sec.
425.1 Scope.
425.2 Definitions.
425.3 Misrepresentations.
425.4 Important information.
425.5 Consent.
425.6 Simple cancellation (``Click to Cancel'').
425.7 Relation to State laws.
425.8 Exemptions.
425.9 Severability.

    Authority: 15 U.S.C. 41 through 58.


Sec.  425.1  Scope.

    This Rule contains requirements related to any form of negative 
option program in any media, including, but not limited to, Interactive 
Electronic Media, telephone, print, and in-person transactions.


Sec.  425.2  Definitions.

    Billing Information means any data that enables any person to 
access a consumer's account, such as a credit card, checking, savings, 
share or similar account, utility bill, mortgage loan account, or debit 
card.

[[Page 90538]]

    Charge, Charged, or Charging 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.
    Clear and Conspicuous means that a required disclosure is easily 
noticeable (i.e., difficult to miss) and easily understandable by 
ordinary consumers, including in all of the following ways:
    (1) In any communication that is solely visual or solely audible, 
the disclosure must 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 must 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.
    (2) A visual disclosure, by its size, contrast, location, the 
length of time it appears, and other characteristics, must stand out 
from any accompanying text or other visual elements so that it is 
easily noticed, read, and understood.
    (3) An audible disclosure, including by telephone or streaming 
video, must be delivered in a volume, speed, and cadence sufficient for 
ordinary consumers to easily hear and understand it.
    (4) In any communication using an Interactive Electronic Medium, 
such as the internet, mobile application, or software, the disclosure 
must be unavoidable.
    (5) The disclosure must use diction and syntax understandable to 
ordinary consumers and must appear in each language in which the 
representation that requires the disclosure appears.
    (6) The disclosure must comply with these requirements in each 
medium through which it is received, including all electronic devices 
and face-to-face communications.
    (7) The disclosure must not be contradicted or mitigated by, or 
inconsistent with, anything else in the communication.
    (8) When the representation or sales practice targets a specific 
audience, such as children, older adults, or the terminally ill, 
``ordinary consumers'' includes members of that group.
    Interactive Electronic Medium is any electronic means of 
communicating (except via telephone calls), including internet, mobile 
application, text, chat, instant message, email, software, or any 
online service.
    Material means likely to affect a person's choice of, or conduct 
regarding, goods or services.
    Negative Option Feature is a provision of a contract under which 
the consumer's silence or failure to take affirmative action to reject 
a good or service or to cancel the agreement is interpreted by the 
negative option seller as acceptance or continuing acceptance of the 
offer, including, but not limited to:
    (1) An automatic renewal;
    (2) A continuity plan;
    (3) A free-to-pay conversion or fee-to-pay conversion; or
    (4) A pre-notification negative option plan.
    Negative Option Seller means the person selling, offering, charging 
for, or otherwise marketing a good or service with a Negative Option 
Feature.


Sec.  425.3  Misrepresentations.

    In connection with promoting or offering for sale any good or 
service with a Negative Option Feature, it is a violation of this part 
and an unfair or deceptive act or practice in violation of section 5 of 
the Federal Trade Commission Act (``FTC Act'') for any Negative Option 
Seller to misrepresent, expressly or by implication, any Material fact, 
including any of the following:
    (a) The Negative Option Feature or any term of the Negative Option 
Feature, including consumer consent, any deadline to prevent or stop a 
Charge, or the cancellation of the Negative Option Feature;
    (b) Cost;
    (c) Purpose or efficacy of the underlying good or service;
    (d) Health or safety; or
    (e) Any other Material fact.


Sec.  425.4  Important information.

    (a) Disclosures. In connection with promoting or offering for sale 
any good or service with a Negative Option Feature, it is a violation 
of this part and an unfair or deceptive act or practice in violation of 
section 5 of the FTC Act for a Negative Option Seller to fail to 
disclose to a consumer, prior to obtaining the consumer's Billing 
Information, all Material terms, regardless of whether those terms 
directly relate to the Negative Option Feature, and including but not 
limited to:
    (1) That consumers will be Charged 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;
    (2) Each deadline (by date or frequency) by which the consumer must 
act to prevent or stop the Charges;
    (3) The amount (or range of costs) the consumer will be Charged 
and, if applicable, the frequency of the Charges a consumer will incur 
unless the consumer takes timely steps to prevent or stop those 
Charges; and
    (4) The information necessary for the consumer to find the simple 
cancellation mechanism required pursuant to Sec.  425.6.
    (b) Form and content of required information. (1) Clear and 
Conspicuous: Each disclosure required by paragraph (a) of this section 
must be Clear and Conspicuous.
    (2) Placement:
    (i) The disclosures required by paragraphs (a)(1) through (4) of 
this section must appear immediately adjacent to the means of recording 
the consumer's consent for the Negative Option Feature; and
    (ii) The disclosures required by paragraph (a) of this section 
(including, but not limited to, the disclosures required by paragraphs 
(a)(1) through (4) of this section) must appear before obtaining the 
consent required pursuant to Sec.  425.5.
    (3) Other Information: All communications, regardless of media, 
must not contain any other information that interferes with, detracts 
from, contradicts, or otherwise undermines the ability of consumers to 
read, hear, see, or otherwise understand the disclosures required by 
paragraph (a) of this section.


Sec.  425.5  Consent.

    (a) Express informed consent. In connection with promoting or 
offering for sale any good or service with a Negative Option Feature, 
it is a violation of this part and an unfair or deceptive act or 
practice in violation of section 5 of the FTC Act for a Negative Option 
Seller to fail to obtain the consumer's express informed consent before 
Charging the consumer. In obtaining such expressed informed consent, 
the Negative Option Seller must:
    (1) Obtain the consumer's unambiguously affirmative consent to the 
Negative Option Feature offer separately from any other portion of the 
transaction;
    (2) 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; 
and
    (3) Keep or maintain verification of the consumer's consent for at 
least three years. However, if the seller can

[[Page 90539]]

demonstrate by a preponderance of the evidence that it uses processes 
ensuring no consumer can technologically complete the transaction 
without consent, such seller does not have to maintain these records 
for such transactions.
    (b) Requirements for Negative Option Features covered in the 
Telemarketing Sales Rule. Negative Option Sellers covered by the 
Telemarketing Sales Rule must comply with all applicable requirements 
provided in 16 CFR part 310, including, for transactions involving 
preacquired account information and a free-to-pay-conversion feature, 
obtaining from the customer, at a minimum, the last four (4) digits of 
the account number to be charged and making and maintaining an audio 
recording of the entire telemarketing transaction as required by 16 CFR 
part 310.
    (c) Documentation of unambiguously affirmative consent for written 
offers. Except for transactions covered by the preauthorized transfer 
provisions of the Electronic Fund Transfer Act (15 U.S.C. 1693e) and 
Regulation E (12 CFR 1005.10), a Negative Option Seller will be deemed 
in compliance with the requirements of paragraph (a)(1) of this section 
for all written offers (including over the internet or phone 
applications), if that seller obtains the required consent through a 
check box, signature, or other substantially similar method, which the 
consumer must affirmatively select or sign to accept the Negative 
Option Feature and no other portion of the transaction. The consent 
request must be presented in a manner and format that is clear, 
unambiguous, non-deceptive, and free of any information not directly 
related to the consumer's acceptance of the Negative Option Feature.


Sec.  425.6  Simple cancellation (``Click to Cancel'').

    (a) Simple mechanism required for cancellation. In connection with 
promoting or offering for sale any good or service with a Negative 
Option Feature, it is a violation of this Rule and an unfair or 
deceptive act or practice in violation of section 5 of the FTC Act for 
the Negative Option Seller to fail to provide a simple mechanism for a 
consumer to cancel the Negative Option Feature; avoid being Charged, or 
Charged an increased amount, for the good or service; and immediately 
stop any recurring Charges.
    (b) Simple mechanism at least as simple as consent. The simple 
mechanism required by paragraph (a) of this section must be at least as 
easy to use as the mechanism the consumer used to consent to the 
Negative Option Feature.
    (c) Minimum requirements for simple mechanism. At a minimum, the 
Negative Option Seller must provide the simple mechanism required by 
paragraphs (a) and (b) of this section through the same medium the 
consumer used to consent to the Negative Option Feature, and:
    (1) For cancellation by Interactive Electronic Medium, the simple 
cancellation mechanism must be easy to find when the consumer seeks to 
cancel. Compliance with the disclosure required under Sec.  425.4(a)(4) 
does not discharge this obligation. In no event shall a consumer be 
required to interact with a live or virtual representative (such as a 
chatbot) to cancel if the consumer did not do so to consent to the 
Negative Option Feature.
    (2) For cancellation by telephone call, the Negative Option Seller 
must promptly effectuate cancellations requested by the consumer via a 
telephone number that is answered or records messages, made available 
during normal business hours, and not more costly to use than the 
telephone call the consumer used to consent to the Negative Option 
Feature.
    (3) For cancellation of consent obtained in person, in addition to 
offering cancellation, where practical, via an in-person method similar 
to that the consumer used to consent to the Negative Option Feature, 
the Negative Option Seller must offer the simple mechanism through an 
Interactive Electronic Medium or by providing a telephone number. The 
alternate simple mechanism required by this paragraph must satisfy all 
requirements of paragraphs (c)(1) and (2) of this section, as 
applicable. If the Negative Option Seller offers the alternate 
mechanism by providing a telephone number, the seller shall not erect a 
cost-barrier to cancellation by imposing any unnecessary or 
unreasonable cost for the cancellation call.


Sec.  425.7  Relation to State laws.

    (a) In general. This part shall not be construed as superseding, 
altering, or affecting any State statute, regulation, order, or 
interpretation relating to negative option requirements, except to the 
extent it is inconsistent with the provisions of this part, and then 
only to the extent of the inconsistency.
    (b) Greater protection under State law. For purposes of this 
section, a State statute, regulation, order, or interpretation is not 
inconsistent with the provisions of this part if it affords any 
consumer greater protection than provided under this part.


Sec.  425.8  Exemptions.

    Any person to whom this part applies may petition the Commission 
for a partial or full exemption. The Commission may, in response to 
petitions or on its own authority, issue partial or full exemptions 
from this part if the Commission finds application of this part's 
requirements is not necessary to prevent the acts or practices to which 
this part relates. The Commission shall resolve petitions using the 
procedures provided in 16 CFR 1.31. If appropriate, the Commission may 
condition such exemptions on compliance with alternative standards or 
requirements to be prescribed by the Commission.


Sec.  425.9  Severability.

    The provisions of this part are separate and severable from one 
another. If any provision is stayed or determined to be invalid, the 
remaining provisions shall continue in effect.

    By direction of the Commission, Commissioners Holyoak and 
Ferguson dissenting.
April J. Tabor,
Secretary.

    Note: The following statements will not appear in the Code of 
Federal Regulations.

Statement of Commissioner Rebecca Kelly Slaughter

    As is common in rulemaking proceedings, this Final Rule that the 
Commission promulgates is somewhat different from what it originally 
proposed--clarified, narrowed, and ultimately improved by the 
process of grappling with the substantial record of comments 
submitted by the public. I extend my heartfelt thanks to everyone 
who submitted comments; to the talented staff in our Division of 
Enforcement and the East Central Regional Office who diligently 
shepherded this proceeding, thoroughly considered all those 
comments, and recommended thoughtful revisions; and to my colleagues 
for their deep engagement with this issue of great importance, 
including former Chairman Joe Simons, under whose leadership the 
Commission initiated this rulemaking proceeding.
    I write separately to draw attention to the comment record about 
a provision that the Commission proposed but ultimately does not 
finalize, proposed Sec.  425.7, which would have required annual 
reminders of subscriptions that do not involve the delivery of 
physical goods.\1\ Americans understand the importance and value of 
such a requirement; many have discovered that they or their parents 
had been paying for years or even decades for a service wholly 
unused, such as a dial-up internet service from the

[[Page 90540]]

1990s.\2\ The reason that the Commission declines to finalize this 
proposal is not that it lacks policy merit but that the record in 
total does not support its inclusion in the Final Rule as 
proposed.\3\ Of course, we are always mindful that our authority 
under the FTC Act to issue rules under section 18 has limits; 
sometimes, as here, those limits prevent us from codifying in a rule 
practices that we might, as a matter of policy, prefer to require 
explicitly.
---------------------------------------------------------------------------

    \1\ See Negative Option Rule, 88 FR 24716, 24736 (proposed Apr. 
24, 2023) (``Annual reminders for negative option features not 
involving physical goods.'') (to be codified at 16 CFR 425.7), 
https://www.federalbregister.gov/documents/2023/04/24/2023-07035/negative-option-rule.
    \2\ See, e.g., Cmt. of the Attorneys General of New York, 
Pennsylvania, Alabama, Arizona, California, Colorado, Connecticut, 
Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, 
Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Jersey, 
North Carolina, North Dakota, Oklahoma, Oregon, Vermont, Washington, 
and Wisconsin (June 23, 2023), at 15 (``Subscription management has 
become an entire industry; consumers can choose from a variety of 
companies that offer to monitor their recurring subscriptions. We 
believe that consumers should not have to sign up for yet another 
service--one that comes with privacy and security risks, as 
subscription monitoring services require sharing financial account 
and other sensitive information--in order to effectively manage 
their subscriptions.''), https://www.regulations.gov/comment/FTC-2023-0033-0886; Cmt. of Consumer Action, Consumer Federation of 
America, Demand Progress Education Fund, National Association of 
Consumer Advocates, National Consumer Law Center (on behalf of its 
low-income clients), and National Consumer League (June 23, 2023), 
at 7 (``Consumers deserve to know when they are about to be charged 
automatically, with a chance to opt out.''), https://www.regulations.gov/comment/FTC-2023-0033-0880; Cmt. of Profs. 
Caruso, Raghavan, Sovern, Vladeck, Pridgen, Janger, Ondersma, and 
Block-Lieb (June 23, 2023), at 7-8 (encouraging the Commission to 
adopt the reminder requirement without narrowing it), https://www.regulations.gov/comment/FTC-2023-0033-0861.
    \3\ See Fed. Trade Comm'n, Negative Option Rule, Final Rule 
Statement of Basis and Purpose (Oct. 16, 2024) (draft as submitted 
to the Office of the Federal Register), at 138-44.
---------------------------------------------------------------------------

    Congress and State legislatures, by contrast, have plenary 
authority to require such a reminder. This spring, for example, in a 
show of bipartisanship, Virginia Governor Glenn Youngkin signed into 
law legislation sponsored by Delegate Michelle Lopes Maldonado, H.B. 
744, which requires that subscriptions that renew annually provide 
to the consumer a notice of the upcoming renewal and the opportunity 
to cancel via between 30 and 60 days before the consumer is charged 
for the renewal.\4\ The comment record compiled in this rulemaking 
proceeding strongly supports the wisdom of Federal and State 
legislators' carefully considering adopting such a law, and the 
Final Rule's omission of such a provision should be understood only 
as a reflection of the Commission's cautious approach to its 
jurisdictional limits and not as related to the merits of a policy 
that requires annual reminders for subscription services.
---------------------------------------------------------------------------

    \4\ See 2024 Va. Acts, H. 744, Apr. 4, 2024 (to be codified at 
section 59.1-207.46(E)), https://legacylis.virginia.gov/cgi-bin/legp604.exe?241+ful+CHAP0452+pdf.
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Dissenting Statement of Commissioner Melissa Holyoak

    ``Article I of the Constitution vests `all legislative Powers 
herein granted' in Congress. `By vesting the lawmaking power in the 
people's elected representatives, the Constitution sought to ensure 
not only that all power would be derived from the people, but also 
that those entrusted with it should be kept in dependence on the 
people.' '' \1\ Whenever we engage in rulemaking, the Commission 
should recall that Article I of the Constitution vests legislative 
powers in Congress, not with agencies. Because of that, it is 
elected officials that delineate the boundaries, and set the 
requirements, that we as Commissioners must adhere to. I believe the 
Commission exceeds those boundaries and requirements in amendments 
to the Negative Option Rule, 16 CFR part 425, (``Rule'') it 
finalizes today. Instead of pursuing targeted enforcement efforts or 
finalizing a rule consistent with the Commission's authority under 
section 18 of the FTC Act,\2\ the Commission has used its limited 
resources to promulgate a broader regulation that may not survive 
legal challenge.\3\
---------------------------------------------------------------------------

    \1\ Dissenting Statement of Comm'r Melissa Holyoak, Joined by 
Comm'r Andrew N. Ferguson, In the Matter of the Non-Compete Clause 
Rule, FTC Matter No. P201200, at 1 (June 28, 2024) (quoting U.S. 
Const. Art. I and W. Virginia v. EPA, 597 U.S. 697, 737-38 (2022) 
(Gorsuch, J., concurring)) (cleaned up), https://www.ftc.gov/system/files/ftc_gov/pdf/2024-6-28-commissioner-holyoak-nc.pdf.
    \2\ 15 U.S.C. 57a.
    \3\ Cf. Dissenting Statement of Comm'r Melissa Holyoak, Joined 
by Comm'r Andrew N. Ferguson, supra note 1, at 2 (``My dissent 
should not, however, be interpreted to mean that I endorse all non-
compete agreements. To the contrary, I would support the 
Commission's prosecution of anti-competitive non-compete agreements, 
where the facts and law support such enforcement. That is why I am 
particularly disappointed that the Commission dedicated the 
Commission's limited resources to a broad rulemaking that exceeds 
congressional authorization and will likely not survive legal 
challenge.'') (citation omitted).
---------------------------------------------------------------------------

    The likely unlawful character of the rule is compounded by the 
Majority's race to cross the finish line. Why the rush? There is a 
simple explanation. Less than a month from election day, the Chair 
is hurrying to finish a rule that follows through on a campaign 
pledge made by the Chair's favored presidential candidate.\4\
---------------------------------------------------------------------------

    \4\ See, e.g., A New Way Forward for the Middle Class: A Plan to 
Lower Costs and Create an Opportunity Economy, KamalaHarris.com, at 
33 (Sept. 2024) (``Under her leadership as Vice President, the 
Administration has launched a historic effort to crack down on junk 
fees and save consumers time and money. This includes [a rule] to . 
. . make it as easy to cancel a subscription as it is to subscribe. 
. . . A Harris-Walz Administration will . . . continue to take on 
the everyday hassles that waste Americans' time and money, 
[including] subscriptions. . . .'') (citing FTC press release),  
https://kamalaharris.com/wp-content/uploads/2024/09/Policy-Book-Economic-Opportunity.pdf.
---------------------------------------------------------------------------

    The Majority votes today to approve a final trade regulation 
rule amendment to the existing negative option rule. This amendment 
greatly expands the prior rule, which had covered now-rare 
prenotification plans (e.g., book-of-the-month clubs)--and goes well 
beyond what existing laws, such as the Restore Online Shoppers' 
Confidence Act (``ROSCA''),\5\ Telemarketing Sales Rule 
(``TSR''),\6\ or Regulation E,\7\ require. The now-capacious Rule 
creates potential civil penalty liability for: any misrepresentation 
of material fact made in connection with the marketing of a product 
or service that has a negative option feature (Sec.  425.3); failure 
to disclose all material terms before obtaining billing information 
in connection with a negative option (Sec.  425.4); failure to 
obtain express informed consent before charging in connection with a 
negative option (Sec.  425.5); and failure to provide a simple 
mechanism for cancelling a negative option (Sec.  425.6). The Rule 
also preempts inconsistent State laws (Sec.  425.7).
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 8401-8405.
    \6\ 16 CFR part 310.
    \7\ 12 CFR 1005.10.
---------------------------------------------------------------------------

    I respectfully dissent for three reasons. First, this rulemaking 
did not follow the FTC Act's section 18 requirements for rulemaking 
because: (1) the Rule is much broader than the ``area of inquiry'' 
proposed by the advance notice of proposed rulemaking (``ANPR''); 
(2) the Rule fails to define with specificity acts or practices that 
are unfair or deceptive, improperly generalizing from narrow 
industry-specific complaints and evidence to the entire American 
economy; and (3) the Rule fails to demonstrate that the unfair or 
deceptive acts or practices related to negative option billing are 
``prevalent.'' \8\ Second, the Rule's breadth incentivizes companies 
to avoid negative option features that honest businesses and 
consumers find valuable. Third, the Rule represents a missed 
opportunity to make useful amendments to the preexisting negative 
option rule within the scope of the Commission's authority.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 57a.
---------------------------------------------------------------------------

    Such amendments could have provided greater clarity to 
businesses about the patchwork of Federal laws pertaining to 
negative options and lawfully used our section 18 rulemaking 
authority to fill potential gaps including, for example, 
cancellation requirements. Indeed, I am very concerned that 
consumers are sometimes misled by companies using deceptive negative 
option features. The Rule represents a missed opportunity to devote 
scarce staff resources to bringing enforcement actions related to 
negative option features using the clear tools that Congress gave 
us, rather than conducting an overbroad rulemaking that cost years 
of staff time to propose and finalize, but will likely not survive 
legal challenge.
    Today's rulemaking did not need to end this way. Had political 
leadership at the Commission taken more time to engage with other 
Commissioners to refine and improve the Rule, my vote and statement 
would look very different. Instead, less than a month from November 
5, the Chair has put political expediency over getting things right. 
Unfortunately, pushing politically motivated rulemakings has not 
been the exception with the Majority.\9\ Today, I believe we are 
seeing another low in our abuse and misuse of the tools Congress has 
given us. Rather than engage in blatant electioneering to advance 
political ends, the Commission should have

[[Page 90541]]

instead focused on stewarding its resources effectively and in ways 
that restore our institutional legitimacy, not further undermine it.
---------------------------------------------------------------------------

    \9\ See generally Dissenting Statement of Comm'r Melissa 
Holyoak, Joined by Comm'r Andrew N. Ferguson, supra note 1.
---------------------------------------------------------------------------

    I. The historical context surrounding Congress's enactment of 
rulemaking requirements in section 18 of the FTC Act is important. 
Congress passed the Magnuson-Moss Warranty Act in 1975, which 
imposed exacting requirements and limitations on rulemaking 
regarding unfair or deceptive acts or practices.\10\ In the 1970s, 
the Commission tried to use its rulemaking and unfairness authority 
aggressively--for example, ``to ban all advertising directed to 
children on the grounds that it was `immoral, unscrupulous, and 
unethical' and based on generalized public policies to protect 
children.'' \11\ In response, Congress refused to fund the 
Commission, shutting it down for several days.\12\ Even this harsh 
rebuff did not completely cool Congressional ire with the ``National 
Nanny'' (as the Washington Post--no bastion of conservative 
thought--facetiously dubbed the Commission).\13\ A 1979 Senate 
Report found that the agency's rulemaking efforts were filled with 
``excessive ambiguity, confusion, and uncertainty.'' \14\ In 1980, 
Congress legislated to limit the Commission's authority, by imposing 
additional procedural obligations on section 18 rulemaking.\15\ 
Among other things, Congress created additional procedural rights, 
well beyond the Administrative Procedure Act's baseline procedural 
requirements, such as requiring the FTC to issue an ANPR with 
numerous specific requirements, which the Commission must submit to 
Congress, for each rulemaking.\16\
---------------------------------------------------------------------------

    \10\ Magnuson-Moss Warranty Act of 1975, Public Law 93-637, 88 
Stat. 2183.
    \11\ See J. Howard Beales III, The Fed. Trade Comm'n's Use of 
Unfairness Authority: Its Rise, Fall, and Resurrection, 22 J. of 
Pub. Pol'y & Mktg. 192, 193 (2003) (citing FTC Staff Report on 
Television Advertising to Children (Feb. 1978); Notice of Proposed 
Rulemaking on Television Advertising to Children, 43 FR 17967 (Apr. 
27, 1978)). In the 1970s, the Commission aggressively used its 
rulemaking authority--so aggressively that it has been called the 
``second most powerful legislature in America.'' Timothy J. Muris, 
The Consumer Protection Mission: Guiding Principles and Future 
Direction, 51 Antitrust L.J. 625, 625 (1982). The approach of 
today's Majority threatens to turn back the clock to this earlier, 
ill-advised approach.
    \12\ Id. at 193.
    \13\ Id.
    \14\ S. Rep. No. 96-500, at 3 (1979).
    \15\ Federal Trade Commission Improvements Act of 1980, Public 
Law 96-252, 94 Stat. 374.
    \16\ Id.
---------------------------------------------------------------------------

    Congress' harsh reaction to the FTC's overreach only makes sense 
if we understand that section 18 was created and then expanded not 
to give the Commission free-ranging rulemaking authority, but to 
curb it. We should be exacting in following the requirements of 
section 18, lest we risk repeating history--drawing Congressional 
ire that that could further limit our authority and budget. Indeed, 
section 18's rulemaking requirements, while demanding, are the means 
of assuring that we act within the parameters established by 
Congress.
    As an initial matter, this Rule's procedural irregularities 
begin with how the Rule was finalized in a compressed time frame. 
Given the rigorous demands of section 18 rulemaking, historically, 
it has taken the Commission, on average, 5.57 years to issue a rule 
after the Magnuson-Moss procedures were enacted.\17\ That, 
apparently, was too much time and procedure for the Majority. In 
2021, during the pendency of this rulemaking, the Commission made 
changes to its rules of practice,\18\ over objections from the 
Commissioners in the Minority, to limit the efficacy of section 18's 
procedural safeguards and compress rulemaking timeframes.\19\ Among 
other things, the Commission revised the Rules of Practice so as to 
remove selection of the Presiding Officer from an independent judge 
and assign that role to the Chair; strip the Presiding Officer of 
significant control over the hearing process; and narrow 
opportunities for the public to help determine which factual issues 
are in dispute.\20\ Then-Commissioners Phillips and Wilson 
dissented, noting: ``What the[se] changes--adopted without public 
input--in fact do is fast-track regulation at the expense of public 
input, objectivity, and a full evidentiary record.'' \21\
---------------------------------------------------------------------------

    \17\ Jeffrey S. Lubbers, It's Time To Remove the ``Mossified'' 
Procedures for Removing FTC Rulemaking, 83 Geo. Wash. L. Rev. 1979, 
1997 (2015).
    \18\ Press Release, Fed. Trade Comm'n, FTC Votes to Update 
Rulemaking Procedures, Sets Stage for Stronger Deterrence of 
Corporate Misconduct (July 1, 2021), https://www.ftc.gov/news-events/news/press-releases/2021/07/ftc-votes-update-rulemaking-procedures-sets-stage-stronger-deterrence-corporate-misconduct.
    \19\ See Dissenting Statement of Comm'rs Christine S. Wilson and 
Noah Joshua Phillips, Regarding the Comm'n Statement On the Adoption 
of Revised Section 18 Rulemaking Procedures (July 9, 2021), https://www.ftc.gov/system/files/documents/public_statements/1591702/p210100_wilsonphillips_joint_statement_-_rules_of_practice.pdf.
    \20\ Id. at 3-5.
    \21\ Id. at 3.
---------------------------------------------------------------------------

    Apparently not content with even these procedural shortcuts and 
compressed timeframe, political leadership now speeds to the finish 
line with minimal opportunity for Commissioner engagement on the 
final Rule. There should be ample opportunity for robust 
consideration and dialogue leading up to a Commission vote on any 
regulation, and especially for a highly consequential rule. Such 
opportunity for dialogue may assuage concerns, produce constructive 
changes, and ultimately lead to a better result. Indeed, in the past 
where political leadership has been willing to engage and make 
needed modifications preceding votes, that consideration and 
engagement have been very valuable and led to bipartisan support for 
Commission actions.
    Here, however, the time period for me to review this economy-
wide Rule was a matter of weeks. Those weeks were also packed with 
dozens of cases, one other rulemaking, and other policy matters. 
(Remarkably, the Chair had this draft final Rule for some time 
before it was circulated to the other Commissioners.) Reviewing the 
NPRM was no substitute for robust discussion and negotiation related 
to the final Rule's language and statement of basis and purpose, as 
the final Rule differs in important ways from the rule as proposed. 
The push to finalize is inexcusable, particularly because it is a 
discretionary rulemaking with no due date (imposed by Congress or 
otherwise). For those tracking the Rule and national politics 
closely, this rush to the finish line (and less than a month from a 
Presidential election) is no surprise. This Rule is connected to the 
current administration's efforts relating to so-called junk fees 
(which are beginning to make a regular appearance before elections 
\22\), and it has been in the spotlight for some time, including at 
the White House \23\ and now on the campaign trail.\24\
---------------------------------------------------------------------------

    \22\ See generally Betsy Klein et al., Biden Cracks Down on 
``Junk Fees'' in New Economic Focus Ahead of Midterms, CNN (Oct. 26, 
2022), https://www.cnn.com/2022/10/26/politics/biden-bank-fees-speech/.
    \23\ See, e.g., Biden-Harris Administration Announces Broad New 
Actions to Protect Consumers from Billions in Junk Fees, The White 
House (Oct. 11, 2023) (``The FTC proposed a `click to cancel' rule 
in March of 2023, that, if finalized as proposed, would require 
sellers to make it as easy for consumers to cancel their enrollment 
as it was to sign up. This rule would rescue consumers from 
seemingly never-ending struggles to cancel unwanted subscription 
payment plans for everything from cosmetics to gym memberships.''), 
https://www.whitehouse.gov/briefing-room/statements-releases/2023/10/11/biden-harris-administration-announces-broad-new-actions-to-protect-consumers-from-billions-in-junk-fees/.
    \24\ See, e.g., A New Way Forward, KamalaHarris.com, supra note 
4.
---------------------------------------------------------------------------

    But elevating political goals comes at a high price, harms 
policy efforts that might otherwise benefit consumers, and 
undermines the Commission's legitimacy. Publicly appearing to refuse 
to keep an open mind on a final rule or to prejudge complex policy 
questions, along with an apparent unwillingness to reconsider 
various aspects of a rulemaking may create PR buzz for the campaign 
trail and score political points. But that posture creates real 
legal risk for the Rule. Statements from the White House \25\

[[Page 90542]]

and related statements from the Chair \26\ concerning this rule--and 
other matters related to her tenure or connected to her party's 
campaign efforts \27\--raise the possibility that foreordained 
outcomes and political goals curtailed considering the rulemaking 
record with an open mind and without prejudgment, as law 
requires.\28\ Today's sprint to the finish line has shortchanged the 
kind of deliberation and thoughtful engagement Congress deemed 
appropriate when it established rulemaking requirements under the 
Magnuson-Moss Act.
---------------------------------------------------------------------------

    \25\ See, e.g., President Biden (@POTUS), X.com (Aug. 12, 2024) 
(``We're making it easier to cancel subscriptions and memberships. 
You shouldn't have to navigate a maze just to cancel unwanted 
subscriptions and recurring payments. The FTC is hard at work 
finalizing its `Click to Cancel' rule that it proposed to make this 
process a requirement.''), https://x.com/POTUS/status/1823037212885414107; see also FACT SHEET: Biden-Harris 
Administration Launches New Effort to Crack Down on Everyday 
Headaches and Hassles That Waste Americans' Time and Money, The 
White House (Aug. 12, 2024) (``Today, President Biden and Vice 
President Harris are launching `Time Is Money,' a new governmentwide 
effort to crack down on all the ways that corporations . . . add 
unnecessary headaches and hassles to people's days and degrade their 
quality of life. . . . The Federal Trade Commission (FTC) has 
proposed a rule that, if finalized as proposed, would require 
companies to make it as easy to cancel a subscription or service as 
it was to sign up for one. The agency is currently reviewing public 
comments about its proposal.''), https://www.whitehouse.gov/briefing-room/statements-releases/2024/08/12/fact-sheet-biden-harris-administration-launches-new-effort-to-crack-down-on-everyday-headaches-and-hassles-that-waste-americans-time-and-money/.
    \26\ See, e.g., Lina Khan (@linakhanFTC), X.com (Aug. 12, 2024) 
(``As @POTUS notes, @FTC's proposal would require that firms make it 
as easy to cancel a subscription as it is to sign up. Too often 
people have to jump through endless hoops--or end up stuck paying 
for services they don't want. Our rule would end this tax on your 
time & money.''), https://x.com/linakhanFTC/status/1823094653962289640. That Tweet came in response to the President 
unequivocally saying, ``[w]e're making it easier to cancel 
subscriptions and memberships,'' and signaling the proposal would be 
finalized consistent with the NPRM. See President Biden (@POTUS), 
supra note 25. Other statements are similarly probative of apparent 
conclusions being reached about the contours of the final rule. See, 
e.g., Chair Lina M. Khan, Remarks at Center for American Progress, 
at 3-4 (Sept. 25, 2024) (``We've also unfortunately seen a rise in 
subscription traps. We've all been there. Every month, you're paying 
for that gym membership you don't really use, or streaming services 
you never signed up for in the first place. But it's absurdly 
difficult to actually cancel these services. You have to call 
customer service and spend an hour on the phone with a bot before 
you finally get through to a human being. Customer Service then 
transfers you to Memberships. They transfer you to Cancellations. 
And then suddenly the call drops and you have to do it all over 
again. It can feel like you're stuck in some type of endless doom 
loop. And many people understandably just give up--and pay dozens if 
not hundreds of dollars for subscriptions they don't want or need. 
And of course, that's kind of the point: to wear you down and keep 
taking your money, month after month. I'm excited that the 
Commission will be considering finalization of a `click to cancel' 
rule that would require companies to make it just as easy to cancel 
a subscription as it is to sign up for one.''), https://www.ftc.gov/system/files/ftc_gov/pdf/20240925-remarks-chair-khan-center-for-american-progress.pdf; see also Chair Lina M. Khan, Remarks at 
Strike Force on Unfair and Illegal Pricing Public Convening, at 2 
(Aug. 1, 2024) (``We're currently working toward finalizing our 
`click to cancel' rule. Too often, businesses require people to jump 
through endless hoops just to cancel a subscription. Customers end 
up paying dozens if not hundreds of dollars a month in subscriptions 
they want to escape. Our proposed rule would require that companies 
make it as easy to cancel a subscription as it is to sign up for 
one--ending this tax on people's time and money.''), https://www.ftc.gov/system/files/ftc_gov/pdf/2024.08.01-remarks-chair-khan-strike-force-public-convening.pdf. In light of such statements 
unambiguously reflecting a firm belief in the need for regulatory 
action--and all but committing to the proposed solution--it is 
risible to suggest this rule was not effectively baked well before 
the Commission's vote.
    \27\ See, e.g., Talmon Joseph Smith, Lina Khan Ends FTC Term. 
What's Next for Her?, Seattle Times (Oct. 1, 2024) (``Q: You've not 
gotten any whispers, any word that you will not be wanted in a 
Harris administration? A. No, I think to the contrary.''), https://www.seattletimes.com/business/lina-khan-ends-ftc-term-whats-next-for-her/; see generally Ben Brody, Lina Khan Hits the Road with 
Democrats Ahead of Election, Punchbowl News (Oct. 2, 2024), https://punchbowl.news/article/campaigns/ftc-lina-khan-campaigns-with-democrats/; cf. Letter from James Comer, Chair, Committee on 
Oversight and Accountability to Lina Khan, Chair, Fed. Trade Comm'n, 
at 1 (Oct. 8, 2024) (``During this election season, you have engaged 
in partisan political activities with numerous Democrat 
congressional candidates, undermining the FTC's independence and its 
mission to protect American consumers regardless of partisan 
affiliation''), https://oversight.house.gov/wp-content/uploads/2024/10/FTC-re-Chair-Khan-Campaign-Season-Events_10.8.202423.pdf.
    \28\ See generally 15 U.S.C. 57a(b)(1); 5 U.S.C. 553(c); cf. Air 
Transport Ass'n of Am. Inc. v. Nat' Mediation Bd., 663 F.3d 476 
(D.C. Cir. 2011); Int'l Snowmobile Mfrs. Ass'n v. Norton, 340 F. 
Supp. 2d 1249 (D. Wyo. 2004); Nehemiah Corp. of Am. v. Jackson, 546 
F. Supp. 2d 830 (E.D. Cal. 2008). The Chair's approach is highly 
unusual, given this legal risk and the Commission's responsibility 
to keep an open mind--which is why, typically, Commissioners do not 
comment on pending rulemakings.
---------------------------------------------------------------------------

    In addition to my concern about these irregularities, I am 
convinced that this rulemaking has failed to satisfy section 18's 
requirements for rulemaking in three ways. First, the Commission is 
issuing a broad final rule even though the ANPR was far narrower. 
This mismatch means that the Commission failed to provide in its 
ANPR the ``brief description of the area of inquiry under 
consideration, the objectives which the Commission seeks to achieve, 
and possible regulatory alternatives under consideration by the 
Commission'' that section 18 requires.\29\ The mismatch is the 
result of leadership changes and priorities. The ANPR was voted out 
in 2019 by a bipartisan Commission under then-Chair Joseph J. 
Simons.\30\ It sought public comments about centralizing existing 
legal requirements regarding negative options and filling gaps via 
section 18 rulemaking related to disclosures, consent, and 
cancellation.\31\ The current Majority took the bipartisan ANPR and 
politically supercharged it.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 57a(b)(2)(A).
    \30\ Fed. Trade Comm'n, Press Release, FTC Seeks Public Comment 
on Ways to Improve Current Requirements for Negative Option 
Marketing (Sept. 25, 2019), https://www.ftc.gov/news-events/news/press-releases/2019/09/ftc-seeks-public-comment-ways-improve-current-requirements-negative-option-marketing.
    \31\ 84 FR 52393, 52394 (Oct. 2, 2019) (``The Commission seeks 
comments on ways to improve its existing regulations for negative 
option marketing, a common form of marketing where the absence of 
affirmative consumer action constitutes assent to be charged for 
goods or services. Negative option offers are widespread in the 
marketplace and can provide substantial benefits for sellers and 
consumers. However, consumers cannot reap such benefits when 
marketers fail to make adequate disclosures, bill consumers without 
their consent, or make cancellation difficult or impossible. Over 
the years, such problematic negative option practices have remained 
a persistent source of consumer harm, often saddling consumers with 
recurring payments for products and programs they did not intend to 
purchase or did not want. In the past, the Commission has sought to 
address such practices through individual law enforcement cases and 
a patchwork of regulations. Nevertheless, problems persist, and 
consumers continue to submit thousands of complaints to the FTC each 
year about negative option marketing. To address these concerns, the 
Commission seeks comments on ways to improve existing regulatory 
requirements, including whether it should use its rulemaking 
authority under the FTC Act to expand the scope and coverage of the 
existing Negative Option Rule.'').
---------------------------------------------------------------------------

    Importantly, the ANPR did not contemplate broader regulation 
prohibiting all misrepresentations of material fact related to 
products that have negative option features. The ANPR tailored its 
inquiry by ``. . . highlighting five basic section 5 requirements 
that negative option marketing must follow to avoid deception'': (1) 
disclosure of material terms of a negative option offer; (2) clear 
and conspicuous disclosures; (3) pre-purchase disclosures; (4) 
consent; (5) cancellation.\32\ Absent from this list is anything 
about prohibiting all misrepresentations of material fact related to 
any product that happens to have a negative option feature. 
Similarly, when the ANPR stated that the Commission was seeking 
comment ``to reduce consumer harm created by deceptive or unfair 
negative option marketing,'' it specified the Commission's interest 
pertained to ``disclosures, consumer consent, and cancellation.'' 
\33\ Again, absent from that list was anything about prohibiting all 
misrepresentations of material fact related to marketing of any 
product that has a negative option feature.
---------------------------------------------------------------------------

    \32\ Id. at 52395.
    \33\ Id. at 52396.
---------------------------------------------------------------------------

    When Commission leadership changed in 2021, the ``area of 
inquiry'' changed as well. Almost immediately, the Commission under 
Chair Khan disrupted this particular rulemaking process to issue an 
Enforcement Policy Statement Regarding Negative Option Marketing 
\34\--sub-regulatory guidance on the very same topic as the 
rulemaking itself. The Commission then issued a Notice of Proposed 
Rulemaking (``NPRM'') in 2023 that introduced into the rulemaking--
for the first time--the notion of prohibiting misrepresentations 
related to marketing of products with negative option features.\35\ 
Former Commissioner Christine S. Wilson dissented from the issuance 
of the NPRM for this (among other) reasons. In her dissenting 
statement, Commissioner Wilson explained: ``Importantly, we did not 
seek comment in the ANPR about whether an expanded negative option 
rule should address general misrepresentations; no comments are 
cited in the NPRM to support the inclusion of these provisions.'' 
\36\
---------------------------------------------------------------------------

    \34\ Fed. Trade Comm'n, Press Release, FTC To Ramp Up 
Enforcement Against Illegal Dark Patterns that Trick or Trap 
Consumers Into Subscriptions (Oct. 28, 2021), https://www.ftc.gov/news-events/news/press-releases/2021/10/ftc-ramp-enforcement-against-illegal-dark-patterns-trick-or-trap-consumers-subscriptions.
    \35\ Fed. Trade Comm'n, Press Release, Federal Trade Comm'n 
Proposes Rule Provision Making It Easier for Consumers to ``Click to 
Cancel'' Recurring Subscriptions and Memberships (Mar. 23, 2023), 
https://www.ftc.gov/news-events/news/press-releases/2023/03/federal-trade-commission-proposes-rule-provision-making-it-easier-consumers-click-cancel-recurring.
    \36\ Dissenting Statement of Comm'r Christine S. Wilson, Notice 
of Proposed Rulemaking, Negative Option Rule, at 3 (Mar. 23, 2023), 
https://www.ftc.gov/system/files/ftc_gov/pdf/p064202_commissioner_wilson_dissent_negative_option_rule_finalrevd_0.pdf.

---------------------------------------------------------------------------

[[Page 90543]]

    The Statement of Basis and Purpose (``SBP'') accompanying the 
final Rule cursorily dismisses concerns about the ANPR's adequacy, 
dubiously arguing that section 18 requires no such ``specificity'' 
in describing the area of inquiry.\37\ But the whole purpose of 
section 18's requirement of a description of what the Commission 
aims to do is to elicit public comment to inform the Commission 
about its choices. Indeed, section 18 requires an ANPR to invite 
interested parties to provide ``suggestions or alternative methods 
for achieving such objectives.'' \38\ Parties cannot possibly 
include alternative methods if the ANPR wholly fails to identify the 
objective, i.e., regulating misrepresentations in marketing of 
products with negative option features.
---------------------------------------------------------------------------

    \37\ SBP at 37-38.
    \38\ 15 U.S.C. 57a(b)(2)(A)(ii).
---------------------------------------------------------------------------

    It is telling that the ANPR here only elicited 17 comments,\39\ 
while the NPRM (which made clear that the Commission was 
significantly expanding its focus) elicited 16,000 comments.\40\ The 
narrowness of the ANPR meant the Commission could not, consistent 
with section 18, proceed to a much broader NPRM.\41\ In choosing to 
interpret the ANPR (and the 17 comments it elicited) as sufficient 
predicate for the much-expanded NPRM, the Commission cut itself off 
from valuable public comments at important early stages (especially 
as to regulatory alternatives) and ignored the rulemaking guardrails 
that Congress carefully established to forestall nondelegation 
concerns that might otherwise exist.\42\
---------------------------------------------------------------------------

    \39\ See Regulations.gov, Negative Option Rule (ANPR), FTC-2019-
0082, https://www.regulations.gov/docket/FTC-2019-0082.
    \40\ The Commission published 1,162 unique comments. SBP at 18. 
See Regulations.gov, Negative Option Rule (NPRM), FTC-2023-0033-
0001, https://www.regulations.gov/document/FTC-2023-0033-0001.
    \41\ 15 U.S.C. 57a(b)(2)(A) (``Prior to the publication of any 
notice of proposed rulemaking pursuant to paragraph (1)(A), the 
Commission shall publish an advance notice of proposed rulemaking in 
the Federal Register.'').
    \42\ Cf. Dissenting Statement of Comm'r Andrew N. Ferguson, 
Joined by Comm'r Melissa Holyoak, In re Non-Compete Clause Rule, FTC 
Matter No. P201200, at 20-22 (June 28, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/ferguson-noncompete-dissent.pdf (describing 
nondelegation doctrine).
---------------------------------------------------------------------------

    The second procedural failing lies in the Commission's failure 
to ``prescribe . . . rules which define with specificity acts or 
practices which are unfair or deceptive acts or practices'' as 
Section 18 requires.\43\ ``Because the prohibitions of section 5 of 
the Act are quite broad, trade regulation rules are needed to define 
with specificity conduct that violates the statute and to establish 
requirements to prevent unlawful conduct.'' \44\ Section 425.3 of 
the Rule fails Section 18's specificity requirements. Section 425.3 
prohibits any misrepresentation of material fact made in connection 
with the sale or promotion of a product that has a negative option 
feature.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 57a(a)(1)(B).
    \44\ S. Rep. No. 93-1408 at 7702, 7755, 7763 (1974) (Conf. 
Rep.).
---------------------------------------------------------------------------

    Unfairness explicitly requires a cost-benefit analysis relating 
to the practices at issue.\45\ Meanwhile, deception is a subset of 
the broader unfairness authority. With its focus on reasonableness 
and materiality, no cost-benefit analysis is required because the 
Commission has historically argued that deceptive practices are 
always harmful. So far, so good. But both unfairness, and 
particularly deception, require the Commission to provide sufficient 
evidence for a reviewing court to evaluate whether the Commission 
has met the legal predicate for either theory (particularly as it 
relates to reasonableness and materiality). While the Rule provides 
examples of material misrepresentations, those are merely examples. 
Indeed, the Commission ignores the specificity requirement by 
generalizing from poorly sampled past agency cases. Whatever the 
merits of the past cases, the Majority does not remotely come close 
to explaining how the evidence in those limited cases is similar to 
the myriad contexts an economy-wide rule would inevitably apply to.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 45(n).
---------------------------------------------------------------------------

    Indeed, the Rule is not limited to misrepresentations relating 
to deceptive terms of negative option features (or some other 
specific, deceptive conduct), but instead, applies broadly to any 
material fact. Nor does the Rule require that the consumer actually 
use the negative option feature; the mere presence of a negative 
option feature would render any misrepresentation of material fact 
subject to the Rule. Taken together, the Rule is nothing more than a 
back-door effort at obtaining civil penalties in any industry where 
negative option is a method to secure payment. The Rule's 
application to any misrepresentation therefore fails to meet Section 
18's ``specificity'' requirement,\46\ and will no doubt invite 
serious legal challenge on this basis.\47\
---------------------------------------------------------------------------

    \46\ Cf. Katharine Gibbs School (Inc.) v. FTC, 612 F.2d 658, 
661-62 (2d Cir. 1979) (setting aside FTC rule under section 18 that 
did not, among other things, define unfair practices with sufficient 
specificity).
    \47\ See, e.g., id. at 663 (``When Congress provided that the 
Commission's rules must define unfair and deceptive acts with 
specificity, it clearly intended that the Commission's definition 
would be subject to judicial review.'').
---------------------------------------------------------------------------

    The Supreme Court's decision in AMG, which held the language of 
Section 13(b) does not authorize the Commission to obtain equitable 
monetary relief,\48\ limited the Commission's ability to seek money 
for first-time violations of the FTC Act. The Commission is still 
able, however, to seek monetary remedies for violation of rules 
issued under Section 18.\49\ Here, the Final Rule effectively 
transforms Section 5's broad prohibition on unfair or deceptive 
practices into a Section 18 rule, allowing the Commission to expand 
its ability to seek money. Indeed, because negative option features 
are widely used in a variety of industries, the Rule greatly expands 
that ability. While I generally support legislation that would grant 
the FTC authority under Section 13(b) to obtain court orders for 
redress or disgorgement (with whatever guardrails Congress deems 
fit), the Commission should not circumvent legislative prerogative 
via improper Section 18 rulemaking.
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    \48\ AMG Capital Mgmt., LLC v. FTC, 593 U.S. 67, 70 (2021).
    \49\ 15 U.S.C. 57b(a)(1).
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    The third significant procedural flaw in this rulemaking is that 
the Commission failed to appropriately establish the ``prevalence'' 
of unfair and deceptive practices related to all negative option 
features for all products in all markets and all media (i.e., with 
respect to the scope of this rule). According to Section 18, the 
Commission may issue an NPRM ``only where it has reason to believe 
that the unfair or deceptive acts or practices which are the subject 
of the proposed rulemaking are prevalent.'' \50\ Section 18 further 
provides:
---------------------------------------------------------------------------

    \50\ Id. 57a(b)(3).
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    The Commission shall make a determination that unfair or 
deceptive acts or practices are prevalent under this paragraph only 
if--
    (A) it has issued cease and desist orders regarding such acts or 
practices, or
    (B) any other information available to the Commission indicates 
a widespread pattern of unfair or deceptive acts or practices.\51\
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    \51\ Id.
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    In the SBP, the Commission argues that it has satisfied this 
standard for its economy-wide rulemaking because it has issued more 
than 35 cases ``challenging harmful negative option practices'' and 
has received ``tens of thousands of consumers complaints.'' \52\ 
This evidence may well suggest that some unfair and deceptive acts 
related to negative option offers are indeed prevalent. But these 
statistics do not establish prevalence of misrepresentations of 
material fact related to products with negative option features, any 
more than the number of FTC cases and consumer complaints involving 
the internet means that the entire internet should be the subject of 
a Section 18 rulemaking prohibiting misrepresentations.
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    \52\ SBP at 8.
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    If similarity among complaints and cases only at the highest 
level of generality constitutes the ``prevalence'' sufficient to 
ground an economy-wide rulemaking, then a ``prevalence'' 
determination is in fact no meaningful guardrail on the Commission's 
conduct at all, creating precisely the type of non-delegation 
concerns that Section 18's guardrails were meant to prevent. Canons 
of ``avoidance'' warn us to avoid adopting interpretations that 
would render statutes unconstitutional.\53\ To avoid precisely that 
fate, ``prevalence'' must require more than what the Commission has 
shown here.
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    \53\ See Clark v. Martinez, 543 U.S. 371, 381 (2005) (describing 
the canon of constitutional avoidance as ``resting on the reasonable 
presumption that Congress did not intend the alternative which 
raises serious constitutional doubts''); see also Adrian Vermeule, 
Saving Constructions, 85 Geo. L. J. 1945, 1949 (1997) (providing 
examples of cases in which the Supreme Court construed a statute so 
as to avoid a constitutional question).
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    A final concern here. The Rule's failure to define with 
specificity the acts or practices which are unfair or deceptive, 
combined with the rule's preemption of inconsistent

[[Page 90544]]

State laws,\54\ seems likely to create confusion and, ultimately, 
may harm consumers. The Second Circuit rebuked the Commission for a 
similar approach in a prior rulemaking after the Commission had 
``fail[ed] . . . to define with specificity the acts or practices 
which are unfair or deceptive.'' \55\ Absent ``a specification of 
the acts or practices which the Commission deems deceptive,'' the 
Court explained that ``the breadth of the preemption provision is 
such that it places in issue an indefinite variety of [S]tate laws 
and regulations'' that were relevant to the underlying contractual 
relationships. Similarly, here, State laws govern the types of 
conduct today's Rule attempts to regulate.\56\ One risk of misguided 
Federal regulation is that it can confuse or jeopardize State laws 
and enforcement. Given the Rule's lack of specificity, it raises 
that concern.
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    \54\ 16 CFR 425.7(a) (``Relation to State Laws'') (``In General. 
This part shall not be construed as superseding, altering, or 
affecting any State statute, regulation, order, or interpretation 
relating to negative option requirements, except to the extent it is 
inconsistent with the provisions of this part, and then only to the 
extent of the inconsistency.'').
    \55\ See Katharine Gibbs School, 612 F.2d at 667.
    \56\ See, e.g., SBP at 145-46, 214.
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    II. The Rule is troubling not only procedurally but also 
substantively. By singling out representations made in connection 
with negative option billing models and subjecting these 
representations to civil penalties or other monetary relief, it 
tilts the playing field in ways that are likely to pervert business 
incentives. For example, businesses may avoid using negative option 
billing models, even when businesses and consumers could derive 
significant value from them.
    One might argue that no shift in incentives will happen for 
honest businesses because the Rule only addresses misrepresentations 
of material fact. In other words, all an honest business needs to do 
to avoid civil penalties is to tell the truth about products and 
services that involve negative option billing. But what constitutes 
a misrepresentation can sometimes be in the eye of the beholder 
(that is, a Commissioner).\57\ Even honest businesses will have 
reason to reconsider the use of negative option billing now that it 
means subjecting themselves to potential civil penalties for 
misreading Commission tea leaves.\58\ And businesses will also need 
to factor in the compliance costs associated with implementing this 
Rule's disclosure, consent, and cancellation requirements--
prescriptive requirements that are absent for other billing models 
or less prescriptive under existing law, such as ROSCA.
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    \57\ Cf. Statement of Comm'r Christine S. Wilson Concurring In 
Part and Dissenting In Part, FTC v. Neurometrix, Inc., FTC Matter 
No. 1723130 (Feb. 28, 2020), (disagreeing with the majority of the 
Commission on claim interpretation and substantiation for certain 
claims), https://www.ftc.gov/system/files/ftc_gov/pdf/2024.08.01-remarks-chair-khan-strike-force-public-convening.pdf.
    \58\ Some businesses were already subject to disclosure 
requirements under existing laws such as ROSCA and the TSR. But 
those laws are more limited. For example, ROSCA section 8403 states 
that for goods or services sold through a negative option feature, 
the seller must ``clearly and conspicuously disclose all material 
terms of the transaction before obtaining the consumer's billing 
information.'' 15 U.S.C. 8403.
---------------------------------------------------------------------------

    These shifting incentives matter to consumers because the reason 
that honest businesses adopt negative option billing is to lower 
transaction costs between consumers and firms. For example, say I 
want to watch a particular streaming service at my convenience. I 
don't want to be bothered with signing up and paying a fee each 
month that I log on; I want negative option billing--a 
subscription--to reduce the friction in my streaming experience. 
Raising the transaction costs will reduce a business's sales and the 
utility consumers derive from these services. In other words, in our 
good intentions, we may harm the consumers and competition we are 
supposed to protect.\59\
---------------------------------------------------------------------------

    \59\ Concurring and Dissenting Statement of Comm'r Melissa 
Holyoak, Social Media and Video Streaming Services Staff Report, FTC 
Matter No. P205402, at 18-19 (Sept. 19, 2024) (``The core of this 
agency's mission is to protect consumers. Unfortunately, recent 
years have seen some Commissioners take a narrow view of that 
mission and where harms emanate from . . . . [W]e should also 
protect the American people from harms that follow when we fail to 
robustly and comprehensively scrutinize our own policy efforts and 
advocacy, including for economic effects, and to anticipate 
potential unintended consequence.''), https://www.ftc.gov/system/files/ftc_gov/pdf/commissioner-holyoak-statement-social-media-6b.pdf; cf. Dissenting Statement of Comm'r Melissa Holyoak, Joined 
by Comm'r Andrew N. Ferguson, In re Rytr, LLC, FTC Matter No. 
2323052, at 5 (Sept. 25, 2024) (``We must protect consumers through 
robust enforcement. Indeed, the Commission is at its best when it 
does so. But we must also think carefully about the potential harms 
to consumers and innovation that attend misguided enforcement. 
Today's misguided complaint and its erroneous application of section 
5 will likely undermine innovation in the AI space. I therefore 
respectfully dissent.''), https://www.ftc.gov/system/files/ftc_gov/pdf/holyoak-rytr-statement.pdf.
---------------------------------------------------------------------------

    The Rule purports to address any overbreadth by including, 
consistent with the Commission's Rules of Practice,\60\ an 
``Exemptions'' provision, which provides: ``Any person to whom this 
Rule applies may petition the Commission for a partial or full 
exemption.'' \61\ In response to such petition, ``[t]he Commission 
may . . . issue partial or full exemptions from this part if the 
Commission finds application of the Rule's requirements is not 
necessary to prevent the acts or practices to which the Rule 
relates.'' \62\
---------------------------------------------------------------------------

    \60\ 16 CFR 1.25, 1.31.
    \61\ 16 CFR 425.8.
    \62\ Id.
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    But the ``Exemptions'' provision does nothing to reduce the 
burden on firms from the overbreadth of the Rule's coverage of all 
misrepresentations of material fact. Rather, taken together, they 
effectively shift the burden of crafting a tailored rule to 
regulated entities. And, once again, it appears that the Commission 
is tilting the playing field in a manner that is likely to harm both 
consumers and competition. Small businesses and new market entrants 
are less likely to be able to afford the potentially costly legal 
fees needed to petition the Commission to obtain an exemption. Even 
for businesses that can afford to use the exemption process, this 
process will impose costs on businesses, who will pass on those 
costs to consumers. Raising potential costs for consumers through an 
improperly promulgated rule is not a desirable outcome at any time, 
but especially not in an inflationary economy. Businesses and 
consumers will not be alone in bearing increased costs. Conducting 
the exemption process will continue to drain FTC staff resources--
reducing the time that our talented staff could devote to enforcing 
the clear authorities Congress has given us, such as ROSCA.\63\
---------------------------------------------------------------------------

    \63\ To be clear, my concern is not with the exemption process 
itself (or its inclusion in the Rule), but with the enormous work it 
must do to compensate for the overbreadth of the provision regarding 
misrepresentations.
---------------------------------------------------------------------------

    A final point here. I also have concerns about the Commission's 
economic analysis of the quantifiable benefits that may result from 
the Rule's substantive requirements. For example, the Commission's 
estimate related to the upper bound of the Rule's benefits for 
consumers who cancel subscriptions with in-person enrollment is 
based in part on the complaints of 25 individual consumers in a 
single industry,\64\ and a number of other simplifying 
assumptions.\65\ But this self-selected group of 25 consumers does 
not comprise a random sample, even among people who were not able to 
cancel subscriptions with in-person enrollment on their first 
attempt.\66\ It is at least possible that other individuals who 
cancelled subscriptions in person had different experiences or 
expectations than these particular consumers--and therefore did not 
voice any complaint. Indeed, given that consumer experiences and 
expectations may vary significantly across industries and products, 
there is no reason to believe that balancing of harms and benefits 
of these consumers can be appropriately extrapolated to the entire 
economy. Thus, the Commission's estimated benefits are not based on 
what could be characterized as a representative sample. Without 
knowing the frequency of consumers having significant difficulty 
cancelling in-person subscriptions, it is not possible to assess how 
much weight to place on the estimate of the high end of the range of 
benefits from the proposed rule. Most of the difference between the 
low-end and high-end estimates of benefits is driven by the estimate 
of the high end of the benefits for in-person subscriptions.
---------------------------------------------------------------------------

    \64\ See, e.g., SBP at 171 (``Notwithstanding IHRSA's assertion 
that many fitness clubs offer online cancellation, at least 25 
individual consumers submitted comments attesting to the 
difficulties of canceling gym memberships.'').
    \65\ Id. at 173 (``Based on these comments, the Commission makes 
the simplifying assumption that the worst gym membership 
cancellation experiences involve three failed attempts at 
cancellation, each costing one hour of time, and that, because of 
those cancellation failures, three unwanted monthly charges were 
processed.''); see id. at 169-70 (explaining how, in its economic 
analysis for the Rule, ``the Commission proxies the per-cancellation 
benefits of an additional, remote, method of cancellation by looking 
at those benefits in the context of gym memberships'').
    \66\ See id. at 171.
---------------------------------------------------------------------------

    III. This Rule is particularly disappointing because it 
represents two missed opportunities. In 2019, a bipartisan 
Commission unanimously voted in favor of

[[Page 90545]]

issuing the ANPR, which was intended to (1) consolidate the 
requirements from various laws the FTC enforces, providing 
businesses who have to navigate this patchwork with greater clarity, 
thereby benefiting both consumers and businesses; and (2) explore 
whether a Section 18 rule should fill any gaps ``when marketers fail 
to make adequate disclosures, bill consumers without their consent, 
or make cancellation difficult or impossible.'' \67\ Today's final 
Rule could have stayed that prudent course rather than expanding in 
scope and complexity as it has under this Commission.
---------------------------------------------------------------------------

    \67\ 84 FR 52393, 52394.
---------------------------------------------------------------------------

    The second missed opportunity has taken place every day since 
the Commission expanded the scope of the rulemaking. This Commission 
chose to devote scarce staff resources to this overbroad 
rulemaking--one that seems likely to be challenged in court, which 
will lead to even more taxpayer-funded expenses--rather than direct 
our talented staff to draft a rule within the scope of our authority 
or bring enforcement actions using clear legal authorities like 
ROSCA and TSR. In my time at the Commission, I have voted in support 
of numerous ROSCA cases, including NGL,\68\ Care.com,\69\ and Legion 
Media,\70\ and numerous TSR cases, including Career Step,\71\ 
Carshield,\72\ and Panda Benefit Services.\73\ As I have said 
elsewhere, I believe the Commission is at its best when it focuses 
on enforcing the law, not writing it.\74\ But I am not reflexively 
opposed to rulemaking where Congress has delegated the Commission 
relevant authority and we act consistent with that authority.\75\ 
Unfortunately, that is not what today's Rule is. Instead, we have an 
ill-disguised political maneuver from the Majority in the form of a 
rule, one rushed to publication to advance the prospects of the 
Chair's preferred presidential candidate.
---------------------------------------------------------------------------

    \68\ FTC v. NGL Labs, LLC, No. 2:24-cv-5753 (C.D. Cal.), https://www.ftc.gov/legal-library/browse/cases-proceedings/ngl.
    \69\ FTC v. Care.com, Inc., No. 1:24-cv-987 (W.D. Tex.), https://www.ftc.gov/legal-library/browse/cases-proceedings/carecom-inc-ftc-v.
    \70\ FTC v. Legion Media LLC, FTC Matter No. 2423034, https://www.ftc.gov/legal-library/browse/cases-proceedings/242-3034-legion-media-llc-et-al-ftc-v.
    \71\ FTC v. Career Step, LLC, FTC Matter No. 2323019, https://www.ftc.gov/legal-library/browse/cases-proceedings/232-3019-career-step-llc-ftc-v.
    \72\ FTC v. NRRM, LLC, FTC Matter No. 2223031, https://www.ftc.gov/legal-library/browse/cases-proceedings/2223031-carshield.
    \73\ FTC v. Panda Benefit Servs., LLC, FTC Matter No. 2423041, 
https://www.ftc.gov/legal-library/browse/cases-proceedings/2423041-panda-benefit-services-llc-ftc-v.
    \74\ Prepared Statement of Comm'r Melissa Holyoak, Fed. Trade 
Comm'n, Before the Subcomm. on Innovation, Data, and Commerce of the 
Energy and Commerce Comm., U.S. House of Representatives, Concerning 
``The Fiscal Year 2025 Federal Trade Commission Budget,'' at 2-4 
(July 9, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/commissioner-holyoak-testimony-7-5-24.pdf.
    \75\ Id.
---------------------------------------------------------------------------

    I dissent.


[FR Doc. 2024-25534 Filed 11-14-24; 8:45 am]
BILLING CODE 6750-01-P

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