A Closer Look at the FTC’s new Click-to-Cancel Rule

On October 16th, the Federal Trade Commission (FTC) announced its final "click-to-cancel" rule, which is intended to make it as easy for consumers to cancel their participation in a negative option program as it was to sign up.

What is a Negative Option Program?

A negative option program is a type of commercial transaction where the seller interprets a consumer's silence or failure to take an affirmative action to reject an offer or cancel an agreement as acceptance of the offer. This means that the consumer will be charged for goods or services unless they explicitly opt out or cancel the agreement.

Negative option programs have long been a fixture of door-to-door, print, and telemarketing sales channels and come in many forms, from the now-classic book/CD-of-the-month clubs of yesteryear to modern online recurring-payment subscription programs.

How are Negative Option Programs Currently Regulated?

Negative option programs are already regulated under U.S. federal law by the Restore Online Shoppers' Confidence Act (ROSCA), which aims to protect consumers through several requirements. These include: (i) clearly and conspicuously disclosing all material terms of the transaction before obtaining the consumer's billing information; (ii) obtaining the consumer's express informed consent before any charges are made; and (iii) providing click-to-cancel mechanisms or other simple methods for consumers to stop recurring charges with ease.

A section of the FTC Telemarketing Sales Rule (TSR) known as the Negative Option Rule also addresses negative option programs, primarily "prenotification plans," where sellers notify consumers about a product, send it, and charge for it unless the consumer explicitly declines. The rule mandates that promotional materials must clearly and conspicuously disclose all material terms of the plan, including the consumer's obligation to notify the seller if they do not wish to purchase the selection, any minimum purchase requirements, cancellation rights, and other relevant details.

In addition, nearly every state has adopted laws and regulations that address negative option programs sold within that state, which are usually enforced by the state Attorney General. State negative option regulations that grant state residents greater protection than that provided by the FTC Negative Option Rule are not considered pre-empted by the federal rule.

The New Click-to-Cancel Rule

The new Click-to-Cancel Rule (which is actually called the Rule Concerning Recurring Subscriptions and Other Negative Option Programs) amends the FTC’s Negative Option Rule to include new requirements for negative option programs intended to combat unfair or deceptive practices by making it as easy to cancel a subscription as it was to sign up for one.

The new rule greatly expands the scope of the old Negative Option Rule to include virtually all forms of negative option marketing, including subscription, pre-notification and continuity plans, auto-renew plans, and free trial offers regardless of where they’re presented, including online, over the phone, in print ads, or in person. In addition to consumer transactions, the new rule also covers business-to-business transactions.

Click-to-Cancel Rule Requirements

Misrepresentations and Disclosures: The rule expressly prohibits sellers from misrepresenting any material fact while marketing anything sold using a negative option feature and requires them to disclose all material terms of the program prior to obtaining a consumer’s billing information. Required disclosures include: (i) when and how much consumers will be charged, or that charges will increase after any applicable trial period ends; (ii) that charges will be recurring unless the consumer takes steps to prevent them; (iii) when the consumer must act to stop the charges; (iv) the frequency of charges; and (v) how to cancel.

Disclosures must be clear and conspicuous and, if directly related to the negative option feature, must appear immediately next to the method used to capture the consumer's consent, such as a checkbox. In compliance with the click-to-cancel rule, these disclosures ensure transparency by aligning consent with essential terms. If the disclosure is not directly connected to the negative option feature, it must be provided before obtaining the consumer’s consent to prevent confusion and uphold fair practices.

Consent: Consumers must provide their express informed consent before being charged. The rule further requires sellers to obtain consumer's "unambiguously affirmative consent" to the negative option feature offer separately from any other portion of the transaction. This can be accomplished via a checkbox or similar method that requires consumers to undertake an affirmative action to accept the negative option disclosure. In addition, the negative option disclosure must be presented without any ancillary information that is not directly related to the acceptance of the negative option feature.

Verification of the consumer's consent must be maintained for at least three years, unless the seller can "demonstrate by a preponderance of the evidence that it uses processes ensuring no consumer can technologically complete the transaction without consent."

Cancellation: Arguably the heart of the new Click-to-Cancel rule, it requires sellers to provide a “simple cancellation mechanism” via the same medium as the consent mechanism used to secure consent for the negative option feature.

The rule specifies certain minimum requirements for the "simple cancellation mechanism" that vary depending upon the media used to secure consent. For online cancellations, the rule states that "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." For those rare instances in which consent was secured in person, the rule requires the seller to also provide an online or telephonic method of cancellation.

Most aspects of the new click-to-cancel rule will take effect in 180 days after the date the final rule is published in the Federal Register. However, the provisions related to misrepresentations and certain other technical provisions will take effect within 60 days of that date.

Some provisions of the new click-to-cancel rule will take effect within 60 days, with most parts in full effect within 180 days. Sellers of any product or service covered by the new rule should immediately address their marketing and sales processes to ensure compliance beforehand.