Monday, June 19, 2023
On April 24, 2023, the Federal Trade Commission published its Advance Notice of Proposed Rulemaking in the federal register regarding proposed amendments to the FTC's Negative Options Rule.
Dubbed by the FTC as a "click to cancel" provision, the proposed rule is aimed at enhancing consumer protection in the realm of recurring charges. The proposed rule is designed to improve transparency and to make it easier for consumers to cancel subscriptions by implementing a simplified cancellation process.
This proposed change to the Negative Options Rule comes in response to the growing concerns raised by consumers regarding the difficulties they face when attempting to cancel recurring charges for various products and services.
Ranked as "the biggest financial complaint of consumers" by TruthinAdvertising.org, recurring charges, also known as negative option billing, are charges for products or services that are automatically renewed or billed on a recurring basis unless the consumer actively cancels or opts out.
While recurring charges can provide convenience for consumers who wish to continue using a particular service, they have also been a source of frustration due to the challenges involved in canceling them. These challenges are particularly acute when customers are given goods or services that were not previously ordered and must either continue to pay for them or specifically decline in advance of billing.
The FTC's proposed rule aims to address these challenges and provide consumers with a simpler and more straightforward process for canceling recurring charges. The key provisions of the proposed rule include:
If implemented, the proposed rule could provide several benefits for consumers:
Subscription-based businesses heavily rely on recurring charges as a revenue model. The proposed rule could impact their customer retention strategies and overall revenue streams. With a simplified cancellation process, customers may be more likely to cancel subscriptions, leading to potential revenue loss for these businesses.
To mitigate this, subscription-based businesses may need to enhance their customer experience and value proposition to retain customers despite the easier cancellation process. Subscription-based businesses will similarly be required to invest in improving compliance systems and other processes to comply with what will eventually become the final rule. In addition to clear and conspicuous disclosures, these compliance costs would entail consistent monitoring and regular updates to online platforms.
The FTC is still seeking public comments on the proposed rule, encouraging input from consumers, businesses, and other stakeholders. Comments must be submitted by June 23, 2023. The comments received will help shape the final version of the rule before it is implemented. Individuals and organizations interested in contributing their perspectives can visit the FTC's website for more information on how to participate in the comment process.
Commenters are largely receptive and strongly in support of the proposed rule. Specifically, for example, one commenter noted that they signed up for an LA Fitness membership online, but that they had no other choice but to cancel via mail. That commenter noted that the process was "ridiculous." Another commenter explained that it is critically important that companies make it "explicitly clear" what consumers are signing up for. That commenter explained that if you sign up for the subscription online, you should be able to cancel online. Many other commenters echoed that sentiment. At this time, no commenter has opposed the proposed rule as it stands.
The Commissioners voted 3-1 approving publication of the notice of proposed rulemaking. Chairwoman Lina M. Khan voted yes. In her separate statement, Chairwoman Khan noted that if the proposed rule were adopted, it "would enable more efficient enforcement" and "create a more powerful deterrent by introducing the risk of civil penalties," allowing the FTC "to return money to wronged consumers." Chair Khan was joined by Commissioners Rebecca K. Slaughter and Alvaro Bedoya.
Commissioner Christine S. Wilson, who effectively resigned on or about March 31, 2023, several days after issuing her dissenting statement voted no. In her dissenting statement, Commissioner Wilson expressed concerns over the proposed rule, opining that it "would extend far beyond the negative option abuses cited" in the proposed rule and "would capture misrepresentations regarding the underlying products or services wholly unrelated to the negative option feature."
Regardless of the vote, it is safe to say that FTC enforcement actions might be on the horizon.
The FTC's proposed rule seeks to broadly regulate negative options abuses and may be a significant step towards protecting consumer rights with respect to canceling recurring charges. With that would also come increased compliance costs for industry participants who offer subscription-based services. Ultimately, as the public comment period progresses, time will tell what consumer advocacy groups say about the proposed rule and what potential modifications are implemented by the FTC prior to promulgation. 
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