BizTech Law Blog

In sum, the Rule intends to help people get their money back if they were misled by sellers and websites to enroll in features like auto-shipment or automatic account renewals. The Rule prioritizes ensuring consumers will not be billed for features they did not agree to pay for, and confirming it is just as easy for customers to cancel their memberships or add-on account features as it was to enroll in the first place.

The Rule applies to “negative option sellers”. This term is defined as a person “selling, offering, charging for or otherwise marketing goods or services with a negative option feature”. A “negative option feature” is a provision in which a consumer’s silence or failure to take a certain action to reject a good or service, or to cancel its agreement with the seller, is interpreted by the seller as acceptance or affirmation of continuing that offer.

Under the Rule, the following will be prohibited behavior of negative option sellers:

• Misrepresenting any material fact while marketing to consumers to use negative option features;
• Failing to provide important information to consumers prior to obtaining their billing information, and subsequently charging them;
• Failing to obtain unambiguous, affirmative consent from consumers to any negative option feature prior to charging them for said feature; and
• Deficiently providing consumers with simple termination processes to immediately halt all recurring charges.

Pursuant to the Rule, sellers marketing goods or services to consumers should provide simple cancellation mechanisms through the same medium (such as via a website/the internet; over the telephone; through mail; or in-person) to consumers as was used to consent to an automatic shipment or billing feature. This requires sellers to provide consumers with a simple “click-to-cancel” feature just as convenient to unsubscribe as it was to subscribe.

If you are questioning whether your business’ practices or website currently adheres to the Rule, consider the following:

• Do any of your business’ automated features construe silence or nonaction on the part of your customers as acceptance of a good or service?
• What hoops do your customers have to jump through to cancel a recurring cost, such as an auto-shipment or a subscription renewal?
• Is it just as simple for your customers to terminate their enrollment in an automatic feature or their membership with your business, if applicable, as it was to enroll?

If the answer to any of these questions poses concerns under the Rule’s provisions, please do not hesitate to reach out to a Foster Swift attorney in our “Business and Tax Practice Group” with any questions about the FTC rule and its implications for your business.

Currently, most of the Rule’s provisions have not gone into effect yet. The majority of the Rule’s provisions will go into effect 180 days after the Rule is published in the Final Register. This has not occurred yet.

Even though key provisions of the Rule have not yet gone into effect, it is crucial for business owners to begin implementing its action items now. Taking proactive steps will not only position your company or corporation for compliance, but also help avoid potential penalties once the Rule is enacted. By integrating these requirements into your operations early, you can streamline the transition process and ensure your team is prepared, minimizing disruptions and safeguarding your business’s reputation.