The Federal Trade Commission (FTC) has issued final amendments to its trade regulation rule concerning negative option plans, also known as the “click to cancel rule.” This rule aims to address widespread deceptive practices that prohibit customers from cancelling services in the same manner in which they signed up. Here’s a detailed summary of the key points and implications of the new rule.

Overview of the “Click to Cancel” Rule

The FTC’s amendments to the Negative Option Rule are designed to cover all negative option programs across any business model. Negative option programs include any arrangement where a seller interprets a consumer’s silence or failure to take action as acceptance of an offer. These programs can take various forms, such as automatic renewals and free-to-pay conversions.

Under the new rule, sellers are prohibited from misrepresenting any material fact related to the transaction, including the negative option feature and the underlying product or service. This aims to prevent deceptive practices that lure consumers into unwanted subscriptions. Sellers must clearly and conspicuously disclose all material terms before obtaining a consumer’s billing information. This includes, that payments will be recurring, the deadline by which consumers must act to stop charges, the amount or range of costs, the date the charge will be submitted for payment, and information about the cancellation mechanism. Sellers must obtain a consumer’s unambiguous affirmative consent to the negative option feature separately from any other portion of the transaction. This ensures consumers are fully aware they are agreeing to a recurring subscription.

As to cancelling services, sellers must provide a simple mechanism for consumers to cancel the negative option feature. This mechanism must be as easy to use as the method the consumer used to sign up and must be accessible through the same medium. This is the “click to cancel” feature.

Misrepresentations

The rule explicitly prohibits misrepresentations of any material fact related to the transaction. This includes not only the negative option feature but also any aspect of the underlying product or service. The FTC has found that deceptive practices often involve misleading claims about costs, product efficacy, free trial terms, and cancellation policies. By broadening the scope of prohibited misrepresentations, the FTC aims to protect consumers from a wide range of deceptive practices.

Disclosure Requirements

The rule mandates that sellers provide clear and conspicuous disclosures of all material terms before obtaining billing information. This requirement addresses the common issue of hidden terms and conditions that consumers only discover after being charged. The disclosures must be unavoidable and presented in a manner that consumers can easily understand. This includes avoiding fine print, legal jargon, and disclosures hidden behind hyperlinks.

Affirmative Consent

To ensure consumers are fully aware of what they are agreeing to, the rule requires sellers to obtain unambiguously affirmative consent to the negative option feature. This consent must be obtained separately from any other part of the transaction. For written offers, this can be achieved through a check box, signature, or similar method that the consumer must affirmatively select. This provision is crucial in preventing consumers from unknowingly enrolling in recurring subscriptions.

“Click to Cancel” Mechanism

One of the most significant changes in the rule is the requirement for a simple cancellation mechanism. Sellers must provide a cancellation method that is just as easy to use as the method the consumer used to sign up. This means if a consumer signed up online, they must be able to cancel online without having to call customer service. The rule also prohibits sellers from including any information that interferes with or detracts from the cancellation process.

Industry and Consumer Reactions

The amendments have received mixed reactions from industry groups and consumer advocates. Consumer groups have largely praised the rule for its potential to protect consumers from deceptive practices and make it easier to cancel unwanted subscriptions. They argue that the rule will save consumers time and money by preventing them from being trapped in subscriptions they no longer want.

On the other hand, some industry groups have expressed concerns about the potential burden of compliance. They argue that the requirements for clear and conspicuous disclosures and simple cancellation mechanisms could be costly and difficult to implement. Some have also raised concerns about the potential for increased litigation and enforcement actions.

Implications for Businesses

Businesses that use negative option features will need to review and potentially overhaul their marketing and billing practices to comply with the new rule. This includes ensuring that all material terms are clearly disclosed, obtaining affirmative consent for recurring charges, and providing an easy-to-use cancellation mechanism. Failure to comply with these requirements could result in significant penalties and enforcement actions by the FTC.

Conclusion

The “click to cancel” rule will go into effect 60 days after its publication in the Federal Register. If you have questions on whether your business must comply or how it should comply with the new rule, contact the SaaS lawyers at Revision Legal.