On October 16, the Federal Trade Commission (“FTC”) announced a final “click-to-cancel” rule that amends the previous Negative Option Rule to “make it as easy for consumers to cancel their enrollment as it was to sign up.” The Rule also imposes extensive requirements regarding misrepresentations, disclosures, and consent, among others. Most of the provisions will go into effect 180 days after publication in the Federal Register. As of today, the final rule has not yet been published. This final rule is the culmination of a five-year proceeding including the FTC’s issuance of a notice of proposed rulemaking (“NPRM”) in March 2023 and an advanced notice of proposed rulemaking in October 2019. We previously analyzed the proposed rule presented in the NPRM. Covington will be hosting a client-only briefing to discuss compliance with the new Rule on November 21 at 2PM ET.
In response to comments, the FTC made several changes to the final Rule. We have outlined some of the major differences between the proposed and the final Rule below:
- Misrepresentations. The FTC retained the section of the Rule prohibiting “misrepresentations” about any material fact related to the Negative Option Feature or the underlying good or service. The final rule now includes examples from prior Commission cases setting forth potentially material fact categories, providing additional guidance about the sorts of claims that the FTC might target under this provision. This section goes into effect 60 days after it is published in the Federal Register.
- Disclosures. The Rule still requires clear and conspicuous disclosure of all material terms, but no longer requires disclosure of the date or dates that charges will be submitted for payment, which was the subject of comments that calculating this information would be impossible in certain instances. The FTC also modified the requirement to disclose “information necessary for the consumer to cancel” to instead require disclosure of “information necessary for the consumer to find the simple cancellation mechanism.”
- Billing Information: In response to concerns about disclosure timing where a consumer authorized the seller to store billing information, the Commission clarified that “where a consumer has previously provided account information to the seller and expressly allowed the seller to store that information, the seller must make the required disclosures prior to obtaining the consumer’s consent to use saved account information.”
- Double opt-in consent. The Commission eliminated the requirement to “obtain the consumer’s unambiguously affirmative consent to the rest of the transaction.” However, the Commission is still requiring that sellers obtain consent to the negative option feature offer “separately from any other portion of the transaction.”
- Saves. The final Rule eliminates the prohibition on saves, which stated that sellers “must immediately cancel the Negative Option Feature upon request from a consumer, unless the seller obtains the consumer’s unambiguously affirmative consent to receive a Save prior to cancellation.” The FTC indicated it is planning to issue a Supplemental Notice of Proposed Rulemaking on this subject.
- Cancellation “as simple as sign-up.” The final Rule acknowledges that sign-up and cancellation may not always be “perfectly symmetrical,” but should still be similar in terms of “time, burden, expense, and ease of use.” The Commission recognized that consumers may have to “verify or authenticate their identity” or “be asked to confirm their intent to cancel.”
- Cancellation same medium as sign-up. The Commission retained this requirement but revised the specific requirements for online, phone, and in-person cancellation. For online cancellations, instead of requiring a cancellation method “over the same website or web-based application,” the rule now (1) states that “the simple cancellation mechanism must be easy to find when the consumer seeks to cancel” and (2) prohibits requiring customers to interact with a live agent or chat bot, unless they did so when they signed up.
- Reminders. The draft provision addressing annual reminders for subscriptions not involving delivery of physical goods has been eliminated from the final rule.
The updated rule was approved by the Commission by a vote of 3-2, with Commissioners Holyoak and Ferguson voting no. Commissioner Slaughter issued a separate statement and Commissioner Holyoak issued a dissenting statement. Commissioner Slaughter’s statement addresses the exclusion of the reminders provision. She asserts that its exclusion comes not from a lack of policy merit but rather the FTC’s cautious approach to its jurisdictional limits and suggests that Congress and state legislatures have an opportunity to take action in this area. Commissioner Holyoak’s statement argues that the new Rule is overly broad and fails to define unfair and deceptive acts with the appropriate level of specificity.
Please click here to register for Covington’s client-only webinar.
If you have any questions concerning the material discussed in this client alert, please contact the members of our Advertising and Consumer Protection Investigations practice group.
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