FTC Finalizes New Rules for Companies Using Continuity Programs and Recurring Billing

On October 16, 2024, the Federal Trade Commission (FTC) finalized its updated Negative Option Rule bringing significant changes for businesses that market, sell, or charge for goods or services with a negative option feature. This includes services such as automatic renewals, continuity plans, and free-to-pay conversions (e.g., “30-day trials” that transition into paid subscriptions).

What Is a “Negative Option”?

The FTC broadly defines negative option marketing as any transaction where a seller interprets a customer’s inaction whether failing to reject an offer or not canceling an agreement as permission to charge them for goods or services. Negative option offers are widely used in various industries, from subscription services like Amazon’s Subscribe and Save to vehicle service contracts, home warranty plans, and other auto-bill arrangements like credit repair programs and monthly legal defense plans.

Key Updates in the Negative Option Rule

The updated rule introduces several new requirements to protect consumers from deceptive practices, focusing on clear communication, transparency, and easy cancellation. Here’s a breakdown of the most significant changes:

1. No More Misrepresentation

Businesses offering negative option products or services are now prohibited from misrepresenting important details. This includes:

• The existence of the negative option feature and the deadlines for preventing or stopping charges.
• The cost of the product or service.
• The purpose, effectiveness, or limitations of the product or service.
• Any information that may impact a consumer’s health or safety.

2. Simplified Cancellation Process

To ensure consumers can easily cancel their subscriptions or periodic payments, companies must provide a straightforward cancellation method:

• Phone sales: Businesses must offer a clearly accessible phone number where customers can call to cancel.
• Online sales: An easy electronic method (such as a cancel button or link) must be available. Consumers should not be required to speak with a representative to cancel if they didn’t interact with one when signing up.

3. Mandatory Disclosures

Before collecting a consumer’s billing information, companies must clearly disclose the following details:

• Whether the consumer will be charged, and if so, whether charges will recur or increase after a certain period.
• The specific deadlines by which consumers must take action to avoid charges.
• The amount the consumer may be charged.
• Simple instructions on how to cancel or prevent charges.

These disclosures must be presented prominently throughout the majority of the sales interaction and directly before the consumer consents to the negative option feature.

4. Record-Keeping and Consent Requirements

Companies must obtain explicit consent from consumers before enrolling them in negative option programs. Furthermore, businesses are required to retain a record of that consent for at least three years. For companies governed by the Telemarketing Sales Rule (TSR), they must also keep the last four digits of the payment account and maintain an audio recording of the transaction for at least five years.

Timeline for Compliance

The new rule will take effect 60 days after its publication in the Federal Register. However, businesses will have 180 days to comply with the updated cancellation, disclosure, and consent requirements, giving them additional time to implement these changes.

If you need more information or have questions about how the FTC’s updated Negative Option Rule may affect your business, feel free to contact us.