Negative Option Rule Ftc

Negative Option Rule Ftc

The FTC uses the term “negative option marketing” in the broadest sense to refer to a category of transactions where an underlying condition or clause persists, unless the consumer takes a positive step to terminate the contract or reject the good or service. Negative option offers can take the form of agreements or subscriptions that automatically renew, continuity plans (where a consumer agrees in advance to receive goods or services on a regular basis) or free trial marketing (where a consumer receives goods or services for free or at a nominal price for a limited period of time). (21) Should new legislation, where new legislation is needed, address different types of negative option distribution? Why or why not? Would there be negative consequences if different forms of negative marketing options were dealt with under separate rules? Why or why not? What evidence, if any, supports your response? The above information must be presented clearly and prominently prior to the performance of the purchase agreement, and the Company must obtain the consumer`s consent to the terms of the automatic renewal offer (including those purchased at a promotional or discounted price for a limited time) before charging the consumer`s credit or debit card or a third party provider`s payment account. If the offer also includes a gift or free trial, the offer must include a clear and visible explanation of the price that will be charged after the end of the trial period or how the price of the subscription or purchase agreement changes after the end of the trial period. Finally, the business must provide confirmation in a manner that can be maintained by the consumer, including: the terms of the auto-renewal offer; cancellation policy; and cancellation information. As in California, a consumer who accepts an automatic renewal offer online must cancel exclusively online. Finally, businesses must inform the consumer of any substantial changes to the automatic renewal conditions accepted by a consumer by means of a clear and prominent notice. In addition to New York and California, several other states have laws governing automatic renewals and negative options, but each state law contains slight nuances.1 For example, Oregon Section 646A.295 resembles California law with two notable differences. First of all, Oregon does not require a merchant to disclose a free trial clearly and visibly. Second, companies don`t have to offer consumers who accept an online negative option plan the option to cancel the plan online. Similarly, Virginia`s automatic renewal law, VA Code Ann. § 59.1-207.45 et seq., has requirements comparable to California law, but does not require merchants to provide online termination options for contracts entered into by consumers online.

However, from a practical standpoint, this may be the most effective method for a business to cancel the plan online, especially given the requirements of New York and California regulations. While California law is arguably the strictest in the country, some other jurisdictions contain different requirements than those outlined in California law. For example, the law of Washington D.C., D.C. Code § 28A-201 et seq. contains basic requirements that automatic renewal provisions and termination procedures must be clearly disclosed in the contract that contains them, as well as the fundamental requirement that, in the case of a free trial, the offer clearly and visibly explains the price charged at the end of the trial period. In addition to these fairly typical requirements, the DC Act contains two requirements not found in other statutes. The first only applies to contracts with an initial duration of 12 months or more, which automatically renew by one month or more, unless expressly terminated, and requires the trader to inform the consumer of the first renewal (possibly with additional annual notifications) at least 30 days and at the latest 60 days before the expiry of the withdrawal period. The second requirement applies to free trial contracts of one month or more, where the contract must be automatically renewed at the end of the trial period and notified at least 15 and no more than 30 days before the end of the free trial period.

In addition, notwithstanding the consumer`s consent to the free trial, the DC Act requires additional consumer consent before the consumer is charged for automatic renewal. Consent: In order to obtain express informed consent, businesses should obtain and verify the “unequivocal affirmative consent of the consumer” to the opt-out option as well as to the entire transaction. The notice plan rule only applies to packages such as Book of the Month clubs, where sellers regularly inform them that they are offering goods to participating consumers, and then send and charge for those products only if consumers do not take action to reject the offer. However, these types of plans represent only a small fraction of the current marketing of negative options. Therefore, the rule does not reach most modern negative marketing options. [31] The Commission first enacted the rule in 1973 under the FTC Act, 15 U.S.C. 41 et seq., after finding that certain negative option marketers engaged in unfair and deceptive marketing practices that violated section 5 of the Act, 15 U.S.C. 45.

As discussed above, the rule applies only to pre-notification plans for the sale of goods and does not apply to most modern negative options. [3] Termination: ROSCA requires negative option sellers to provide consumers with a simple and reasonable way to terminate their contracts. [47] In order to comply with this standard, sellers of negative options should provide cancellation mechanisms that are at least as easy to use as the method used by the consumer to trigger the negative option function.