Negative Option Rule

Federal RegisterNov 15, 2024

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FEDERAL TRADE COMMISSION

16 CFR Part 425

RIN 3084-AB60

Negative Option Rule

AGENCY:

Federal Trade Commission.

ACTION:

Final rule.

SUMMARY:

The Federal Trade Commission (“FTC” or “Commission”) issues final amendments to the Commission's trade regulation “Rule Concerning Use of Prenotification Negative Option Plans,” retitled the “Rule Concerning Recurring Subscriptions and Other Negative Option Programs” (“Rule,” “final Rule” or “Negative Option Rule”). The final Rule now applies to all negative option programs in any media. This document also contains the text of the final Rule, the Rule's Statement of Basis and Purpose (“SBP”), and a final regulatory analysis.

DATES:

Effective date:

This rule is effective January 14, 2025.

Compliance date:

Regulated entities have until May 14, 2025 to comply with §§ 425.4 through 425.6.

ADDRESSES:

Relevant portions of the record of this proceeding, including this document, are available

at https://www.ftc.gov.

FOR FURTHER INFORMATION CONTACT:

Katherine Johnson, Attorney, (202) 326-2185,

kjohnson3@ftc.gov,

Division of Enforcement, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Ave. NW, Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

I. Overview

The Commission commenced this proceeding because it had reason to believe unfair and deceptive negative option practices are widespread in the marketplace. Negative option programs can provide substantial benefits for sellers and consumers. However, consumers cannot realize these benefits when sellers make material misrepresentations to induce consumers to enroll in such programs, fail to provide important information, bill consumers without their consent, or make cancellation difficult or impossible. Unfair and deceptive negative option practices have been a persistent source of consumer harm for decades, saddling shoppers with recurring payments for products and services they never intended to purchase nor wanted to continue buying. In the past, the Commission sought to address these practices through individual law enforcement actions and a patchwork of laws and regulations. Nevertheless, problems persist, as demonstrated by both a steady stream of State and Federal law enforcement actions and thousands of consumer complaints each year. To address these practices, the Commission proposed amending the current Negative Option Rule to establish clear, enforceable performance-based requirements for all negative option features in all media. The Commission solicited comments first in an advance notice of proposed rulemaking (“ANPR”) and then on proposed amendments in a notice of proposed rulemaking (“NPRM”). The Commission designed these amendments to ensure consumers understand what they are purchasing and allow them to cancel their participation without undue burden.

Among other things, this final Rule (1) prohibits misrepresentations of any material fact made while marketing using negative option features; (2) requires sellers to provide important information prior to obtaining consumers' billing information and charging consumers; (3) requires sellers to obtain consumers' unambiguously affirmative consent to the negative option feature prior to charging them; and (4) requires sellers to provide consumers with simple cancellation mechanisms to immediately halt all recurring charges.

The Commission now promulgates a final Rule. Pursuant to 15 U.S.C. 57a(a)(1)(B), the Rule,

inter alia,

defines the following acts and practices as unfair or deceptive within the meaning of section 5 of the FTC Act:

• to misrepresent any material fact made while marketing using a negative option feature (§ 425.3);

• to fail to clearly and conspicuously disclose material terms prior to obtaining a consumer's billing information in connection with a negative option feature (§ 425.4);

• to fail to obtain a consumer's express informed consent to the negative option feature before charging the consumer (§ 425.5); and

• to fail to provide a simple mechanism to cancel the negative option feature and immediately halt charges (§ 425.6).

Further, the Rule, consistent with the final sentence of 15 U.S.C. 57a(a)(1)(B) includes requirements prescribed for the purpose of preventing such acts or practices.

The final Rule differs from the proposed Rule in two significant ways. First, the proposed Rule would have required sellers to provide annual reminders to consumers of the negative option feature. Second, the proposed Rule would have prohibited sellers from forcing consumers to receive saves

without first obtaining consumers' unambiguously affirmative consent. The Commission has considered comments both supporting and opposing these proposed provisions. As explained in the section-by-section analysis, the Commission declines to adopt these provisions of the proposed Rule at this time. Instead, the Commission plans to seek further comment through a supplemental NPRM (“SNPRM”), and therefore, keeps the record open on these issues.

Save was defined in the proposed Rule to mean an attempt by a seller to present any additional offers, modifications to the existing agreement, reasons to retain the existing offer, or similar information when a consumer attempts to cancel a negative option feature. Proposed Rule § 425.2(f).

See

16 CFR 1.11 (“Commission's Rules of Practice” or “Commission Rules”);

cf.

Impersonation Rule, 89 FR 15072 (Feb. 29, 2024).

Finally, in response to the comments, the Commission adds two definitions and two provisions to the final Rule for clarity. The final Rule explicitly defines the terms “material” and “interactive electronic medium” consistent with how they were defined and discussed in the NPRM. Additionally, the final Rule includes a severability provision and a provision allowing requests for exemptions from the final Rule consistent with the Commission's Rules of Practice.

See

16 CFR 1.16.

II. Background

A. Statutory Authority

The Commission promulgates the final Negative Option Rule, 16 CFR part 425 pursuant to section 18 of the FTC Act, 15 U.S.C. 57a, the Administrative Procedure Act (“APA”), 5 U.S.C. 533; and part 1, subpart B of the Commission's Rules of Practice, 16 CFR 1.7-1.20. Section 18 permits the Commission to promulgate, amend, and repeal trade regulation rules that define with specificity acts or practices that are unfair or deceptive within the meaning of section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1); and allows the Commission to prescribe requirements for the purpose of preventing these unfair or deceptive acts and practices.

B. Negative Option Marketing

1. Negative Option Programs

Negative option programs come in a variety of forms, but all share a central feature: each contain a term or condition that allows a seller to interpret a customer's silence, or failure to take an

affirmative action, as acceptance of an offer.

Negative option programs generally fall into four categories: prenotification plans, continuity plans, automatic renewals, and free trial (

i.e.,

free-to-pay or nominal-fee-to-pay) conversion offers.

The Commission's Telemarking Sales Rule defines a negative option feature as a provision in an offer or agreement to sell or provide any goods or services “under which the customer's silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.” 16 CFR 310.2(w).

Prenotification plans are the only negative option practice currently covered by the Commission's current Negative Option Rule, originally promulgated in 1973. Under such plans (

e.g.,

book-of-the-month clubs), sellers provide periodic notices offering goods to participating consumers and then send—and charge for—those goods only if the consumers take no action to decline the offer. The periodic announcements and shipments can continue indefinitely. In continuity plans, consumers agree in advance to receive periodic shipments of goods or provision of services (

e.g.,

bottled water delivery), which they continue to receive until they cancel the agreement. In automatic renewals, sellers (

e.g.,

a magazine publisher, credit monitoring service provider, etc.) automatically renew consumers' subscriptions when they expire, unless consumers affirmatively cancel the subscriptions. Finally, in free-to-pay plans, consumers receive goods or services for free (or at a nominal fee) for a trial period. After the trial period, sellers automatically begin charging a fee (or higher fee) unless consumers affirmatively cancel or return the goods or services.

Some negative option offers include upsell or bundled offers, where sellers use consumers' billing data to sell additional products from the same seller or pass consumers' billing data to a third party for their sales. An upsell occurs,

e.g.,

when a consumer completes a first transaction and then receives a second solicitation for an additional product or service. A bundled offer occurs,

e.g.,

when a seller packages two or more products or services together.

Importantly, negative option programs are distinct from other continuing agreements such as installment contracts. In an installment contract, consumers are obligated for the entire contractual period for the entire contract. A prime example of this type of transaction is a contract for purchasing a vehicle, which outlines terms, such as price, interest rate, and payment schedule. The contract thus allows the consumer to pay the purchase price of the vehicle over time. Consumers' failure to pay amounts due under an installment agreement may bring the total balance due, and may trigger halting performance, or provide the seller with other contractual rights.

A negative option, in contrast, merely determines whether a seller may continue to send, and charge for, goods or provide services without the consumer's further action. Notably, a contract could have both installment and negative option features. Take, for instance, a software license agreement. A consumer may purchase a software license for a year, in which the consumer is obligated for the entire year, payable monthly, to renew automatically at the conclusion of the year unless the consumer cancels the agreement.

Canceling the agreement during the first year does not void a consumer's obligation to pay for the whole first year, but it does terminate the consumer's responsibility for the next year.

See, e.g., United States

Adobe, Inc.,

No. 5:24-cv-03630 (N.D. Cal. 2024).

2. Prevalence of Deceptive or Unfair Negative Option Acts and Practices

Negative option programs are widespread in the marketplace and can provide substantial benefits for sellers and consumers. For businesses, the benefits of negative option marketing include “greater revenue predictability, customer base continuity, and the ability to better plan in advance.”

For consumers, such benefits may include opportunities to explore new products prior to purchase (

e.g.,

free trials),

broader selections at lower prices and transaction costs,

and the convenience of uninterrupted products or services.

However, consumers cannot reap these benefits when marketers misrepresent material facts, fail to make adequate disclosures, bill consumers without their consent, or make cancellation difficult or impossible. Over the years, such problematic practices have remained a persistent source of consumer harm, saddling consumers with recurring payments for products and services they never intended to purchase nor wanted to continue buying.

News/Media Alliance (“N/MA”), FTC-2023-0033-0873;

see also

Association of National Advertisers (“ANA”), FTC-2023-0033-1001; National Retail Federation (“NRF”), FTC-2023-0033-1005. Citations herein to comments are cited as the name of commenter and unique identifier (

e.g.,

FTC-2023-0033-__). Comments are available online at

regulations.gov,

Negative Option Rule (NPRM), FTC-2023-0033-0001,

https://www.regulations.gov/document/FTC-2023-0033-0001.

N/MA, FTC-2023-0033-0873; Sirius XM Radio Inc. (“Sirius XM”), FTC-2023-0033-0857; NCTA—The Internet & Television Association (“NCTA”), FTC-2023-0033-0858; Interactive Advertising Bureau (“IAB”), FTC-2023-0033-1000.

See

IAB, FTC-2023-0033-1000; Sirius XM, FTC-2023-0033-0857; Joint Comment from Entertainment Software Association, Digital Media Association, and Motion Picture Association (“ESA”), FTC-2023-0033-0867.

N/MA, FTC 2023-0033-0873; NRF, FTC-2023-0033-1005; ANA, FTC-2023-0033-1001.

The Commission tried to address these practices through individual law enforcement cases and a patchwork of regulations (

see

discussion at sections III-IV). Nevertheless, problems persist, as demonstrated in part by the tens of thousands of complaints consumers submit about these practices to the FTC each year. Moreover, the Commission and States continue to regularly bring cases challenging harmful negative option practices, including more than 35 recent FTC cases.

These matters involved a range of deceptive or unfair practices, including inadequate disclosures for “free” offers and other products or services, enrollment without consumer consent, and inadequate or overly burdensome cancellation and refund procedures.

As discussed further below, the continuing stream of cases; the high volume of ongoing complaints; and comments on the record all demonstrate prevalent unfair and deceptive practices and unabated consumer harm.

See, e.g., FTC

FloatMe Corp.,

No. 5:24-cv-00001 (W.D. Tex. 2024);

United States

Adobe, Inc.,

No. 5:24-cv-03630 (N.D. Cal. 2024);

FTC

WealthPress, Inc.,

No. 3:23-cv-00046 (M.D. Fla. 2023);

FTC

Bridge It, Inc.,

No. 1:23-cv-09651 (S.D.N.Y. 2023);

FTC

Amazon.com, Inc.,

No. 2:23-cv-0932 (W.D. Wash. 2023);

see also

n.60.

E.g., FTC

Triangle Media Corp.,

No. 3:18-cv-01388 (S.D. Cal. 2018);

FTC

Credit Bureau Ctr., LLC,

No. 1:17-cv-00194 (N.D. Ill. 2017);

FTC

JDI Dating, Ltd.,

No. 1:14-cv-08400 (N.D. Ill. 2014);

FTC

One Techs., LP,

No. 3:14-cv-05066 (N.D. Cal. 2014);

FTC

Health Formulas, LLC,

No. 2:14-cv-01649 (D. Nev. 2014);

FTC

NutraClick, LLC,

No. 2:16-cv-06819 (C.D. Cal. 2016);

FTC

XXL Impressions, LLC,

No. 1:17-cv-00067 (D. Me. 2017);

FTC

AAFE Prods. Corp.,

No. 3:17-cv-00575 (S.D. Cal. 2017);

FTC

Pact, Inc.,

No. 2:17-cv-1429 (W.D. Wash. 2017);

FTC

Tarr,

No. 3:17-cv-02024 (S.D. Cal. 2017);

FTC

AdoreMe, Inc.,

No. 1:17-cv-09083 (S.D.N.Y. 2017);

FTC

DOTAuthority.com, Inc.,

No. 0:16-cv-62186 (S.D. Fla. 2016);

FTC

BunZai Media Grp., Inc.,

No. 2:15-cv-04527 (C.D. Cal. 2015);

FTC

RevMountain, LLC,

No. 2:17-cv-02000 (D. Nev. 2017).

III. The FTC'S Existing Regulatory Scheme

A. The FTC's Current Negative Option Rule

The Commission first promulgated the Rule in 1973 pursuant to the FTC Act, 15 U.S.C. 41

et seq.,

finding some negative option marketers committed

unfair and deceptive practices that violated section 5 of the Act, 15 U.S.C. 45. Based on practices at the time, however, the Rule only applied to prenotification plans for the sale of goods, and therefore, does not reach the vast majority of modern negative option programs.

The Rule defines “negative option plan” narrowly to apply only to prenotification plans. 16 CFR 425.1(c)(1). In 1998, the Commission clarified the Rule's application to such plans in all media, stating that it “covers all promotional materials that contain a means for consumers to subscribe to prenotification negative option plans, including those that are disseminated through newer technologies.” 63 FR 44555, 44561 (Aug. 20, 1998).

Specifically, the Rule required prenotification plan sellers to disclose their plans' material terms clearly and conspicuously before consumers subscribe. To do so, it required sellers to disclose seven material terms: (1) how subscribers must notify the seller if they do not wish to purchase the selection; (2) any minimum purchase obligations; (3) the subscribers' right to cancel; (4) whether billing charges include postage and handling; (5) that subscribers have at least ten days to reject a selection; (6) that if any subscriber is not given ten days to reject a selection, the seller will credit the return of the selection and postage to return the selection, along with shipping and handling; and (7) the frequency with which announcements and forms will be sent.

In addition, sellers had to disclose the specific periods during which they would send introductory merchandise, give consumers a specified period to respond to announcements, provide instructions for rejecting merchandise in announcements, and promptly honor written cancellation requests.

16 CFR 425.1(a)(1)(i)-(vii).

16 CFR 425.1(a)(2) and (3);

id.

425.1(b).

B. Other Current Regulatory Requirements

Several other statutes and regulations also address harmful negative option practices. First, section 5 of the FTC Act has served as the Commission's primary mechanism for addressing deceptive negative option claims. Additionally, the Restore Online Shoppers' Confidence Act (“ROSCA”), 15 U.S.C. 8401-8405, the Telemarketing Sales Rule (“TSR”), 16 CFR part 310, the Postal Reorganization Act (

i.e.,

the Unordered Merchandise Statute), 39 U.S.C. 3009, and the Electronic Fund Transfer Act (“EFTA”), 15 U.S.C. 1693-1693r, all address various aspects of negative option marketing. ROSCA, however, is the only law primarily designed to do so, but only for online transactions.

1. Section 5 of the FTC Act

Section 5(a) of the FTC Act, 15 U.S.C. 45(a), is the core consumer protection statute enforced by the Commission. That statute broadly prohibits “unfair or deceptive acts or practices” but does not specifically address negative option marketing.

Therefore, in guidance and cases, the FTC has highlighted six basic requirements negative option marketing must follow to avoid deceptive and unfair practices.

First, marketers must disclose the material terms of a negative option offer including, at a minimum: the existence of the negative option offer; the offer's total cost; the transfer of a consumer's billing information to a third party, if applicable; and how to cancel the offer. Second, section 5 requires these disclosures to be clear and conspicuous. Third, sellers must disclose the material terms of the negative option offer before consumers agree to the purchase. Fourth, marketers must obtain consumers' consent to such offers. Fifth, marketers must not impede the effective operation of promised cancellation procedures and must honor cancellation requests that comply with those procedures. Finally, marketers cannot make any material misrepresentation regarding any portion of the transaction.

Under the FTC Act, “unfair or deceptive acts or practices” include acts or practices involving foreign commerce that cause or are likely to cause reasonably foreseeable injury within the United States or involve material conduct occurring within the United States. 15 U.S.C. 45(a)(4)(A). Section 5(n) of the FTC Act provides that “unfair” practices are those that cause or are likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. 15 U.S.C. 45(n).

See Negative Options: A Report by the Staff of the FTC's Division of Enforc

ment,

26-29 (Jan. 2009) (“Staff Report”),

https://www.ftc.gov/reports/negative-options-federal-trade-commission-workshop-analyzing-negative-option-marketing-report-staff.

In discussing the principal Section 5 requirements related to negative options, the report cites the following pre-ROSCA cases,

FTC

JAB Ventures, LLC,

No. 2:08-cv-04648 (C.D. Cal. 2008);

FTC

Complete Weightloss Ctr.,

No. 1:08-cv-00053 (D.N.D. 2008);

FTC

Berkeley Premium Nutraceuticals,

No. 1:06-cv-00051 (S.D. Ohio 2006);

FTC

Think All Publ'g, LLC,

No. 4:07-cv-00011 (E.D. Tex. 2006);

FTC

HispaNexo, Inc.,

No. 1:06-cv-424 (E.D. Va. 2006);

FTC

Consumerinfo.com,

No. 8:05-cv-00801 (C.D. Cal. 2005);

FTC

Conversion Mktg.,

No. 8:04-cv-01264 (C.D. Cal. 2004);

United States

Mantra Films, Inc.,

No. 2:03-cv-9184 (C.D. Cal. 2003);

FTC

Preferred Alliance, Inc.,

No. 1:03-cv-0405 (N.D. Ga. 2003);

United States

Prochnow,

No. 1:02-cv-917 (N.D. Ga. 2002);

FTC

Ultralife Fitness, Inc.,

No. 2:08-cv-07655 (C.D. Cal. 2008);

In re America Isuzu Motors,

FTC Docket No. C-3712 (1996);

FTC

Universal Premium Servs.,

No. 2:06-cv-00849 (C.D. Cal. 2006);

FTC

Remote Response Corp.,

No. 1:06-cv-20168 (S.D. Fla. 2006). The report also cited the FTC's previously issued guidance,

Dot Com Disclosures

(2002), archived at

https://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-staff-issues-guidelines-internet-advertising/0005dotcomstaffreport.pdf. See also

nn.245-252.

In addition to these deception-based requirements, the Commission has repeatedly stated billing consumers without consumers' express informed consent is an unfair act under the FTC Act.

Courts have found unauthorized billing to be unfair under the FTC Act.

See, e.g., FTC.

Neovi, Inc.,

604 F.3d 1150, 1157-59 (9th Cir. 2010),

amended by

2010 WL 2365956 (9th Cir. June 15, 2010);

FTC

Amazon.com, Inc.,

No. 2:14-cv-1038, 2016 WL 10654030, at *8 (W.D. Wash. Apr. 26, 2016);

FTC

Ideal Fin. Sols., Inc.,

No. 2:13-cv-00143, 2015 WL 4032103, at *8 (D. Nev. June 30, 2015).

2. ROSCA

Enacted by Congress in 2010 to address, in part, ongoing problems with online negative option marketing, ROSCA contains general provisions related to disclosures, consent, and cancellation.

Specifically, ROSCA prohibits charging or attempting to charge consumers for goods or services sold on the internet through any negative option feature unless the marketer: (1) clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer's billing information, regardless of whether a material term directly relates to the terms of the negative option offer;

(2) obtains a consumer's express informed consent before charging the consumer's account; and (3) provides simple mechanisms for the consumer to stop recurring charges.

ROSCA, however, does not prescribe specific steps marketers must follow to comply with these provisions and is limited to online transactions.

15 U.S.C. 8401-8405.

ROSCA, 15 U.S.C. 8403(1);

see also

Individual commenter, FTC-2023-0033-0007 (discussing deceptive and unfair negative option practices for in-person enrollment); Individual commenter, FTC-2023-0033-0129 (gym membership in-person enrollment); Individual commenter, FTC-2023-0033-0299 (same).

Additionally, ROSCA lacks specificity about cancellation procedures and the placement, content, and timing of cancellation-related disclosures. Instead, the statute requires marketers to provide “simple mechanisms” for the consumer to stop recurring charges without guidance about what is simple. While the statute provides more than adequate specificity to avoid blatant violations, it makes law enforcement actions much more difficult for closer calls, even when these practices cause significant harm.

V. Negative Option Rulemaking and Enforcement Efforts

The Commission initiated its last regulatory review of the Negative Option Rule in 2009,

following a 2007 FTC workshop and subsequent Staff Report.

The Commission completed the review in 2014.

At the time, the Commission found the comments supporting the Rule's expansion “argue convincingly that unfair, deceptive, and otherwise problematic negative option marketing practices continue to cause substantial consumer injury, despite determined enforcement efforts by the Commission and other law enforcement agencies.”

It also noted practices not covered by the Rule (

e.g.,

trial conversions and continuity plans) accounted for most of the Commission's enforcement activity in this area. Nevertheless, the Commission declined to expand or modify the Rule because the enforcement tools provided by the TSR and, especially, ROSCA, which had only recently become effective, might prove adequate to address the extant problems. The Commission emphasized, however, if ROSCA and its other enforcement tools failed to protect consumers, the Commission would consider whether and how to amend the Rule.

Since that review, the problems with negative options have persisted.

74 FR 22720 (May 14, 2009).

See

Staff Report, n.16.

79 FR 44271 (July 31, 2014).

79 FR 44275. The Commission cited a number of its law enforcement actions challenging negative option marketing practices, including, for example,

FTC

Process Am., Inc.,

No. 2:14-cv-00386 (C.D. Cal. 2014) (processing of unauthorized charges relating to negative option marketing);

FTC

Willms,

No. 2:11-cv-00828 (W.D. Wash. 2011) (internet free trials and continuity plans);

FTC

Moneymaker,

No. 2:11-cv-00461 (D. Nev. 2011) (internet trial offers and continuity programs);

FTC

Johnson,

No. 2:10-cv-02203 (D. Nev. 2010) (internet trial offers); and

FTC

John Beck Amazing Profits, LLC,

No. 2:09-cv-04719 (C.D. Cal. 2009) (infomercial and telemarketing trial offers and continuity programs).

79 FR 44275-76.

See

sections VI-VII of this SBP.

VI. Rule Review and Request for Comment

A. 2019 Advance Notice of Proposed Rulemaking

Given the persistence of unfair and deceptive practices despite significant law enforcement attention at both the Federal and State level, the Commission published its 2019 advance notice of proposed rulemaking (“ANPR”) seeking comments on the current Rule, as well as possible new measures to reduce consumer harm created by deceptive or unfair negative option marketing.

Specifically, the Commission sought comment on various alternatives, including amendments to existing rules to further address disclosures, consumer consent, and cancellation. The Commission also requested input on whether and how it should use its authority under section 18 of the FTC Act to expand the Negative Option Rule to address prevalent unfair or deceptive practices involving negative option marketing.

In response, the Commission received 17 comments.

ANPR, 84 FR 52393 (Oct. 2, 2019).

Section 18 of the FTC Act authorizes the Commission to promulgate rules that define with specificity acts or practices in or affecting commerce which are unfair or deceptive. 15 U.S.C. 57a(a)(1)(B). The Commission may issue regulations “where it has reason to believe that the unfair or deceptive acts or practices which are the subject of the proposed rulemaking are prevalent.” 15 U.S.C. 57a(b)(3). The Commission may make such a prevalence finding if it has issued cease and desist orders regarding such acts or practices, or any other available information indicates a widespread pattern of unfair or deceptive acts or practices. Rules under section 18 “may include requirements prescribed for the purpose of preventing such acts or practices.”

The comments are available online.

See

Regulations.gov

, Negative Option Rule (ANPR), FTC-2019-0082,

https://www.regulations.gov/docket/FTC-2019-0082.

B. 2021 Enforcement Policy Statement

On November 4, 2021, the Commission published an “Enforcement Policy Statement Regarding Negative Option Marketing” (“2021 Enforcement Policy Statement” or “EPS”) to provide guidance regarding its enforcement of

various statutes and FTC regulations.

The 2021 Enforcement Policy Statement enunciated various principles rooted in FTC case law and restated previous guidance related to the provision of information to consumers, consent, and cancellations. Among these principles, the Statement emphasized ROSCA's requirement that sellers disclose all material terms related to the underlying product or service that are necessary to prevent deception, regardless of whether that term relates directly to the terms of the negative option offer.

In addition, consistent with ROSCA, judicial decisions applying section 5, and cases brought by the Commission, the 2021 Enforcement Policy Statement reiterated sellers should obtain consumers' acceptance of the negative option feature separately from any other portion of the transaction. Finally, the Statement explained sellers should provide cancellation mechanisms at least as easy to use as the method the consumer employed to initiate the negative option feature.

EPS, 86 FR 60822 (Nov. 4, 2021).

The Commission recently alleged a negative option seller's failure to disclose it was impeding access to its movie subscription service violates ROSCA.

In re MoviePass, Inc.,

FTC Docket No. C-4751 (2021).

C. 2023 Notice of Proposed Rulemaking

After reviewing the comments received in response to the ANPR and issuing the 2021 Enforcement Policy Statement, the Commission issued a notice of proposed rulemaking (“NPRM”) on April 23, 2023 (88 FR 24716). In the NPRM, the Commission proposed amending the existing Rule to prohibit material misrepresentations and to require sellers to provide important information to consumers, obtain consumers' express informed consent, and ensure consumers can easily cancel negative option programs if they choose. All these proposed changes would be applicable to all forms of negative option marketing across all media (

e.g.,

telephone, internet, traditional print media, and in-person transactions).

The Commission proposed to issue such amendments pursuant to section 18 of the FTC Act, which authorizes it to promulgate rules specifying acts or practices in or affecting commerce which are unfair or deceptive. 15 U.S.C. 57a(a)(1)(B). Several commenters raised concerns the Commission failed to follow section 18's procedures for two reasons. First, commenters argued the Commission's proposed Rule went beyond the scope of the ANPR.

See, e.g.,

ESA, FTC-2023-0033-0867; USTelecom-The Broadband Association (“USTelecom”), FTC-2023-0033-0876; Retail Industry Leaders Association (“RILA”), FTC-2023-0033-0883; U.S. Chamber of Commerce (“Chamber”), FTC-2023-0033-0885; The Computer & Communications Industry Association (“CCIA”), FTC-2023-0033-0984; IAB, FTC-2023-0033-1000; National Retail Federation (“NRF”), FTC-2023-0033-1005). Second, they argued the Commission's proposed Rule did not satisfy the specificity and prevalence requirements of section 18. The Commission addresses these comments in section VII.A.

The Commission designed the proposed amendments to curb deceptive or unfair practices occurring in negative option marketing. The Commission sought public comment on “all aspects” of the proposal, “including the likely effectiveness of the proposed Rule in helping the Commission combat unfair or deceptive practices in negative option marketing.”

The Commission further identified specific questions and areas where it solicited available data and evidence, including data and evidence supporting alternatives to the proposed regulations.

The Commission did not identify any disputed issues of material fact that needed to be resolved at an informal hearing.

The comment period closed on June 23, 2023.

NPRM, 88 FR 24730.

See

NPRM, 88 FR 24728 (inviting comments on free trials);

id.

at 24729 (requesting comments on proposed annual reminder provision);

id.

at 24730 (inviting comments on conflicts with existing state requirements;

id.

(seeking comments on proposed material changes provision and exempted activities or entities);

id.

(inviting submissions of “data, views, and arguments on the proposed amendments”);

id.

at 24732-33 (inviting comments on the impacts on small businesses, including any modifications to reduce costs or burdens for small entities);

id.

at 24734 (inviting comments on the Paperwork Reduction Act analysis).

see also

Law Professors, FTC-2323-0033-0861 (stating the “number of states that have recently adopted specific laws targeting negative option marketing, on top of their general prohibitions on unfair and deceptive practices and ability to enforce ROSCA, is particularly noteworthy.”); IHRSA, The Global Health & Fitness Association (“IHRSA”), FTC-2023-0033-0863 (noting many states have laws on negative options).

But see

The Center for Consumer Law and Economic Justice at UC Berkeley School of Law (“Berkeley Consumer Law Center”), FTC-2023-0033-0855 (stating that “fewer than half the states have a law specifically addressing negative option marketing”).

Law Professors, FTC-2023-0033-0861. This group also points out that private industry, too, has felt the need for more action in this area, noting that VISA and Mastercard have their own requirements for businesses that bill using a negative option model.

Consumer Complaints and Comments.

The FTC receives tens of thousands of complaints about negative options each year through its Sentinel complaint database, and marketers receive many more as demonstrated by evidence in FTC cases.

Additionally, TINA explained that negative options are one of its top complaint categories. These complaints usually involve consumers who unwittingly enroll in programs and then find it difficult or impossible to cancel.

See, e.g., United States

Adobe, Inc.,

No. 5:24-cv-03630 (N.D. Cal. 2024) (ECF No. 40, Amd. Compl.);

FTC

Amazon.com, Inc.,

No. 2:23-cv-0932 (W.D. Wash. 2023) (ECF No. 67, Amd. Compl.).

TINA, FTC-2023-0033-1139.

Moreover, hundreds of consumer comments detailed specific practices (discussed more thoroughly in connection with the section-by-section analysis below) demonstrating the prevalence of unfair or deceptive negative option practices. Likewise, comments from public interest and consumer advocacy groups further describe existing deceptive or unfair practices prevalent in the negative option marketplace. For example, Berkeley Consumer Law Center explained businesses regularly use dark patterns

to facilitate enrollment in subscription-based products and inhibit cancellation, and provided numerous examples of these activities.

A group of law professors referenced the burgeoning industry offering to help consumers identify and cancel their unwanted subscriptions. As they explained: “One might expect that, if consumers experienced the marketplace as one in which they are adequately informed of recurring payments and readily able to cancel them, there would not be an emerging industry to help them do just that.”

The term “dark patterns” has been used to describe design practices that trick or manipulate users into making choices they would not otherwise have made and that may cause harm

See Bringing Dark Patterns to Light,

FTC Staff Report (Sept. 2022),

https://www.ftc.gov/system/files/ftc_gov/pdf/P214800%20Dark%20Patterns%20Report%209.14.2022%20-%20FINAL.pdf.

Berkeley Consumer Law Center, FTC-2023-0033-0855.

Law Professors, FTC-2023-0033-0861.

Members of Congress also detailed ongoing problems in this area. Citing the increase in consumer complaints and consumer harm in recent years, Representative Takano stated, “deceptive online marketing and unclear recurring payment plans are leaving too many consumers on the hook for products they may not want or even know they purchased.”

Representatives Schiff and Norton noted their constituents' desire for greater protections in the negative option marketplace, stating the “proposed updates will help put the consumers

back in control of their purchases and subscriptions.”

NPRM, 88 FR 24720-21.

Schiff and Norton, FTC-2023-0033-0868.

Studies.

Finally, “studies cited by commenters confirm a pattern of consumer ensnarement in unwanted recurring payments.”

A Better Business Bureau study of FTC data, titled “Subscription Traps and Deceptive Free Trials Scam Millions with Misleading Ads and Fake Celebrity Endorsements,” demonstrated complaints about free trials doubled between 2015 and 2017, with complaints during the period reaching nearly 37,000.

The BBB study shows consumer losses in FTC “free trial offer” cases exceeded $1.3 billion (over the ten years covered by the study).

A group of consumer and public interest advocacy organizations, including the National Consumers League

stated that, according to the BBB, the average consumer loss for a free trial is $186.

NPRM, 88 FR 24725.

Steve Baker,

Subscription Traps and Deceptive Free Trials Scam Millions with Misleading Ads and Fake Celebrity Endorsements,

Better Business Bureau (Dec. 2018),

https://www.bbb.org/article/investigations/18929-subscription-traps-and-deceptive-free-trials-scammillions-with-misleading-ads-and-fake-celebrity-endorsements.

Id.; see also

Better Business Bureau, BBB Investigation Update: Free Trial Offer Scams (Apr. 2020),

https://www.bbb.org/article/news-releases/22040-bbb-update-free-trial-offerscams

(reporting the total has risen to nearly $1.4 billion since the 2018 BBB study);

id.

(observing that while celebrities, credit card companies and government agencies have increased their efforts to fight deceptive free trial offer scams, victims continue to lose millions of dollars to fraudsters after the release of a December 2018 BBB study about the shady practices).

The six public interest and consumer advocacy groups are: Consumer Action, Consumer Federation of America, Demand Progress Education Fund, National Association of Consumer Advocates, Nation Consumer Law Center (on behalf of its low income clients,) and National Consumers League (“NCL”) (collectively, the “Public Interest Groups”).

Steve Baker,

Subscription Traps and Deceptive Free Trials Scam Millions with Misleading Ads and Fake Celebrity Endorsements,

Better Business Bureau (Dec. 2018).

Referring to another survey conducted in 2016, TINA noted unwanted fees associated with trial offers and automatically renewing subscriptions ranked as “the biggest financial complaint of consumers.”

Similarly, TINA noted the FBI's internet Crime Complaint Center recorded a rise in complaints about free trial offers, growing from 1,738 in 2015 to 2,486 in 2017.

A 2019

Bankrate.com

survey cited by NCL found that 59% of consumers have been signed up “against their will” for “free trials” that automatically converted into a recurring payment.

NPRM, 88 FR 24720 (citing Rebecca Lake, “Report: Hidden Fees Are #1 Consumer Complaint,”

mybanktracker.com

(updated Oct. 16, 2018),

https://www.mybanktracker.com/money-tips/money/hidden-fees-consumercomplaint-253387.

)

NPRM, 88 FR 24721.

Bankrate, “Despite safety concerns, 64% of U.S. debit or credit cardholders save their information online” (Oct. 24, 2019), at

https://www.bankrate.com/pdfs/pr/20191024-online-shopping-survey.pdf

(as cited by Civil Society Organizations, FTC-2023-0033-0870).

NCL and others also cited a 2017 national telephone survey commissioned by

CreditCards.com

finding 35% of U.S. consumers have enrolled in at least one automatically renewing contract without realizing it.

In response to the NPRM, the Public Interest Groups cited more recent studies confirming the continued prevalence of harms from deceptive and unfair negative option practices. For instance, consumer groups referenced a 2022 study, which concluded “on average, consumers pay two-and-a-half times what they originally estimated on monthly subscriptions, likely due to the lack of adequate notice from sellers.”

They also noted burdensome cancellation procedures remain rampant. “One survey found that more than half of respondents reported it took an average of three months to cancel unwanted recurring payments.”

That same study reported 71% of individuals lost more than $50 a month in unwanted subscriptions. Another study concluded consumers underestimate how much they pay to maintain their subscriptions by an average of $133/month (or $1,596 per year), and 42% of the consumers had forgotten about a subscription for which they continued to pay.

NPRM, 88 FR 24720.

Public Interest Groups, FTC-2023-0033-0880 (citing “Subscription Service Statistics and Costs,” C+R Research Blog (May 18, 2022)).

Public Interest Groups, FTC-2023-0033-0880 (citing Chase, “Survey from Chase Reveals That Two-Thirds of Consumers Have Forgotten About At Least One Recurring Payment In The Last Year” (Apr. 1, 2021),

https://media.chase.com/news/survey-from-chase-reveals

State AGs, FTC-2023-0033-00866 (citing Sarah Brady and Korrena Bailie, “5 Tools To Help You Cancel Unwanted Subscriptions,” Forbes (July 13, 2022),

https://www.forbes.com/advisor/personal-finance/manage-subscriptions

See also

Einav, Liran, et al., “Selling Subscriptions” (Dec. 1, 2023),

https://nmahoney.people.stanford.edu/sites/g/files/sbiybj23976/files/media/file/mahoney_subscriptions.pdf.

Finally, TINA also noted a consumer survey by the Washington Attorney General's office finding “59% of Washingtonians (3.5 million residents) may have been unintentionally enrolled in a subscription plan or service when they thought they were making a one-time purchase.”

TINA contended this is “consistent with” the 2022 Bankrate survey finding more than half of U.S. adults experience unwanted charges from a subscription or membership.

These findings are further supported by a Chase Bank study in 2021 finding nearly three-quarters of Americans waste more than $50 a month on unwanted subscription fees.

TINA, FTC-2023-0033-1139.

Id.

See

n.91.

Despite the robust evidence that unfair or deceptive practices are exceedingly prevalent, several trade organizations challenged the Commission's proposed prevalence determination. However, their arguments, as discussed below, are not persuasive.

First, they argued the Commission must show prevalence in a specific industry in order to regulate negative option practices in that industry, but the Commission failed to do so. For instance, NCTA asserted there is no evidence of widespread deceptive negative option practices in the broadband, cable, or voice industries warranting regulation.

Other commenters argued the Commission must identify the prevalence of a specific deceptive or unfair act to warrant regulating that specific act or practice under Section 18. For instance, IAB, NCTA, TechNet, and TechFreedom argued the Commission failed to show prevalence of misrepresentations about the underlying product or service in connection with negative option contracts. Similarly, three commenters argued the Commission should limit the scope of the Rule to business-to-consumer transactions and exclude business-to-business (“B2B”) transactions, in part, because the Commission failed to show “the prevalence of harms created by automatically-renewing subscriptions entered into in the business-to-business context.”

NCTA, FTC-2023-0033-0858;

see also

SCIC, FTC-2023-0033-0879.

BSA, FTC-2023-0033-1015;

see also

Anonymous commenter, FTC-2023-0033-1007; NCTA, FTC-2023-0033-0858.

As demonstrated above, however, there is ample evidence in the record demonstrating the prevalence of the specific unfair and deceptive practices across numerous sectors of the economy, which the Commission now addresses in an industry-neutral fashion.

Moreover, nothing in Section 18 requires the Commission to find prevalence regarding a specific industry or group.

The Commission need only

find “some basis or evidence” demonstrating the practice the Commission seeks to regulate “does indeed occur.”

100

Such evidence exists here in abundance. As NCTA itself pointed out, individual consumers complained of deceptive and unfair practices in its members' industries.

101

Further, “consumer subscription models are rapidly growing in popularity,”

102

and there is evidence of the proliferation of negative option features in virtually every industry.

103

The harms outlined here resulted from the negative option transaction itself, and many businesses, regardless of industry, are incentivized to continue to leverage negative options to the possible detriment of consumers.

104

The Commission also declines to limit the scope of the final Rule by excluding business-to-business transactions. As explained in Section VII.B.1, the Commission has a long history of protecting businesses, particularly small business, in their role as consumers; the practices and harms described here impact these consumers, as well.

See

sections VII.A.1.a-b and section II.A.1.b of this SBP.

See generally

15 U.S.C. 57a.

100

Pennsylvania Funeral Dirs. Ass'n, Inc.

FTC,

41 F.3d 81, 87-88 (3d Cir. 1994) (holding the FTC did not need “substantial, rigorous, quantitative studies” or to show the practice occurs in a certain percentage of transactions through the country to find prevalence). “Further, even where there is a limited record as to the prevalence of a practice on a nationwide basis or where the data reviewed only relates to a few states, the practice can be found to be prevalent enough to warrant a regulation.”

Id.

at 87.

101

NCTA, FTC-2023-0073-0008.

102

CTA, FTC-2023-0033-0997. CTA reports that a 2022 study found the global subscription e-commerce market is expected to reach $904.2 billion by 2026, and between 2021 and 2022, existing subscription brands grew their customer bases by 31 percent.

103

According to a 2018 McKinsey & Company study, the subscription e-commerce market increased more than 100% over a five-year period prior to the study's publication. Tony Chen, Ken Fenyo, Sylvia Yang, and Jessica Zhang, “Thinking Inside the Subscription Box: New Research on E-Commerce Consumers,” McKinsey & Company (February 2018) (as cited by,

e.g.,

TechNet, FTC-2023-0033-0869 and Individual commenter, FTC-2023-0033-0800). PDMI also observed that negative options are offered in a wide array of product and services from major brands including media services, meal preparation kits, shaving and beauty products, beer and wine, contacts and ordinary household consumables. FTC-2023-0033-0864. Digital Content Next (“DCN”), FTC-2023-0033-0983, reports the United States had more than one billion paid subscriptions in Q1 2023 across the digital media landscape, indicating almost all online U.S. households subscribe to one or more digital media subscription services.

See also

Section VII.B.1; Section VIII.A.1.

As several commenters observed, a wide variety of actors may have secondary or tertiary roles in promoting products or services with a negative option feature. Further, as the Chamber noted, “many of those participants . . . may not actually play an active role in determining how the negative option is presented to the consumer.”

141

Similarly, participants in the promotion process may have no role in cancellation. Deleting the word “promoting” from the definition of negative option seller addresses this issue by ensuring those who have no active participation in the negative option feature are outside the Rule's coverage. However, this amendment does not mean all actors involved in promotion are exempt from the Rule. A participant who promotes and takes on a further role “selling, offering, charging for, or otherwise marketing goods or services with a negative option feature” remains subject to the final Rule, including the provisions covering “promoting” such goods or services for those who meet the negative option seller definition.

142

141

Chamber, FTC-2023-0033-0885.

142

See, e.g., FTC

LeadClick Media, LLC,

838 F.3d 158, 172 (2d Cir. 2016) (operator of affiliate marketing network liable where it did not create ads but “directly participat[ed] in the deceptive scheme by recruiting, managing, and paying a network of affiliates to generate consumer traffic through the use of deceptive advertising and allowing the use of deceptive advertising where it had the authority to control the affiliates participating in its network.”).

The Commission declines to adopt a status-based exemption for payment intermediaries. Such exemptions are overbroad, excluding actors engaged in the practices condemned by the Rule. For example, a payment processor selling its own services on a negative option basis, as opposed to just providing payment services for another negative option seller, is no different than any other business covered by the Rule. Additionally, as ETA correctly noted, the words “charging for” as used in the Rule do not cover intermediaries merely effecting the transfer of funds from the consumer buyer to the merchant seller. This is consistent with the Commission's interpretation of ROSCA's coverage of persons who “charge or attempt to charge any consumer.”

143

Based on longstanding section 5 principles, the Commission has not enforced ROSCA against payment intermediaries solely for their conduct in effecting funds transfers.

144

The Commission will apply the same principles to the Rule.

145

143

15 U.S.C. 8403.

144

See FTC

Apex Capital Grp., LLC,

No. 2:18-cv-09573 (C.D. Cal. 2018). In this ROSCA matter, the Commission amended its complaint to add payment intermediary defendants for their unlawful conduct in connection with the scheme. However, the Commission did not assert ROSCA claims against the payment intermediary defendants, instead asserting counts for credit card laundering and manipulation of chargeback levels as Section 5 violations.

145

Id.; see FTC

First Am. Payment Sys.,

No. 4:22-cv-00654 (E.D. Tex. 2022) (ROSCA case against payment processor for its unlawful acts and practices against its merchant customers).

Similarly, the Commission will not grant blanket exemptions to sellers who contract with third parties while offering subscription services. The Commission expects negative option sellers to evaluate their commercial relationships with the Rule's provisions in mind. Even where a seller does not directly manage its negative option feature disclosures, consent, or cancellation, it can satisfy its obligations under the Rule by choosing to contract with third parties who act in accordance with the Rule and monitoring those parties' performance. An exemption for all sellers who contract with third parties to manage aspects of their negative option programs would effectively nullify the Rule by incentivizing less than legitimate sellers to contract with actors engaged in deceptive practices to maximize negative option enrollments and frustrate cancellation with impunity. A seller cannot evade its responsibility to deal honestly with consumers by contracting with a third party who does not.

146

E.g., FTC

LeadClick Media, LLC,

838 F.3d 158, 170 (2d Cir. 2016) (“A defendant may be held liable for its own acts of deception under the FTC Act, whether by directly participating in deception or by allowing deceptive acts or practices to occur that are within its control.”);

See also

ETA, FTC-2023-0033-1004.

In the Commission's 2022

Dun & Bradstreet

181

matter, the complaint alleged multiple deceptive practices pertaining to products the defendant marketed to small- and medium-sized businesses, in violation of section 5. The resulting consent order includes substantial provisions pertaining to negative option features.

181

In re Dun & Bradstreet, Inc.,

FTC Docket No. C-4761 (2022).

The Commission's 2022 action against

Vonage

182

also illustrates this point. The complaint detailed the defendants' deceptive and unfair practices targeting both business and residential customers and alleged those practices violated section 5 and ROSCA.

183

The stipulated court order includes multiple provisions relating to consent, cancellation, and disclosures pertaining to both individual and business consumers.

182

FTC

Vonage Holdings Corp.,

No. 3:22-cv-06435 (D.N.J. 2022).

183

The

Adobe

matter provides another recent example of a matter alleging unlawful negative option practices targeting both individual and business consumers.

United States

Adobe, Inc.,

No. 5:24-cv-03630 (N.D. Cal. 2024).

Nonetheless, two arguments for excluding B2B transactions warrant additional discussion.

First,

several commenters elide the distinction between B2B agreements generally and individually negotiated B2B agreements. It is neither the purpose nor the effect of the final Rule to prevent businesses from entering into agreements with individually negotiated negative option terms. By requiring the cancellation mechanism to be “at least as easy to use” as the consent mechanism, the final Rule incorporates a symmetrical standard that accounts for individually negotiated B2B agreements. A B2B consumer who consents to a negative option feature through an individually negotiated term of an agreement can also individually negotiate the cancellation mechanism. Moreover, as the Commission noted above, it will enforce this Rule in the same manner in which it enforces section 5 of the FTC Act.

184

The Commission has not used its consumer protection authority in the type of large individually negotiated B2B transactions commenters are worried about.

185

Unsurprisingly, no commenter cited any historical instance to the contrary. Thus, the Rule preserves the ability of sophisticated business consumers to individually negotiate B2B agreement terms.

186

184

See

section VII.B.1.a.

185

See

16 CFR 2.3.

186

The

Vonage

order expressly exempts negative option feature provisions in B2B contracts where the defendants “possess evidence that consumers negotiated significant terms of the negative option feature that are only negotiable with business consumers.”

FTC

Vonage Holdings Corp.,

No. 3:22-cv-06435 (D.N.J. 2022). The final Rule is less prescriptive and more flexible than that order,

thereby promoting more flexibility in the marketplace.

Second,

it appears several commenters mistakenly thought the required simple cancellation mechanism would necessarily terminate all aspects of any broader contract or agreement. In fact, this provision only pertains to cancellation of the negative option feature. Complex commercial agreements, such as those described by ETA, will have numerous provisions unrelated to negative option features. Nothing in this Rule prohibits these provisions from being subject to separate cancellation and termination terms.

2. Proposed § 425.2 Definitions

In the NPRM, the proposed Rule set forth several definitions. For example, the proposed Rule defined “negative option feature” as a contract provision under which the consumer's silence or failure to take affirmative action to reject a good or service or to cancel an agreement is interpreted by the negative option seller as acceptance or continuing acceptance of an offer. This definition is consistent with the TSR and ROSCA (which references the TSR's definition). The proposed term includes, but is not limited to, automatic renewals, continuity plans, free-to-pay conversion or fee-to-pay conversions, and pre-notification negative option plans.

187

Section II of this Notice contains descriptions of these various plans.

Additionally, the proposed Rule defined “clear and conspicuous,” “negative option seller,” and “save.” To define “clear and conspicuous,” the FTC imported its definition developed through years of enforcement experience. As explained in the NPRM, the proposed definition substantially overlaps with the concepts provided in California and District of Columbia negative option laws,

188

with one exception. Specifically, the District of Columbia definition requires disclosures to be visually proximate to any request for consumer consent. The final Rule incorporates this requirement in a separate consent section.

188

Cal. Bus. & Prof. Code section 17601 and DC Code section 28A-202.

(a) Summary of Comments

The Commission did not receive any comments specifically supporting any proposed definition, though several commenters generally supported the concepts incorporated in the definitions, such as “clear and conspicuous disclosures.” Several commenters critiqued the Commission's omission of certain definitions, such as “material” in connection with § 425.3 and § 425.4,

189

“simple cancellation mechanism,”

190

“practical,” and “normal business hours,”

191

because these terms are used throughout the Rule. Other commenters asked the Commission to add a definition for “consumer” that excludes businesses,

192

while another asked the Commission to include small businesses in that definition.

193

Similarly, other commenters asked the Commission to “exempt” certain industries from, or otherwise alter the scope of, the definition of “negative option seller.”

194

189

See, e.g.,

BSA, FTC-2023-0033-1015 (material is not defined); Chamber, FTC-2023-0033-0885 (same).

190

Center for Data Innovation (“CDI”), FTC-2023-0033-0887;

see also

Act App Association, FTC-2023-0033-0874; NRF, FTC-2023-0033-1005 (failed to defined “as simple as”).

191

International Carwash Association, FTC-2023-0033-1142.

192

See, e.g.,

Anonymous commenter, FTC-2023-0033-1007; Zoominfo, FTC-2023-0033-0865; CTIA, FTC-2023-0033-0866; BSA, FTC-2023-0033-1015.

193

Individual commenter, FTC-2023-0033-0042.

194

See, e.g.,

Asurion, FTC-2023-0033-0878 (exempt service contracts); Chamber, FTC-2023-0033-0885 (exclude promoting); ETA, FTC-2023-0033-1004 (exclude “charging for”). These requests are more appropriately addressed in the scope and requested exemptions, and the Commission does not consider them here.

Several commenters critiqued the proposed definitions. For example, ESA stated “the definition of `save'

195

is overly broad and would prohibit the presentation of useful, consumer-friendly details about a consumer's subscription before they cancel it.”

196

Other commenters questioned why the “clear and conspicuous” definitions says a disclosure is not clear and conspicuous, if a consumer must click on a hyperlink to see it.

197

195

Save was defined in the proposed Rule as an attempt by a seller to present any additional offers, modifications to the existing agreement, reasons to retain the existing offer, or similar information when a consumer attempts to cancel a negative option feature.

196

ESA, FTC-2023-0033-0867. PDMI argued similarly as to the definition of save. FTC-2023-0033-0864 (arguing sellers should be able to be able to immediately discuss pause, skip or modification options without having to ask for permission, particularly because it is impossible to know which customers prefer to cancel as opposed to merely modify their current plan).

Accord

USTelecom, FTC-2023-0033-0876 (definition of Save overly broad); RILA, FTC-2023-0033-0883 (modify definition of save to allow short clarification and confirmation of intent follow-up communications); Chamber, FTC-2023-0033-0885; CDI, FTC-2023-0033-0887 (“Commission should exclude information about permanent, irreparable harms that may result from cancellation, and is relevant to the current subscription or product plan.”); CCIA, FTC-2023-0033-0984; IAB, FTC-2023-0033-1000 (definition of save overly broad and “would prohibit the presentation of useful, consumer-friendly details about a consumer's subscription before they cancel it.”).

197

See, e.g.,

NCTA, FTC-2023-0033-0858 (definition does not take into account small screens); Chamber, FTC-2023-0033-0885 (“The requirements that disclosure on the internet or mobile applications be `unavoidable' and `immediately adjacent' rase practical concerns.”); CCIA, FTC-2023-0033-0984 (definition should “hew closely to the Commission's guidance in its

.com Disclosures

policy to ensure regulatory consistency.”).

Additionally, several commenters requested the Commission revise certain of its proposed definitions for clarity. For instance, the National Federation of Independent Businesses (“NFIB”) asked the Commission to revise the definitions for “clear and conspicuous” and “negative option feature” to “make their meanings clearer”

198

by, for example, using simpler words in the clear and conspicuous definition (“words and grammar” versus “diction and syntax”) or by providing detailed examples of each type of program covered in the definition of negative option feature. NFIB further explained “Those regulated by and served by subsection 425.2(d) most likely would understand the meaning of an automatic renewal, but perhaps not the meaning of the other examples.”

199

198

NFIB, FTC-2023-0033-0789.

Accord

Kuehn, FTC-2023-0033-0871 (proposed revised definition of negative option feature); Chamber, FTC-2023-0033-0885 (requests the definition of negative option feature to be revised to exclude monthly subscription services).

See

section VII.B.4 for further discussion of proposed modifications.

See also

ETA, FTC-2023-0033-1004 (clarify and narrow “automatic renewal in the definition).

199

NFIB, FTC-2023-0033-0789 (requesting specific examples of each type of program be included in the definition of negative option feature);

see also

IHRSA, FTC-2023-0033-0863 (observes the Commission does not define what “automatic renewal, continuity plan” and other examples of negative option features mean).

(b) Analysis

Based on the record, the Commission makes several changes to the proposed definitions. First, as explained in sections VII.B.1.3 (material) and VII.B.6.c.2.b.ii (interactive electronic medium), it adds definitions of material and interactive electronic medium for clarity. Further, as discussed in section VII.B.4, the Commission modifies the definition of clear and conspicuous.

Second, the Commission removes the definition of save. As discussed in section VII.B.6.c the proposed saves provision did not achieve the right balance between protecting consumers from unfair tactics and allowing sellers to provide necessary and valuable information about cancellation. Therefore, the Commission declines to include the NPRM's proposed limitation on saves, and instead will consider issuing an SNPRM in the future for

further comment. Accordingly, without the saves provision, the Commission determines there is no need for a defined term at this time.

Although several commenters critiqued the lack of definitions for such terms as “simple cancellation mechanism,” “practical,” or “normal business hours,” the Commission addresses these concerns with further clarification, rather than with formal definitions, in the section-by-section analysis below. As to commenter requests for a definition of “consumer” expressly excluding (or including) business-to-business transactions, the Commission similarly addresses these requests in the sections regarding scope and requested exemptions, above.

Finally, NFIB asked the Commission to add specific examples of each type of negative option program to the text of the Rule, stating those served by the Rule would likely not understand these “terms of art.”

200

The Commission discusses examples of each type of negative option program in more detail as part of the SBP at section II. Further, the Commission typically engages in robust consumer and business education campaigns when promulgating and issuing final rules and will do so here. The Commission therefore disagrees the Rule must incorporate these examples into the text.

201

200

NFIB, FTC-2023-0033-0789.

201

Further, as explained in n.307, the Commission also declines to revise the definition of “clear and conspicuous” to replace the words “diction and syntax” with “words and grammar.”

3. Proposed § 425.3 Misrepresentations

Section 425.3 of the proposed Rule prohibited sellers from misrepresenting “any material fact related to the transaction, such as the negative option feature, or any material fact related to the underlying good or service.”

202

As explained in the NPRM, “misrepresentations in negative option marketing cases often involve deceptive representations not only related to the negative option feature but to the underlying product (or service) or other aspects of the transaction as well.”

203

These include “misrepresentations related to costs, product efficacy, free trial claims, processing or shipping fees, billing information use, deadlines, consumer authorization, refunds, [and] cancellation.”

204

202

NPRM, 88 FR 24734.

203

NPRM, 88 FR 24726.

204

Id.

(citing

e.g., FTC

Tarr,

No. 3:17-cv-02024 (S.D. Cal. 2017);

FTC

First Am. Payment Sys.,

No. 4:22-cv-00654 (E.D. Tex. 2022);

FTC

XXL Impressions, LLC,

No. 1:17-cv-00067 (D. Me. 2017);

United States

MyLife.com, Inc.,

No. 2:20-cv-6692 (C.D. Cal. 2020);

FTC

Health Rsch. Labs., LLC,

No. 2:17-cv-00467 (D. Me. 2017);

FTC

Leanspa, LLC,

No. 3:11-cv-01715 (D. Conn. 2011);

FTC

WealthPress, Inc.,

No. 3:23-cv-00046 (M.D. Fla. 2023);

FTC

BunZai Media Grp., Inc.,

No. 2:15-cv-04527 (C.D. Cal. 2015);

FTC

Willms,

No. 2:11-cv-00828 (W.D. Wash. 2011);

FTC

Universal Premium Servs.,

No. 2:06-cv-00849 (C.D. Cal. 2006);

FTC

Remote Response Corp.,

No. 1:06-cv-20168 (S.D. Fla. 2006); and

FTC

Johnson,

No. 2:10-cv-02203 (D. Nev. 2016).

The FTC Act provides the legal basis for the Commission to prevent and remedy misrepresentations in the negative option context. Specifically, section 5(a)(1) of the FTC Act declares unfair or deceptive acts or practices in or affecting commerce to be unlawful. Negative option sellers making material misrepresentations are engaged in deceptive practices. Addressing these practices through the Rule prevents deception by giving the Commission the ability to seek civil penalties (where appropriate under 5(m)(1)(a)), where they are not already provided, thus deterring misrepresentations, protecting consumers, and leveling the playing field for “honest sellers who must compete with those who engage in deception.”

205

NPRM, 88 FR 24726.

(a) Summary of Comments

The State AGs strongly supported this provision, stating, for example, it would “combat[ ] seller misrepresentations, by providing the FTC with authority to seek civil penalties and consumer redress for material misrepresentations in all types of media.”

206

Echoing the NPRM, they explained, “[l]ike the FTC, we have found that negative option marketing cases `often involve deceptive representations not only related to the negative option feature but to the underlying product (or service) or other aspects of the transaction as well.' ”

207

206

State AGs, FTC-2023-0033-0886.

207

Id.

Law Professors further supported prohibiting “material misrepresentations . . . whether or not the false claim is exclusively about the negative option feature.”

208

They, too, offered evidence of the prevalence of misconduct, stating “entities like the Better Business Bureau have long reported, based on FTC and other data, the prevalence of misrepresentation in certain negative option arrangements, and non-FTC enforcement efforts confirm the problem.”

209

Citing multiple sources, they argued the “Commission thus has more than ample `reason to believe that' co-occurring negative option violations and other misrepresentations `are prevalent.' ”

210

208

Law Professors, FTC-2023-0033-0861.

209

Id.,

citing Better Business Bureau, “BBB Investigation Update: Free Trial Offer Scams” (Apr. 2020),

https://www.bbb.org/article/news-releases/22040-bbb-update-free-trial-offerscams;

C. Steven Baker & Better Business Bureau, “Subscription Traps and Deceptive Free Trials Scam Millions with Misleading Ads and Fake Celebrity Endorsements” (Dec. 2018),

https://www.bbb.org/article/investigations/18929-subscription-traps-and-deceptive-free-trialsscam-millions-with-misleading-ads-and-fake-celebrity-endorsements.

The Law professors further pointed to evidence found by searching BBB's ScamTracker for terms like “subscription.”

See, e.g.,

Better Business Bureau, ScamTracker, ID #720953,

https://www.bbb.org/scamtracker/lookupscam/720953.

They additionally cited Consumer Financial Protection Bureau, “CFPB Charges TransUnion and Senior Executive John Danaher with Violating Law Enforcement Order” (Apr. 2022),

https://www.consumerfinance.gov/about-us/newsroom/cfpb-charges-transunion-and-seniorexecutive-john-danaher-with-violating-law-enforcement-order/;

David Pierson, `Santa Monica fitness brand Beachbody is fined $3.6 million over automatic renewals,” L.A. Times (Aug. 29, 2017),

https://www.latimes.com/business/la-fi-beachbody-20170829-story.html;

Bruce A. Craig, Negative-Option Billing—Understanding the Stealth Scams of the `90s, 7 Loy. Consumer L. Rev. 5 (1994).

210

Law Professors, FTC-2023-0033-0861.

These commenters further argued the Commission should not adopt a narrower provision limited strictly to the elements of a negative option feature because, in their view, it would be difficult “to fully separate misrepresentations regarding the negative option feature from all other material misrepresentations.”

211

Law Professors, FTC-2023-0033-0861.

Several commenters, largely trade groups and sellers, criticized the proposed provision. As discussed in section V.A, several questioned the prevalence of misrepresentations

212

and asserted the provision was not within the scope of the ANPR.

213

Additionally, several commenters argued the provision is overbroad, and suggested it is unnecessary in light of existing law. Finally, they proposed ways to narrow the proposed provision.

212

CTA, FTC-2023-0033-0997; ESA, FTC-2023-0033-0867; IAB, FTC-2023-0033-1000; N/MA, FTC-2023-0033-0873; RILA, FTC-2023-0033-0883; TechFreedom, FTC-2023-0033-0872.

See

section VII.A for a discussion of prevalence addressing these comments.

213

ANA, FTC-2023-0033-1001; CCIA, FTC-2023-0033-0984; Coalition, FTC-2023-0033-0884; ESA, FTC-2023-0033-0867; Frontdoor, FTC-2023-0033-0862; IAB, FTC-2023-0033-1000; NRF, FTC-2023-0033-1005; RILA, FTC-2023-0033-0883.

See

section VII.A for a discussion addressing these comments.

Several commenters objected to the scope of the proposed provision. Citing Commissioner Wilson's dissent to the NPRM, TechNet noted the proposed Rule “would capture alleged misrepresentations regarding the underlying product or service `wholly unrelated' to the negative option feature.”

214

Three commenters asserted no current trade regulation rule

prohibits misrepresentations so broadly.

215

214

TechNet, FTC-2023-0033-0869.

215

NCTA, FTC-2023-0033-0858; PDMI, FTC-2023-0033-0864; TechFreedom, FTC-2023-0033-0872.

Similarly on scope, some commenters also argued the proposed language lacked the specificity necessary to give sellers notice of what conduct would violate the Rule.

216

For example, ACT App Association asserted, “Notwithstanding best efforts, tech startups' ability to flawlessly adhere to the vague and broad language used in this rule is unrealistic.”

217

216

For example, the Coalition and IAB both said, “The NPRM fails, however, to identify which claims would constitute a material fact, and thus fails to identify covered acts with the requisite level of specificity.” Coalition, FTC-2023-0033-0884; IAB, FTC-2023-0033-1000. PDMI similarly claimed the proposed provision's lack of specificity “renders [the proposed Rule] overly vague and unlawful.” FTC-2023-0033-0864.

See also

ESA, FTC-2023-0033-0867; TechFreedom, FTC-2023-0033-0872; USTelecom, FTC-2023-0033-0876 (citing

Katharine Gibbs School

FTC,

612 F.2d 658 (2d Cir. 1979)).

217

ACT App Association, FTC-2023-0033-0874.

A few commenters provided hypotheticals or asked rhetorical questions to illustrate concerns about the proposal's breadth. MIA, for example, stated, “if a streaming service advertises, `movies that you will love,' but you do not `love' them, is that a violation of this rule subject to penalties? If a housekeeping service claims, `great cleaning every time,' but the resulting cleanliness is not up to the consumer's `standards,' will that trigger this provision and any resulting penalties?”

218

The Chamber asked, “[c]ould a privacy policy, for example, be considered a material representation covered under this requirement?”

219

218

MIA, FTC-2023-0033-1008.

219

Chamber, FTC-2023-0033-0885.

See also

CDI, FTC-2023-0033-0887 (“consumers could argue that the dish detergent they received through a subscription service did not clean dishes as advertised.”).

Many of these commenters argued the reach of the proposed Rule would negatively impact consumers by discouraging negative option offerings. TechNet said, “[f]or a variety of subscription services, the main drivers of consumer engagement are the subscription services' ability to provide financial savings, convenience, and access to premium services. . . . Unfortunately, the NPRM ignores these benefits and would discourage the offering of subscription services altogether.”

220

ESA feared “this section will discourage industry members from developing and offering innovative negative option plans that consumers will enjoy.”

221

220

TechNet, FTC-2023-0033-0869.

221

ESA, FTC-2023-0033-0867;

see also

IAB, FTC-2023-0033-1000 (predicting “autorenewing (sic) subscriptions will become less common and significantly more costly because of the regulatory risks” and “businesses and consumers will be harmed by the loss of convenience and savings offered by autorenewal arrangements.”); Chamber, FTC-2023-0033-0885 (contending “many entities may forgo negative options altogether. This decreases consumer choice in the marketplace given the clear popularity and use of negative option features across the economy.”).

Several commenters asserted existing laws and regulations make the proposed provision unnecessary. Some argued section 5's prohibition against deceptive practices already provides the Commission sufficient authority on this issue.

222

Others asserted State laws and regulations prohibiting misrepresentations are sufficient to protect the public.

223

222

ANA, FTC-2023-0033-1001; Consumer Technology Association (“CTA”), FTC-2023-0033-0997; N/MA, FTC-2023-0033-0873.

223

NRF, FTC-2023-0033-1005; RILA, FTC-2023-0033-0883; SFE Energy, Inc. (“SFE”), FTC-2023-0033-1151.

Commenters were divided on ROSCA's coverage. NRF, for example, said “[i]n light of the Commission's decision that ROSCA already prohibits deceptive statements made in connection with a subscription, even if not directly related to subscription terms, many of the proposed amendments are unnecessary.”

224

In contrast, PDMI said while

MoviePass

“perhaps reflects a colorable approach,” the application of ROSCA there “exceeded Congress' intent.”

225

Similarly, IAB asserted the proposed Rule would break new ground by “grant[ing] the Commission authority to seek monetary remedies against a first-time offender for misrepresentations that would not give rise to monetary relief if made outside the context of an autorenewal agreement.”

226

224

NRF, FTC-2023-0033-1005.

225

PDMI, FTC-2023-003-0864.

226

IAB, FTC-2023-0033-1000.

Several commenters recommended changes if the proposed provision remains in the Rule. BSA, for example, suggested the Commission should define the term “material,” citing the TSR and the FTC Policy Statement on Deception as examples.

227

Separately, RILA urged the Commission “to include clear language stating a `reasonable person standard' will apply to determinations of `material facts' related to products.”

228

227

BSA, FTC-2023-0033-1015;

see also

Chamber, FTC-2023-0033-0885 (noting “materiality” not defined in NPRM).

228

RILA, FTC-2023-0033-0883.

Several commenters suggested the Commission limit the misrepresentation provision to the terms of the negative option feature. For instance, BSA advocated for limiting the provision “to facts relating to the transaction and not every material fact relating to the underlying good or service.”

229

CCIA and CDI agreed, stating the final phrase should instead cover only those material facts related to the underlying negative option feature and exclude “any material fact related to the underlying good or service.”

230

229

BSA, FTC-2023-0033-1015.

230

CCIA, FTC-2023-0033-0984; CDI, FTC-2023-0033-0887;

see also

TechFreedom, FTC-2023-0033-0872.

(b) Analysis

Based on the record, the Commission adopts a clarified version of the material misrepresentation section and adds a definition for further clarification. Specifically, the final Rule omits the proposed language referring to “any material fact related to the transaction, such as the negative option feature, or any material fact related to the underlying good or service” and instead prohibits misrepresentation of “any material fact,” and defines “material” consistent with the TSR and section 5 of the FTC Act. Further, to enhance clarity and specificity, the text lists several examples of potentially material fact categories, taken from Commission precedent.

As further explained below: (1) despite commenters' concerns to the contrary, this provision is consistent with the ANPR and prevalence requirements of section 18 of the FTC Act; (2) consistent with ROSCA, the final provision is not limited to material misrepresentations about the negative option feature itself; (3) the Commission declines to exclude any subset of material misrepresentations from the scope of the Rule; and (4) for clarity, the Commission adds a definition of “material” consistent with established law of section 5 and other Commission Rules.

(1)

Adoption of a prohibition against misrepresentations is consistent with the ANPR and is appropriate to address prevalent unfair or deceptive acts or practices.

Prior to the publication of any notice of proposed rulemaking promulgated under the Magnuson Moss Act, the Commission must publish an advance notice of proposed rulemaking (ANPR).

231

That notice must contain a “brief description of the area of inquiry under consideration, the objectives which the Commission seeks to achieve, and possible regulatory alternatives

under consideration by the Commission.”

232

The ANPR in this case meets this standard. Specifically, in the ANPR, the Commission stated the objective of the Rule was to prevent deceptive or unfair practices in the marketing of products and services with negative option features. Several industry associations submitted comments in response to the ANPR, illustrating the effectiveness of the ANPR in soliciting views of the interested public and affected industry before issuing the NPRM.

233

Moreover, as detailed herein, the Commission has reviewed and carefully considered the views of the public and industry as expressed in response to both the ANPR and NPRM.

231

15 U.S.C. 57a(b)(2).

232

15 U.S.C. (b)(2)(A)(i).

233

Section 425.3 is the only remaining section as to which commenters made this ANPR argument.

The record demonstrates misrepresentations made to induce consumers to enter into negative option programs are prevalent. Specifically, the Commission's enforcement experience (including consumer complaints, matters cited in the NPRM, and matters cited in this Statement of Basis and Purpose) as well as the experiences of the State AGs, the information cited by the Law Professors, and comments by consumer commenters all support this conclusion.

234

See

section VII.1.a. In the cited Commission law enforcement matters, the Commission has applied its established materiality standard, limiting its actions to misrepresentations that are likely to affect consumers' choice of, or conduct regarding, goods or services.

In re Cliffdale Assocs., Inc.,

103 F.T.C. 110 (1984). That is to say, in the cited matters the Commission alleged defendants made misrepresentations to induce consumers to enter into negative option programs.

As several commenters critical of the proposed provision correctly note, misrepresentations to induce consumers to join negative option programs are already unlawful under section 5, as well as under other State and Federal laws and regulations, depending on (among other things) media used and jurisdiction. This fact, however, does not undermine the need for the Rule provision. By definition, a section 18 trade regulation rule addresses conduct that is already prohibited under section 5. With such prohibited conduct defined, the trade regulation rule may also more broadly “include requirements prescribed for the purpose of preventing such acts or practices,” but the core of a trade regulation rule is the description of acts or practices already violative of section 5.

235

The misrepresentations section of the Rule is narrower than the full scope of tools available under section 18. It simply prohibits conduct that is already deceptive. Such a provision promotes clarity and confidence in the marketplace and provides for more effective remedies (

i.e.,

civil penalties, where appropriate) against wrongdoers.

235

15 U.S.C. 57a(a)(1)(B).

Moreover, the fact that ROSCA's disclosure requirement

236

already essentially prohibits material misrepresentations about online negative option transactions, means much of the rhetoric predicting the downfall of negative option marketing simply is ill-founded. Indeed, the Chamber pointed to the “clear popularity and use of negative option features across the economy” even as ROSCA has been law for over a decade.

237

Far from undermining legitimate business, the Rule's express prohibition on misrepresenting material facts in connection with promoting or offering for sale a negative option feature should increase consumer confidence in negative option marketing, thus making it easier for legitimate businesses to market their products.

236

15 U.S.C. 8403(1).

237

Chamber, FTC-2023-0033-0885.

(2) Prohibiting misrepresentation of any material facts, not just those pertaining to the negative option feature, promotes clarity consistent with ROSCA and Commission precedent.

The final Rule prohibits misrepresentation of “any material fact.” In doing so, it provides a non-exhaustive list of categories of potentially material facts (including transaction terms) and adds a definition of “material,” consistent with section 5 and the TSR. Specifically, consistent with section 5, “material” means “likely to affect a person's choice of, or conduct regarding, goods or services.”

238

This approach both clarifies the terms most at issue and ensures the Rule accords with longstanding section 5 precedent.

238

16 CFR 310.2(t) (TSR); 16 CFR 461.1 (Impersonation Rule); Policy Statement on Deception (Oct. 14, 1983) (appended to

In re Cliffdale Assocs., Inc.,

103 F.T.C. 110 (1984)).

See also

BSA, FTC-2023-0033-1015 (requesting definition of material consistent with TSR and Policy Statement); Chamber, FTC-2023-0033-0885 (criticizing the proposed Rule for not defining materiality).

The Commission declines to limit the misrepresentations prohibition solely to elements of the negative option feature.

239

First, the Commission finds imposing such a narrow restriction would be inconsistent with existing protections. Pursuant to ROSCA section 8403, sellers must “clearly and conspicuously disclose all material terms of the transaction before obtaining the consumer's billing information.” As Congress has explained, a healthy marketplace “must provide consumers with clear, accurate information and give sellers an opportunity to fairly compete with one another for consumers' business.”

240

Limiting a misrepresentations prohibition solely to misrepresentations about the negative option feature itself would fall well short of the scope of ROSCA and the Commission's responsibility to protect the public.

239

E.g.,

ESA, FTC-2023-0033-0867; NFIB, FTC-2023-0033-0789; TechFreedom, FTC-2023-0033-0872.

240

15 U.S.C. 8401(2).

Moreover, seller commenters themselves highlighted transaction elements other than negative option terms as critical to inducing consumers to choose negative option features. IAB, for example, pointed to the promise of “broader selection and lower prices” or “convenience and savings.”

241

Similarly, TechNet identified the “ability to provide financial savings, convenience, and access to premium services” as “the main drivers” of varied subscriptions.

242

241

IAB, FTC-2023-0033-1000.

242

TechNet, FTC-2023-0033-0869.

Furthermore, such a distinction may invite dishonest actors to misrepresent material facts about a transaction so long as they felt they could evade monetary liability for such misrepresentations. Moreover, simply refraining from making material misrepresentations is hardly a significant burden given the fact that such misrepresentations are already illegal under section 5 of the FTC Act, and subject to civil penalties when made on the internet and over the telephone pursuant to ROSCA and the TSR, respectively.

(3) The Commission declines to exclude any material facts from the scope of the provision.

To further promote clarity, the Commission includes a list of non-exclusive examples in the text of § 425.3. In addition to the negative option feature itself, the examples include certain characteristics the Commission has identified as presumptively material for more than 40 years

243

and which have in fact appeared as the subject of material misrepresentations in Commission negative option cases—cost,

244

purpose

or efficacy,

245

and health or safety.

246

The record demonstrates the list must be non-exclusive because the Commission has observed the use of material misrepresentations other than those enumerated to induce consumers to enter into transactions with negative option features, including, for example, characteristics of the seller,

247

the format of the ad or other sales communication,

248

consumer authorization,

249

consumer privacy or data security,

250

and endorsements or testimonials.

251

The Commission cannot predict what other material misrepresentations dishonest actors may employ in the future.

243

Policy Statement on Deception (Oct. 14, 1983) (appended to

In re Cliffdale Assocs., Inc.,

103 F.T.C. 110 (1984)) (describing and citing materiality of purpose, safety, efficacy, and cost);

In re Thompson Medical Co., Inc.,

104 F.T.C. 648, 816-17 (1984) (listing cost, purpose, efficacy, and safety as presumptively material characteristics).

244

In the negative option context, material cost misrepresentations may include any cost (and total

costs) from inception through the course of the commercial relationship, including misrepresentations as to recurring costs and refunds or guarantees.

See, e.g., FTC

FloatMe Corp.,

No. 5:24-cv-00001 (W.D. Tex. 2024);

United States

Cerebral, Inc.,

No. 1:24-cv-21376 (S.D. Fla. 2024);

FTC

Bridge It, Inc.,

No. 1:23-cv-09651 (S.D.N.Y. 2023);

FTC

Benefytt Techs., Inc.,

No. 8:22-cv-01794 (M.D. Fla. 2022);

FTC

First Am. Payment Sys.,

No. 4:22-cv-00654 (E.D. Tex. 2022);

FTC

XXL Impressions, LLC,

No. 1:17-cv-00067 (D. Me. 2017);

FTC

Cardiff,

No. 5:18-cv-02104 (C.D. Cal. 2018);

FTC

Health Rsch. Labs., LLC,

No. 2:17-cv-00467 (D. Me. 2017);

FTC

Tarr,

No. 3:17-cv-02024 (S.D. Cal. 2017);

FTC

AdoreMe, Inc.,

No. 1:17-cv-09083 (S.D.N.Y. 2017);

FTC

Pact, Inc.,

No. 2:17-cv-1429 (W.D. Wash. 2017);

FTC

Leanspa, LLC,

No. 3:11-cv-01715 (D. Conn. 2011);

FTC

Willms,

No. 2:11-cv-00828 (W.D. Wash. 2011);

FTC

Universal Premium Servs.,

No. 2:06-cv-00849 (C.D. Cal. 2006).

245

See, e.g., FTC

FloatMe Corp.,

No. 5:24-cv-00001 (W.D. Tex. 2024);

United States

Cerebral, Inc.,

No. 1:24-cv-21376 (S.D. Fla. 2024);

FTC

NGL Labs, LLC,

No. 2:24-cv-05753 (C.D. Cal. 2024);

FTC

Bridge It, Inc.,

No. 1:23-cv-09651 (S.D.N.Y. 2023);

FTC

WealthPress, Inc.,

No. 3:23-cv-00046 (M.D. Fla. 2023);

In re Dun & Bradstreet, Inc.,

FTC Docket No. C-4761 (2022);

FTC

First Am. Payment Sys.,

No. 4:22-cv-00654 (E.D. Tex. 2022);

In re MoviePass, Inc.,

FTC Docket No. C-4751 (2021);

United States

MyLife.com, Inc.,

No. 2:20-cv-6692 (C.D. Cal. 2020);

FTC

RagingBull.com, LLC,

No. 1:20-cv-03538 (D. Md. 2020);

FTC

Match Grp., Inc.,

No. 3:19-cv-02281 (N.D. Tex. 2019);

FTC

XXL Impressions, LLC,

No. 1:17-cv-00067 (D. Me. 2017);

FTC

Cardiff,

No. 5:18-cv-02104 (C.D. Cal. 2018);

FTC

JDI Dating, Ltd.,

No. 1:14-cv-08400 (N.D. Ill. 2014);

FTC

Credit Bureau Ctr., LLC,

No. 1:17-cv-00194 (N.D. Ill. 2017);

FTC

Health Rsch. Labs., LLC,

No. 2:17-cv-00467 (D. Me. 2017);

FTC

Health Formulas, LLC,

No. 2:14-cv-01649 (D. Nev. 2014);

FTC

Leanspa, LLC,

No. 3:11-cv-01715 (D. Conn. 2011);

FTC

Willms,

No. 2:11-cv-00828 (W.D. Wash. 2011);

FTC

Johnson,

No. 2:10-cv-02203 (D. Nev. 2010);

FTC

Remote Response Corp.,

No. 1:06-cv-20168 (S.D. Fla. 2006).

246

See, e.g., FTC

XXL Impressions, LLC,

No. 1:17-cv-00067 (D. Me. 2017);

FTC

Cardiff,

No. 5:18-cv-02104 (C.D. Cal. 2018);

FTC

Health Rsch. Labs., LLC,

No. 2:17-cv-00467 (D. Me. 2017);

FTC

Health Formulas, LLC,

No. 2:14-cv-01649 (D. Nev. 2014);

FTC

Leanspa, LLC,

No. 3:11-cv-01715 (D. Conn. 2011);

FTC

Willms,

No. 2:11-cv-00828 (W.D. Wash. 2011).

247

E.g., FTC

Elite IT Partners, Inc.,

No. 2:19-cv-00125 (D. Utah 2019) (affiliation with well-known companies);

In re Urthbox, Inc.,

FTC Docket No. C-4676 (2019) (independence of reviews);

FTC

BunZai Media Grp., Inc.,

No. 2:15-cv-04527 (C.D. Cal. 2015) (BBB accreditation and ratings);

FTC

DOTAuthority.com, Inc.,

No. 0:16-cv-62186 (S.D. Fla. 2016) (ratings);

FTC

FTN Promotions, Inc.,

No. 8:07-cv-1279 (M.D. Fla. 2007) (affiliation with consumer's bank).

248

E.g., FTC

XXL Impressions, LLC,

No. 1:17-cv-00067 (D. Me. 2017) (radio news show);

FTC

Leanspa, LLC,

No. 3:11-cv-01715 (D. Conn. 2011) (news reports).

249

E.g., In re Dun & Bradstreet, Inc.,

FTC Docket No. C-4761 (2022) (charging for same product consumer previously purchased);

FTC

Benefytt Techs., Inc.,

No. 8:22-cv-01794 (M.D. Fla. 2022) (charging for authorized products);

FTC

Triangle Media Corp.,

No. 3:18-cv-01388 (S.D. Cal. 2018) (completeness of order);

FTC

Apex Capital Grp., LLC,

No. 2:18-cv-09573 (C.D. Cal. 2018) (completeness of order);

FTC

Moneymaker,

No. 2:11-cv-00461 (D. Nev. 2011) (purpose of authorization).

250

E.g., United States

Cerebral, Inc.,

No. 1:24-cv-21376 (S.D. Fla. 2024) (data security and privacy);

In re MoviePass, Inc.,

FTC Docket No. C-4751 (2021) (data security).

251

E.g., FTC

XXL Impressions, LLC,

No. 1:17-cv-00067 (D. Me. 2017);

FTC

Cardiff,

No. 5:18-cv-02104 (C.D. Cal. 2018);

FTC

Willms,

No. 2:11-cv-00828 (W.D. Wash. 2011).

Some commenters asserted section 18 does not authorize the Commission to prohibit material misrepresentations in a given area of commerce. Section 18, however, permits the FTC to promulgate “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce (within the meaning of [section 5(a)(1)]) . . . [and] may include requirements prescribed for the purpose of preventing such acts or practices.”

252

It places no additional restrictions on the scope of this rulemaking.

252

15 U.S.C. 57a(a)(1)(B).

Several commenters appear to think section 18 requires the Commission to define specific claims as deceptive; for example, two commenters cited the Business Opportunity Rule's treatment of misrepresentations.

253

While the cited Rules show one way to meet the statute's specificity requirements, the statute does not require the Commission to define

claims

with specificity, but instead

acts or practices.

254

For example, in the Business Opportunity Rule, the practice of misrepresenting “any material aspect of any assistance offered to a prospective purchaser” in a business opportunity transaction is a specific type of deceptive practice in or affecting commerce.

255

By the same token, the practice of misrepresenting material facts to induce consumers to consent to negative option features constitutes a specific type of deceptive practice.

253

PDMI, FTC-2023-003-0864 (contrasting the proposed Rule language with Business Opportunity Rule language, saying “The Business Opportunity Rule does not prohibit any misrepresentation in connection with

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