# Negative Option Rule

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A2024-25534

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** November 15, 2024
- **Citation:** 89 FR 90476

## Text

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
1

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.
2

1
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).

2

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.
3

3

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.
4

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.

4
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.
5

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.

5

See, e.g., United States
v.
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.”
6

For consumers, such benefits may include opportunities to explore new products prior to purchase (
e.g.,
free trials),
7

broader selections at lower prices and transaction costs,
8

and the convenience of uninterrupted products or services.
9

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.

6
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.

7
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.

8

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.

9
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.
10

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.
11

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.

10

See, e.g., FTC
v.
FloatMe Corp.,
No. 5:24-cv-00001 (W.D. Tex. 2024);
United States
v.
Adobe, Inc.,
No. 5:24-cv-03630 (N.D. Cal. 2024);
FTC
v.
WealthPress, Inc.,
No. 3:23-cv-00046 (M.D. Fla. 2023);
FTC
v.
Bridge It, Inc.,
No. 1:23-cv-09651 (S.D.N.Y. 2023);
FTC
v.
Amazon.com, Inc.,
No. 2:23-cv-0932 (W.D. Wash. 2023);
see also
n.60.

11

E.g., FTC
v.
Triangle Media Corp.,
No. 3:18-cv-01388 (S.D. Cal. 2018);
FTC
v.
Credit Bureau Ctr., LLC,
No. 1:17-cv-00194 (N.D. Ill. 2017);
FTC
v.
JDI Dating, Ltd.,
No. 1:14-cv-08400 (N.D. Ill. 2014);
FTC
v.
One Techs., LP,
No. 3:14-cv-05066 (N.D. Cal. 2014);
FTC
v.
Health Formulas, LLC,
No. 2:14-cv-01649 (D. Nev. 2014);
FTC
v.
NutraClick, LLC,
No. 2:16-cv-06819 (C.D. Cal. 2016);
FTC
v.
XXL Impressions, LLC,
No. 1:17-cv-00067 (D. Me. 2017);
FTC
v.
AAFE Prods. Corp.,
No. 3:17-cv-00575 (S.D. Cal. 2017);
FTC
v.
Pact, Inc.,
No. 2:17-cv-1429 (W.D. Wash. 2017);
FTC
v.
Tarr,
No. 3:17-cv-02024 (S.D. Cal. 2017);
FTC
v.
AdoreMe, Inc.,
No. 1:17-cv-09083 (S.D.N.Y. 2017);
FTC
v.
DOTAuthority.com, Inc.,
No. 0:16-cv-62186 (S.D. Fla. 2016);
FTC
v.
BunZai Media Grp., Inc.,
No. 2:15-cv-04527 (C.D. Cal. 2015);
FTC
v.
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.
12

12
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.
13

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.
14

13
16 CFR 425.1(a)(1)(i)-(vii).

14
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.
15

Therefore, in guidance and cases, the FTC has highlighted six basic requirements negative option marketing must follow to avoid deceptive and unfair practices.
16

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.

15
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).

16

See Negative Options: A Report by the Staff of the FTC's Division of Enforc
e
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
v.
JAB Ventures, LLC,
No. 2:08-cv-04648 (C.D. Cal. 2008);
FTC
v.
Complete Weightloss Ctr.,
No. 1:08-cv-00053 (D.N.D. 2008);
FTC
v.
Berkeley Premium Nutraceuticals,
No. 1:06-cv-00051 (S.D. Ohio 2006);
FTC
v.
Think All Publ'g, LLC,
No. 4:07-cv-00011 (E.D. Tex. 2006);
FTC
v.
HispaNexo, Inc.,
No. 1:06-cv-424 (E.D. Va. 2006);
FTC
v.
Consumerinfo.com,
No. 8:05-cv-00801 (C.D. Cal. 2005);
FTC
v.
Conversion Mktg.,
No. 8:04-cv-01264 (C.D. Cal. 2004);
United States
v.
Mantra Films, Inc.,
No. 2:03-cv-9184 (C.D. Cal. 2003);
FTC
v.
Preferred Alliance, Inc.,
No. 1:03-cv-0405 (N.D. Ga. 2003);
United States
v.
Prochnow,
No. 1:02-cv-917 (N.D. Ga. 2002);
FTC
v.
Ultralife Fitness, Inc.,
No. 2:08-cv-07655 (C.D. Cal. 2008);
In re America Isuzu Motors,
FTC Docket No. C-3712 (1996);
FTC
v.
Universal Premium Servs.,
No. 2:06-cv-00849 (C.D. Cal. 2006);
FTC
v.
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.
17

17
Courts have found unauthorized billing to be unfair under the FTC Act.
See, e.g., FTC.
v.
Neovi, Inc.,
604 F.3d 1150, 1157-59 (9th Cir. 2010),
amended by
2010 WL 2365956 (9th Cir. June 15, 2010);
FTC
v.
Amazon.com, Inc.,
No. 2:14-cv-1038, 2016 WL 10654030, at *8 (W.D. Wash. Apr. 26, 2016);
FTC
v.
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.
18

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;
19

(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.
20

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

18
15 U.S.C. 8401-8405.

19
ROSCA, 15 U.S.C. 8403(1);
see also In re MoviePass, Inc.,
FTC Docket No. C-4751 (2021).

20
15 U.S.C. 8403. ROSCA incorporates the definition of “negative option feature” from the TSR, 16 CFR 310.2(w).

Furthermore, pursuant to the statute, a violation of ROSCA is treated as a violation of a Commission trade regulation rule under section 18 of the FTC Act.
21

Thus, the Commission may seek a variety of remedies for violations of ROSCA, including civil penalties under section 5(m)(1)(A) of the FTC Act;
22

injunctive relief under section 13(b) of the FTC Act;
23

and consumer redress, damages, and other relief under section 19 of the FTC Act.
24

21
15 U.S.C. 8404 (citing section 18 of the FTC Act, 15 U.S.C. 57a).

22
15 U.S.C. 45(m)(1)(A).

23
15 U.S.C. 53(b).

24
15 U.S.C. 57b(a)(1), (b).

3. Telemarketing Sales Rule

The TSR prohibits deceptive telemarketing acts or practices,

including those involving negative option offers, and certain types of payment methods common in deceptive negative option marketing. Specifically, the TSR requires telemarketers to disclose all material terms and conditions of the negative option feature, including the need for affirmative consumer action to avoid the charges, the date (or dates) the charges will be submitted for payment, and the specific steps the customer must take to avoid the charges. It also prohibits telemarketers from misrepresenting such information and contains specific requirements related to payment authorization.
25

The TSR, however, only applies to negative option offers made over the telephone.

25
16 CFR 310.3(a).

4. Other Relevant Requirements

EFTA
26

and the Unordered Merchandise Statute
27

also contain provisions relevant to unfair and deceptive negative option marketing. EFTA prohibits sellers from imposing recurring charges on a consumer's debit cards or bank accounts without written authorization.
28

The Unordered Merchandise Statute provides that mailing unordered merchandise, or a bill for such merchandise, constitutes an unfair method of competition and an unfair trade practice in violation of section 5 of the FTC Act.
29

26
15 U.S.C. 1693-1693r.

27
39 U.S.C. 3009.

28
EFTA provides that the Commission shall enforce its requirements, except to the extent that enforcement is specifically committed to some other Federal government agency, and that a violation of any of its requirements shall be deemed a violation of the FTC Act. Accordingly, the Commission has authority to seek injunctive relief for EFTA violations, just as it can seek injunctive relief for other section 5 violations.

29
The Commission has authority to seek the same remedies for violations of the Unordered Merchandise Statute that it can seek for other section 5 violations. The Commission can seek civil penalties pursuant to section 5(m)(1)(B) of the FTC Act from violators who have actual knowledge that the Commission has found mailing unordered merchandise unfair. 15 U.S.C. 45(m)(1)(B).

IV. Limitations of Existing Regulatory Requirements

The existing patchwork of laws and regulations does not provide industry and consumers with a consistent legal framework across media and offers. For instance, as discussed above, the current Rule does not cover common practices such as continuity plans, automatic renewals, and free-to-pay conversions.
30

In addition, ROSCA and the TSR do not address negative option programs in all media. Yet, harmful negative option practices that fall outside of ROSCA and the TSR's coverage still occur.
31

30
Indeed, the prenotification plans covered by the Rule represent only a small fraction of negative option marketing. In 2017, for instance, the Commission estimated that fewer than 100 sellers (“clubs”) were subject to the current Rule's requirements. 82 FR 38907, 38908 (Aug. 16, 2017).

31

See, e.g., In re Dun & Bradstreet, Inc.,
FTC Docket No. C-4761 (2022);
FTC
v.
Nobetes Corp.,
No. 2:18-cv-10068 (C.D. Cal. 2018);
FTC
v.
Dill,
No. 2:16-cv-00023 (D. Me. 2016);
FTC
v.
Shopper Sys., LLC,
No. 1:12-cv-23919 (S.D. Fla. 2012);
FTC
v.
XXL Impressions, LLC,
No. 1:17-cv-00067 (D. Me. 2017);
FTC
v.
Health Rsch. Labs., LLC,
No. 2:17-cv-00467 (D. Me. 2017);
FTC
v.
Mktg. Architects,
No. 2:18-cv-00050 (D. Me. 2018);
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,
32

following a 2007 FTC workshop and subsequent Staff Report.
33

The Commission completed the review in 2014.
34

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.”
35

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.
36

Since that review, the problems with negative options have persisted.
37

32
74 FR 22720 (May 14, 2009).

33

See
Staff Report, n.16.

34
79 FR 44271 (July 31, 2014).

35
79 FR 44275. The Commission cited a number of its law enforcement actions challenging negative option marketing practices, including, for example,
FTC
v.
Process Am., Inc.,
No. 2:14-cv-00386 (C.D. Cal. 2014) (processing of unauthorized charges relating to negative option marketing);
FTC
v.
Willms,
No. 2:11-cv-00828 (W.D. Wash. 2011) (internet free trials and continuity plans);
FTC
v.
Moneymaker,
No. 2:11-cv-00461 (D. Nev. 2011) (internet trial offers and continuity programs);
FTC
v.
Johnson,
No. 2:10-cv-02203 (D. Nev. 2010) (internet trial offers); and
FTC
v.
John Beck Amazing Profits, LLC,
No. 2:09-cv-04719 (C.D. Cal. 2009) (infomercial and telemarketing trial offers and continuity programs).

36
79 FR 44275-76.

37

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.
38

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.
39

In response, the Commission received 17 comments.
40

38
ANPR, 84 FR 52393 (Oct. 2, 2019).

39
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.”

40
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.
41

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.
42

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.

41
EPS, 86 FR 60822 (Nov. 4, 2021).

42
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).
43

43
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.”
44

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.
45

The Commission did not identify any disputed issues of material fact that needed to be resolved at an informal hearing.
46

The comment period closed on June 23, 2023.

44
NPRM, 88 FR 24730.

45

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 id.
at 24730 (NPRM section XIII, Request for Comments).

46

See
16 CFR 1.11(e).

In response, the Commission received more than 16,000 comments, and published the 1,162 unique comments from stakeholders representing a wide range of viewpoints.
47

Although some commenters raised concerns and recommended specific modifications or additions to the proposed Rule (some of which the Commission adopts as discussed herein), the majority generally supported the Rule. The Commission discusses these comments in section VII below.

47
Unique public comments to the NPRM are available online.
See

regulations.gov,
Negative Option Rule (NPRM), FTC-2023-0033-0001,
https://www.regulations.gov/document/FTC-2023-0033-0001.
The Commission published 1,162 unique comments. As explained at
regulations.gov,
agencies may withhold duplicate/near duplicate examples of a mass-mail campaign.
See
Gen. Servs. Admin.,
Regulations.gov
Frequently Asked Questions, Find Dockets, Documents, and Comments FAQs, “How are comments counted and posted to
Regulations.gov
?,”
https://www.regulations.gov/faq.
The Commission cannot quantify the number of individuals or entities represented by the comments. The number of comments undercounts the number of individuals or entities represented by the comments because many comments, including those from different types of organizations, jointly represent the opinions or interests of many. Overall, the Commission received 16,612 comments. Of those, 15,449 were not posted online for various reasons (
i.e.,
14 unrelated, 23 duplicates, and 15,412 that appear to be non-unique responses to mass media campaigns) and one comment was withdrawn. The Commission has considered all timely and responsive public comments it received in response to its NPRM.

D. Informal Hearing and Recommended Decision

Section 18 of the Federal Trade Commission Act, 15 U.S.C. 57a, and the Commission's Rules of Practice, 16 CFR 1.11(e),
48

provide interested persons the opportunity to make an oral statement at an informal hearing upon request.
49

The Commission received six
50

such requests. Additionally, although the Commission did not designate any disputed issues of material fact in the NPRM, two interested commenters, IAB and NCTA, proposed the Commission consider several potential disputed issues of material fact.
51

48
The FTC Act provides that “an interested person is entitled to present his position orally or by documentary submission (or both).” 15 U.S.C. 57a(c)(2)(A).

49
16 CFR 1.11(e).

50
The six requesters were (1) International Franchise Association; (2) TechFreedom; (3) Performance Driven Marketing Institute; (4) NCTA—The Internet & Television Association; (5) Frontdoor; and (6) Interactive Advertising Bureau. All but one—TechFreedom—identified their interest in the proceeding either as industry groups or private companies.

51

See
Notice of Informal Hearing (“Hearing Notice”), 88 FR 85525, 85526 (Dec. 8, 2023).

On December 8, 2023, the Commission published an Initial Notice of Informal Hearing (88 FR 85525, “Hearing Notice”). The Hearing Notice designated the Honorable Carol Fox Foelak, Administrative Law Judge for the Securities Exchange Commission, to serve as the presiding officer of the informal hearing and scheduled the informal hearing for January 16, 2024. In the Hearing Notice, the Commission again did not designate any disputed issues of material fact, finding the issues raised by IAB and NCTA did not need to be resolved at the informal hearing through cross-examination.
52

52
88 FR 85526-27.

On January 16, 2024, Judge Foelak commenced the informal hearing, at which IAB, NCTA, Performance Driven Marketing Institute (“PDMI”), TechFreedom, and the International Franchise Association (“IFA”) appeared and made oral submissions subject to cross-examination.
53

Included in their oral and written submissions, IAB and

NCTA renewed their requests to have the presiding officer designate disputed issues of material fact.
54

Following the hearing, Judge Foelak designated two disputed issues: (1) will the proposed rule have an annual effect on the national economy of $100 million or more?; and (2) what will the recordkeeping and disclosure costs associated with the proposed rule be? Judge Foelak held subsequent hearings on January 31, 2024, and February 14, 2024. She allowed post-hearing briefs filed by February 22, and February 28, 2024, respectively, and issued her recommended decision on April 12, 2024. Based on the evidence, the presiding officer found: (1) the proposed Rule will have an annual effect on the national economy of $100 million or more; and (2) there is insufficient evidence to make a finding regarding the size of the recordkeeping and disclosure costs associated with the proposed Rule.
55

53
The Hearing Notice also allowed interested persons to make additional written submissions. The following interested parties timely filed additional written submissions on December 22, 2023: (1) BSA—The Software Alliance; (2) PDMI; (3) U.S. Chamber of Commerce; (4) IAB; (5) NCTA; and two individuals. All filings related to the Hearing Notice are available online at
regulations.gov
at
https://www.regulations.gov/document/FTC-2023-0073-0001.

54
Subsequently, IFA also asserted there were disputed issues of material fact regarding the impact to both small businesses and their consumers. IFA, FTC-2024-0001-0009.

55
Recommended Decision by Presiding Officer,
https://www.regulations.gov/comment/FTC-2024-0001-0042.

VII. Discussion of Final Rule

A. Legal Standard for Promulgating the Final Rule

As explained above in section II, the Commission promulgates the final Rule, 16 CFR part 425, pursuant to section 18 of the FTC Act, also known as Magnuson-Moss rulemaking (“Magnuson-Moss”). Under section 18 and the Commission Rules,
56

to promulgate a rule the Commission must: (1) issue a SBP with statements detailing: (a) the prevalence of the acts or practices treated by the rule; (b) the manner and context in which such acts or practices are unfair or deceptive; and (c) the economic effect of the rule, taking into account the effect on small business and consumers; and (2) “define with specificity acts or practices which are unfair or deceptive.” The Commission addresses these requirements in part A.1-2. In part A.3, the Commission addresses additional legal issues, including the ANPR's scope and the “major questions” doctrine.

56
15 U.S.C. 57a and 16 CFR 1.14(a)(1).

1. Statements Required Under Section 18(d) of the FTC Act

(a) Statement Regarding Prevalence of the Acts and Practices Treated by the Rule

Under the Magnuson-Moss statute, the Commission may promulgate rules if it “has reason to believe that the unfair or deceptive acts or practices which are the subject of the proposed rulemaking are prevalent.”
57

An act or practice is “prevalent” if the FTC has previously issued cease and desist orders regarding the act or practice, or if “any other information available to the Commission indicates a widespread pattern of unfair or deceptive acts or practices.”
58

Based on the rulemaking record, the Commission has more than sufficient reason to believe unfair or deceptive acts and practices in the negative option marketplace are prevalent. These practices include: (1) material misrepresentations made while marketing using negative option features to induce consumers to enter into negative option programs; (2) failure to provide important information about material terms prior to billing consumers; (3) lack of informed consumer consent; and (4) failure to provide consumers with a simple cancellation method, including failure to honor cancellation requests, refusal to provide refunds to consumers who unknowingly enrolled in programs, denying consumers refunds, forcing them to pay to return the unordered goods, requiring consumers to cancel using a more difficult method than the one used to sign up for the program, and forcing consumers to contend with multiple upsells before allowing cancellation.
59

These practices cause consumer harm by luring consumers into purchasing goods and services they do not want, or ensnaring consumers into unwanted recurring payments that are difficult or impossible to cancel.

57
15 U.S.C. 57a(b)(3).

58
15 U.S.C. 57a(b)(3)(A)-(B);
see also Compassion Over Killing
v.
FDA,
849 F.3d 849, 855 (9th Cir. 2017).

59
NPRM, 88 FR 24725.

The Commission relies on substantial evidence in the record showing a widespread pattern of unfair or deceptive conduct in the negative option marketplace. This evidence generally falls into three categories: State, private, and Federal actions (including administrative and Federal court FTC law enforcement actions); consumer complaints and comments; and studies. The Commission discusses each in turn below.

Federal, State, and Private Actions.
As discussed in the ANPR and NPRM, the volume of enforcement efforts in recent years seeking to stem illegal negative option marketing is significant. These matters involve a range of deceptive and unfair practices, including: failure to adequately disclose the existence of negative options, including after the expiration of free trials; enrollment without consumer consent; and inadequate or unnecessarily burdensome cancellation and refund procedures. The FTC itself has brought at least 35 such cases in the years since ROSCA was enacted.
60

The Consumer Financial Protection Bureau (“CFPB”) also has brought many of its own negative option cases.
61

Truth in Advertising, Inc. (“TINA”),
62

a consumer advocacy organization, stated in 2019 that more than 100 Federal class actions involving various negative option terms and conditions have been filed since 2014. Notwithstanding these actions, according to TINA, “the incidence of deceptive negative option

offers continues to rise.”
63

TINA also reports that deceptive negative options “have only continued to grow” since its 2019 comment.
64

60
In the NPRM, the Commission cited a number of its law enforcement actions challenging negative option marketing practices, including, for example,
FTC
v.
Process Am., Inc.,
No. 1:14-cv-00386 (C.D. Cal. 2014) (processing of unauthorized charges relating to negative option marketing);
FTC
v.
Willms,
No. 2:11-cv-00828 (W.D. Wash. 2011) (internet free trials and continuity plans);
FTC
v.
Moneymaker,
No. 2:11-cv-00461 (D. Nev. 2011) (internet trial offers and continuity programs);
FTC
v.
Johnson,
No. 2:10-cv-02203 (D. Nev. 2010) (internet trial offers); and
FTC
v.
John Beck Amazing Profits, LLC,
No. 2:09-cv-04719 (C.D. Cal. 2009) (infomercial and telemarketing trial offers and continuity programs). Further examples of these matters include:
FTC
v.
Triangle Media Corp.,
No. 3:18-cv-01388 (S.D. Cal. 2018);
FTC
v.
Credit Bureau Ctr., LLC,
No. 1:17-cv-00194 (N.D. Ill. 2017);
FTC
v.
JDI Dating, Ltd.,
No. 1:14-cv-08400 (N.D. Ill. 2014);
FTC
v.
One Techs., LP,
No. 3:14-cv-05066 (N.D. Cal. 2014);
FTC
v.
Health Formulas, LLC,
No. 2:14-cv-01649 (D. Nev. 2014);
FTC
v.
NutraClick, LLC,
No. 2:16-cv-06819 (C.D. Cal. 2016);
FTC
v.
XXL Impressions, LLC,
No. 1:17-cv-00067 (D. Me. 2017);
FTC
v.
AAFE Prods. Corp.,
No. 3:17-cv-00575 (S.D. Cal. 2017);
FTC
v.
Pact, Inc.,
No. 2:17-cv-1429 (W.D. Wash. 2017);
FTC
v.
Tarr,
No. 3:17-cv-02024 (S.D. Cal. 2017);
FTC
v.
AdoreMe, Inc.,
No. 1:17-cv-09083 (S.D.N.Y. 2017);
FTC
v.
DOTAuthority.com, Inc.,
No. 0:16-cv-62186 (S.D. Fla. 2016);
FTC
v.
BunZai Media Grp., Inc.,
No. 2:15-cv-04527 (C.D. Cal. 2015); and
FTC
v.
RevMountain, LLC,
No. 2:17-cv-02000 (D. Nev. 2017);
see also FTC
v.
WealthPress, Inc.,
No. 3:23-cv-00046 (M.D. Fla. 2023);
FTC
v.
Bridge It, Inc.,
No. 1:23-cv-09651 (S.D.N.Y. 2023);
FTC
v.
Amazon.com, Inc.,
No. 2:23-cv-0932 (W.D. Wash. 2023);
FTC
v.
FloatMe Corp.,
No. 5:24-cv-00001 (W.D. Tex. 2024);
United States
v.
Adobe, Inc.,
No. 5:24-cv-03630 (N.D. Cal. 2024).

61

See, e.g., CFPB
v.
Transunion,
No. 1:22-cv-01880 (N.D. Ill. 2022);
CFPB
v.
ACTIVE Network, LLC,
No. 4:22-cv-00898 (E.D. Tex. 2022);
CFPB
v.
Sterling Jewelers, Inc.,
No. 1:19-cv-00448 (S.D.N.Y. 2019);
In re Equifax Inc., et al.,
CFPB No. 2017-CFPB-0001, 2017 WL 1036710 (Jan. 3, 2017) (consent order);
CFPB
v.
Prime Mktg. Holdings, LLC,
No. 2:16-cv-07111 (C.D. Cal. 2016);
In re Transunion Interactive, Inc., et al.,
CFPB No. 2017-CFPB-0002, 2017 WL 1036711 (Jan. 3, 2017) (consent order);
CFPB
v.
Student Financial Aid Servs., Inc.,
No. 2:15-cv-00821 (E.D. Cal. 2015);
CFPB
v.
Affinion Group Holdings, Inc.,
No. 5:15-cv-01005 (D. Conn. 2015);
CFPB
v.
Intersections Inc.,
No. 1:15-cv-835 (E.D. Va. 2015). Notably, the CFPB has independent authority to enforce FTC rules, and both agencies share some overlapping jurisdiction.
See
12 U.S.C. 5581(b)(5)(B)(ii).

62
TINA, FTC-2019-0082-0014 (cmt. to ANPR,
https://www.regulations.gov/comment/FTC-2019-0082-0014
) and FTC-2023-0033-1139 (cmt. to NPRM).

63
NPRM, 88 FR 24720.

64
TINA, FTC-2023-0033-1139.

Several state Attorneys General
65

also referenced dozens of enforcement actions taken in recent years to address the proliferation of deceptive negative option practices they regularly encounter, including the “lack of informed consumer consent, lack of clear and conspicuous disclosures, failure to honor cancellation requests and/or refusal to provide refunds to consumers who unknowingly enrolled in plans.”
66

These agencies explained their actions “demonstrate that problems persist in this area and that additional regulatory action is needed.”
67

For example, over the last decade, New York alone has reached 23 negative option settlements involving a variety of products and services such as membership programs, credit monitoring, dietary supplements, and apparel.
68

They also described several multi- and individual state law enforcement actions involving negative option offers for products and services such as satellite radio, social networking services, language learning programs, security monitoring, and dietary supplements. They further recounted numerous, illustrative complaints from consumers who ordered what they thought were free, no-obligation samples but then found themselves enrolled in costly continuity programs.
69

65
Several State Attorneys General offered comments to the ANPR (FTC-2019-0082-0012 (State Attorneys General cmt. to ANPR,
https://www.regulations.gov/comment/FTC-2019-0082-0012
)), and additionally 26 Attorneys General for the States of Alabama, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Vermont, Washington, and Wisconsin (“State AGs”) filed comments in response to the NPRM.
See
State AGs, FTC-2023-0033-0886 (cmt. to NPRM).

66
NPRM, 88 FR 24720; State Attorneys General (ANPR), FTC-2019-0082-0012. They further explained the nature of the underlying products often fails to alert consumers of their enrollment in a negative option program. For instance, many offers involve credit monitoring or anti-virus computer programs costing less than $20 a month and have no tangible presence for consumers. The State AGs explained consumers are often unaware of having ordered these products, never use them, and never notice them on their bills. The State AGs further explained these transactions often pull consumers into a stream of recurring payments by obtaining credit card information to ostensibly pay for a small shipping charge. Consequently, they commented many consumers have been billed for such services for years before discovering the unauthorized charges.
Id.

67
NPRM, 88 FR 24721.

68
State Attorneys General (ANPR), FTC-2019-0082-0012.

69

Id.

Additionally, the State AGs outlined several ongoing investigations into deceptive or unfair negative option programs since 2019. These investigations include allegations of misrepresenting offers as free when they were not; and failure to clearly and conspicuously disclose negative option features.
70

70
State AGs, FTC-2023-0033-0886.

Additionally, consumer advocacy organizations and others explained that the widespread prevalence of deceptive acts and practices underscores the “ongoing need for [S]tate engagement to limit negative option abuses.”
71

Several commenters observed that more than half of States specifically regulate some aspect of negative option marketing.
72

A group of law professors explain this “ongoing engagement just shows that unscrupulous negative-option business models remain such a problem that [S]tates
increasingly
find themselves needing to step in.”
73

71

See, e.g.,
Joint comment from Professor Kaitlin Caruso (U. of Maine School of Law), Professor Jeff Sovern (St. John's U. School of Law), Professor Dee Pridgen (U. of Wyoming College of Law), Professor Chrystin Ondersma (Rutgers Law School), Professor Vijay Raghavan (Brooklyn Law School), Professor David Vladeck (Georgetown U. Law Center), Professor Edward Janger (Brooklyn Law School), and Professor Susan Block-Lieb (Fordham U. School of Law) (collectively, “Law Professors”), FTC-2023-0033-0861.

72

See, e.g.,
PDMI, FTC-2023-0033-0864 (stating over 27 states regulate negative option marketing); N/MA, FTC-2023-0033-0873 (stating 35 states and the District of Columbia now have automatic renewal laws, and at least 20 address all forms of automatic renewals); Service Contract Industry Council (“SCIC”), FTC-2023-0033-0879 (noting about half of U.S. states enacted auto-renewal laws); NRF, FTC-2023-0033-1005 (stating at least half of all states have statutes governing free-trial, negative-option, and/or automatic-renewal programs);
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”).

73
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.
74

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.
75

74

See, e.g., United States
v.
Adobe, Inc.,
No. 5:24-cv-03630 (N.D. Cal. 2024) (ECF No. 40, Amd. Compl.);
FTC
v.
Amazon.com, Inc.,
No. 2:23-cv-0932 (W.D. Wash. 2023) (ECF No. 67, Amd. Compl.).

75
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
76

to facilitate enrollment in subscription-based products and inhibit cancellation, and provided numerous examples of these activities.
77

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.”
78

76
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.

77
Berkeley Consumer Law Center, FTC-2023-0033-0855.

78
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.”
79

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.”
80

79
NPRM, 88 FR 24720-21.

80
Schiff and Norton, FTC-2023-0033-0868.

Studies.
Finally, “studies cited by commenters confirm a pattern of consumer ensnarement in unwanted recurring payments.”
81

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.
82

The BBB study shows consumer losses in FTC “free trial offer” cases exceeded $1.3 billion (over the ten years covered by the study).
83

A group of consumer and public interest advocacy organizations, including the National Consumers League
84

stated that, according to the BBB, the average consumer loss for a free trial is $186.
85

81
NPRM, 88 FR 24725.

82
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.

83

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).

84
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”).

85
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.”
86

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.
87

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.
88

86
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.
)

87
NPRM, 88 FR 24721.

88
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.
89

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.”
90

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.”
91

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.
92

89
NPRM, 88 FR 24720.

90
Public Interest Groups, FTC-2023-0033-0880 (citing “Subscription Service Statistics and Costs,” C+R Research Blog (May 18, 2022)).

91
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
).

92
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.”
93

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.
94

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.
95

93
TINA, FTC-2023-0033-1139.

94

Id.

95

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.
96

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.”
97

96
NCTA, FTC-2023-0033-0858;
see also
SCIC, FTC-2023-0033-0879.

97
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.
98

Moreover, nothing in Section 18 requires the Commission to find prevalence regarding a specific industry or group.
99

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.

98

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

99

See generally
15 U.S.C. 57a.

100

Pennsylvania Funeral Dirs. Ass'n, Inc.
v.
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, e.g.,
Individual commenter, FTC-2023-0033-0137 (detailing difficulty cancelling recurring subscriptions for newspaper, mobile, and other businesses); Individual commenter, FTC-2023-0033-0217 (reported spending hours on the phone and online to cancel mobile account); Individual commenter, FTC-2023-0033-0465 (reported difficulty cancelling rewards program subscription); Individual commenter, FTC-2023-0033-0674 (complaint reporting difficulty canceling mobile device protection subscription); Individual commenter, FTC-2023-0033-0965 (trying to cancel mobile phone service because they bill for different amount every month); Individual commenter, FTC-2023-0033-0003 (difficulty cancelling “home warranty” subscription); Individual commenter, FTC-2023-0033-0004 (full cost and refund policy for gym contract not clearly disclosed); Individual commenter, FTC-2023-0033-0006 (“2 attempts and far too much time” to cancel radio subscription); Individual commenter, FTC-2023-0033-0008 (discussing how “subscription services in particular pervade the market. Even long-standing `buy-it-once' products such as certain software suits have moved to subscription models”); Anonymous commenter, FTC-2023-0033-0013 (difficulty canceling home security monitoring contract, including hearing unwanted upsells); Anonymous commenter, FTC-2023-0033-0023 (webhosting service); Anonymous commenter, FTC-2023-0033-0024 (cable service); Individual commenter, FTC-2023-0033-0039 (language learning app); Anonymous commenter, FTC-2023-0033-0046 (software); Individual commenter, FTC-2023-0033-0049 (cannot cancel streaming service); Individual commenter, FTC-2023-0033-0050 (virus protection software and charity); Individual commenter, FTC-2023-0033-0052 (e-news service subscription); Individual commenter, FTC-2023-0033-0057 (magazine subscription service); Individual commenter, FTC-2023-00330061 (newspaper); Individual commenter, FTC-2023-0033-0063 (big box retailer membership); Individual commenter, FTC-2023-0033-0064 (cosmetics); Anonymous commenter, FTC-2023-0033-0066 (home warranty service); Individual commenter, FTC-2023-0033-0071 (lawncare service).

104

See
Prof. Chris Jay Hoofnagle, UC Berkeley (“Hoofnagle”), FTC-2023-0033-1137 (discussing the subscription economy). See also nn.245-252, collecting cases showing deceptive and unfair negative option practices occur across a wide range of industries and involve a variety of claims.

(b) The Manner and Context in Which the Acts or Practices Are Unfair or Deceptive

Pursuant to Section 18 and the Commission's Rules, the Commission must also state the manner and context in which the prevalent acts or practices are unfair or deceptive. The record demonstrates consumers are often lured into enrolling in negative option programs through seller misrepresentations about material facts—for instance, when a seller offers a product for “free” when it is not.
105

Additionally, sellers misrepresent other aspects of the deal, such as product features, processing or shipping fees, billing information use, deadlines, consumer authorization, refunds, cancellations, among other facts.
106

105
State AGs, FTC-2023-0033-0886 (consumer paid for shipping on “free” gift only to have it converted to a paid item because she retained the item);
id.
(Money Map Press),
FTC
v.
Triangle Media Corp.,
No. 3:18-cv-01388 (S.D. Cal. 2018) (consumers who clicked on ads for risk free trials, paid for shipping and handling fees unwittingly enrolled in negative option programs).

106

See
nn.245-252 (collecting cases).

Sellers also often fail to disclose important information about the offer prior to billing the consumer. As detailed in the comments from,
inter alia,
State AGs and TINA, sellers fail to disclose in a clear and conspicuous manner the existence of the negative option feature, refund and cancellation deadlines, or other material terms of the agreement, resulting in consumers purchasing goods or services they do not want.
107

All of these unfair or deceptive acts are further supported in dozens of FTC, State AG, and class action cases.
108

107

See
State Attorneys General (ANPR), FTC-2019-0082-0012 and State AGs, FTC-2023-0033-0886; TINA, FTC-2019-0082-0014 and FTC-2023-0033-1139.

108

See, e.g., id.;

see also FTC
v.
Pact, Inc.,
No. 2:17-cv-1429 (W.D. Wash. 2017);
United States
v.
MyLife.com, Inc.,
No. 2:20-cv-6692 (C.D. Cal. 2020);
FTC
v.
NutraClick, LLC,
No. 2:20-cv-08612 (C.D. Cal. 2020);
In re Dun & Bradstreet, Inc.,
FTC Docket No. C-4761 (2022).
See generally
Staff Report, n.16.

The record also demonstrates sellers fail to obtain consumers' express informed consent to the negative option feature before charging them. For instance, as detailed in representative consumer complaints from State AGs and several FTC cases, consumers are often unwittingly enrolled into recurring subscriptions with promises of no- or low-cost or discounted rates (not knowing that agreeing will result in subscription to a costly membership), with consumers not realizing the deceptive and unfair enrollment until they see unexpected charges, often after several billing cycles.
109

109

See, e.g.,
State Attorneys General (ANPR), FTC-2019-0082-0012 and State AGs, FTC-2023-0033-0886;
FTC
v.
FloatMe Corp.,
No. 5:24-cv-00001 (W.D. Tex. 2024);
United States
v.
Cerebral, Inc.,
No. 1:24-cv-21376 (S.D. Fla. 2024);
FTC
v.
Bridge It, Inc.,
No. 1:23-cv-09651 (S.D.N.Y. 2023);
FTC
v.
Benefytt Techs., Inc.,
No. 8:22-cv-01794 (M.D. Fla. 2022);
FTC
v.
First Am. Payment Sys.,
No. 4:22-cv-00654 (E.D. Tex. 2022);
FTC
v.
NutraClick, LLC,
No. 2:20-cv-08612 (C.D. Cal. 2020);
FTC
v.
F9 Advert., LLC,
No. 3:19-cv-01174 (D.P.R. 2019);
FTC
v.
Age of Learning, Inc.,
No. 2:20-cv-07996 (C.D. Cal. 2020);
FTC
v.
NutraClick, LLC,
No. 2:16-cv-06819 (C.D. Cal. 2016);
FTC
v.
AH Media Grp., LLC,
No. 3:19-cv-04022 (N.D. Cal. 2019);
In re Urthbox, Inc.,
FTC Docket No. C-4676 (2019);
FTC
v.
Health Rsch. Labs., LLC,
No. 2:17-cv-00467 (D. Me. 2017);
FTC v HispaNexo, Inc.,
No. 1:06-cv-424 (E.D. Va. 2006).

Finally, substantial record evidence shows sellers often fail to provide a simple cancellation method. If consumers cannot easily leave a negative option program when they wish, the negative option feature is merely a means of charging consumers for goods or services they no longer want. Commission cases, the Sentinel complaint database, and State Attorneys General's complaints all show sellers often use difficult and cumbersome cancellation mechanisms to prevent or curtail cancellations.
110

This fact is further corroborated by studies discussed above.
111

110

See
section VII.B.6.

111
Section VII.A.1.a.

(c) Statement as to the Economic Effect of the Rule

Finally, pursuant to section 18 and the Commission's Rules, the SBP must include a statement regarding the economic effect of the Rule. As part of these rulemaking proceedings, the Commission solicited and received comments on the economic impact of the proposed Rule. In issuing the final Rule, the Commission has carefully considered the comments and other information received as well as the costs and benefits of each provision, as discussed in more detail in section X, Final Regulatory Analysis. That analysis demonstrates the benefits of the Rule far exceed the costs. Benefits were evaluated on a per-cancellation basis; that is, the analysis assumes the primary consumer benefit of the Rule will come in the form of faster cancellations. Costs were evaluated primarily to reflect resources spent by businesses to review and come into compliance with the Rule. The overall net benefit of the Rule is estimated to exceed $5.3B (and could be as much as $49.2B) over the first 10 years (in 2023 dollars).

2. Magnuson-Moss Specificity Requirement

Pursuant to Magnuson-Moss, the Commission must also define with specificity acts or practices which are unfair or deceptive and either prohibit those activities or establish rules to prevent them. The Commission has done just that, despite some commenters' arguments to the contrary. Specifically, IAB and others
112

argue the provision prohibiting material misrepresentations fails to define claims that fall within its scope, and therefore, “fails to identify covered acts with the requisite level of specificity.”
113

112
IAB, FTC-2023-0033-1000; Coalition Comments from CCIA, Direct Selling Association, Information Technology Industry Council, IAB, Software & Information Industry Association, and Chamber (“Coalition”), FTC-2023-0033-0884; PDMI, FTC-2023-033-0864; TechNet, FTC-2023-0033-0869; TechFreedom, FTC-2023-0033-0872; ACT-The App Association (“ACT App Association”), FTC-2023-0033-0874; USTelecom, FTC-2023-0033-0876.

113
IAB, FTC-2023-0033-1000.

First, section 18 does not require the Commission to define claims with specificity, only acts or practices. The practice of misrepresenting the material facts of a transaction, for instance, is a deceptive practice, but could vary depending on the transaction's terms. Requiring the Commission to identify particular claims would make its rules no better than a leaky sieve, unable to effectively address consumer harm.

Second, the NPRM and the final Rule do define with the requisite specificity the unfair or deceptive negative option acts and practices covered by the Rule.
114

While those critical of the proposed Rule cite to
Katharine Gibbs School
v.
FTC,
612 F.2d 658 (2d Cir. 1979), this case is inapposite. In
Katharine Gibbs School,
the Second Circuit held the Commission failed to connect elements of its trade regulation rule to specifically defined unfair or deceptive acts or practices. The opinion held the Commission may not merely set requirements and then define failure to meet those requirements as unfair or deceptive acts or practices. The Commission must instead identify some underlying deceptive or unfair conduct and connect the rule requirements to that conduct.

114

See
Section I; Section VII.A, defining the acts and practices covered in §§ 425.3 through 425.6 as unfair or deceptive and a violation of the Rule. As acknowledged by USTelecom, the “contours of the `specificity' requirement have not been precisely defined.” FTC-2023-0033-0876.

In contrast here, the Commission specifically identified misrepresentation of material facts as a deceptive practice, and defined the term “material” with the same meaning it has under Section 5 of the FTC Act.
115

Moreover, the misrepresentations provision goes further, providing categories of potentially material facts to assist the marketplace in understanding the provision and supporting those examples with cases.
116

Thus, the final Rule's prohibition against material misrepresentations is not only connected to underlying deceptive or unfair conduct, but in fact prohibits that very conduct.

115

See
SBP Section VII.B.3 discussing § 425.3.

116

Id.
As explained in the
Katharine Gibbs School
dissent, “Congress required specific definitions of such practices so that a rule would `reasonably and fairly inform those within its ambit of the obligation to be met and the activity to be avoided.' ” 612 F.2d 658, 672 (
quoting
H.R. Rep. No.93-1107, 93d Cong., 2d Sess. 46 (1974),
reprinted in
(1974) U.S.C.C.A.N., pp. 7702, 7727).

3. Other Legal Issues

Several commenters raised additional challenges to the Commission's ability to promulgate the Rule. These challenges fall into two categories. First, some commenters argued the Commission failed to give adequate notice of the scope of the proposed amendments to the Rule in the ANPR in accordance with Section 57a(b)(2)(A) of the FTC Act. Second, four commenters argued the Commission exceeded its grant of Congressional authority under the “major questions” doctrine. The Commission addresses each argument below.

(a) ANPR

Several commenters asserted the ANPR, issued in 2019, failed to provide adequate notice of the acts and practices to be covered by the proposed Rule. Specifically, ESA, USTelecom, RILA, a coalition of trade associations, Chamber, CCIA, IAB, and NRF argued the ANPR failed to provide notice the proposed Rule would cover misrepresentations of all material facts; would require express informed consent to opt-in to receive a save;
117

and would require an annual reminder.
118

Thus, according to these commenters, including these provisions in the final Rule would violate Section 18(b)(2)(A). They further argued the lack of these topics' inclusion in the ANPR meant that affected entities had inadequate opportunity to provide input, leading to an inadequate rulemaking record.
119

117
As discussed in Section VII.B.6, the Commission removes the proposed save provision from the final Rule.

118
As discussed in Section VII.B.7, the Commission removes the proposed annual reminder provision from the final Rule.

119

E.g.,
IAB, FTC-2023-0033-1000.

These arguments, however, are unpersuasive. Section 18 imposes no requirement the ANPR have the level of specificity the commenters demand. In fact, the statute only says the ANPR must include “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.”
120

The Commission included a discussion of each of these topics in the ANPR.
121

Moreover, the affected entities have had the chance to raise concerns with the Rule in their comments to the NPRM, which the Commission has considered and responded to in this Statement of Basis and Purpose.

120
15 U.S.C. 57a(b)(2)(A). “The Advance Notice [of Proposed Rulemaking] is a formal invitation to participate in shaping the proposed rule and starts the notice‐and‐comment process in motion.” Office of the Federal Register, “A Guide to the Rulemaking Process,”
https://www.federalregister.gov/uploads/2011/01/the_rulemaking_process.pdf.

121
ANPR, 84 FR 52393;
see also id.
52396-8 (Request for Comments); Section VII.B.3.b.1 (discussing ANPR in context of § 425.3).

(b) Major Questions Doctrine

Four commenters asserted the Rule implicates the “major questions” doctrine.
122

According to the Supreme Court, the major questions doctrine is implicated in “extraordinary cases . . . in which the history and the breadth of the authority that the agency has

asserted, and the economic and political significance of that assertion, provide a reason to hesitate before concluding that Congress meant to confer such authority.”
123

Citing this authority, the commenters argue Congress only granted the FTC “limited and tailored authorities to regulate certain mediums and types of negative option marketing, but not all mediums and types as the NPRM encompasses.”
124

Further, they assert Congress never intended for the Commission to create a comprehensive regulatory scheme for negative option marketing that encompasses the variety of requirements proposed in the NPRM. Because negative option programs play an ever-increasing role in the economy, these commenters claim the proposed Rule would “dramatically alter” how companies structure their subscription services.
125

More specifically, they assert the prohibition against misrepresentations, together with the ability to seek civil penalties in Federal court, would expand the FTC's authority beyond that envisioned by Congress.

122
PDMI, FTC-2023-0033-0864; ACT App Association, FTC-2023-0033-0874; Coalition, FTC-2023-0033-0884; Chamber, FTC-2023-0033-0885.

123

West Virginia
v.
EPA,
597 U.S. 697, 721 (2022) (internal quotations cleaned up).
Accord Biden
v.
Nebraska,
143 S. Ct. 2355, 2372 (2023).

124
Coalition, FTC-2023-0033-0884.

125

See, e.g.,
PDMI, FTC-2023-0033-0864.

However, far from exceeding Congressional intent, the Rule merely effectuates that intent in a way wholly consistent with the specific requirements set forth in Section 18 of the FTC Act. Specifically, Congress explicitly authorized the Commission to prescribe “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce (within the meaning of such section 5(a)(1)),” which “may include requirements prescribed for the purpose of preventing such acts or practices.”
126

As demonstrated below, each of the Rule's provisions identifies specific deceptive or unfair acts or practices that are prevalent throughout the marketplace and ties each Rule provision tightly to those findings.

126
15 U.S.C. 57a(a)(1)(B).

As the Supreme Court explained, courts use the “major questions doctrine” when examining “extraordinary cases” where agency action would “make a radical or fundamental change” to a statutory scheme and assert “extravagant” authority over the national economy through “ambiguous statutory text,” citing “modest words,” “vague terms,” “subtle device[s],” or “oblique or elliptical language.”
127

Here, no such extraordinary circumstance exists. The prohibitions and disclosures in the Rule do not effect a major change in the economy. In fact, all the substantive requirements in the Rule are already extant under section 5 of the FTC Act, ROSCA, or the TSR. Moreover, the Rules' terms, as explained below, are neither vague, oblique, or elliptical—in fact, if anything, they are clearer than the legal authority just cited.

127

West Virginia
v.
EPA,
597 U.S. at 723 (cleaned up).

B. Discussion of Specific Rule Provisions, Section-by-Section Analysis

Below, for each provision of the proposed Rule, the Commission reviews the provision, summarizes comments received in response, and sets forth the final Rule with an analysis of the comments and other record evidence.

1. Proposed § 425.1 Scope

The Commission proposed eliminating the old Rule's prescriptive requirements applicable to prenotification plans and replacing them with flexible, but enforceable, standards. The proposed requirements would apply to all forms of negative option marketing, including prenotification and continuity plans, automatic renewals, and free trial offers.
128

The expanded coverage would establish a common set of requirements applicable to all types of negative option marketing. The proposed Rule would cover offers made in all media, including internet, telephone, in-person, and printed material, and would apply to all “negative option sellers.” With certain exceptions, not applicable here, the FTC Act provides the agency with jurisdiction over nearly every economic sector.
129

128
The proposed Rule stated it applied to any form of negative option plan. Because “negative option plan” was a defined term in the old Rule specifically referring to prenotification plans, the Commission modifies the scope to apply to any form of “negative option program.”

129
Certain entities or activities are wholly or partially exempt from FTC jurisdiction under the FTC Act, including most depository institutions, charities, transportation and communications common carriers, and the business of insurance. Under Sections 4 and 5 of the FTC Act, however, the Commission's jurisdiction extends to companies organized to carry on business for their own profit or that of their members, even if those companies are organized under state law as a not-for-profit entity.
See California Dental Ass'n
v.
FTC,
526 U.S. 756 (1999).
But see
n.151.

(a) Negative Option Seller

(1) Comments

The scope of the proposed Rule covered “negative option seller,” defined to mean “the person selling, offering, promoting, charging for, or otherwise marketing goods or services with a negative option feature.” Several commenters raised concerns regarding the scope of this definition.

The Chamber, for example, suggested the Commission delete the term “promoting” from the definition.
130

It cited a wide variety of actors who could be swept in by the term, including “advertising companies, web designers, [and] entities in the supply chain,” who “may not actually play an active role in determining” what consumers see and hear about negative option programs.
131

An individual business commenter also criticized the term, saying to include “promoting” “would potentially burden our technicians and our business when we provide service for equipment manufacturers that have their own service contract programs.”
132

130
Chamber, FTC-2023-0033-0885.

131

Id.

132
Individual commenter, FTC-2023-0033-1136.

ETA, representing the payments industry, addressed the words “charging for” in the definition.
133

ETA interpreted those words not to cover “intermediaries, such as payment processors, that merely effect the transfer of funds from the consumer buyer to the merchant seller resulting from a negative option feature.”
134

ETA noted that payment intermediaries typically “do not control the terms of the negative option feature and do not control the interface with the consumer buyer.”
135

ETA therefore suggested the final Rule “include an express exemption for payment processors and other intermediaries.”
136

133
Electronic Transactions Association (“ETA”), FTC-2023-0033-1004.

134

Id.

135

Id.

136

Id.
IHRSA noted health and fitness membership charges are typically processed on a monthly basis from the time of agreement, and in many cases by a third-party service provider. IHRSA, FTC-2023-0033-0863.

Other commenters, while not specifically criticizing the definition of negative option seller, raised concerns about the scope of the proposed Rule where third parties are involved in marketing and cancellation. For example, several suggested the Rule exempt a seller who contracts with a third party for subscription enrollment, management, or cancellation services.
137

PDMI argued, “it is

imperative that the Proposed Rule exempt sellers from compliance with those provisions that are not under their direct control . . . [and] should also exempt the seller from any misrepresentations made by a third-party platform.”
138

NRF expressed concern a careful retailer could still “face steep financial penalties for negligent misrepresentations (concerning,
e.g.,
product efficacy) based on information provided by third-party vendors.”
139

137
NCTA asserted, “The proposed rule also fails to account for third-party sign-up arrangements. For example, programmers have arrangements with Roku, Amazon, Apple, and others that allow consumers to sign up through these third parties for their streaming services.” NCTA, FTC-2023-0033-0858. N/MA suggested the Commission “should make clear that when a sale with a negative option feature is made through a third party that controls the process of purchasing and/or cancelling a subscription with a negative option feature, any new requirements would apply to the third party only, and not to the company that fulfills the

subscription.” N/MA, FTC-2023-0033-0873. Marketplace Industry Association (“MIA”) requested “the Commission clarify that where there are third-party payment platforms managing Subscriptions on behalf of businesses . . . (collectively, “Third Party Subscription Managers”), that such Third Party Subscription Managers be legally responsible and legally liable for compliance with the proposed Rule. As is the case with Third Party Subscription Managers, businesses that offer Subscriptions have zero control over such Subscriptions, including the initiation of Subscriptions or the cancellation of Subscriptions. Said another way, it is impossible for businesses to comply with the proposed Rule where there are Third Party Subscription Managers. As such, the Association requests that the Commission make clear that Third Party Subscription Managers be responsible for compliance with the proposed Rule, including any penalties for noncompliance.” MIA, FTC-2023-0033-1008.

138
PDMI, FTC-2023-003-0864.

139
NRF, FTC-2023-0033-1005.

(2) Analysis

Based on the record, the Commission revises the definition of “negative option seller” to remove the word “promoting,” but declines to create status-based exemptions.
140

Moreover, the Commission clarifies it will enforce the final Rule in accordance with established section 5 principles regarding parties' responsibilities for, and involvement in, relevant activity. This approach should fully address commenters' concerns while maintaining the Rule's consumer protections.

140

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
v.
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
v.
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
v.
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

146

E.g., FTC
v.
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 FTC
v.
Inc21.com Corp.,
688 F. Supp. 2d 927, 939 (N.D. Cal. 2010) (“Even if Inc21 did not approve of the fraud (and it seems likely that it
did
approve), the fact remains that Inc21 is responsible for organizing this engine of fraud and reaping its profits. As such, Inc21 may
certainly
be held accountable[.]”) (emphasis in original).

(b) Insurance

(1) Comments

Several commenters asked the Commission to expressly exclude insurance and State-regulated service contracts from the Rule.
147

They argued Congress prohibited the FTC from regulating the “business of insurance” in section 2 of the McCarran-Ferguson Act and the FTC exempted insurance sales in its Cooling-Off Rule.
148

They also asserted, “State regulations in every jurisdiction require an insurer to give notice of a policy renewal,” and State rules prohibit negative options.
149

Other commenters argued the Commission should exempt all service contract providers from the Rule due to existing State laws and regulations,
150

regardless

of whether they are engaged in the “business of insurance” within the meaning of the McCarran-Ferguson Act.

147
Asurion, FTC-2023-0033-0878; Florida Service Agreement Association, FTC-2023-0033-0882; American Property Casualty Insurance Association (“APCIA”), FTC-2023-0033-0996; National Association of Mutual Insurance Companies (“NAMIC”), FTC-2023-0033-1143.

148

See
15 U.S.C. 1012; 16 CFR 429(a)(6).

149
NAMIC, FTC-2023-0033-1143.

150
SCIC, FTC-2023-0033-0879 (noting SCIC's comment to the ANPR stated most states have substantial regulatory frameworks for service contracts and that industry operates nationwide consistent with the intent of the proposed Rule); CTIA, FTC-2023-0033-0866 (noting service contracts are typically regulated by state departments of insurance and most states with autorenewal laws, including California, New York, and Oregon, provide an exemption for entities regulated by the state department of insurance); Frontdoor, Inc. (“Frontdoor”), FTC-2023-0033-0862 (noting majority of states have rigorous laws

for the offering, sale, and renewal of home service contracts, including the use of automatic renewals and applicable cancellation rights).

(2) Analysis

The Commission declines to exempt insurance or service contracts from the Rule. The final Rule can be enforced by the Commission only against covered persons and activities within the Commission's jurisdiction.
151

Restating or further specifying each jurisdictional limit in the final Rule's text, therefore, is not necessary.

151
Nothing in this Rule, however, shall limit another agency's ability to enforce this Rule within its own statutory authority, even if that authority is different than the FTC's authority.
See, e.g.,
12 U.S.C. 5581(b)(5)(B)(ii).

Additionally, the requested industry-wide exemption is considerably broader than the FTC's jurisdictional limitations. The McCarran-Ferguson Act does not exempt entities engaged in the business of insurance from the Commission's jurisdiction unless such entities are subject to State regulation.
152

Moreover, activities of entities within the insurance industry that are beyond the scope of the “business of insurance” are subject to the Commission's jurisdiction.
153

No commenter provided any compelling reason to exempt these otherwise covered activities from the Rule.

152

FTC
v.
IAB Mktg. Assocs. LP,
746 F.3d 1228, 1235 (11th Cir. 2014) (“[T]he FTC Act applies to the business of insurance only to the extent that such business is not regulated by state law.”).

153
The Supreme Court has explained that, under the McCarran-Ferguson Act, a three-part factual inquiry is necessary to evaluate whether any particular activity constitutes the business of insurance.
See Union Labor Life Ins. Co.
v.
Pireno,
458 U.S. 119, 129 (1982). First, does the activity have the effect of transferring or spreading a policyholder's risk; second, is the activity an integral part of the policy relationship between the insurer and the insured; and third, is the practice limited to entities within the insurance industry.
Id.
This inquiry requires a factual analysis of the activities in question.

Finally, commenters' citations to existing State laws and regulations governing service contract sellers indicate these sellers already provide disclosures and protections consistent with the Rule. As a practical matter, sellers who already provide consumers the Rule's protections should not be burdened by its application.
154

154
Moreover, service contract sellers, like other interested persons, may seek full or partial exemption from the final Rule.
See
Section VIII.A.1 (discussing new § 425.8, Exemptions provision).

(c) Business-to-Business

(1) Comments

Nine commenters noted the NPRM did not expressly address whether the proposed Rule would apply to business-to-business (“B2B”) transactions. Seven, including five industry associations,
155

said it should not apply.
156

Two individuals disagreed.
157

155
BSA, FTC-2023-0033-1015 (B2B software sellers); CTIA, FTC-2023-0033-0866 (wireless communication industry); ETA, FTC-2023-0033-1004 (payments industry); NCTA, FTC-2023-0033-0858 (internet and television); USTelecom, FTC-2023-0033-0876 (broadband). A sixth association, the U.S. Chamber of Commerce, asked the Commission to ensure that the scope of its cost-benefit analysis includes business-to-business transactions. FTC-2023-0033-0885.

156
Anonymous commenter, FTC-2023-0033-1007; BSA, FTC-2023-0033-1015; CTIA, FTC-2023-0033-0866; ETA, FTC-2023-0033-1004; NCTA, FTC-2023-0033-0858; USTelecom, FTC-2023-0033-0876; ZoomInfo, FTC-2023-0033-0865.

157
Individual commenter, FTC-2023-0033-0755; Individual commenter, FTC-2023-0033-0042.

Commenters advocating against including B2B sales in the Rule asserted the Commission should presume businesses are more sophisticated than individual consumers,
158

and contended B2B contracts typically are individually negotiated.
159

For example, ZoomInfo maintained business consumers are generally “more sophisticated than individual consumers,” explaining B2B contracts “are assumed to result from arm's-length negotiation and often benefit from professional legal counsel.”
160

Similarly, NCTA, an organization representing the internet and television industry, characterized business consumers as “typically sophisticated,” and said the Commission should not intervene in transactions based on “[n]on-form contracts that are the subject of extensive bargaining between sophisticated companies.”
161

158
Anonymous commenter, FTC-2023-0033-1007; CTIA, FTC-2023-0033-0866; NCTA, FTC-2023-0033-0858; ZoomInfo, FTC-2023-0033-0865.

159
CTIA, FTC-2023-0033-0866; NCTA, FTC-2023-0033-0858; USTelecom, FTC-2023-0033-0876; ZoomInfo, FTC-2023-0033-0865.

160
ZoomInfo, FTC-2023-0033-0865.

161
NCTA, FTC-2023-0033-0858. NCTA requested any final rule exclude individually negotiated business-to-business contracts. FTC-2023-0033-0858.

Seller and consumer commenters differed on whether the harmful negative option practices discussed in the NPRM are extant for B2B consumers. In support of excluding B2B transactions, two commenters asserted there is insufficient evidence of harm in the B2B context to support a prevalence finding.
162

A B2B consumer, however, noted individuals and small businesses both suffer from the harms of deceptive and unfair negative option practices. “As a small business owner,” the individual wrote, “as well as a consumer, I am especially aware of how purposely difficult many companies make it to cancel their services. From telephone companies to travel channel companies . . . to email targeting campaigns . . . the cancelling process is ridiculously complex and at times hidden, if it exists at all on their websites.”
163

162
BSA, FTC-2023-0033-1015; NCTA, FTC-2023-0033-0858. The Commission discusses the subject of prevalence more broadly at Section VII.A.

163
Individual commenter, FTC-2023-0033-0755.

Seller and consumer commenters also differed on the significance of existing State law B2B exclusions. Three B2B sellers recommended the Commission follow those States that exclude B2B transactions.
164

A consumer, however, asserted such exclusions are why this Rule is necessary.
165

Specifically, the commenter explained: “negative option marketing also greatly affect[s] many individual sellers and small businesses,” but due to B2B exclusions, “some larger corporations or companies are able to take advantage of that loophole and use predatory negative option practices against individual sellers and small businesses.”
166

164
Anonymous commenter, FTC-2023-0033-1007 (California); BSA, FTC-2023-0033-1015 (California, Colorado, Delaware); ZoomInfo, FTC-2023-0033-0865 (California, Colorado, Connecticut, Delaware, Hawaii, New York, Oregon, Tennessee, Virginia).

165
Individual commenter, FTC-2023-0033-0042.

166

Id.

Some sellers also referred to other Federal regulations to support excluding businesses from the scope of the Rule. For instance, ETA and NCTA each noted the Commission excluded most B2B transactions in the TSR. ETA made the same observation about the Cooling Off Rule.
167

Both CTIA and USTelecom approvingly cited the FCC's approach. USTelecom explained, “the FCC has limited certain consumer protection rules to `mass-market retail services' ” that are “ `marketed and sold on a standardized basis to residential customers, small businesses, and other end-user customers such as schools and libraries.' ”
168

USTelecom further explained, “Mass-market retail services stand in contrast to `customized or individually negotiated arrangements' that are typically offered to larger organizations.”
169

167
16 CFR 429.0-429.3.

168
USTelecom, FTC-2023-0033-0876.

169

Id.

ETA questioned whether the Commission has authority to address B2B transactions. ETA argued the proposed Rule would let the Commission “interpose regulatory influence and law enforcement authority in contractual arrangements between businesses in a way that has not been authorized by Congress or

justified by the Commission's own rationale for the Proposed Rule.”
170

ETA cited the Commission's use of ROSCA in the
First American Payment Systems
case to illustrate its view the Rule's application in the B2B context would be impermissible regulation of “an automatic renewal clause in an arm's length commercial agreement.”
171

170
ETA, FTC-2023-0033-1004.

171

Id.
(citing
FTC
v.
First Am. Payment Sys.,
No. 4:22-cv-00654 (E.D. Tex. 2022)).

Finally, ETA and ZoomInfo argued various provisions of the Rule, such as the disclosure and notice requirements, could present unusual implementation problems in B2B transactions. For instance, ETA asserted disclosure requirements could result in operational uncertainty because the Commission did not consider all the typical terms included in B2B agreements. Similarly, ZoomInfo explained “B2B agreements are often complex, involving multiple decision-makers and points of contact, who might rotate or leave their roles over the course of a contract.”
172

172
ZoomInfo, FTC-2023-0033-0865. ETA also raised a concern about the definition of negative option seller, addressed in Section VII.B.1.a.

(2) Analysis

The final Rule, like the proposed Rule, covers B2B transactions. It has been the Commission's longstanding view that section 5 of the FTC Act
173

protects business consumers as well as individual consumers. Moreover, commenters' arguments that, under section 5, all business consumers must be held to a heightened standard of sophistication are inconsistent with settled law.

173
15 U.S.C. 45(a).

The Commission has long enforced the FTC Act against those who deceive and act unfairly to businesses and other organizations.
174

As the Supreme Court explained in
FTC
v.
Standard Educ. Soc.,
302 U.S. 112, 116 (1937), “Laws are made to protect the trusting as well as the suspicious.” This principle applies no less to the business consumer than to the individual.
175

The Commission maintains a decades-long list of business protection cases on its website and dedicates significant effort to educate and protect small businesses.
176

Indeed, the Commission has made protecting small businesses a priority.
177

174

See, e.g., Indep. Directory Corp.
v.
FTC,
188 F.2d 468 (2d Cir. 1951) (deceptive practices in selling directory ads to businesses).

175

Indep. Directory Corp.,
188 F.2d at 470 (applying
Standard Educ. Soc.
);
see also, e.g., FTC
v.
LoanPointe, LLC,
525 F. App'x 696, 701 (10th Cir. 2017) (FTC need only prove “the likelihood that a consumer (here, employers)” would be deceived);
FTC
v.
Crittenden,
19 F.3d 26 (9th Cir. 1994) (Table) (noting stipulated judgment with B2B office supplier);
FTC
v.
Inc21.com Corp.,
688 F. Supp. 2d 927 (N.D. Cal. 2010) (preliminary injunction against deceptive and unfair B2B billing scheme);
FTC
v.
IFC Credit Corp.,
543 F. Supp. 2d 925, 934 (N.D. Ill. 2008) (FTC Act applies to B2B sales).

176

See
Fed. Trade Comm'n, “Protecting Small Businesses: Cases,”
https://www.ftc.gov/business-guidance/small-businesses/protecting-small-businesses-cases
(last visited October 23, 2024); Fed. Trade Comm'n, “Protecting Small Businesses,”
https://www.ftc.gov/business-guidance/small-businesses
(last visited October 23, 2024); Fed. Trade Comm'n, “Scams and Your Small Business: A Guide For Business,”
https://www.ftc.gov/business-guidance/resources/scams-your-small-business-guide-business
(last visited October 23, 2024).

177

See
Press Release, Fed. Trade Comm'n, “FTC, BBB, and Law Enforcement Partners Announce Results of Operation Main Street: Stopping Small Business Scams Law Enforcement and Education Initiative” (June 18, 2018),
https://www.ftc.gov/news-events/press-releases/2018/06/ftc-bbb-law-enforcement-partners-announce-results-operation-main
(last visited October 23, 2024).

Moreover, the TSR never exempted B2B transactions entirely. Importantly, the Commission recently amended the TSR to cover a broader scope of B2B activity. Specifically, in 2024, the Commission expanded the TSR to prohibit material misrepresentations and false or misleading statements in B2B calls due to the ongoing harm to small businesses from such practices.
178

178
TSR, 89 FR 26760 (April 16, 2024).

Additionally, recent Commission actions to protect small businesses underscore the fact deceptive practices pertaining to negative option features occur in B2B transactions just as they do with individual consumers. None of these cases present the arms-length negotiation of contracts by sophisticated parties that commenters claim to be universal. For example, in its 2022 action against
First American Payment Systems,
179

the Commission alleged the defendants violated section 5 and ROSCA by making false claims about fees and cost savings to persuade merchants in small- and medium-sized businesses, many of whom had limited English proficiency, to enter into payment processing agreements.
180

Once enrolled, the defendants allegedly withdrew funds from merchants' accounts without consent, and made it difficult and expensive to cancel the service. Under a stipulated court order, the defendants must (among other things) make it easier for merchants to cancel their services.

179

FTC
v.
First Am. Payment Sys.,
No. 4:22-cv-00654 (E.D. Tex. 2022).

180
In describing the basis for the misrepresentations provision of the proposed Rule, the NPRM cited (among other cases)
First Am. Payment Sys.
NPRM, 88 FR 24726 n.65.
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
v.
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
v.
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
v.
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

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2024-25534. Public record. Not legal advice.