On October 16, 2024, the Federal Trade Commission (“FTC”) announced a final version of a modification to a rule originally issued in 1973 aimed at protecting consumers from deceptive subscription practices. The Negative Option Rule, also known as the “Click-to-Cancel” rule, is designed to make it easier for consumers to cancel recurring subscriptions and memberships.
To provide a little background, a “Negative Option” is any arrangement or agreement in which one party provides goods or services to the other automatically unless the receiving party expressly tells the provider that they do not want those goods or service.
What’s the problem with negative options?
Historically, negative options have gained a terrible reputation because some of those that use negative options in their agreements have made material misrepresentations to induce consumers to enroll in such programs, failed to provide important information, billed consumers without their consent, or made cancellation difficult or impossible.
A classic example of a negative option is that of gym memberships: they are typically simple to join but often much more difficult to leave, requiring complicated forms, slow correspondence, or getting through pushy salespeople. (some might recall an episode of Friends that involved a plot point about that very difficulty)
What’s the point of the new rule?
The new rule is designed to prevent that kind of disparity in difficulty between joining and leaving a negative option agreement by treating the following as deceptive or unfair acts and practices under Section 5 of the FTC Act:
- misrepresenting any material fact made while marketing using a negative option feature;
- failing to clearly and conspicuously disclose material terms prior to obtaining a consumer’s billing information in connection with a negative option feature;
- failing to obtain a consumer’s express informed consent to the negative option feature before charging the consumer; and
- failing to provide a simple mechanism to cancel the negative option feature and immediately halt charges.
The pithy slogan from the FTC about the rule is that “there always has to be a way to cancel that’s as quick and easy as it was to sign up.”
Enforcement and Penalties
There is no private right of action based on this new rule, so all enforcement will come from the FTC or other government offices. Violators of the rule can face significant penalties, including redress for affected consumers and civil penalties of up to $51,744 per violation.
Effective Date
The rule technically has an effective date of January 14, 2025 but will take full effect 180 days after its publication in the Federal Register, which is May 14, 2025. That 180-day window of time gives businesses the opportunity to adjust their practices to comply with the new requirements.
Political and Legal Context
Since the issuance of the final version of the “Click-to-Cancel” rule, much has shifted in the political and legal landscape surrounding the rule. A new Republican administration in the White House—especially one that has already indicated an intent to curb and undo government regulations—with a Republican majority in both houses of Congress could completely erase or heavily modify the rule. The same could occur through the judiciary as there are now lawsuits pending before the Fifth, Sixth, Eighth, and Eleventh Circuit Courts of Appeal, which have been recently empowered by the Supreme Court to challenge administrative rules. In short, the future of the “Click-to-Cancel” rule is uncertain.
Conclusion
For consumers this may be a big win for convenience, their wallets, and their peace of mind. But for businesses, this could fundamentally alter the landscape in which deals are done with consumers. Even if the FTC’s “Click-to-Cancel” rule is on shaky ground, it is not something that businesses and individuals using negative options can ignore. Anything less than a proactive approach to these kinds of changes in the regulatory framework around a business can result in tough fights with the government that could cost far more to defend than compliance would have cost. In other words, an ounce of prevention is worth a pound of cure.
