The Federal Trade Commission (“FTC”) has long regulated negative option programs, including recurring subscriptions and free-to-pay conversions and plans. In the past, the FTC sought to protect shoppers from deceptive negative option practices through individual law enforcement actions and a patchwork of laws and regulation. Now, the FTC has established concrete, performance-based requirements for all negative option features in all media. If your business leverages auto-renewals or other negative option features, then here are a few of the key points/issues you should be aware of:
- The new rules apply to almost all negative option marketing, including business-to-business transactions. The rules apply to negative option programs, including automatic renewals, free trial offers and prenotification and continuity plans, whether the offer appears online, on the phone, or in person. Importantly, the rule covers business-to-business (or “B2B”) transactions, as well as business-to-consumer transactions. In declining to exclude B2B transactions from the rule, the FTC noted its interest in “protecting businesses, particularly small business, in their role as consumers.”
- The new rules prohibit misrepresentations and require “clear and conspicuous” disclosure of the “material” terms of a negative option feature. Material terms include, without limitation, each deadline (by date or frequency) by which the shopper must act to prevent or stop charges, and the information necessary for the shopper to find the simple cancellation mechanism required by the rules. The disclosures must appear “immediately adjacent to the means of recording the consumer’s consent.”
- The new rules require sellers to provide a “simple” way to cancel the negative option feature. The mechanism must be at least as easy to use, and at a minimum, the same, as the mechanism the shopper used to consent to the negative option (e.g., if the shopper “clicked” to consent, then the shopper should have the ability to “click to cancel”). The simple cancellation mechanism must also be easy to find.
- Other rules and laws may apply. The rules do not preempt state laws that require more than the new rules. For example, Florida requires that that sellers of certain service contracts to consumers provide written notice of an impending auto-renewal no less than 30 days or no more than 60 days before the cancellation deadline.
- Violators may be liable for civil penalties. The new rules grant the FTC authority to seek civil penalties where it deems appropriate.
The new rules’ prohibition on misrepresentations of material facts relating to the promotion or offering for sale of any good or service with a negative option went into effect on January 14, 2025. The rules’ remaining consent and cancellation requirements are set to take effect May 14, 2025. A few weeks ago, President Trump signed an Executive Order titled “Regulatory Freeze Pending Review” that could impact the new rules, but that remains to be seen. As a result, for now, any business utilizing negative option features should ensure that their practices are (or will be) compliant with the new rules. Please contact us for guidance on these or any other related matters.
YES! PLEASE SIGN ME UP TO RECEIVE EMAIL ALERTS FROM OTHER GUNSTER PRACTICE AREAS.
This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
About Gunster
Gunster, Florida’s law firm for business, provides full-service legal counsel to leading organizations and individuals from its 12 offices statewide. Established in 1925, the firm has expanded, diversified and evolved, but always with a singular focus: Florida and its clients’ stake in it. A magnet for business-savvy attorneys who embrace collaboration for the greatest advantage of clients, Gunster’s growth has not been at the expense of personalized service but because of it. The firm serves clients from its offices in Boca Raton, Fort Lauderdale, Jacksonville, Miami, Naples, Orlando, Palm Beach, Stuart, Tallahassee, Tampa, Vero Beach, and its headquarters in West Palm Beach. With more than 300 attorneys and consultants, and 300 committed support staff, Gunster is ranked among the top 200 largest law firms by the National Law Journal and has been recognized as one of the Top 100 Diverse Law Firms by Law360. More information about its practices, industries, offices and news is available at www.gunster.com.
