Attention all website operators that sell goods and services on a subscription basis. On March 23, the Federal Trade Commission (FTC) announced proposed amendments to the Negative Option Rule, which governs how businesses can sell goods and services on a subscription basis. The complete announcement can be viewed on the FTC’s website.
The proposed amendments would make it easier for consumers to cancel subscriptions and would prohibit businesses from making misrepresentations about their subscription plans.
The Negative Option Rule was originally adopted in 1975 to protect consumers from being automatically enrolled in subscription plans without their consent. The Rule requires businesses to provide consumers with clear and conspicuous notice of their right to cancel a subscription, and to make it easy for consumers to cancel. The Rule has been amended several times since then. However, the FTC believes that the Rule is no longer adequate to protect consumers from deceptive practices.
The FTC is proposing the new rule because it has received complaints from consumers about the difficulty of canceling recurring subscriptions. In some cases, consumers have been unable to cancel their subscriptions even after they have called or emailed the company. In other cases, consumers have been charged for another term even after canceling their subscription. The full text of the proposed rule can be reviewed at the Federal Register website.
The proposed rule would address these complaints by making it easier for consumers to cancel their subscriptions. Here are some of the key provisions:
- Businesses would be required to allow consumers to cancel their subscriptions online, by email or by phone.
- Businesses would be required to provide clear and conspicuous cancellation instructions.
- Businesses would be required to give consumers a reasonable opportunity to cancel before they are charged for another term.
- Businesses would be prohibited from misrepresenting the terms of their negative option programs.
- Businesses would be required to provide consumers with a copy of their cancellation confirmation.
In addition to other potential penalties, noncompliance with any of these requirements would be considered an unfair or deceptive practice in violation of Sections 5 and 19 of the FTC Act, subject to civil penalties. Currently that could mean up to more than $50,000 per day for ongoing violations.
The amendments are currently open for public comment, and the FTC will consider all comments before finalizing the amendments. The FTC is accepting public comment until June 23. Once the comment period has closed, the FTC will review the comments and make a final decision on whether to adopt the amendments. If you would like to comment on the proposed amendments, you may do so online at the official site.
If the FTC adopts the proposed amendments, it will be a major victory for consumers since the amendments would make it much easier for consumers to cancel their unwanted subscriptions and would also help to protect them from deceptive practices. However, it will also cause major headaches for website operators offering goods and services on a subscription basis, because it will likely require substantial changes to a website’s sign-up process, cancellation process and legal disclaimers.
The FTC already has substantial powers to investigate and prosecute website operators for unfair and deceptive trade practices, including abuse of negative options. Historically, the FTC has had no problem utilizing those powers — and adult entertainment websites have been included on the FTC’s long list of targets.
There are already dissenters to the proposed rule, including former FTC Commissioner Christine Wilson, who believes that it goes “far beyond practices for which the rulemaking record supports a prevalence of unfair or deceptive practices.”
It is essential for website operators who agree with Ms. Wilson or have their own concerns about the proposed rule to submit comments. Once the public comment period closes and the FTC decides whether to implement the amendments, it will be too late for website operators to make their voices heard.
This would be a good time for businesses offering online products or services on a subscription basis to have their sign-up and cancellation processes reviewed by an attorney experienced with the FTC, including enforcement of the Negative Option Rule.
This article does not constitute legal advice and is provided for your information only and should not be relied upon in lieu of consultation with legal advisors in your own jurisdiction. It may not be current as the laws in this area change frequently. Transmission of the information contained in this article is not intended to create, and the receipt does not constitute, an attorney-client relationship between sender and receiver.
Corey D. Silverstein is the managing and founding member of Silverstein Legal. His practice focuses on representing all areas of the adult industry and his clientele includes hosting companies, affiliate programs, content producers, processors, designers, developers, operators and more. He is licensed in numerous jurisdictions including Michigan, Arizona, the District of Columbia, Georgia and New York. Contact him at MyAdultAttorney.com, corey@myadultattorney.com and 248-290-0655.