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Home | BakerHostetler

BakerHostetler Achieves Mansfield Certification for 2023-2024

ADventures in Law

What the FTC’s New ‘Click-to-Cancel Rule’ Means for Your Business

Carlos Ramos-Mrosovsky Delivers Keynote Comments at NYSBA/Daini Tokyo Bar Association Joint Seminar

Daniel Kaufman Provides Perspective on FTC’s New Click-to-Cancel Rule

The Federal Trade Commission (FTC) finally released its <a href="https://www.ftc.gov/news-events/news/press-releases/2024/10/federal-trade-commission-announces-final-click-cancel-rule-making-it-easier-consumers-end-recurring" target="_blank" rel="noopener">long-awaited Negative Option Rule</a> (the Final Rule), aka the “Click-to-Cancel Rule,” on October 16. The Final Rule was approved by a partisan vote of 3-2, with the two Republican commissioners voting no and Commissioner Melissa Holyoak writing a <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/holyoak-dissenting-statement-re-negative-option-rule.pdf" target="_blank" rel="noopener">strong dissenting statement</a>. While the Final Rule is very close to the 2023 proposed rule, the FTC does appear to have listened to some of the industry comments and eliminated or modified, at least for now, some of the more objectionable provisions, such as the prohibition on save-a-sale efforts and the requirement that there be a consent to the transaction, separate from the consent to the negative option feature. Nonetheless, there is no question that the Final Rule, if it survives anticipated legal challenge, will have a significant impact on businesses offering products or services on a negative option basis by imposing significant disclosure, consent, cancellation and recordkeeping requirements and authorizing the FTC to seek civil penalties and other forms of monetary relief for violations of the Final Rule.

For those FTC geeks like us who have been following the evolution of this rule since it was first introduced in 2019, the road to the Final Rule has been long and winding. The FTC first began this rulemaking proceeding as part of its normal process of periodically reviewing existing rules to determine whether the long-standing Pre-Notification Negative Option Rule should be modified. That rule applied to a very specific type of negative option offer, such as a Book of the Month Club or Record of the Month Club, in which sellers would provide periodic notices offering a good or service to participating consumers and then send or charge them for the item only if the consumer took no action. The FTC pivoted in 2023, however, and under the guise of modernizing this rule, dramatically expanded the rulemaking to include all forms of negative option offers, including automatic renewals, continuous service, continuity offers and free trials.

The Final Rule is thus extremely broad and applies to nearly all forms of negative options offered through all sales channels, including print, telephone, online and in person. Lest there be any doubt, the FTC has also made clear that the Final Rule is not limited to consumers but applies to business-to-business transactions as well.

While the Final Rule has been nicknamed the “Click-to-Cancel Rule” and touted as making it easier for consumers to cancel their subscriptions, its provisions extend well beyond the cancellation requirements. Here are the highlights:
<ol>
 	<li>Prohibited Misrepresentations: The Final Rule broadly prohibits misrepresentations of “any” material fact, not just those pertaining to the negative option feature. This is significant because it allows the FTC to circumvent the Supreme Court’s decision in AMG Capital that restricted the FTC’s ability to obtain monetary relief for false and misleading advertising claims by going directly to federal court. Under the Final Rule, even if the advertising complies with all of the Final Rule’s requirements relating directly to the negative option feature, the advertising can be deemed to violate the Final Rule if it misrepresents any material fact (defined as any fact likely to affect a person’s choice or conduct regarding a product or service). Material facts include but are not limited to the existence of the negative option feature or its terms, the cost of the goods or services, the purpose or efficacy of the underlying goods or services, and any health or safety representations.</li>
 	<li>Required Disclosures: The Final Rule requires disclosure of all material terms, regardless of whether those terms relate directly to the negative option feature. The Final Rule specifies that, at a minimum, the following terms must be disclosed:
<ul>
 	<li>The fact that consumers will be charged, or that the charges will increase after any trial period, and that consumers will be charged on a recurring basis</li>
 	<li>The deadline, by date or frequency, by which the consumer must cancel to avoid future charges</li>
 	<li>The amount or range of costs and frequency of the charges</li>
 	<li>The information necessary for the consumer to find the cancellation mechanism</li>
</ul>
</li>
</ol>
The Final Rule requires that these disclosures be clear and conspicuous, be placed immediately adjacent to where the consent is recorded, and be provided before the consumer provides their billing information. In cases where the seller already has the consumer’s billing information, the disclosures must be made before consent is obtained.
It is important to note that the Final Rule adopts the more stringent definition of “clear and conspicuous” that the FTC has been including in many of its recent orders. Specifically, the Final Rule requires that the disclosures must stand out, be difficult to miss and be provided by the same means as the triggering claims. The Final Rule also requires that the disclosures be “unavoidable,” meaning they cannot be placed behind a hyperlink, hover, modal or similar mechanism. However, the FTC has provided some relief by advising that if the consumer cannot proceed without clicking on the link or modal or scrolling down to the bottom of the ad, that may satisfy the “unavoidable” requirement.

<ol start="3">
 	<li>Express Affirmative Consent: The Final Rule requires that the seller must obtain the consumer’s “unambiguous affirmative consent” to the negative option feature before the consumer is charged. In this area, the FTC appears to have made several concessions in response to significant industry concerns with the consent requirements in the proposed rule. First, the FTC has eliminated the requirement that the seller obtain consent to the transaction separate from consent to the negative option feature. The Final Rule also eliminates the prohibition on including any information in the disclosure section adjacent to the consent mechanism other than the information specified in the Final Rule. The Final Rule allows other information to be included with the mandatory disclosures as long as they do not interfere with or undermine the consumer’s ability to consent. The final Rule does, however, require that consent to the negative option feature be separate from the rest of the transaction. Presumably, however, this can be accomplished with the stand alone notice of material terms immediately adjacent to the consent mechanism.</li>
</ol>
In terms of the method for obtaining consent, the Final Rule establishes a safe harbor if consent is obtained via a check box, signature or other substantially similar method, as long as the consumer must select or act upon the method and the consent relates only to the negative option feature.
Businesses should take note that the Final Rule requires that records of the consumer’s consent must be retained for three years unless the business can establish that the consumer could not technologically proceed with the transaction without providing consent.

<ol start="4">
 	<li>Simple Cancellation Requirements: Given that the Final Rule has been touted as making it easier for the consumer to cancel subscriptions, it is not a surprise that the Final Rule contains specific requirements related to cancellation. Here again, however, the FTC appears to have made several concessions to industry. First, the proposed rule required that the cancellation method be “as simple as the method used to initiate the transaction or make the purchase.” Many commenters complained that this provision was too vague, as it is difficult to pinpoint when a transaction was initiated. In response to these concerns, the FTC has modified this provision to say that the method of cancellation must be “as easy as the method used to provide consent to the negative option feature.” The Final Rule goes on, however, to specify certain methods that must be offered in different channels:
<ul>
 	<li>For online transactions, the cancellation method must be easy to find and the method cannot require the consumer to interact with a real or virtual sales representative if such interaction was not required in order to provide consent.</li>
 	<li>For telephone transactions, the seller must provide a telephone number that is answered during normal business hours and is no more expensive than the phone number used to sign up.</li>
 	<li>For in-person transactions, the seller must provide, where practical, an in-person method of cancellation similar to the method used to sign up, but must also provide an electronic or phone method to cancel.</li>
</ul>
</li>
</ol>
One of the most controversial provisions of the proposed rule was the prohibition on making save-a-sale offers to consumers looking to cancel without their prior consent. For now, the FTC has eliminated that provision from the Final Rule, although it has indicated that there could be a supplemental rule on this issue after more information is obtained. Marketers should not, however, interpret the removal of the save provision as allowing sellers free reign to present an unlimited number of save-a-sale or other upsell or cross-sell offers. The Final Rule still prohibits sellers from taking any action that would unduly delay or interfere with a consumer’s efforts to cancel. And in the <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/p064202_negative_option_rule.pdf" target="_blank" rel="noopener">Federal Register Notice</a>, the FTC explains that it eliminated this provision for now because it recognized that there could be situations in which providing additional information or offers could be of benefit to consumers. To the extent advertisers elect to present such offers, they should continue to do so judiciously. Even absent a specific prohibition in the Final Rule, the FTC is likely to view the presentation of multiple offers as a “dark pattern” designed to interfere with or thwart the consumer’s efforts to cancel.

The Final Rule is currently slated to take effect 180 days after publication in the Federal Register for the disclosure, consent and cancellation requirements and 60 days following publication for the provisions prohibiting misrepresentations.

It is quite likely that the Final Rule will face some legal challenges, particularly in light of Holyoak’s dissent, which provides a road map for a challenge. The provision addressing any misrepresentation is particularly vulnerable to challenge. Companies should nonetheless review their current practices and at least be prepared to make any changes necessitated by the Final Rule if and when it does become effective. Unfortunately, the Final Rule does not preempt state laws, so compliance with the Final Rule will need to be combined with measures required to comply with the growing number of state laws.

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