Dive Brief:

• The Federal Trade Commission made headlines March 23 with a proposed rule to curb subscription renewal abuses by making it easier for customers to opt out of automatically renewing subscriptions.
• The biggest change would require companies to make opt-outs as easy as the initial opt-in, and in the same way as the opt-in. If the opt-in was done in one click online, for example, the opt-out must be provided the same way.
• “To take a simple example, this would put an end to companies requiring you to call customer service to cancel an account that you opened on their website,” FTC Chair Lina Khan said in a statement that was joined by commissioners Rebecca Kelly Slaughter and Alvaro Bedoya. Outgoing Commissioner Christine Wilson dissented.

Dive Insight:

The FTC already goes after subscription-renewal abuses but its authority is distributed over a number of laws, each with its own focus on types of transactions. 

The agency’s targeted authority for regulating renewals is its Negative Option Rule, which targets prenotification abuses. In these cases, customers agree to be given access to periodic products and services and are automatically charged unless they opt out. The practice is considered unfair if the opt-out option isn’t clear or is made structurally hard to do.  

The FTC also has authority under Section 5 of the Federal Trade Commission Act, which gives it the ability to go after a range of actions that it considers an unfair trade practice, which would include abusive opt-outs. 

Other FTC authorities are narrowly targeted. The Restore Online Shoppers’ Confidence Act (ROSCA), for example, covers online purchases of products, and the Telemarketing Sales Rule (TSR) applies to offers made over the phone. The Electronic Fund Transfer Act (EFTA) prohibits companies from tapping someone’s bank account or debit card on a recurring basis without written consent.  

In its proposed rule, the FTC would build on the existing negative option rule by adding requirements like the one to make it as easy to opt out as it is to opt in. Other new requirements include a separate consumer consent for companies that want to use the negative option feature and a prohibition on trying to get consumers to change their minds about opting out unless companies first get their agreement to hear the pitch.  

The rule would also add other types of renewals to its negative option rule. These include continuity plans, in which consumers agree to regular deliveries of a product or service until they opt out, and automatic renewals. These are services like magazine subscriptions that automatically renew at expiration unless there’s an opt out. And then there are free trial programs that convert to paid programs unless there’s an opt-out.    

In addition to adding these other renewal types to the negative option rule, the proposal would add the negative option provisions to its other authorities, like ROSCA, TSR and EFTA.

Other types of misrepresentation

In a controversial move, the rule would also impose civil penalties and permit redress for misrepresentations made about the product or service itself, separate from the negative option feature.

In her dissenting statement, Wilson called this an over-broad reach of the agency’s authority.  

“This Commission, in many areas, has demonstrated a zeal and willingness to push beyond the boundaries of our authority,” she said.  

By applying the rules to broader types of misrepresentation than opt-outs, the agency appears to be trying to get around its Supreme Court loss in AMG vs. FTC, which ruled the agency’s authority to get an injunction against a company for misrepresentation under Section 5 of the FTC Act doesn’t also mean it can seek monetary relief as well. If it wants monetary relief, it has an administrative procedure it can use for that. 

“I might have supported a tailored rule to address the negative option marketing abuses prevalent in our law enforcement experience that consolidated various legal requirements,” Wilson said. “This proposal instead attempts an end-run around the Supreme Court’s decision in AMG to confer de novo redress and civil penalty authority on the Commission for Section 5 violations unrelated to deceptive or unfair negative option practices.” 

The agency is seeking comments on the proposed rule over the next two months.