Today we’re reporting on two “events of interest” that occurred earlier this month in the auto renewal space. These are not legislative developments or enforcement actions, but are nonetheless relevant to subscription marketers, specifically on the issue of what constitutes informed consent for a negative option offer.

Brief Summary

The FTC and New York Attorney General may be looking for subscription marketers to obtain a separate opt-in for the ongoing billing aspect of a subscription offer — think a check box for the negative option feature that must be checked that is separate from and in addition to the Submit button used to enroll in a program or accepting a free trial. While not currently required by federal law (only DC and VT have this requirement for certain offers), given the issuance of a new FTC Enforcement Policy Statement on negative option offers suggesting the separate opt-in and the aggressiveness of the new FTC leadership, it is likely we will see enforcement of negative option offers increase in the near future and possible application of this “suggested” double opt-in requirement. 

The Story

At last week’s ANA Annual Law Conference in San Diego, one particular session stood out – the “Regulators Talk” featuring Robin “Bobbi” Spector, Attorney Advisor to FTC Commissioner Christine Wilson, and Laura Brett, Vice President, NAD. The panel covered various consumer protection topics, but relevant for this update was a discussion around the FTC’s recent issuance and publication in the Federal Register of a Policy Statement on Negative Option offers.  

As you may recall, we reported on the Policy Statement when it was first issued on October 28, noting that it focused on three main areas of concern to the FTC: (i) providing clear and conspicuous notice of the offer terms, (ii) obtaining a consumer’s express informed consent to the offer prior to being charged, and (iii) providing an easy way to cancel.

While (i) and (iii) are relatively straightforward and (iii) less so, of greater concern was the Policy Statement’s treatment of (ii): “To attain express informed consent, the negative option seller should: obtain the consumer’s acceptance of the negative option feature offer separately from any other portion of the entire transaction. . .and obtain the consumer’s unambiguous affirmative consent to the entire transaction” (all underline added). This passage appeared to signal a distinction by the FTC between the auto-renewal aspect of an offer and the overall transaction. 

Our initial summary of the Policy Statement was consistent with this distinction for offers that allowed consumers the option to purchase one item alone or subscribe to continuity delivery, “This requirement would appear to apply where a consumer can purchase a single product or have the option to receive future deliveries of the product on a continuity basis,” thus necessitating the need for a separate action by the consumer to accept the auto-ship/negative feature instead of purchasing just a single item.  

But while seemingly illogical, there were concerns by some that the FTC would expect all auto renewal offers to include a separate opt-in for the negative option feature. Which brings us back to the ANA Regulators Talk. The moderator asked Bobbi Spector whether it was the FTC’s position that all automatic renewal offers require a separate acceptance of the negative option aspect. She did not answer directly, which is not surprising, as she is not authorized to speak on behalf of the Commission or its staff. Instead, she emphasized the importance of the three general concerns referenced above and indicated the Commission will review the facts of each case on their own. When asked whether a free trial subscription offer that automatically converts to a paid program would require a separate acceptance mechanism if the auto renewal was the offer and the terms were clearly and expressly disclosed, Bobbi again demurred, saying the Commission would suggest erring on the side of more disclosure. Credit to the moderator for pushing, but there was no definitive answer on this issue from Bobbi or the FTC.

With little guidance from the FTC on this issue, let’s turn back to the text of the Policy Statement itself. We note the Commission often uses “should” instead of “must” when referring to certain requirements for negative option offers, which is not surprising when such requirements are not required by law, but rather, how the FTC would prefer these offers to look. The “separate” acceptance of the negative option feature is a perfect example, as it is not required by any of the three arrows in the FTC’s regulatory quiver in this area, such as the Rule Concerning the Use of Prenotification Negative Option Plans (15 C.F.R. 425)  (currently subject to a rule making procedure which began in October 2019), the Restore Online Shoppers Confidence Act (ROSCA), and the Telemarketing Sales Rule (15 C.F.R. 310) (TSR).  Instead, this “separate act” requirement appears only in various FTC and state AG settlements where a seller had been accused of engaging in prior bad acts, and in two state laws: Vermont, for auto renewing contacts with an initial term of one year or longer, and the District of Columbia, where a free trial of a month or more will automatically convert to a paid program.

Unless and until the FTC amends the Prenotification Negative Option Rule (under review as noted above) or Congress passes a new law codifying this requirement (see generally, the Unsubscribe Act of 2021), there is currently no legal requirement to obtain this separate consent, especially for offers that are, by their nature, a negative option offer.

In a somewhat related event last week, New York Attorney General Letitia James issued a “Consumer Alert,” warning consumers not to fall for marketing schemes that result in unwanted recurring charges. The Alert referenced the FTC’s Policy Statement and a new New York law governing these offers (GBL § 527-a) that became effective earlier this year (notably, the NY law also does not require a separate action for negative option features). This Alert borrowed liberally from the FTC Policy Statement by using “should” instead of “must” on the issue of the separate acceptance for a negative option feature (as well as other language disfavoring practices distracting from the consent process), “The consumer’s acceptance of the negative option offer should be obtained separately from any other portion of the entire transaction and should not include any information that interferes with, detracts from, contradicts, or otherwise undermines the consent process.” (underline added)

Having now thrown down a (soft) gauntlet on the issue of whether it expects companies to obtain a separate agreement for a negative option feature, we are left waiting to see whether and to what extent the FTC (and NY AG) will “walk the walk” on this issue. Given the current aggressive posture of the Commission under the leadership of new Chair Lina Khan, and a 3-1 vote in favor of issuing the Policy Statement (with Commissioner Wilson dissenting and Commissioner Phillips concurring with reservations), we will no doubt see more cases brought against negative option marketers, though in all likelihood, at least initially, they will involve blatant violations of ROSCA and the TSR, such as last year’s Age of Learning case, which resulted in a $10 million fine and imposing a separate opt-in for recurring billing, “For all written offers (including over the Internet, such as through a web-based application), obtain consent through a check box, signature, or other substantially similar method, which the consumer must affirmatively select or sign to accept the Negative Option Feature, and no other portion of the offer.” (underline added).