The Federal Trade Commission (FTC)released a statementon May 9 deferring by 60 days its enforcement of certain provisions of the Negative Option Rule (the Rule). The bulk of the Rule's requirements are now scheduled to go into effect on July 14.
This 60-day deferral gives sellers of services with a negative option feature (e.g., subscriptions) more time to navigate compliance with two key changes. First, the Rule requires that cancellation generally be made available through the same method by which the customer signed up and that it be no more difficult to cancel than it was to sign up. The FTC dubbed the Rule "Click to Cancel" because of this requirement. If customers sign up online, then there must also be a simple method of online cancellation. The second key change is that the Rule requires sellers to obtain a customer's express affirmative consent to the negative option feature at sign-up. While Click to Cancel nabbed the headlines, this change may be even more significant. Many states already required online cancellation, but prior to the Rule, no laws required that all subscriptions utilize a separate consent mechanism at enrollment. Many companies will comply by adding a check box next to the automatic renewal terms. The Rule provides a safe harbor for use of a check box but also permits compliance through substantially similar methods.
Notably, one provision of the Rule already went into effect on Jan. 19 – the prohibition on misrepresentations in connection with the sale of services with a negative option feature. The statement, which was released by the FTC commissioners, highlighted that the previous administration provided two separate timelines for compliance with different parts of the Rule. Companies were given more time to meet the requirements of the substantive provisions summarized above than they were the basic prohibition on misrepresentations. The current commissioners kept this approach in place but determined the additional allotted time was not sufficient considering the complexity of compliance. As a result, the compliance deadline for the more substantive changes summarized above was delayed by 60 days.
While this deferral will be welcomed by industry, many companies had hoped for an announcement removing the Rule entirely rather than deferring it. And the FTC did note that it is "open to amending the Rule," but it also stated it "will begin enforcing it" on July 14. Congress or the FTC could still remove or substantially narrow the Rule, but for now, it appears this is only a delay. And of course, in the meantime, the FTC will continue to enforce ROSCA, the Restore Online Shoppers' Confidence Act. We'll keep you updated on further developments.
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