Summary

Negative option marketing is a business practice where sellers interpret a customer’s silence or inaction as acceptance of an offer. The Commission promulgated the Negative Option Rule in 1973 after finding sellers used “prenotification plans” to engage in deceptive sales practices. Sellers would send products by mail to consumers, without providing information on how to return or cancel the item, and then bill the consumer. The Negative Option Rule requires sellers using prenotification plans to clearly disclose their terms before billing consumers for a service. Required disclosures include the consumers’ right to cancel; how consumers should notify the seller if they do not wish to purchase the selection; any minimum purchase obligations; whether billing charges include shipping and handling; the length of time to cancel; the seller’s obligations if they fail to provide a sufficient cancellation window; and the frequency with which announcements and forms will be sent.

However, despite their prevalence, the rule does not cover other types of negative option marketing, including continuity plans (where businesses send consumers periodic shipments of goods), automatic renewals (where businesses automatically renew subscriptions), and free trial conversions (where businesses charge a fee for goods or services unless consumers affirmatively cancel or return the product). Most notably, the rule does not cover most online subscriptions. This means unscrupulous businesses can and do use shady business practices to make canceling subscriptions online difficult for consumers. In addition, since online subscriptions do not usually result in the delivery of any physical goods, some consumers may be unaware of recurring subscriptions.

The Commission proposes updating the rule to reflect new types of subscription services and simplifying the cancellation process by creating a “click to cancel” option. The Center for Data Innovation supports the Commission’s goals and offers the following comments:

1. The Commission should expand the negative option rule to include automatic renewals, continuity plans, and free trials in addition to prenotification plans.
2. The Commission should create a working group featuring industry experts and consumer protection advocates to define a “simple cancellation mechanism” before enacting the rule. The Commission should publish best practices and guides to help businesses adhere to the rule.
3. The Commission should alter the definition of “save” in the proposed rule to refer directly to additional offers or benefits that may be added to or altered in a plan to persuade a consumer from canceling. The Commission should also include an exception for information about permanent, relevant, or irreparable harms resulting from the cancellation.
4. The Commission should remove the phrase “any material fact related to the underlying good or service” and change the language to “any material fact related to the underlying negative option feature.” This will limit the liability for misrepresentations to just misrepresentations about the negative option marketing practice and negative option feature, as outlined in Commissioner Wilson’s dissent.

Read the full comments.