On November 15, 2024, the Federal Trade Commission’s (FTC) final “Rule Concerning Recurring Subscriptions and Other Negative Option Programs” was published in the Federal Register. The Rule was formerly and is still commonly known as the “Negative Option Rule” and is sometimes called the “Click-to-Cancel Rule.” The Negative Option Rule goes into effect on January 14, 2025, and businesses have until May 14, 2025, to comply. This Rule protects consumers from deceptive practices in subscription services and other recurring billing arrangements. It is particularly relevant for businesses that offer auto-renewals, continuity plans, and free-to-pay conversions. The FTC will enforce the Negative Option Rule through civil penalties, which can be substantial and detrimental to your business.
Who Should Pay Attention?
Businesses across various industries, especially those relying on subscription models, must know this rule. This includes streaming services, digital publications, and any company offering memberships or recurring services. Click-to-Cancel is a misnomer because the Negative Option Rule applies to sellers who offer negative option programs to consumers and other businesses through any method, including in-person, telephone, email, text, and chat transactions. Ensuring compliance with the FTC’s Negative Option Rule is essential to maintain consumer confidence and avoid penalties.
How the FTC Rule Operates with State Laws
The FTC’s Negative Option Rule sets a national standard but does not override existing federal laws (e.g., Section 5 of the FTC Act, the Restore Online Shoppers’ Confidence Act (ROSCA), and the Telemarketing Sales Rule (TSR)) and state laws that offer greater consumer protection. For instance, California also recently amended its Auto-Renewal Law (ALR), taking effect on July 1, 2025, which now requires additional disclosures for price changes and additional reminder notifications. Businesses must comply with the FTC Rule and any stricter state regulations, ensuring they meet the highest standard of consumer protection.
Key Requirements of the FTC Negative Option Rule
The FTC Negative Option Rule mandates that sellers must:
- Disclose all material terms (key details that could influence a consumer’s decision) to the consumer before obtaining billing information, including specific information prescribed by the Final Rule. The disclosure must be “difficult to miss,” easy for an ordinary consumer to understand, and appear before and adjacent to the means of recording the consumer’s consent.
- Obtain the consumer’s unambiguous, affirmative consent to the Negative Option Feature offer and keep records of the consent for at least 3 years.
- Provide a simple mechanism for consumers to cancel the Negative Option Feature and immediately stop recurring charges. Cancellation must be through the same medium the consumer used to consent to the negative option program. This is where the term Click-to-Cancel originates—if the consent was obtained via the Internet or a mobile application, the consumer should be able to click-to-cancel as easily as they clicked to sign up for the negative option plan. Additionally, the cancellation must be promptly effectuated, and in-person cancellations should include other means of cancellation, if practical.
Legal Challenges
After the FTC issued the Final Rule, several industry groups challenged it in federal courts, arguing that it is arbitrary, capricious, and an abuse of discretion. Litigation is in the early stages. For now, businesses must prepare to comply.
Conclusion
The FTC’s Negative Option a/k/a Click-to-Cancel Rule is designed to enhance consumer protection in the digital age. To provide transparent and fair customer practices, businesses must stay informed and compliant with federal and state regulations.
