FTC Delays Implementation of Negative Option Rule to July 14

On October 16, the Federal Trade Commission announced its final rule on Negative Option contracts. The rule defines a negative option feature as “A provision of a contract under which the consumer’s silence or failure to take affirmative action to reject a good or service or to cancel the agreement is interpreted by the negative option seller as acceptance or continuing the offer.” In other words, contracts with certain auto-renewal and similar features would have specific disclosure and cancellation requirements.

The rule includes, but is not limited to, contracts with provisions that have:

• Automatic renewals;
• Continuity plans: a customer agrees in advance to receive periodic shipments or goods;
• Free to pay conversion or fee to pay conversion: a consumer receives goods or services for free or a nominal fee for a trial period. After the trial period, a fee is charged unless consumers affirmatively cancel; and
• Pre-notification negative option plans: a seller sends goods to the consumer and charges them if the consumer doesn’t decline the offer.

If dealerships are selling contracts with negative option features, ensure the contracts have the following provisions:

• Disclose the terms of the negative option;
• Provide an easy cancellation method; and
• Refrain from making misrepresentations about the negative option

The rule was finalized under the last administration. It is notable that the current Republican majority only voted to delay implementation of the rule, rather than rescind it. Various lawsuits brought by national and state trade associations to invalidate the rule have been consolidated in the 8th Circuit Court of Appeals—the FTC has continued defending the rule in the case. Oral arguments are set for June 10.

Find Out More: 
Click to Cancel: The FTC’s amended Negative Option Rule and what it means for your business