Opt-out consent won’t be tolerated in negative option marketing, according to the FTC.
Earlier this month, the Federal Trade Commission released guidance on negative option marketing considering existing laws, declaring opt-out consent unfair and deceptive.
Automatic renewals, continuity plans, prenotification plans, and free trial marketing are all types of negative option marketing. These techniques have functioned just like opt-out consent regarding continuing or entering an agreement, where a consumer’s inaction to reject or decline a good, service, or agreement is considered acceptance.
In essence, the FTC stated that negative option sellers seeking anything other than explicit consent is unlawful. In doing so, they have aligned with government agencies ruling opt-out consent unacceptable.
Opting out of opt-out
Negative option marketing isn’t the only area where opt-out consent is being replaced with opt-in only.
Personal information use
The EU’s General Data Protection Regulation (GDPR) requires that businesses obtain explicit, or opt-in, consent from data subjects before collecting personal data. Wherever consent is the legal basis for processing, it must be valid, freely given, explicit, and made with a clear affirmative action. Consent based upon lack of action couldn’t meet these requirements.
The California Consumer Privacy Act (CCPA), which shares many similarities with GDPR, specifically requires explicit consent from minors before their collected personal information can be sold.
Marketing
In the EU, consumers’ prior consent is required before they can be sent direct marketing materials. The ePrivacy directive establishes the justification for EU Member States to require prior explicit consent from recipients of unsolicited communications for direct marketing, and several Member States do. For telemarketing calls, one country with an opt-in requirement is Germany, where calling a private person without their explicit consent is illegal.
Service providers should be careful, especially in marketing, to obtain opt-in consent where required by law, lest they be targeted by the FTC for breaking the law through deceptive practices.
Negative option marketing
You’ve been subject to a negative option arrangement if you ever forgot to cancel your free trial of a service and it turned into a full paying subscription. This is free trial marketing. Some service providers, like Amazon, send you reminders about the end of the free trial and still let you cancel afterwards without paying for the full month. Others aren’t so forgiving.
Take my gym membership for example. After being on hold for four months, I saw a transaction for the monthly payment in my bank account in July of 2020. At that point I checked my email and found a notice about my membership being reinstated. I remember thinking at the time that it was weird for the gym to assume that I’d be ready to go back in the middle of a global pandemic. If there was a way to cancel at that time, I couldn’t find it, so I was stuck paying for July and cancelling for August.
Consent
The FTC’s statement referenced the Restore Online Shoppers’ Confidence Act (ROSCA), which states that express, affirmative, informed consent is required from the consumer before they can be charged by the negative option seller. Service providers who had previously been using opt-out consent may need to change how they obtain consent, as this guidance mandates express or opt-in consent. Counting on consumers to forget to opt out in time may no longer suffice.
Besides consent, the FTC also brought up issues in negative option marketing with disclosure to the consumer and the difficulty of cancelling a subscription.
Disclosures
ROSCA also establishes the minimum material terms required to be disclosed to consumers before consent, as restated by the FTC. The disclosure should at least detail that the charge will begin or increase at the end of the trial period without action taken, the action deadline, the cost and frequency of the charge, and how to cancel the contract.
The disclosure must also use simple language and be difficult to miss. This requirement is reminiscent of requirements for obtaining consent and privacy notices in general.
Cancelling
It’s often the difficulty of cancelling that prevents a consumer from doing so. I personally can attest that after attempting to cancel my gym membership by email, I was informed that I had to go to the gym in person to do so, which was not great to have to do in July of 2020.
In their statement, the FTC said that cancelling should be as easy as initiating the negative option feature. They also said that the mechanism should be provided by the same medium—meaning, for example, that if you can sign up online, you should be able to cancel online.
Furthermore, there shouldn’t be new offers or attempts to save the negative option arrangement. Interference with the process (i.e. placing consumers on hold for unreasonable amounts of time, hanging up, or giving false information about how to cancel) will also not be tolerated.
Key takeaway
Moving forward, service providers will need to obtain express informed consent, disclose the terms of a negative option offer along with the total cost and how to cancel, and make cancelling reasonable and easy.