‘Silence Isn’t Subscribing,’ According to New FTC Rules… and Common Sense

Silence doesn’t mean approval… Well, except at weddings.

“If anyone here knows any reason why these two should not be joined in matrimony, speak now or forever hold your peace.”

I’ve been to many weddings, and I’ve never heard anyone speak up at this part. I find this somewhat surprising since we could all probably come up with at least one reason certain couples shouldn’t get hitched. Heck, I can rattle off six reasons from just the last wedding I went to:

1. She was checking his phone before walking down the aisle
2. He doesn’t have a job
3. She calls him “muffin cakes”
4. He hasn’t had a job
5. She likes horses
6. He isn’t looking for a job

Yet – like everyone else – I remain silent.

Luckily for brides and grooms everywhere, silence counts as acceptance. Subscriptions, not so much (luckily for everyone).

The Federal Trade Commission (FTC) has recently updated its rules for negative option offers, and I know what you’re thinking:

If you need a TLDR: The FTC is telling website owners that they can’t capitalize on users’ silence to subscribe them to things.

What are negative option offers?

Negative option offers are offers that allow sellers to assume that if a customer is silent or inactive, they are accepting the offer. There are four main categories of negative option offers:

1. Prenotification plans – consumers take no action but sellers send the goods and charge them. 

Example: Getting sent monthly tacos from a taco club you never knowingly joined (worse things have happened).

2. Continuity plans – consumers automatically receive periodic shipments of goods or services unless they actively take steps to cancel. 

Example: Joining a taco subscription service that assumes you want monthly taco deliveries unless you actively cancel (who would?).

3. Automatically renewing subscriptions – subscriptions that will automatically renew even if the consumer hasn’t agreed to it. 

Example: A Taco TV streaming service renews monthly/yearly by default unless the consumer actively cancels on their account.

4. Free trial conversion offers – A free trial automatically turns into a paid subscription. 

Example: Signing up for a free trial of Tacopocalypse (that really exists, btw). When the trial ends, you are automatically billed without being asked if you’d like to continue.

In this blog, we will take a look at what updates the FTC has when it comes to these negative option offers and break each one down individually.

FTC’s negative options updates

The updates from the FTC are as follows:

1. Prohibit the misrepresentation of any material fact made while marketing negative option features;
2. Require sellers to provide important information prior to obtaining the consumers’ billing information and charging consumers;
3. Require sellers to obtain consumers’ unambiguously affirmative consent to the negative option feature prior to charging them;
4. Require sellers to provide consumers with simple cancellation mechanisms to immediately halt all recurring charges.

Note: Failure to adhere to the above will be deemed as unfair and deceptive under Section 5 of the FTC Act.

Note regarding the above note: If that sounded way too official for a blog that was just talking about tacopocalypse, that’s because my privacy-attorney boss told me to add it in.

Update 1: Prohibit the misrepresentation of any material fact made while marketing negative option features

This new rule from the FTC is designed to cover all negative option offers across all marketing avenues, such as:

• Internet
• Telephone
• In-person
• Printed material

What do they mean by “material fact misrepresentations?”

According to the FTC, a material fact misrepresentation is any misrepresentation related to:

• Costs
• Free trial claims
• Processing fees
• Shipping fees
• Billing information use
• Deadlines
• Refunds
• Cancellation
• Consumer authorization
• Product efficacy

Example 1: Saying a consumer will receive a product for free, and then charging them anyway.

Example 2: Saying you will only use billing information to process payments, but then you use it for marketing purposes too (e.g. sending a monthly email newsletter).

Update 2: Require sellers to obtain consumers’ unambiguously affirmative consent to the negative option feature prior to charging them

If a tree falls in the woods, but the noise is hidden behind five different hyperlinks that are a slightly different shade of green, does it make a sound? 

According to the FTC, it does. That noise is the sound of big, fat fines knocking on your door. 

According to the FTC, the information directly related to the negative option feature must appear immediately adjacent to the means of recording the consumers’ consent. This means that disclosures should be practically unavoidable for the consumer by not hiding them behind certain design elements or requiring consumers to click any additional links to see them.

So, while a Terms of Service will likely need to contain this information as well, the disclosures should be elsewhere too. The FTC requires the following factors to be met to demonstrate consent:

1) The above disclosures are clearly presented; and

2) Consumers are provided with a separate box (unselected by default) that they must check to give their consent. 

Note: The customer can still be required to accept the Terms of Service – it would just be done in a separate box.

Update 3: Require sellers to provide important information prior to obtaining the consumers’ billing information and charging consumers

It is the seller’s responsibility to make sure consumers have all the necessary information they need regarding how:

• Billing information will be used
• Charges will look 
• Refunds and cancellations will be handled

If only there were website policies that could convey this information clearly and concisely…

Privacy Policy requirements:

Your website’s Privacy Policy must accurately represent how the business uses billing information.

Common mistake: A Privacy Policy says that billing information isn’t shared, but it is shared with a third-party payment processor (e.g.., Stripe).

The example above would be considered a material fact misrepresentation by the FTC. Remember, kids… a static Privacy Policy is not a good idea! Be sure to update yours regularly. 

Checkout & Terms & Conditions requirements:

According to the FTCs latest rules, sellers must provide the following information to consumers on both the checkout page (where it’s easy to spot) and within the Terms & Conditions prior to obtaining their billing information and prior to charging them:

1. That the customers’ payments will be recurring, if applicable;
2. Each deadline (by date or frequency) by which consumers must act to stop all charges;
3. The amount or ranges of costs (or reasonable approximation) consumers may incur; and
4. Information on where to find the mechanism consumers may use to cancel their recurring payments.

Common mistake: A clear sign that a website used a lousy Privacy Policy Generator, template, or copied and pasted their policies is if their Terms & Conditions say they offer refunds when, in reality, they do not.

Update 4: Require sellers to provide consumers with simple cancellation mechanisms to immediately halt all recurring charges.

There’s nothing worse than not being able to cancel a subscription, no matter how many times you beg them to stop it.

For example, this company keeps sending me beef jerky each month despite my dozens of attempts to cancel after my wife and I totally, 100% agreed it was a waste of money. I’m just so gosh-darn perturbed by it.

ANYWAYS

According to the FTC, negative option sellers are required to provide a cancellation mechanism that:

1. Immediately halts recurring charges; 
2. Is as simple to use as the mechanism the consumer used to consent to the negative option feature; 
3. Is readily accessible through the same medium the consumer used to provide consent for purchasing the negative option feature (e.g. Internet, phone, in person).

Online cancellation must be easy to find. This means a user shouldn’t have to hunt through multiple links to find the option for cancellation.

You also probably shouldn’t put the cancellation option under a bunch of delicious-looking beef jerky photos. Just sayin’.

Effective dates and penalties

Most of the provisions of the FTC’s new Rule will go into effect 180 days after publication in the Federal Register. Businesses must comply with the prohibition on misrepresentations within 60 days of publication in the Federal Register.

Failure to do so will result in a hefty fine. According to the FTC, businesses that fail to follow these rules can be fined up to $51,744 per violation. For any TAB members reading this, I did the math for you. That’s approximately 19,236 Taco Supremes from Taco Bell. 

You’re welcome.

As a thank you, feel free to check out Termageddon’s Privacy Policy Generator and/or Terms of Service Generator if you need any help with all this FTC stuff. Our policies take into account these FTC rule updates.

Cheers!