Certain Marketing Tactics Target of New FTC Policy
The Federal Trade Commission (FTC) recently released a new enforcement policy statement about the practice known as “Negative Option Marketing.” Negative Option Marketing is a method in which businesses utilize consumers’ lack of response as consent for subscription services, free-trial marketing, and other sign-up tactics.
Examples of Negative Option Marketing include:
- Automatic renewals - A consumer pays for an annual subscription to a magazine and if he or she doesn’t cancel before the end of the annual renewal date, the subscription is automatically renewed.
- Free-to-pay or nominal-fee-to-pay offers – A consumer receives goods or services for free or a small fee for a trial period. After the trial ends, the business automatically begins charging fees until the consumer cancels the service or returns the goods.
The FTC’s enforcement policy statement warns companies against using policies that trick or trap consumers. Under the enforcement policy, businesses must follow three requirements or be subject to law enforcement action, including civil penalties. The policies include the following:
Disclose clearly and conspicuously all material terms of the product or service, including:
- How much it costs;
- Deadlines by which the consumer must act to stop further charges;
- The amount and frequency of such charges; and
- How to cancel.
Obtain the consumer’s express informed consent before charging them for a product or service. This includes:
- Obtaining the consumer’s acceptance of the negative option feature separately from other portions of the entire transaction, and
- Not including information that interferes with, detracts from, contradicts, or otherwise undermines the consumer’s ability to provide express informed consent.
Provide easy and simple cancellation to the consumer. Marketers should provide cancellation mechanisms that are at least as easy to use as the method the consumer used to buy the product or service in the first place.
In the past, the FTC has brought cases challenging a variety of illegal subscription practices. The FTC has sued companies that hide payment information or other information behind digital hyperlinks, hover-overs, or in inconspicuous places or buried on pages beyond the initial offer page.
Furthermore, the FTC has sued companies that made consumers wait on hold or listen to lengthy ads before they could cancel their subscriptions. And, recently, the FTC sued a company that failed to disclose that widely advertised benefits of a subscription were no longer available.
Help is available
The attorneys at O’Reilly Rancilio are available to assist business owners with questions regarding the FTC regulations. For more information, please call 586-726-1000 or visit our website.