Summer 2023 Automatic Renewal Law Update: FTC Proposes Sweeping Amendments to Negative Option Rule


Over the last few years, perhaps prompted by the proliferation of subscriptions for consumer goods and services during the pandemic, several states have passed new automatic renewal laws (ARLs) that regulate continuing or renewing contracts. Other states have likewise amended existing ARLs to add detailed restrictions and requirements. Our most recent coverage of those efforts can be found in our Fall 2021 and Summer 2022 alerts.

With such activity at the state level, it was only a matter of time before federal regulators joined the fray. The Federal Trade Commission (FTC) recently did so by issuing a statement regarding its nearly 50-year-old Negative Option Rule. As announced by the FTC, the existing federal regulatory regime has “major gaps”: the Negative Option Rule regulates only “prenotification plans” (where sellers send products and charge for them unless consumers decline); the Telemarketing Sales Rule (TSR) regulates only telemarketing; and the Restore Online Shoppers’ Confidence Act (ROSCA) regulates only online purchases.

Against this backdrop, the FTC has now proposed, through an amended Negative Option Rule, a sweeping regulatory regime for not only prenotification plans but also continuous contracts, automatically renewing agreements and free (or discounted) trials. Like the most stringent state ARLs (e.g., in California and New York), the proposed rules would require clear and conspicuous disclosures of automatic renewal terms, affirmative consent and easy cancellation procedures, among many other requirements. Unlike those ARLs, however, this proposed rule would expressly apply both to consumer contracts and business-to-business contracts.

Read the full article on the Faegre Drinker website.

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