User:Msf145msf145/Negative option billing

US law
In the United States, the Federal Trade Commission ("FTC") has broad authority to regulate negative option billing, with the exception of the Federal Communications Commission ("FCC"), who has authority over cable providers. The FTC has created rules governing the practice of negative option billing and uses its investigative and enforcement power against private actors. Additionally, the Consumer Finance Protection Bureau ("CFPB") has proposed rules for negative option billing for consumer financial products, but no rule has been finalized.[1] [2] [1] CFPB (Jan., 2023). "12 C.F.R. Part 1092: Registry of Supervised Nonbanks that Use Form Contracts to Impose Terms and Conditions that Seek to Waive or Limit Consumer Legal Protections" (PDF). consumerfinance.gov. Retrieved Feb. 17, 2024.

[2] CFPB. "Proposed Rule: Registry of Supervised Nonbanks that Use Form Contracts to Impose Terms and Conditions that Seek to Waive or Limit Consumer Legal Protections". regulations.gov. Retrieved Feb. 17, 2024.

Article body
Though the FTC has proposed rules changing the scope and enforcement of negative option practices,[1] generally the agency categorizes negative option billing schemes into three distinct groups: automatic renewals, free-to-pay or nominal fee-to-pay conversion plans, continuity plans, and pre-notification negative option plans.[4][2]

Pre-notification negative option plans

Pre-notification negative option plans involve a seller sending a notice of goods to a consumer, and if the consumer takes no actions, the seller sends the goods without consent, and bills the consumer thereafter.[3][5] Subscription music and video services through the U.S. Mail, like Columbia House Records, use pre-notification billing.[4][6]

Automatic renewals

Once a subscription or contract terminates, sellers use automatic renewals to extend the subscription or plan without the express consent of the consumer.[5][4]

Continuity plans

At the beginning of the relationship, a consumer consents in advance to receiving goods and/or services at the will of the seller, until the consumer cancels the plan.[6]

Free-to-pay or nominal fee-to-pay conversion plans continuity plans

A consumer is offered a free or discounted trial period for a subscription or plan for goods or services. After the trial period expires, the price increases and subscription or plan continues perpetually, until the consumer takes steps to cancel the subscription.[7]

The FTC's Negative Option Rule.

Currently, only pre-notification negative option plans are controlled by the FTC's Negative Option Rule.[7][8] As such, per 16 C.F.R. § 425.1(a)(1), the FTC requires sellers to make seven clear and conspicuous disclosures in promotional materials for transaction that involves pre-notification negative option plans in order to avoid a fraud on the consumer:


 * 1) The process to be used by the consumer in the     event they do not wish to purchase the offered goods;
 * 2) A minimum quantity order requirement if the     consumer accepts the goods;
 * 3) The right of the consumer to cancel a plan after     the expiration or completion of a contract;
 * 4) If shipping and handling are included in an order;
 * 5) The right of the consumer to have at least ten     days to select specific goods;
 * 6) A guarantee the seller will refund the cost of     goods and the postage required to return the goods, if the consumer is not     give the required ten day selection period; and
 * 7) The frequency and amount a consumer will be     solicited by the seller within a twelve-month period.[9]

Likewise, per 16 C.F.R. § 425.1(b), sellers must accept the written cancellation notices from consumers.[10]

FTC rules and enforcement outside of the Negative Option Rule

The other three types of negative option plans (automatic renewals, free/fee-to-pay, and continuity) are enforced by the FTC across the Restore Online Shoppers’ Confidence Act (“ROSCA”)[11], the Postal Reorganization Act[12], the Telemarketing Sales Rule[13], Section 5 of the FTC Act[14], and the Electronic Fund Transfer Act (“EFTA”)[15].[16]

[1] FTC (Apr. 24, 2023). "Proposed Rule: Negative Option Rule". regulations.gov. Retrieved Feb. 17, 2024.

[2] FTC Division of Enforcement (Jan., 2009). "Negative Options: A Report by the staff of the FTC's Division of Enforcement, 2" (PDF). ftc.gov. Retrieved Feb. 17, 2024.

[3] NARA: Code of Federal Regulations; eCFR system (Feb. 14, 2024). "16 C.F.R. § 425.1". ecfr.gov. Retrieved Feb. 17, 2024.

[4] Direct Brands Inc. (Jul. 21, 2009). "Comment: Prenotification Negative Option Rule Review, Matter No. P064202" (PDF). ftc.gov. Retrieved Feb. 17, 2024.

[5] Supra note 4. (FTC Division of Enforcement (Jan. 2009). "Negative Options: A Report by the staff of the FTC's Division of Enforcement, 2" (PDF). ftc.gov. Retrieved Feb. 17, 2024.).

[6] Supra note 4 (FTC Division of Enforcement (Jan., 2009). "Negative Options: A Report by the staff of the FTC's Division of Enforcement, 2" (PDF). ftc.gov. Retrieved Feb. 17, 2024.).

[7] Supra note 4. (FTC Division of Enforcement (Jan., 2009). "Negative Options: A Report by the staff of the FTC's Division of Enforcement, 2" (PDF). ftc.gov. Retrieved Feb. 17, 2024.).

[8] State Attorneys General (Jun. 23, 2023). "Comment of State Attorneys General: Negative Option Rule; Project No. P064202" (PDF). ca.gov. Retrieved Feb. 17, 2024.

[9] NARA: Code of Federal Regulations; eCFR system (Feb. 14, 2024). "16 C.F.R. § 425.1". ecfr.gov. Retrieved Feb. 17, 2024.

[10] Supra note 11. (NARA: Code of Federal Regulations; eCFR system (Feb. 14, 2024). "16 C.F.R. § 425.1". ecfr.gov. Retrieved Feb. 17, 2024.).

[11] "15 U.S.C §§ 8401 - 8405". govinfo.gov. Jan. 5, 2023. Retrieved Feb. 17, 2024.

[12] "39 U.S.C. §§ 401 - 416". govinfo.gov. Jan. 5, 2023. Retrieved Feb. 17, 2024.

[13] FTC Legal Library (Aug. 27, 2018). “Telemarketing Sales Rule" (16 C.F.R. § 310). Ftc.gov. Retrieved Feb. 17, 2024.

[14] Cornell Law School Legal Information Institute (Dec. 4, 2012). “15 U.S. Code § 45 - Unfair methods of competition unlawful; prevention by Commission” (15 U.S.C. § 45). law.cornell.edu. Retrieved Feb. 18, 2024.

[15] FTC (Jul. 21, 2010). “Electronic Fund Transfer Act” (15 U.S.C. §§ 1693 – 1693r). ftc.gov. Retrieved Feb. 18, 2024.

[16] Supra note 10. (CFPB. "Proposed Rule: Registry of Supervised Nonbanks that Use Form Contracts to Impose Terms and Conditions that Seek to Waive or Limit Consumer Legal Protections". regulations.gov. Retrieved Feb. 17, 2024.).