The FTC warns companies offering a subscription …

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On October 28, 2021, the Federal Trade Commission released a new enforcement policy statement (the statement) warning businesses against the use of “dark models” in negative options marketing. “Dark patterns” is a broad term that refers to the subversion of consumer choice, often in connection with subscription services, such as forcing users to navigate confusing screens to avoid recurring charges. The statement probably comes as no surprise to many, as the FTC hosted a virtual workshop in the spring of 2021 on the subject of so-called dark models.

In a blog post announcing the statement, the FTC notes that this enforcement policy follows a growing number of complaints and reports from consumers about deceptive sign-up and subscription cancellation tactics, which the FTC, have caused financial damage such as unauthorized charges or pending subscription billing impossible or difficult to cancel.

Background

The statement precedes an intensification of the agency’s enforcement action against deceptive subscription registration practices and aims to provide guidance to businesses and practitioners on the FTC’s interpretation of existing law as it stands. ‘applies to’ negative option ‘marketing. While negative options marketing comes in many forms, the FTC says that all forms share one characteristic:

“Each contains a term or condition under which the seller can interpret a consumer’s silence or inability to take positive action to reject a good or service or to cancel the agreement as an acceptance or continued acceptance.” of the offer. ”

In other words, the practices generally involve an offer in which the merchant takes the position that a consumer gives consent to the payment of future and recurring charges in the absence of further action by the consumer. These agreements can include automatic renewals, continuity plans and free conversions.

While the FTC recognizes that negative options programs are prevalent in the market and can have substantial value for both consumers and sellers, the Statement postulates that consumers suffer when deceptive and unfair practices are combined with a such marketing. Specifically, the Statement points to deceptive or unfair practices such as inadequate disclosures of hidden charges in “free” offers and products / services, registration without consumer consent, and inadequate or overly inadequate cancellation and refund procedures. difficult. The FTC and state governments regularly file cases regarding these issues, and the statement cites the number of pending cases and the high volume of consumer complaints as signs that the problem persists in the market.

The statement

There are a variety of relevant laws and rules that the FTC relies on to regulate the trading of negative options. The FTC relies primarily on Section 5 of the FTC Act, the Restore Online Shoppers’ Confidence Act, and the Telemarketing Sales Rule. However, the Rule on the Use of Pre-Notification Negative Option Plans (16 CFR Part 425), the Electronic Funds Transfer Law, and the Postal Reorganization Law also address various aspects of negative option marketing. Given the number of applicable laws, the FTC has focused its statement on three specific areas that are commonly addressed by the Commission in its negative option cases: (1) disclosures; (2) consent; and (3) cancellation.

Disclosures

Traders must clearly and visibly disclose material terms of the transaction. Any express or intentionally implied complaint is presumed to be material. Important terms include, but are not limited to, the cost of a product or service, the deadline to act to stop the additional charges, the amount and frequency of charges, cancellation procedures and information about the product or service itself which is necessary to avoid any confusion or undue deception as to the nature of the product or service.

As a general rule, to be clear and visible, the disclosure should be as obvious and understandable as the offer itself, and presented in the same medium as the offer. In particular, it should be noted that the Declaration provides that any offer using an interactive electronic medium, such as the Internet or software, must disclose the terms by some unavoidable means. A disclosure is not considered clear and visible if the consumer needs to take action, such as clicking on a link or hovering over an icon, to see the disclosure.

Consent

Traders must obtain the express informed consentbefore billing the consumer. To be considered express informed consent, the seller must obtain acceptance of the negative terms of the offer separately from the offer itself. Consent must be both affirmative and unambiguously verifiable.

Cancelation

Sellers must provide simple and reasonable means for consumers to terminate their contracts. To meet this standard, the undo method must be at least as simple as the method used to initiate the negative option function itself. The cancellation process must be provided through the same medium (such as a website or mobile app) that the consumer used to consent to the negative option.

Furthermore, the procedure should not subject the consumer to further offers or attempts to save the negative option arrangement which impose unreasonable delays or inconvenience on the consumer. If it is a telephone procedure, a number should be provided and answered during normal business hours, and the call should be equally short and not heavier than the call used to consent to such arrangements.

Finally, the procedures provided must be efficient and must not be hampered by misrepresentation or undue delay tactics.

Key points to remember

As the online and digital marketplace continues to evolve, so do the types of transactions that consumers and businesses engage in as well. Negative options marketing is here to stay as it provides consumers and businesses with the convenience and ease of pursuing a transactional relationship. With dark trends coming to the forefront of the FTC’s enforcement priorities, it is important that marketing, sales and legal teams work together to develop a process to ensure compliance of marketing practices, including disclosures, informed consent and express and marketing agreements and practices that protect the autonomy, choice and decision-making of consumers.

It’s also worth noting that many states, including California, have their own laws that apply to “automatic renewals.” Therefore, businesses that engage in negative option marketing should consider not only the new FTC statement, but also enforcement actions and disputes with consumers under consumer protection laws. of State.

In light of this FTC Enforcement Policy, what should businesses do that use or plan to use default marketing? At a minimum, they should:

  • Understand the requirements described above, particularly with respect to consent, disclosure and revocation, and how they apply to their particular products or services. Firms should identify any current or planned negative option marketing programs and honestly assess whether corrective action is needed to bring those offers to the standard set out in the FTC statement.
  • Work with their development teams and boards to create a standard set of disclosures and consent features that meet, at a minimum, the clear and visible and express informed consent standards that apply, respectively.
  • Review their website and / or mobile app, including user interfaces, to make sure the offerings available to consumers are not confusing or difficult to understand.
  • Make consumer autonomy and transparency of choice a top priority for all negative option marketing offers.
  • Review the existing cancellation policies and procedures for any subscription product or service, including auto-renewing subscriptions, and make sure that cancellation is at least as simple as signing up, and that the procedures for canceling. cancellation are clearly and visibly disclosed both in the offer and on the website or other medium used to access account information and subscription status.
  • Reconfigure any existing cancellation processes to provide cancellation without showing intermediate questions or other prompts. Companies that want to try to convince the customer to stay enrolled should cancel the plan for existing customers and follow up to get a re-enrollment after the cancellation.

Questions? Please contact Tyler G. Newby, Jed Wakefield, Kimberly Culp or your Fenwick contact for more information.

Forensic scientist Justin Stacy helped draft this alert.


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