Kendall Henry

Associate Editor

Loyola University Chicago School of Law, JD 2027

 

Every time a consumer enrolls in a 30-day free trial for a streaming service and fails to cancel before the trial ends, the streaming service automatically charges a fee for the subscription. This automatic renewal practice is an example of a “negative option.” The Federal Trade Commission (FTC) is the agency tasked with consumer protection from harmful business practices such as negative options. In recent years, the rise of technology and digital services has caused an uptick in these practices, making honest transactions difficult for consumers. The FTC is continuing its uphill battle in addressing negative option practices in the marketplace via an Advance Notice of Proposed Rulemaking (ANPRM) of the existing Rule Concerning the Use of Prenotification Negative Option Plans, or, short hand, the Negative Option Rule.

What is the Negative Option Rule?

The Negative Option Rule (NOR) prohibits the use of practices, such as prenotification plans, continuity plans, automatic renewals, free-trial conversion offers, and any tactic classified as negative options. The rule defines negative options as “any type of sales term or condition that allows a seller to interpret a customer’s silence as acceptance of an offer.” Originally, the 1973 promulgated rule addressed prenotification plans, such as book-of-the-month clubs, in which consumers receive a new edition each month unless they actively opt out. However, this rule did not have a strong digital reach to address other negative option practices, such as automatic renewals (as in the example given above), and would therefore become limited. In 2024, the FTC attempted to comprehensively address negative-option tactics in the digital space. The rule expansion focused largely on “click to cancel,” which made the subscription cancellation process as easy as subscribing. Additionally, the rule included provisions to curb deceptive practices by requiring important information before capturing consumer billing information and charging.

However, a 2025 court decision has led to the 2024 rule being vacated. In Custom Communications, Inc. v. FTC, the Eighth Circuit  reasoned that the FTC failed to follow the procedural requirement of the preliminary regulatory analysis set forth by §22 of the FTC Act. To comply with this requirement, the FTC was to conduct a cost-benefit analysis, review alternatives, and present the findings for public review. The FTC argued that this failure was harmless, but the court held that the misstep rendered the rule invalid and thus harmful. This decision absolves the 2024 rule from enforcement and leaves the 1973 rule in place, which narrowly addresses prenotification plans and takes consumers back to square one.

Current status

The FTC has turned to the public for commentary via an ANPRM, which seeks more information and data before developing a regulation. Specifically, the FTC requests feedback on the scope of negative option programs in the marketplace, practices that make it difficult for consumers to understand terms or cancel subscriptions, ways to address unlawful practices, and the use of supporting studies and data to guide rule updates. The commentary period provides both consumers and businesses an opportunity to share perspectives that may inform a more effective and balanced rule. Consumers may remain hopeful about the re-proposed rule, given the contention that the surrounding controversy was merely procedural and not substantive. For now,  the FTC is committed to strengthening the protections outlined in the 2024 rule and ensuring it is procedurally compliant.

So, what can consumers count on?  

Annually, the FTC receives thousands of consumer complaints regarding negative option marketing practices. The 2024 rule was a step in the right direction to mitigate this, especially as subscription-based services have become part of daily transactions. Without a uniform rule, there is a patchwork. States such as California, New York, and Colorado have stepped up to impose provisions that embody the 2024 rule. For example, California has an automatic-renewal statute that prevents businesses from charging consumers without their consent. New York’s statute follows this same framework of making automatic renewal unlawful. Moreover, the FTC relies on other federal positive law, such as §5 of the FTC Act, the Restore Online Shoppers’ Confidence Act (ROSCA) and the Telemarketing Sales Rule, amongst others to address aspects of negative option practices. For example, ROSCA regulates such marketing, but only online transactions. Thus, these statutes and state regulations provide some reliable coverage, but nothing conclusive.

The persistence of negative-option practices and marketing demonstrates the need for overarching consumer protection. While the vacated 2024 rule was a setback, the FTC now has the opportunity to establish clearer standards that address deceptive practices wholly as subscription-based services evolve in a highly digitized nation. A robust FTC regulation would promote business transparency in automatic renewals, inform consumers, and encourage business competition on quality of service rather than deceptive tactics. Ultimately, the FTC’s efforts pave the way for a future in which American consumers can engage with businesses with confidence.