Consumer Financial Protection Circular 2023-01: Unlawful Negative Option Marketing Practices

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 The Consumer Financial Protection Bureau (CFPB) released on January 19, 2023, their first circular of the year, and it involves negative option marketing practices. Per the CFPB, a negative option is “a term or condition under which a seller may interpret a consumer’s silence, failure to take an affirmative action to reject a product or service, or failure to cancel an agreement as acceptance or continued acceptance of the offer.”

“For example, in automatic renewal plans, consumers’ subscriptions are automatically renewed when they expire unless consumers affirmatively cancel their subscriptions by a certain date. In continuity plans, consumers agree in advance to receive a product or service, which they continue to receive until they cancel the agreements. In trial marketing plans, consumers receive products or services for free (or for a reduced fee) for a trial period. After the trial period, consumers are automatically charged a fee (or a higher fee) on a recurring basis unless they affirmatively cancel.”

Any subscription service that automatically renews its term, or escalates from a free or reduced price trial period to a paid or increased cost period, is subject to regulation under multiple statutes. These include the Federal Trade Commission’s (FTC) FTC Act, which under Section 5 prohibits “unfair or deceptive acts or practices,” the CFPB’s CRPA prohibition on “unfair, deceptive, and abusive acts or practices,” the Electronic Fund Transfer Act (EFTA) and Regulation E prohibition on “preauthorized electronic fund transfers from a consumer’s bank account without written authorization,” and the FTC’s Telemarketing Sales Rule (TSR) prohibition on “deceptive acts or practices by telemarketers, including failing to disclose the material terms of a negative option feature of an offer and misrepresenting the total cost to purchase goods or services.”

The circular details what negative option marketing practices are, and how marketers can run afoul of those deceptive acts or practices, which is often by being unclear regarding the material cost of the product or service, failing to obtain informed consent by the consumer, and by making affirmative cancellation difficult. “The CFPB is issuing this Circular to emphasize that covered persons and service providers who engage in negative option marketing are required to comply with the CFPA’s prohibition on unfair, deceptive, and abusive acts or practices. The CFPB further emphasizes that its approach to negative option marketing is generally in alignment with the FTC’s approach to section 5 of the FTC Act as set forth in its recent policy statement.”

“In particular, the CFPB shares the view that a seller offering a negative option program risks violating the law if the seller (1) does not clearly and conspicuously disclose the material terms of the negative option offer to the consumer, (2) does not obtain the consumer’s informed consent, or (3) misleads consumers who wish to cancel, erects unreasonable barriers to cancellation, or impedes the effective operation of promised cancellation procedures.”

The CFPB marks its main categories as “Disclosure,” “Consent,” and “Cancellation.” These categories and their associated areas must remain top of mind for any negative option marketer working today, to be sure they do not conflict with any of the current regulations.