[Federal Register Volume 79, Number 147 (Thursday, July 31, 2014)]
[Rules and Regulations]
[Pages 44271-44276]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-17978]


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FEDERAL TRADE COMMISSION

16 CFR Part 425


Rule Concerning the Use of Prenotification Negative Option Plans

AGENCY: Federal Trade Commission.

ACTION: Confirmation of rule.

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SUMMARY: The Federal Trade Commission has completed its regulatory 
review of the Trade Regulation Rule Concerning Use of Prenotification 
Negative Option Plans as part of the Commission's systematic review of 
all current Commission regulations and guides, and has determined to 
retain the Rule in its current form.

DATES: This action is effective as of August 1, 2014.

ADDRESSES: This document also is available on the Internet at the 
Commission's Web site, http://www.ftc.gov.

FOR FURTHER INFORMATION CONTACT: Robert M. Frisby, (202) 326-2098, 
Attorney, Division of Enforcement, Bureau of Consumer Protection, 
Federal Trade Commission, 600 Pennsylvania Avenue NW., Washington, DC 
20580.

SUPPLEMENTARY INFORMATION:

I. Introduction

    In May 2009, the Federal Trade Commission (``FTC'' or 
``Commission'') requested comments on its Rule Concerning the Use of 
Prenotification Negative Option Plans (``Negative Option Rule'' or 
``Rule''), as part of its comprehensive regulatory review program.\1\ 
Specifically, the Commission

[[Page 44272]]

sought comments on the Rule's costs and benefits, and on whether it 
should expand the Rule's scope to cover negative option features other 
than prenotification offers involving merchandise.
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    \1\ The Commission schedules its regulations and guides for 
review on a ten-year cycle; i.e., all rules and guides are scheduled 
to be reviewed ten years after implementation and ten years after 
the completion of each review. The Commission publishes this 
schedule annually, with adjustments in response to public input, 
changes in the marketplace, and resource demands. For more 
information, see www.ftc.gov/opa/2011/07/regreview.shtm.
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    After considering the comments and recent legislative developments, 
the Commission has determined to retain the Rule without amendment. All 
commenters who addressed the issue support the Rule's current 
provisions. Furthermore, although commenters presented evidence of 
abusive negative option marketing beyond prenotification offers, the 
Restore Online Shoppers' Confidence Act (``ROSCA'') \2\ and the 
Commission's proposed amendments to the Telemarketing Sales Rule 
(``TSR''),\3\ discussed in section III.D below, likely address many of 
those abuses. Because the Commission has not seen the full effects 
ROSCA will have on the marketplace, and has yet to adopt and observe 
the effects of its proposed amendments to the TSR, it would be 
imprudent to expand the Rule's coverage at this time.\4\
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    \2\ Public Law 111-345 (Dec. 29, 2010).
    \3\ Federal Trade Commission: Telemarketing Sales Rule; Notice 
of Proposed Rulemaking, 78 FR 41200 (July 9, 2013).
    \4\ E.g., it may take time for firms to adjust to ROSCA's 
requirements and find a way to operate profitably, and for consumer 
complaints or reports regarding ROSCA violations to reach the 
Commission.
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    This document provides background, analyzes the comments, and 
further explains the Commission's decision.

II. Background

    This section provides background on the Commission's Negative 
Option Rule, its activities regarding the Rule, and ROSCA.

A. The Negative Option Rule

    A ``negative option'' is any type of sales term or condition that 
allows a seller to interpret the customer's silence, or failure to take 
an affirmative action, as acceptance of an offer. The Rule regulates a 
specific type of negative option, the prenotification negative option 
plan for the sale of goods. In prenotification plans, consumers receive 
periodic announcements of upcoming merchandise shipments and have a set 
period to decline the shipment. Otherwise, the company sends them the 
merchandise. The periodic announcements and shipments can continue for 
an indefinite duration.
    The Commission first promulgated the Rule (then titled the 
``Negative Option Rule'') in 1973 under the FTC Act, 15 U.S.C. 41 et 
seq., after finding that prenotification negative option marketers had 
committed unfair and deceptive marketing practices violative of Section 
5 of the Act, 15 U.S.C. 45. The Rule became effective on June 4, 1974.
    For prenotification plans, the Rule requires sellers to clearly and 
conspicuously disclose the plan's material terms before consumers 
subscribe.\5\ In addition, the Rule requires sellers to follow certain 
procedures, including: abiding by particular time periods during which 
sellers must send introductory merchandise and announcements 
identifying merchandise the seller plans to send; giving consumers a 
specified time period to respond to announcements; providing 
instructions for rejecting merchandise in announcements; and promptly 
honoring written requests to cancel from consumers who have met any 
minimum purchase requirements.\6\
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    \5\ The Rule enumerates seven material terms that sellers must 
disclose clearly and conspicuously. These terms are: the aspect of 
the plan under which subscribers must notify the seller if they do 
not wish to purchase the selection; any minimum purchase 
obligations; the subscribers' right to cancel; whether billing 
charges include postage and handling; that subscribers have at least 
ten days to reject a selection; that if any subscriber is not given 
ten days to reject a selection, the seller will credit the return of 
the selection and postage to return the selection, along with 
shipping and handling; and the frequency with which announcements 
and forms will be sent, and the maximum number subscribers should 
expect to receive during a twelve month period. 16 CFR 
425.1(a)(1)(i)-(vii).
    \6\ 16 CFR 425.1(a)(2) and (3); 425.1(b).
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    The Rule does not cover continuity plans or automatic renewals, and 
only covers trial conversions to the extent that they also qualify as 
prenotification plans. In continuity plans, consumers receive regular 
merchandise shipments or access to services until they cancel the 
agreement. In trial conversions, consumers receive products or services 
for a trial period at no charge or for a reduced price. If the 
consumers do not cancel before the end of the trial period, the product 
shipments or provision of services continue and consumers incur 
charges. In automatic renewals, a magazine seller, for example, may 
automatically renew consumers' subscriptions when they expire, unless 
consumers cancel their subscriptions.

B. Commission Activity Relating to Regulation of Negative Options

    In January 2007, the Commission hosted a workshop to analyze the 
marketing of goods and services through negative option offers.\7\ The 
workshop featured consumer representatives, academics, and industry 
leaders who discussed the pros and cons of negative option offers and 
explored ways to make effective disclosures on the Internet.
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    \7\ For materials and the agenda for the workshop, see http://www.ftc.gov/bcp/workshops/negativeoption/index.shtml.
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    Based on the workshop, in January 2009, the Commission issued a 
staff report.\8\ Among other things, the report set forth five 
principles to guide industry in complying with Section 5 of the Federal 
Trade Commission Act (``FTC Act'') \9\ when making online negative 
option offers. They address: (1) The disclosure of material terms; (2) 
the appearance of disclosures; (3) the timing of disclosures; (4) 
obtaining consumers' affirmative consent; and (5) cancellation 
procedures.
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    \8\ For the report, see http://www.ftc.gov/os/2009/02/P064202negativeoptionreport.pdf.
    \9\ 15 U.S.C. 45.
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    In May 2009, the Commission published an Advance Notice of Proposed 
Rulemaking (``ANPR'') seeking comment on the Rule as part of the 
Commission's ongoing comprehensive regulatory review program.\10\ The 
ANPR sought comment on the Rule's overall costs, benefits, necessity, 
and regulatory and economic impact. The ANPR also asked for comment on 
whether the Commission should expand the Rule to cover other types of 
negative option offers.\11\
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    \10\ Federal Trade Commission: Rule Concerning the Use of 
Prenotification Negative Option Plans: Advance Notice of Proposed 
Rulemaking; Request for Comments, 74 FR 22720 (May 14, 2009).
    \11\ At the request of several commenters, in August 2009 the 
Commission reopened the comment period for sixty days until October 
13, 2009. Federal Trade Commission: Rule Concerning the Use of 
Prenotification Negative Option Plan; Re-opening the record for 
submission of public comments, 74 FR 40121 (Aug. 11, 2009).
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C. ROSCA

    After the Commission's second comment period closed, Congress 
enacted ROSCA in December 2010 to address ongoing problems with online 
negative option marketing. This statute prohibits any person from 
charging or attempting to charge any consumer for goods or services 
sold in an Internet transaction through any negative option 
feature,\12\ including trial conversions, continuity plans, and 
automatic renewals, unless the person: (1) Provides text that clearly 
and conspicuously discloses all material terms of the transaction 
before obtaining the consumer's billing information; (2) obtains a 
consumer's express informed

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consent before charging the consumer's account; and (3) provides simple 
mechanisms for a consumer to stop recurring charges.\13\
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    \12\ ROSCA incorporates the definition of ``negative option 
feature'' from the Commission's Telemarketing Sales Rule, 16 CFR 
310.2(u).
    \13\ 15 U.S.C. 8403.
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    Another ROSCA provision addresses offers made by, or on behalf of, 
a third-party seller during, or immediately following, a transaction 
with an initial merchant.\14\ In connection with these transactions, 
ROSCA prohibits post-transaction third party sellers from charging or 
attempting to charge any consumer's financial account unless (1) before 
obtaining billing information, the seller clearly and conspicuously 
discloses the material terms of the offer; and (2) the seller receives 
the consumer's express informed consent by (A) obtaining from the 
consumer the full account number of the account to be charged and the 
consumer's name and address and a means to contact the consumer; and 
(B) requiring the consumer to perform an additional affirmative action 
indicating consent.\15\ The Act also prohibits initial merchants from 
disclosing billing information to any post-transaction third party 
seller for use in any Internet-based sale of goods or services.\16\
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    \14\ ROSCA defines ``post-transaction third party seller'' as a 
person other than the initial merchant who sells any good or service 
on the Internet and solicits the purchase on the Internet through an 
initial merchant after the consumer has initiated a transaction with 
the initial merchant. 15 U.S.C. 8402(d)(2).
    \15\ 15 U.S.C. 8402(a).
    \16\ 15 U.S.C. 8402(b).
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    ROSCA provides that a violation of the Act shall be treated as a 
violation of a Commission trade regulation rule under Section 18 of the 
FTC Act.\17\ Thus, the Commission may seek a wide variety of remedies 
for violations of ROSCA, including civil penalties under Section 
5(m)(1)(A) of the FTC Act; \18\ injunctive and equitable monetary 
relief under Section 13(b) of the Act; \19\ and consumer redress, 
damages, and other relief under Section 19 of the Act.\20\ States can 
enforce ROSCA as well.\21\
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    \17\ 15 U.S.C. 8404. Section 18 of the FTC Act is 15 U.S.C. 57a.
    \18\ 15 U.S.C. 45(m)(1)(A).
    \19\ 15 U.S.C. 53(b).
    \20\ 15 U.S.C. 57b(a)(1) and (b).
    \21\ 15 U.S.C. 8405.
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    Although Congress charged the Commission with enforcing ROSCA, it 
did not provide rulemaking authority under the Administrative Procedure 
Act.\22\ Hence, the Commission would have to rely on its existing 
authority under Section 18 of the FTC Act to amend the Negative Option 
Rule. As the Commission has noted, ``the current rulemaking procedures 
prescribed by Section 18 (often referred to as `Magnuson-Moss' 
rulemaking) are complex, cumbersome, and time-consuming, resulting in 
rulemaking proceedings lasting many years.'' \23\
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    \22\ 5 U.S.C. 552 et seq.
    \23\ See Prepared Statement of the Federal Trade Commission on 
Financial Services and Products: The Role of the Federal Trade 
Commission in Protecting Consumers, Before the Senate Committee on 
Commerce, Science, and Transportation (Feb. 4, 2010), available at 
http://www.ftc.gov/os/testimony/P064814financial-services.pdf.
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III. Regulatory Review Comments and Analysis

    The Commission received 14 comments in response to the ANPR during 
the initial comment period and an additional 99 after the Commission 
reopened the comment period.\24\ Most were filed by individuals and 
firms, but the Commission also received comments from state and local 
law enforcement agencies as well as trade associations. Specifically, 
the Commission received comments from the Attorneys General of 
Colorado, Florida, Pennsylvania, Washington, and Vermont (Vermont also 
filed on behalf of 18 other states \25\); as well as the Permitting, 
Licensing, and Consumer Protection Division of Broward County, Florida 
(``Broward County''). The Commission also received comments from the 
American Association of Law Libraries (``AALL''),\26\ Direct Marketing 
Association (``DMA''),\27\ Electronic Retailing Association 
(``ERA''),\28\ Promotion Marketing Association (``PMA''),\29\ and 
Magazine Publishers of America (``MPA'').\30\ Commenters agreed that 
the Commission should retain the current Rule, but differed on whether 
it should expand the Rule's scope. Notwithstanding the evidence 
provided by law enforcement agencies, the Commission declines to expand 
the Rule because the intervening passage of ROSCA may sufficiently 
address the unfair and deceptive negative option practices described in 
the comments. Law enforcement agencies and one trade association 
supported expansion to cover other types of negative option features, 
presenting evidence of significant abuses that the Rule does not cover. 
Conversely, most trade associations argued against expansion, asserting 
that laws and guidance currently in place sufficiently protect 
consumers. To the extent ROSCA does not cover unfair and deceptive 
negative option marketing practices, the Commission can and will 
continue to address such practices using its other enforcement tools. 
In addition, the Commission will continue to look at negative option 
practices as the effects of ROSCA become clear.\31\
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    \24\ The comments are available on the Commission's Web site at 
http://www.ftc.gov/os/comments/prenotnegativeoprule/index.shtm and 
http://www.ftc.gov/os/comments/negoprulereopen/index.shtm.
    \25\ Vermont filed on behalf of Arkansas, Illinois, Kansas, 
Maine, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, Ohio, 
Oregon, Tennessee, and West Virginia. Vermont, 543809-00098. Later 
Connecticut, Delaware, Louisiana, Mississippi, and New Jersey joined 
Vermont's comment. Vermont, 543809-00105.
    \26\ AALL is a non-profit organization with nearly 5,000 
members. AALL, 543809-00102, at 1.
    \27\ DMA represents more than 3,500 companies, including a 
majority of the Fortune 100 companies. DMA, 541909-00011, at 2.
    \28\ ERA is the leading trade association representing the 
electronic retailing industry. ERA, 541909-00010, at 2.
    \29\ PMA is a not-for-profit organization and resource for 
research, education, and collaboration for marketing professionals. 
PMA, 543809-00097, at 1.
    \30\ MPA represents hundreds of domestic publishing companies, 
international publishers, and associate members that publish over a 
1,000 different titles. MPA, 541909-00008, at 1.
    \31\ The Commission notes that 46 states and the District of 
Columbia recently announced a $30 million settlement resolving 
allegations that Affinion Group, Inc., Trilegiant Corp., and 
Webloyalty.com engaged in deceptive negative option marketing 
practices. See http://www.illinoisattorneygeneral.gov/pressroom/2013_10/20131010.html. The defendants are required to comply with 
ROSCA. See https://www.oag.state.tx.us/newspubs/releases/2013/AFJPI12.PDF.
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A. Support for Retaining the Rule

    All the commenters addressing the issue supported the Rule's 
current provisions. Indeed, none of the commenters advocated repealing 
the Rule or narrowing its scope. For example, Broward County stated 
that the Rule protects consumers by requiring disclosures that make 
them aware of their financial obligations and imposes only nominal 
costs.\32\ The trade associations concurred. For example, DMA 
``believes that the current Negative Option Rule and the broader 
regulatory framework are working effectively, and strike the right 
balance between consumer protection and commerce.'' \33\ Similarly, ERA 
``strongly believes that the current regulatory structure for offers 
with an advance consent feature adequately balances the concerns of 
businesses, federal and state regulators, and consumers.'' \34\
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    \32\ Broward County comment, 543809-00007, at 1 and 6.
    \33\ DMA, 541909-00011, at 3.
    \34\ ERA, 541909-00010, at 4.
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    In light of these comments, the Commission concludes that a 
continuing need exists for the Rule, and that costs imposed on 
businesses are reasonable.

B. Proposals To Expand the Rule

    The comments diverged sharply, however, on whether to expand the

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Rule. All of the state and local law enforcement agencies as well as 
AALL advocated expanding the Rule, while the rest of the trade 
associations opposed expansion as explained in section III.C below.\35\
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    \35\ Pennsylvania filed a one page comment indicating that the 
Commission should extend the Rule to cover additional types of 
negative option offers. Pennsylvania, 541909-00012.
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1. State and Local Law Enforcement
    The state law enforcement agencies urged the Commission to expand 
the Rule to cover additional types of negative options, particularly 
trial conversion offers. They also favored covering the marketing of 
services and not just merchandise.
    Mainly to expand the Rule to address all types of negative option 
marketing, each of these agencies also proposed adding a variety of new 
requirements and prohibitions, most of which would help ensure that 
sellers (1) disclose materials terms clearly and conspicuously; \36\ 
(2) obtain informed, affirmative consent before charging or continuing 
to charge consumers; \37\ or (3) maintain practices and procedures 
facilitating easy cancellation so that consumers can avoid charges for 
unwanted merchandise or services.\38\ The specific proposals of the 
agencies vary, but with a few exceptions \39\ fall into the three 
categories above. In addition, several individual comments advocated 
for similar proposals, such as expanding the Rule to cover other types 
of negative options and adding disclosure and notice requirements.\40\
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    \36\ Florida, 543809-00099, at 10; and Washington, 541909-00009, 
at 1. Broward County proposed defining ``clearly and conspicuously'' 
and requiring a standardized format for disclosing the terms of 
negative option offers and obtaining billing information from 
consumers on the Internet. Broward County, 543809-00007, at 7-9.
    \37\ Vermont and the 18 states joining its comment favored (1) 
prohibiting charges following a ``free'' trial without receiving the 
consumer's affirmative consent at the end of the trial; (2) 
mandating periodic notification of charges in trial conversions; and 
(3) limiting to 18 months the duration of the time period a consumer 
may be charged, and requiring an affirmative ``opt in'' to exceed 
that time limit. Vermont, 543809-00098, at 7-8. Colorado favored (1) 
and (2) above. Colorado, 543809-00096, at 7. Florida favored 
requiring sellers to obtain consent at the end of the free trial and 
before imposing any renewal charges on a recurring term 
subscription. Florida, 543809-00099, at 8-9. Washington proposed 
requiring sellers to (1) obtain billing information directly from 
consumers during the transaction; (2) obtain verifiable 
authorization from the consumer to be billed; and (3) obtain 
acceptance through an affirmative act by the consumer. Washington 
also proposed limiting the number of months a seller can charge a 
consumer before obtaining new authorization to continue imposing 
charges. Washington suggested a limit of 18 months. Washington, 
541909-00009, at 7-8. Florida favored requiring express, informed 
consent of the offer, and tightening requirements for third-party 
billing mechanisms. Florida, 543809-00099, at 1-2 and 7-9. It also 
favored requiring disclosure in confirmation notices following the 
sale at no less than six month intervals. Florida, 543809-00099, at 
10.
    \38\ Colorado, Vermont and the 18 states joining Vermont's 
comment supported requiring sellers to permit consumers to cancel in 
the same method of communication as the solicitation to the 
consumer. Colorado, 543809-00096, at 7; Vermont, 543809-00098, at 8. 
Florida favored this too, and argued that cancellation should be 
acknowledged with a cancellation number. Florida also supported 
disclosing the requirements for cancellation in written confirmation 
of the offer and periodic disclosures, and providing sufficient time 
to cancel after the consumer receives acknowledgment of the offer 
and accepts the charges. Florida, 543809-00099, at 9-11. Washington 
proposed requiring sellers to: (1) Identify themselves on billing 
statements; and (2) provide for easy cancellation--at a minimum by 
allowing consumers to cancel using the same means they used to 
accept the offer. Washington, 541909-00009, at 8.
    \39\ Broward County proposed some requirements beyond those 
categories for trial periods: Requiring trial periods to start on 
the date the consumer receives the product and prohibiting sellers 
from billing consumers prior to the expiration of the trial period. 
Broward County, 543809-00007, at 12. In addition, Florida proposed 
prohibiting the marketing of negative option contracts to minors. 
Florida, 543809-00099, at 11.
    \40\ See, e.g., comments 541909-00001, 541909-00007, and 543809-
00004. A total of 98 individuals submitted comments. Most did not 
comment on any specific Rule provisions. Instead, these comments 
generally either complained about the practices of a particular firm 
or urged greater regulation of negative option offers. Some proposed 
changes that the Commission lacks authority to adopt, such as 
requiring licenses to make negative option offers (e.g., comment 
541909-00003). A few individual and business comments urged the 
Commission not to expand the Rule (e.g., comments 543809-00101 and 
541909-00014).
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    In support of their proposals, the agencies cited thousands of 
consumer complaints regarding negative options,\41\ their own 
experience,\42\ and consumer survey evidence \43\ showing that many 
consumers are not aware of their enrollment in negative option plans. 
According to the agencies, consumers experience problems, including 
inadequate disclosures, the imposition of charges without the 
consumers' informed consent, difficult cancellation procedures, failure 
to honor cancellation requests, and trial offers where consumers forget 
they have consented to future charges.\44\ The agencies argued that 
this evidence demonstrates a need for an expanded Rule to better 
protect consumers.
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    \41\ The agencies reported receiving thousands of complaints. 
For example, Florida reported over 2,000 complaints in four of its 
pending negative option investigations alone. Florida, 543809-00099, 
at 2.
    \42\ The agencies reported that they have investigated or taken 
enforcement action against sellers engaged in negative option 
marketing. For example, Florida reported handling nearly 50 
investigations involving negative option marketing since 1998, the 
overwhelming majority of which involve free-to-pay conversions with 
automatic renewal or continuity features. Florida, 543809-00099, at 
2 and Appendix A.
    \43\ Several states reported survey results underscoring that 
many consumers incur charges for memberships in negative option 
plans of which they are unaware and do not want. In May 2006, the 
Iowa Attorney General announced the results of a survey of consumers 
enrolled in negative option plans run by Memberworks, Inc., now 
known as Vertrue, Inc. Vermont, 543809-00098, at 6; Colorado, 
543809-00096, at 5-6. Four hundred surveys were mailed to consumers. 
Of the 88 consumers who responded, 67% were unaware of their 
membership in the negative option plan. Almost all of the remaining 
consumers had never used the plan, or believed they had cancelled 
their membership. None expressed satisfaction with the membership. 
In 2007, Vermont surveyed state residents who had been billed for 
discount plan memberships involving a trial conversion negative 
option. Vermont, 543809-00098, at 6; Colorado, 543809-00096, at 6. 
Of the 100 respondents, 67 did not recall signing up for the plan 
and 53 answered expressly that they did not agree to be billed. Only 
six responded that they had ever used the plan. Id.
    \44\ Colorado, Vermont, and the 18 states joining Vermont's 
comment contended that the problem with trial conversions stems less 
from the failure to make up-front disclosures and obtain consent 
than from the fact that consumers enticed by a free trial offer are 
unlikely to remember their spur-of-the-moment assent to periodic 
charges and therefore unlikely to scrutinize their accounts for 
unwanted charges. Colorado, 543809-00096, at 6; Vermont, 543809-
00098, at 7. Florida agreed that free trial offers can lure 
consumers into a state of forgetfulness. Florida, 543809-00099, at 
9.
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    In addition, many agencies noted the increasing frequency of 
Internet negative option marketing. For example, Florida provided 
information about 47 negative option investigations from 1997 to 2009. 
Most of these involved Internet negative option marketing, including 18 
that involved solely Internet marketing. In addition, 25 of the 28 
investigations since 2005 involved Internet marketing. Sixteen of the 
25 involved solely Internet marketing.\45\ Washington noted that 
sellers frequently make free-to-pay offers on the Internet, and that 
previously such offers were made most frequently in telemarketing and 
direct mail.\46\ Similarly, Broward County stated that most free trial 
conversion negative option sales transactions occur on the 
Internet.\47\
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    \45\ Florida, 543809-00099, at Appendix A. Florida reported that 
this appendix is not an exhaustive list of its negative option 
investigations. For example, it does not include non-public 
investigations. Id. at 2.
    \46\ Washington, 541909-00009, at 5.
    \47\ Broward County, 543809-00007, at 13.
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2. AALL Proposals
    AALL advocated expanding the scope of the Rule in several respects 
and adding a number of prohibitions and requirements, many of which 
resemble the proposals described above. Like the law enforcement 
agencies, it supported expanding the Rule to cover other types of 
negative option offers. It also advocated expanding the Rule to protect 
institutional consumers, such as law libraries, as well as individuals, 
and to

[[Page 44275]]

cover online subscriptions and digital materials, such as e-books, 
podcasts, and applications.
    AALL favored adding some of the same prohibitions and requirements 
favored by the state and local law enforcement agencies as well as a 
host of others to address negative option marketing by firms selling 
legal publications. For example, AALL urged the Commission to impose a 
maximum duration of no more than five years on negative option 
plans.\48\ It also proposed a number of provisions to address the 
shipment of unordered publications and facilitate cancellation of 
unwanted negative option plans.\49\
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    \48\ AALL, 543809-00102, at 5.
    \49\ For example, AALL proposed that the Commission prohibit 
sellers from: (1) Sending unordered books unless they are clearly 
marked as such; (2) sending invoices or dunning notices for 
unordered books; and (3) commanding payment for or the return of 
unordered books. These practices violate the Postal Reorganization 
Act of 1970, 39 U.S.C. 3009. AALL, 543809-00102, at 4.
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    In support of its numerous proposals, AALL cited the experience of 
its members who have received unordered and unwanted legal 
publications. It also cited two Florida law enforcement actions 
involving negative option marketing practices affecting libraries.

C. Opposition To Expanding the Rule

    Unlike AALL, the other four trade associations opposed any 
expansion. All argued that existing Commission authority and guidance, 
along with industry guidance, protect consumers adequately. They also 
argued that prescriptive regulation would harm consumers.
    DMA urged the Commission ``to avoid unnecessary regulation that 
would limit consumers' ability to learn about valuable goods and 
services, hinder innovation, or inhibit commerce, especially during 
these challenging economic times.'' \50\ It stated that robust industry 
self-regulation, coupled with existing FTC enforcement authority, 
effectively meets the needs of both consumers and businesses in this 
area. DMA also explained that its members are required to comply with 
Article 12 of its Guidelines for Ethical Business Practice, which 
addresses negative option marketing in detail. Non-complying members 
that fail to come into compliance face expulsion and may be reported to 
government regulators.\51\
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    \50\ DMA, 541909-00011, at 1.
    \51\ Id. at 4-5.
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    Similarly, ERA and PMA contended that (1) the Commission already 
possesses the enforcement tools necessary to protect consumers, 
including Section 5 of the FTC Act, the Postal Reorganization Act of 
1970 (``PRA''),\52\ the Electronic Fund Transfer Act (``EFTA''),\53\ 
the Negative Option Rule, and the TSR; (2) guidance documents published 
by the Commission provide adequate concrete guidance and direction to 
the industry; (3) the Commission should avoid a prescriptive approach 
that will deprive marketers of the flexibility to adapt to the rapidly 
evolving marketplace; and (4) the record does not indicate that 
deception results from advertising that complies with the above laws 
and guidance.\54\ They also noted the existence of various industry 
self-regulatory programs that help prevent deception.\55\ ERA pointed 
to its Advance Consent Guidelines, which cover the full range of 
negative option programs currently offered in the marketplace, 
including free trial offers, continuity plans, and automatic 
renewals.\56\
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    \52\ 39 U.S.C. 3009.
    \53\ 15 U.S.C. 1693-1693r.
    \54\ ERA, 541909-00010, at 3-4; PMA, 543809-00097, at 3.
    \55\ PMA, 543809-0097, at 10.
    \56\ ERA, 541909-00010, at 13-14.
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    Finally, MPA argued that the Commission's current guidance and 
enforcement ability sufficiently protect consumers.\57\ Like DMA and 
ERA, MPA has developed guidance for its members on negative option 
marketing.\58\ It too touted the benefits of negative option plans and 
the need for flexibility in responding to a rapidly changing 
marketplace.
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    \57\ MPA, 541909-00008, at 1.
    \58\ Id. at 5-6.
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D. Analysis

    The comments advocating expansion of the Rule argue convincingly 
that unfair, deceptive, and otherwise problematic negative option 
marketing practices continue to cause substantial consumer injury, 
despite determined enforcement efforts by the Commission and other law 
enforcement agencies. Indeed, negative option arrangements not covered 
by the Rule, such as trial conversions and continuity plans, have 
accounted for most of the Commission's recent enforcement activity in 
this area.\59\ The record also indicates that Internet marketing 
represents a large and growing share of negative option marketing, 
particularly that involving free trial conversions.\60\
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    \59\ Over the last few years, the Commission has filed a number 
of law enforcement actions challenging negative option marketing 
practices, including, for example, FTC v. Process America, Inc., No. 
14-0386-PSG-VBKx (C.D. Cal. Jan. 16, 2014) (processing of 
unauthorized charges relating to negative option marketing), http://www.ftc.gov/news-events/press-releases/2013/11/ftc-settlements-crack-down-payment-processing-operation-enabled; FTC v. Willms, No 
2:11-cv-00828 (W.D. Wash. May 16, 2011) (Internet free trials and 
continuity plans), http://www.ftc.gov/opa/2011/05/jessewillms.shtm; 
FTC v. Moneymaker, No. 2:11-cv-00461-JCM-RJJ (D. Nev. Mar. 28, 2011) 
(Internet trial offers and continuity programs), http://www.ftc.gov/opa/2011/04/moneymaker.shtm; FTC v. Johnson, No. 2:10-cv-02203-RLH-
GWF (D. Nev. Dec. 21, 2010), (Internet trial offers), http://www.ftc.gov/opa/2010/12/iworks.shtm; and FTC v. John Beck Amazing 
Profits, LLC, No. 2:09-cv-04719 (C.D. Cal. June 30, 2009) 
(infomercial and telemarketing trial offers and continuity 
programs), http://www.ftc.gov/opa/2009/07/shortchange.shtm; see also 
``An Overview of the FTC's Enforcement Actions Concerning Negative 
Option Marketing,'' a presentation delivered during the Commission's 
2007 ``Negative Options: An FTC Workshop Analyzing Negative Option 
Marketing,'' available at www.ftc.gov/bcp/workshops/negativeoption/presentations/Ashe.pdf.
    \60\ See discussion in section III.B.1 above.
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    Congress reached the same conclusion and, as a result, enacted 
ROSCA to protect consumers from deceptive online negative option 
practices. The additional enforcement tools provided by ROSCA likely 
will assist the Commission in stopping unlawful negative option 
practices in the significant and growing slice of the market involving 
the Internet. Due to the availability of these promising new tools and 
uncertainty regarding how ROSCA will affect the marketplace, the 
Commission declines to propose amendments to the Negative Option Rule 
at this time.
    ROSCA addresses many of the concerns raised in the comments by 
requiring Internet sellers of any negative option type, including trial 
conversions, to disclose material terms, obtain informed consent, and 
provide simple mechanisms for consumers to stop recurring charges.\61\ 
ROSCA also provides the Commission with civil penalty authority, 
thereby bolstering the Commission's enforcement tools in this area.\62\
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    \61\ ROSCA also furthers the principles to guide negative option 
marketers set forth in the Commission's 2009 report on its negative 
option workshop, including adequate disclosures, informed consent, 
and reasonable cancellation procedures.
    \62\ Civil penalty authority is particularly useful in cases 
where it is difficult to calculate consumer injury, administer a 
redress program, or prove that the violator made substantial gains 
from its unlawful conduct.
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    Furthermore, ROSCA provides additional protections for consumers 
who receive an offer from a third-party seller immediately after making 
an Internet purchase. Specifically, it requires that third-party 
sellers provide adequate disclosures and obtain affirmative consent and 
billing information directly from the consumer before imposing charges 
rather than charging the consumer using billing

[[Page 44276]]

information obtained from the initial seller.\63\
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    \63\ This provision applies to all Internet marketing, including 
negative option marketing.
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    The Commission recognizes that ROSCA does not apply to negative 
option marketing in media other than the Internet. However, as noted 
above, the record indicates that Internet marketing represents a large 
and growing share of negative option marketing. Accordingly, the 
Commission can and will continue to challenge deceptive or unfair 
negative option practices as needed under the Negative Option Rule, 
Section 5 of the FTC Act, the TSR, EFTA,\64\ and the PRA,\65\ and will 
consider whether changes in the marketplace warrant reevaluation of the 
Commission's rules as they apply to negative option marketing in 
specific contexts.
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    \64\ Among other things, EFTA prohibits imposing recurring 
charges on a consumer's bank account without written authorization. 
EFTA provides that the Commission shall enforce its requirements, 
except to the extent that enforcement is specifically committed to 
some other Government agency, and that a violation of any of its 
requirements shall be deemed a violation of the FTC Act. 
Accordingly, the Commission has authority to seek the same 
injunctive and monetary equitable relief for EFTA violations that it 
can seek for other Section 5 violations.
    \65\ The PRA provides that mailing unordered merchandise, or a 
bill or dunning communications for such merchandise, constitutes an 
unfair method of competition and an unfair trade practice in 
violation of Section 5 of the FTC Act. Accordingly, the Commission 
has authority to seek the same remedies for PRA violations that it 
can seek for other Section 5 violations. For example, the Commission 
can seek civil penalties pursuant to Section 5(m)(1)(B) of the FTC 
Act from violators who have actual knowledge that the Commission has 
found mailing unordered merchandise unfair.
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    The TSR, like ROSCA, addresses many of the negative option abuses 
identified by the comments. For example, the Commission previously 
addressed trial conversions and other negative option marketing in the 
context of outbound telemarketing by amending the TSR in 2003.\66\ In 
addition, the Commission recently proposed amending the TSR to prohibit 
the use of payment methods often used in deceptive marketing, including 
of negative options, such as unsigned checks and remotely created 
``payment orders.'' \67\ Furthermore, in May 2013, the Commission 
announced that it plans to initiate a regulatory review of the TSR.\68\ 
Commenters in that review can raise issues related to negative option 
marketing.
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    \66\ See Federal Trade Commission: Telemarketing Sales Rule; 
Final Amended Rule, 68 FR 4580, 4594-97 (Jan. 29, 2003) (codified at 
16 CFR 310.2(p), 310.2(u), 310.3(a)(1)(vii), and 310.6(b)(4)-(6)) 
(telemarketers must disclose all material terms and conditions of 
negative option offers, including ``free-to-pay conversion'' offers, 
in outbound telemarketing calls and upsells).
    \67\ Federal Trade Commission: Telemarketing Sales Rule; Notice 
of Proposed Rulemaking, 78 FR 41200 (July 9, 2013). The TSR Notice 
of Proposed Rulemaking noted negative option cases where the 
defendants used unauthorized remotely created checks. E.g., FTC v. 
FTN Promotions, Inc., Civ. No. 8:07-1279 (M.D. Fla. Dec. 30, 2008) 
(Stip. Perm. Inj.) (defendants allegedly caused more than $171 
million in unauthorized charges to consumers accounts for bogus 
travel and buyers' clubs in part by using unauthorized remotely 
created checks).
    \68\ Federal Trade Commission: Notice of Intent to Request 
Public Comments, 78 FR 30798 (May 23, 2013).
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    If the Commission concludes that ROSCA and its other enforcement 
tools do not provide adequate protection for consumers, it can then 
consider, based on a more complete record, whether and how to amend the 
Rule. The Commission can also consider whether to recommend that 
Congress amend ROSCA or take some other action.\69\
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    \69\ For example, the Commission could seek authority to conduct 
a rulemaking using more expeditious procedures than those set forth 
in Section 18.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2014-17978 Filed 7-30-14; 8:45 am]
BILLING CODE 6750-01-P