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The CFPB has issued a new circular (2023-01) addressing situations where “negative option marketing practices” may violate the CFPA’s prohibitions on unfair, deceptive, or abusive conduct or practices.
This Circular uses the term “negative option” to describe “the seller’s failure to take affirmative action to refuse consumer silence, products or services, or to cancel a contract. shall be construed as acceptance or continuation of the accept the offer. The CFPB provides the following example of a negative options program.
- An auto-renewal plan in which a consumer’s subscription is automatically renewed when it expires, unless the consumer actively cancels the subscription by a certain date.
- A plan in which a consumer agrees in advance to receive a product or service and continues to receive it until the contract is cancelled.
- A trial marketing plan in which a consumer receives a product or service for free (or at a reduced rate) for a trial period. After the trial period, consumers will be automatically charged a fee (or more) on a regular basis unless they actively cancel.
This notice states that a seller may commit a violation of the UDAAP if it (1) fails to clearly and conspicuously disclose the material terms of a negative option offer to the consumer and (2) fails to obtain the consumer’s informed consent. warn sellers offering negative option programs that they risk or (3) mislead consumers wishing to cancel, create unreasonable barriers to cancellation, or impede the effective operation of promised cancellation procedures. It is explained like this.
- Disclosure-Based UDAAP Violations. A representation or omission is “deceptive” if it is likely to mislead a reasonable consumer and is material. The CFPB considers a statement or omission to be “material” if it “contains information that is important to consumers and is therefore likely to influence product choices or behavior.” If the seller fails to disclose other material information, the nature of the product or service will be deemed deceptive. In assessing the meaning of an expression or abbreviation, the CFPB looks at the overall net impression of the communication (that is, it looks at the context of the entire advertisement, transaction, or course of the transaction rather than individual statements). CFPB lists the following: To the extent applicable, the terms of a negative option offer that are generally considered material:
- The consumer is registered and charged for the product or service.
- The amount (or range of amounts) charged to the consumer.
- That charge will occur periodically unless the consumer takes affirmative steps to cancel the product or service.
- In a trial marketing plan, charges begin (or increase) after the trial period unless the consumer takes affirmative action.
The CFPB said it would likely find a UDAAP violation if a seller misrepresented or failed to properly disclose any of these key terms, and provided examples of enforcement cases. As an example, the CFPB does not allow consumer reporting agencies to state that credit-related products are “free” when consumers who sign up for a “free” trial are automatically enrolled in a subscription program. It gives an example where it was found to be deceptive. Recurring monthly fee unless cancelled. Consumer research agencies disclosed negative optional features, but the CFPB deemed the disclosures “clear but unobtrusive.” At the bottom of the webpage, grouped with other disclosures. ”
- Consent-Based UDAAP Violations. The CFPB says that UDAAP violations are likely to be found if the seller fails to obtain the consumer’s informed consent before billing the consumer. The CFPB generally states that, for example, consent will not be communicated if the seller misunderstands or hides negative optional features, provides contradictory or misleading information, or interferes with the consumer’s understanding of the contract. consider it. As an example of a fraud allegation based on the merchant’s failure to obtain consumer informed consent, the CFPB found that the card issuer was unable to obtain the consumer’s consent when the card issuer It cites a case of a credit card add-on where the company was found to be involved in fraudulent activity. Receive information about add-on products rather than purchasing products. As an example of a wrongful claim based on a seller’s failure to obtain consumer informed consent, the CFPB states that a debt relief company may automatically reimburse a consumer on a periodic basis if a periodic claim is not clear. You are citing allegations that you engaged in unfair practices by making a claim to Explained or disclosed to the consumer at the time of purchase.
- Revocation-based UDAAP claims. The CFPB cites a finding that credit card issuers lied when they said consumers could cancel add-on products “immediately” and “no questions asked.” , then directed the sales representative to repeatedly refute the request for cancellation. As a result, consumers were often unable to cancel without multiple consecutive cancellation requests. According to the CFPB, in making this certification, the issuer’s cancellation statement was considered a cost statement and therefore a material statement. The CFPB also cites findings that merchants engaged in deceptive practices by misrepresenting the costs and benefits of products and services to persuade consumers not to cancel. . The CFPB said sellers would likely be violating the law if they created unreasonable barriers to cancellation or failed to honor cancellation requests made in accordance with established cancellation procedures. I am aware of the agreement of As an example of such conduct, the CFPB states:[h]Ann[ing] Increase in consumers calling to cancel.place[ing] They have been put on hold for an unreasonably long time.offer[ing] False information on how to cancel.or misrepresentation[ing] The reason for the delay in processing the consumer’s cancellation request. The CFPB raises the possibility that such conduct may be unjust, deceptive, or abusive conduct or practices, depending on the facts and circumstances.
The FTC took a position on negative option marketing in its October 2021 policy statement. The policy statement “notifies companies that they face legal action if their sign-up process is clear and pre-informed, obtains consumer informed consent, and does not facilitate cancellation.” To take enforcement action against negative option marketing, the FTC primarily sought to enforce Section 5 of the FTC Act (15 USC § 45(a)), the Restore Online Shoppers’ Confidence Act (15 USC §§ 8401-8405 ), which relies on Telemarketing Sales. Rule (16 CFR § 310), Use of Prior Notice Rule for Negative Plans (16 CFR § 425), Postal Reorganization Act (also known as Unordered Merchandise Rule) (39 USC § 3009), and Electronic Funds Transfer Act (15 USC §§ 1693-1693r).
In addition to federal law, some states have additional requirements regarding negative option marketing, such as California, Colorado, Delaware, and Illinois’ new auto-renewal laws. Given the focus at both the federal and state levels, companies are cautiously setting up negative option marketing for subscription services, especially as the CFPB and FTC implement guidance and new state laws take effect. As time goes on, we should expect scrutiny and possible enforcement of compliance issues. .
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