CFPB: Negative option marketing practices may violate the CFPA.Shepard, Malin, Richter & Hampton Law Office

On January 19, the CFPB issued Circular 2023-01 confirming that companies offering “negative option” subscription services must comply with the Federal Consumer Financial Protection Act. According to the circular, a “negative option” is a seller’s failure to silence the consumer, to take affirmative action to refuse the product or service, or to cancel the contract. Refers to terms that can be construed as continuing consent. Offers (see previous blog posts on negative option marketing here and here). The CFPB warns that negative option marketing practices may violate the prohibitions on unfair, deceptive, or abusive conduct or practices in her CFPA if the seller:

1. Misrepresent or fail to clearly and conspicuously disclose any material terms of the Negative Option Program.
2. Unable to obtain consumer informed consent.Also
3. Misleading consumers wishing to cancel, creating unreasonable barriers to cancellation, or failing to honor cancellation requests in accordance with promised cancellation procedures.

The circular emphasizes that negative option programs can be particularly harmful when combined with “dark patterns”. This can mislead consumers into purchasing subscriptions or other services with recurring fees, leaving them unable to cancel unwanted products or services or avoid fees. Because there is Citing recent CFPB and FTC enforcement, Circulars are used to deceive, mislead, and manipulate users in ways that are beneficial to businesses, but are often harmful to users or unintentional. We are addressing the rise of digital dark patterns designed to entice adverse behavior (here is our webinar on the recent enforcement of dark patterns in retail).

The CFPB notes that it receives complaints from consumers who are repeatedly billed for services they did not intend to purchase or do not want to continue purchasing, including complaints from older consumers. Some consumers report signing up for a subscription without knowing the program and its cost. Consumers also complain about the difficulty of canceling subscription-based services and charges to their credit card or bank account after requesting cancellation.

Practice: In addition to the CFPB and FTC, businesses have to contend with additional negative option marketing regulations from several states, including new auto-renewal laws in California, Colorado, Delaware, and Illinois. Given federal guidance and some of the more positive aspects of new state legislation, businesses should closely monitor federal and state enforcement related to continuous subscription programs and ensure that recurring billing or recurring It’s important to review subscription programs carefully. problem.