Last week, the Consumer Financial Protection Bureau
(“CFPB” or “Bureau”) published guidance
highlighting that negative option marketing practices, which
include products such as subscription plans and other products and
services that rely on automatic renewal, are on the Bureau’s
radar as a subject for potential investigations and enforcement
actions.
On January 19, 2023, the CFPB issued Circular 2023-01 (the
“Circular”),1 providing guidance on when
so-called “negative option marketing practices” may
violate the prohibition against unfair, deceptive, or abusive acts
or practices (“UDAAP”) in the Consumer Financial
Protection Act (“CFPA”). According to the CFPB, negative
options are terms or conditions “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.”
Negative options are also commonly referred to as subscription
plans, automatic renewal plans, continuity plans, and trial
marketing plans.
The CFPB noted that the Circular “is generally in
alignment” with the Federal Trade Commission’s
(“FTC”) 2021 policy statement on negative option
practices.2 Indeed, the Circular appears to reflect the
CFPB’s attempt to enforce certain practices prohibited by the
Restore Online Shoppers’ Confidence Act (“ROSCA”)
(which is not within the CFPB’s authority to enforce) as
violations of the prohibition against UDAAPs under the CFPA (which
is within the CFPB’s authority to enforce). ROSCA, which is
enforced by the FTC and state attorneys general, requires (1)
disclosure of all material terms before payment information is
obtained, (2) express informed consent, and (3) an easy means of
cancellation. As detailed below, the Circular focuses on similar
themes and describes acts and practices that could be considered
unfair or deceptive. (Businesses engaged in negative option
marketing should also review the FTC’s policy statement, which
outlines several additional requirements for compliance with
ROSCA.)
The CFPB’s guidance highlighted three negative option
marketing practices that, in the CFPB’s view, may violate the
CFPA’s prohibition against UDAAPs:
1. Failing to clearly and conspicuously disclose the
material terms of the negative option offer. The CFPB
specified that a covered person may violate the law if they fail to
disclose the following material terms of the negative option offer
itself:
- that the consumer is enrolling in and will be charged for the
product or service; - the amount that will be charged;
- that charges will be on a recurring basis unless the consumer
takes affirmative steps to cancel the product or service; and - if there is a trial marketing plan, charges will begin or
increase after the trial period unless the consumer takes
affirmative action.
In the past, the CFPB has brought an enforcement action against
a covered person who, for example, allegedly advertised a
“free” trial when consumers were automatically enrolled
in a subscription program with a monthly fee unless they cancelled
and did not clearly and conspicuously disclose the fee. The CFPB
also initiated an enforcement action against a covered person who
allegedly did not adequately inform consumers about the cost of
add-on products.
2. Failing to obtain informed consumer consent.
According to the CFPB, consumer consent is not informed if the
covered person mischaracterizes or conceals the negative option
feature, provides contradictory or misleading information, or
otherwise interferes with the consumer’s understanding of the
agreement. The CFPB has brought actions against covered persons who
allegedly falsely represented to consumers that they were agreeing
to receive information about an add-on product when, in reality,
the consumers were purchasing the product.
3. Misleading consumers who wish to cancel, erecting
unreasonable barriers to cancellation, or impeding the effective
operation of promised cancellation procedures. Similar to
views expressed in the FTC’s 2021 policy statement, the CFPB
noted that covered persons may violate the law if they fail to
honor cancellation requests or otherwise prevent consumers from
cancelling, such as by hanging up on consumers, placing them on
hold for an unreasonably long time, providing false information
about how to cancel, or misrepresenting the reasons for delaying
cancellation requests. Prior enforcement actions by the CFPB
include actions against covered persons who allegedly required
consumers to repeatedly demand cancellation despite representing
that consumers could cancel immediately and making
misrepresentations about the costs and benefits of products and
services in an attempt to persuade consumers not to cancel.
Notably, in the Circular, the CFPB is less aggressive on this front
than is the FTC, which, relying on ROSCA’s requirements for a
“simple” means of cancellation, has said that companies
must allow cancellation in the same manner as sign-up (i.e.,
internet signups cannot be required to cancel by phone). Though
unstated, the likely reason for this discrepancy is that the CFPB
lacks authority to enforce ROSCA itself and thus is trying to
retrofit its UDAAP authorities to the extent possible to cover the
same subject matter.
The Circular warns that a person who fails to comply with the
requirements for negative option marketing risks violating the
prohibition against UDAAPs under the CFPA as well as the Electronic
Fund Transfer Act and its implementing regulation, Regulation E,
which prohibit preauthorized electronic fund transfers from a
consumer’s bank account without written authorization. The
Circular also reminds companies that the CFPB may also bring
actions related to negative option marketing under the
Telemarketing Sales Rule (“TSR”), which prohibits
deceptive acts or practices by telemarketers specifically. In
addition to the CFPB’s authority to enforce violations related
to negative option marketing, the FTC can also bring enforcement
actions under Section 5 of the FTC Act, ROSCA, and the TSR.
The Circular is only the latest in a series of efforts by the
Biden-Harris administration, the CFPB, and the FTC to combat
purported “junk fees”3 and “dark
patterns,” the latter of which is a term the agencies have
started using to refer to deceptive practices not related to the
product or service itself. Last year, for example, the CFPB issued
a request for information on junk fees, which it defines as
mandatory or quasi-mandatory fees added at some point in the
transaction after a consumer has chosen the product or service
based on a front-end price, and published fee-related guidance for
debt collectors4 and depository
institutions.5 And the FTC recently published an
extensive report on so-called dark patterns, which it describes as
“design practices that trick or manipulate users into making
choices they would not otherwise have made and that may cause
harm.”6 The Circular specifies that negative option
programs and dark patterns can be particularly harmful when
combined, as they may cause consumers to be misled into purchasing
services with recurring charges and make it difficult to cancel or
otherwise avoid those charges. The CFPB also highlights that it has
received consumer complaints about these negative option programs,
including from older Americans.
Businesses that offer subscription plans or similar services
should consider taking a careful look at their current practices
and options. These plans continue to be an area of focus for the
CFPB and FTC, and both agencies can impose significant monetary and
injunctive penalties for violations of law. Mayer Brown is
available to assist with any questions businesses may have about
this Circular and compliance with related legal requirements.
Footnotes
1. CFPB, Circular 2023-01, Unlawful Negative Option
Marketing Practices (Jan. 19, 2023),
https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2023-01-unlawful-negative-option-marketing-practices/#6.
2. FTC, Enforcement Policy Statement Regarding Negative
Option Marketing (Oct. 28, 2021), https://www.ftc.gov/system/files/documents/public_statements/1598063/negative_option_policy_statement-10-22-2021-tobureau.pdf.
3. CFPB, Request for Information Regarding Fees Imposed
by Providers of Consumer Financial Products or Services (Jan. 26,
2022), https://files.consumerfinance.gov/f/documents/cfpb_fees-imposed-by-providers-of-consumer-financial-products-services_rfi_2022-01.pdf.
4. CFPB, Advisory Opinion, Debt Collection Practices
(Regulation F); Pay-to-Pay Fees (June 29, 2022), https://files.consumerfinance.gov/f/documents/cfpb_convenience-fees_advisory-opinion_2022-06.pdf.
5. CFPB, Circular 2022-06, Unanticipated Overdraft Fee
Assessment Practices (Oct. 26, 2022), https://files.consumerfinance.gov/f/documents/cfpb_unanticipated-overdraft-fee-assessment-practices_circular_2022-10.pdf.
6. FTC, Bringing Dark Patterns to Light (Sept. 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/P214800
Dark Patterns Report 9.14.2022 – FINAL.pdf.
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