Companies utilizing the negative option feature should take note: the FTC has found a new avenue for obtaining monetary relief.
Following a unanimous ruling by the U.S. Supreme Court in April of this year that the Federal Trade Commission (FTC) could not rely on Section 13(b) of the FTC Act to invoke monetary penalties against companies, the commission’s approach to regulatory action has been evolving.
Part of that evolution is a drastic shift by the FTC in its use of the Restore Online Shoppers Confidence (ROSCA) Act, a federal statute that regulates sellers and the systems they use for charging consumers for products or services sold through the internet in negative option programs.
These negative option programs are defined by the FTC’s guidelines as: prenotification negative option plans, continuity plans, automatic renewals and free-to-pay conversion offers. Prenotification negative options include plans like music clubs where sellers send notices, and without consumer action, the product is shipped and consumers are charged. In continuity plans, customers receive periodic shipments of products until they cancel the agreement. Automatic renewals, like many magazine sellers offer, will resume service automatically after it expires unless a consumer cancels the subscription. With free-to-pay, sellers offer customers goods or services free of charge during a trial period. Afterward, sellers automatically charge a fee unless customers cancel or return the products.
In other words, negative option plans allow for a customer’s inaction or silence to be legally interpreted as acceptance of a seller’s offer. The spirit of the ROSCA Act is to help consumers avoid recurring payments for products or services they had no intention of buying, and to prevent obstacles for customers who want to cancel their orders and payments.
But in a recent complaint against MoviePass, the FTC leveraged the ROSCA Act in a never-before-seen way. While the FTC points out that MoviePass violated Section 5 of the FTC Act by throttling high-volume users of the app to deceptively limit their use of the subscription, which was advertised as “unlimited,” it is also saying that MoviePass’s failure to tell customers it would do so before obtaining their billing information violates ROSCA.
“The novelty here is that, for the first time, the Commission is treating a deception about the characteristics of the underlying product—not the negative option feature—as a violation of ROSCA,” Commissioner Noah Phillips wrote in his dissenting statement. “[…] Instead of examining whether consumers understood the negative option feature, had given consent to that, or were able to cancel in a simple way, this complaint instead looks to the characteristics of the product that MoviePass sold to some of its consumers.”