NEGATIVE OPTION OVERVIEW
WHY AM I BEING CHARGED?
READ FINE PRINT ON NEGATIVE OPTION SALES
Negative options or auto-renewal sales can be a great convenience for consumers. However, they can land businesses in HOT water with regulatory agencies when disclosures are missing or unclear. It’s important that negative options include several important disclosures that are clear and conspicuous.
When you buy something with a feature that provides continuing service or regular product shipments unless canceled, that’s a negative option sale. If you haven’t heard the term “negative option” before, you’re not alone.
This sales tactic is called a “negative” option because sellers can automatically take your lack of a response to mean that you want to keep buying their product or some additional service. These can continue indefinitely unless you specifically opt-out.
“A disclosure that is buried in a long paragraph of unrelated text will not be effective. Even though the unrelated information may be useful, advertisers must ensure that the disclosure is communicated effectively.”
The “Restore Online Shopper’s Confidence Act” (ROSCA) also lays out disclosure requirements.
TYPES OF NEGATIVE OPTIONS:
According to the FTC, there are four types of negative options.
- Automatic Renewal: The default setting is to renew the subscription at the end of each billing period, unless consumers specify not to renew.
- Continuity of Service: Consumers will continuously be billed for and receive products until they opt-out of the program.
- Free-to-Pay Conversion: The product will be free for a limited time, then the business will begin to auto bill your account until you opt-out of the program.
- Pre–Notification: Consumers will receive notices offering products or services, receive the items, and then be charged unless they opt-out.
AVOID CONFUSION: INCLUDE CLEAR DISCLOSURES
Per Section 18 of the BBB Code of Advertising, businesses must clearly and conspicuously disclose the following:
- The existence of the negative option.
- The cost of the additional goods or services.
- How consumers can cancel and avoid future shipments and charges.
- How consumers can return items that they do not want.
Advertisers must avoid making disclosures that are vague, unnecessarily long or include contradictory language.
Don’t take a consumer’s silence, failure to take an affirmative action to reject goods or services, or failure to cancel the agreement, as consent to enroll in the negative option. Instead, they must ensure consumers affirmatively consent (either online, over the phone, or in person) to the negative option prior to enrollment.
Don’t forget, misrepresentation may result not only from direct statements but by omitting or obscuring a material fact. Make sure you aren’t leaving out the important parts!
MAKE ENROLLMENT OBVIOUS
Ensure consumers are aware that they are enrolling before payment information is collected. BBB strongly recommends that advertisers require consumers to opt-in to auto-renewals rather than have to opt-out later on. Include an unchecked box rather than one already checked as a best practice.
In situations where consumers cannot opt-out when the order is placed, businesses must clearly disclose how consumers can leave the program. This should be visible with the enrollment feature or one click away with a clear link next to the feature.
WHAT DOES CLEAR AND CONSPICUOUS MEAN?
Clear and conspicuous essentially means that it won’t be missed. How disclosures are presented are entirely up to individual advertisers.
The FTC’s Operation Full Disclosure resulted in numerous offenders receiving warning letters and fines up to $10 million dollars. The agency has helpful guidance when it comes to the four C’s of Clear and Conspicuous which we’ve paraphrased below:
Prominence: Are the details big enough to read? Are they on screen long enough for normal readers to get through? Is the text a light shade on top of a light background? These are all questions advertisers needs to ask themselves to ensure disclosures are prominent. The platform doesn’t matter. Whether consumers see the ad on a home theatre or cell phone, disclosures must be large enough to read.
Presentation: Use easy to understand language. Avoid complex legal or technical terminology likely to cause consumer confusion. Don’t bury terms in large blocks of text. Avoid ALL CAPS when explaining important terms. Create a section just for these terms so you don’t have to lump them in with unrelated terms.
Placement: Geography matters! Is the disclosure where consumers are likely to look? An FTC settlement challenged a key disclosure that ran down the side of a print ad perpendicular to the main text as being ineffective. Another case dealt with information conveyed in small type in the upper left corner of a full-page newspaper ad. And given all the talk about footnotes, the bottom of the page or screen isn’t a place most consumers will look.
Proximity: Is the disclosure close to the claim it modifies? Tiny type aside, another problem with footnotes is their distance from the prominent headline or splashy text designed to draw the consumer in. If you need to include key qualifications or conditions, remember this maxim: What the headline giveth, the footnote cannot taketh away. And don’t think an asterisk will always solve the problem. There’s a reason it’s called an aste-risk.
Self-regulation is always easier and far cheaper than dealing with a regulatory lawsuit. If you ever have questions, BBB Serving North Central Texas provides free prior-to-publication review services. We’re happy to review anything for compliance with BBB standards. Email us at firstname.lastname@example.org.
The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.