How to Stay Compliant with Online Subscription Regulations
Online subscriptions are one of the most convenient ways for businesses to transact goods and services, but if you want to enjoy that convenience, you have to make sure that you're returning the favor to your customers. The FTC has cracked down on the laws surrounding subscription services in attempts to protect consumers from deceptive sales tactics, so keep your cancellation process straight-forward, and prioritize consumer consent. Here’s what you need to know:
What are the rules?
The Negative Option Rule (NOR) states that the following material terms must be clearly disclosed before one’s subscription begins and any transactions are completed:
The subscriber’s right to cancel
How subscribers are to notify the seller if they don’t want to purchase a selection
Any minimum purchase requirements
That subscribers have at least 10 days to reject a selection
That if any subscriber is not given at least 10 days’ notice to reject, then the seller will credit the return of the selection (as well as shipping and handling if applicable)
Whether billing charges include shipping and handling
The frequency with which announcements and forms will be sent to the subscriber
Keep these details in your initial terms of service that consumers must agree to. You also must provide periods where you send introductory merchandise, give consumers time to respond to any announcements you’ve sent out, and always promptly honor any cancellation requests.
All of these regulations apply to any third-party sellers as well. Third parties are responsible for having all the same terms in place as the initial seller, and are prohibited from accessing consumers’ billing information from the initial seller.
Who is issuing these rules?
The Federal Trade Commission (FTC) issued the Negative Option Rule. They’re a U.S. Government agency in charge of addressing unfair business practices and protecting consumers’ rights.
The U.S. Congress enacted the Restore Online Shoppers’ Confidence Act (ROSCA) which has similar provisions to the Negative Option Rule, but with an extension. It includes limitations on the information that third parties can have access to in addition to prohibiting recurring charges without explicit consumer consent.
The Biden Administration’s “Time is Money” Initiative also included efforts to eliminate “junk fees” which targeted online subscriptions and negative option marketing. These efforts were meant to be executed by the FTC’s Final Rule which was a substantial addition to their original Negative Option Rule, but it was overturned.
Wait, so what’s the Final Rule?
The FTC’s Final Rule, otherwise known as the Click-to-Cancel Rule, was scheduled to take effect in July 2025, but was blocked by a federal appeals court only days before due to a procedural error on the part of the FTC. It aimed to significantly tighten the leash on online sellers and put forth an even stricter set of regulations on top of those already in place, but sparked controversy among some politicians and lobbying groups. It is currently struck down, but could potentially resurface in the next year or so.
What happens when regulations aren’t complied with?
Failure to comply can end up being very costly for your business.
In New York, there is a penalty of as much as $500 for a single violation and $1,000 for multiple violations resulting from a single act
Federal violations (ROSCA and NOR) violations can be as much as $53,088
You also have to look out for settlements → in New York over the last decade, there have been 23 negative-option-related settlements which have stockpiled over $10 million in consumer recompense and $14 million in penalties and fees
Your Next Steps
Review your terms of service and ensure that they clearly state all the material terms listed above.
Confirm that consumers must explicitly agree to these terms and give consent to negative option transactions.
Keep on top of all cancellation requests. The sooner they’re addressed, the better.
Stay in the loop regarding these regulations and keep in mind that the FTC hopes to enact stricter rules in the future.
Got Questions? Need your terms of service checked out?
We offer free consultations. Book a time with us here: https://long.law/intake