The Attorneys General of several states with retail electric choice have filed a letter with the Federal Trade Commission regarding an FTC advanced notice of proposed rulemaking concerning negative option marketing

The Federal Trade Commission issued the ANOPR to seek comment on ways to improve its existing regulations for negative option marketing. The ANOPR did not include any proposals for new or revised regulations, but issued a series of questions for comments

While, as noted below, much of the focus is on trial conversions or "free-to-pay" transitions, the FTC ANOPR did specifically cite both "continuity plans" and "automatic renewals" and noted that the current rule does not cover common practices such as continuity plans, automatic renewals, and trial conversions

Moreover, as retail suppliers innovate and offer energy supply itself or broader energy ('comfort') service (and value-added services) under a subscription model, supplier's business models may be covered by any FTC rule, which may not be the case for traditional retail supply plans

The FTC requested input on whether and how it should use its authority under Section 18 of the FTC Act to expand the Negative Option Rule to address prevalent unfair or deceptive practices involving negative option marketing

A group of Attorneys General, including AGs from Illinois, New York, Maryland, Massachusetts, New Jersey, Pennsylvania and several other states urged the FTC to adopt additional regulations. A particular focus in the AGs' comments was trial conversion

The AGs specifically cited automatic renewals in stating, "The Commission is best positioned to determine whether the PNOR should be expanded or new regulations promulgated. Either way, a nuanced approach designed to address the different harms caused by different types of negative option plans is warranted. For example, where a consumer has agreed to pay for a magazine subscription for a specified time period, it is arguable that the consumer would view an auto-renew feature as a convenience and may expect an offer to include it. So, the safeguards needed under these circumstances to ensure informed consent may differ than those needed for other types of transactions, such as free-to-pay conversions, which tend to pose more risk of consumer deception or unfairness."

The AGs also cited as a current negative behavior in the consumer market the following:

In addition to establishing safeguards to ensure that companies obtain consumers’ informed consent to the terms of the offer, the Commission should also consider banning certain methods for obtaining informed consent that are inherently unreliable. For example, one national retailer has been offering negative option free-to-pay conversion programs to consumers on the checkout line as they pay for a purchase. Cashiers offer them the opportunity to receive free trial magazine subscriptions and/or other benefits, such as a discount on future purchases, without disclosing the material terms and conditions, including that after a trial period, consumers will be billed monthly for a membership program. The retailer then purports to use the consumer’s signature authorizing the purchase from the retailer as the consumer’s consent to be billed monthly on the same account for the membership program, relying on inconspicuous language printed on the sales receipt stating that by providing their signature to authorize their purchase and providing their birth date, consumers are agreeing to a monthly charge for a membership program. Not surprisingly, consumers have complained that they were unaware that they would be charged for the membership program. Including the terms of a negative option program on a sales receipt is an inherently unreliable means of obtaining consumers’ informed consent and should be prohibited.

See the FTC's ANOPR here

See the AGs' letter here

Tags:
Sales & marketing   FTC  

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