When does the renewal have to be disclosed to an online buyer?

Before the seller obtains the consumer's billing information, and the disclosure must be clear and conspicuous. Timing alone does not settle the question, because placement matters too: in the Instacart complaint, the FTC alleges that the only disclosure of a charge sat in fine print below the enrollment button.

Can the renewal term live only in a terms-and-conditions link?

Relying only on a link is a practice the FTC has challenged. The CFPB's own review of negative option cases points the same way: disclosures shown in fine print, in low contrast, and in a less prominent place such as the bottom of a web page were neither clear nor conspicuous.

Does the same analysis apply to a free trial that rolls into a paid plan?

The same disclosure, consent, and cancellation questions arise, because a trial that converts to a paid plan is treated as a negative option alongside automatic renewals. That list comes from the stipulated final judgment and order in FTC v. Think All Publishing. In the Amazon Prime matter, the first term the FTC said was not clearly disclosed was that the free trial automatically converted into a paid subscription.

Do these rules reach a renewal sold by phone?

ROSCA's prohibition is written for transactions effected on the Internet, so telemarketed renewals are addressed through the Telemarketing Sales Rule. That rule prohibits deceptive acts or practices by telemarketers, including failing to disclose the material terms of a negative option feature of an offer.

How easy does cancelling an automatic renewal have to be?

ROSCA requires the seller to provide a simple mechanism to stop recurring charges. The CFPB's Circular 2023-01 adds that a seller may violate the Consumer Financial Protection Act by misleading consumers who want to cancel or by erecting unreasonable barriers to cancellation. The Shutterstock complaint points to long phone wait times, multiple follow-up steps for email cancellation, and multipage online flows as the kind of obstacles that defeat a simple mechanism.

BillingLegal test

Automatic renewal

Also known as "Continuous service"

Berkeley Robinson, Managing Attorney at Robinson Law Firm PLLC

Author

Berkeley Robinson, Esq.

Managing Attorney, Robinson Law Firm PLLC

Berkeley has served as the go-to counsel for many scaling businesses in a transactional and litigation management capacity. Before becoming an attorney, Berkeley grew sales teams, ran online marketing campaigns, and did everything else an entrepreneur does—and still does today as the founder of two online businesses.

Definition

In consumer protection, an automatic renewal is a plan in which a consumer's subscription is automatically renewed when it expires, and the seller charges for the renewal, unless the consumer affirmatively cancels before a certain date. Source: Consumer Financial Protection Bureau, Circular 2023-01: Unlawful Negative Option Marketing Practices It is one kind of negative option, meaning a provision under which the consumer's silence or failure to take an affirmative action to reject products or services or to cancel the agreement is interpreted by the seller or provider as acceptance of the offer. Source: FTC v. Think All Publishing, L.L.C., Stipulated Final Judgment and Order for Permanent Injunction

Key legal rules

Because an automatic renewal is a negative option plan, the main rules govern what the seller discloses, what consent it obtains, and how the consumer can stop the charges:

Under the Restore Online Shoppers' Confidence Act (ROSCA), 15 U.S.C. § 8403, a seller generally may not charge consumers for goods or services sold in transactions effected on the Internet through a negative option feature unless the seller (1) clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information, (2) obtains the consumer’s express informed consent before making the charge, and (3) provides a simple mechanism to stop recurring charges. Source: FTC, Complaint for Permanent Injunction and Other Equitable Relief (quoting 15 U.S.C. §§ 8401–8404)
Negative option marketing practices may violate the Consumer Financial Protection Act's prohibition on unfair, deceptive, or abusive acts or practices where a seller (1) misrepresents or fails to clearly and conspicuously disclose the material terms of a negative option program; (2) fails to obtain consumers’ informed consent; or (3) misleads consumers who want to cancel, erects unreasonable barriers to cancellation, or fails to honor cancellation requests that comply with its promised cancellation procedures. Source: Consumer Financial Protection Bureau, Consumer Financial Protection Circular 2023-01: Unlawful negative option marketing practices
Under the Consumer Financial Protection Act, a representation or omission is deceptive if it is likely to mislead a reasonable consumer and is material. Source: CFPB Circular 2023-01, Unlawful negative option marketing practices
Where a seller makes a partial disclosure about the nature of a product or service, its failure to disclose other material information may be deceptive. Source: CFPB Circular 2023-01, Unlawful negative option marketing practices
The material terms of a negative option offer would typically include, to the extent applicable, that the consumer is enrolling in and will be charged for the product or service, the amount (or range of amounts) the consumer will be charged, and that charges will be on a recurring basis unless the consumer takes affirmative steps to cancel. Source: CFPB Circular 2023-01, Unlawful negative option marketing practices
In a ROSCA claim, whether renewal disclosures are clear and conspicuous is judged from the standpoint of a reasonable consumer, in light of the context in which the disclosures were made and the size, color, and location of the text. Source: FTC v. Amazon.com, Inc., No. 2:23-cv-00932-JHC

For the sake of space, this page lists only the primary rules related to this term that most businesses should follow. More may apply to your situation, and your unique facts affect how they apply.

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Why these rules exist

Negative option programs can cause serious harm to consumers who do not wish to receive the products or services for which they are charged, and the harm is most likely to occur when sellers mislead consumers about terms and conditions, fail to obtain informed consent, or make it difficult to cancel. Source: Consumer Financial Protection Bureau, Circular 2023-01: Unlawful Negative Option Marketing Practices The online duties line up with those three failure points. An automatic renewal bills a consumer who has done nothing, so the only chances to prevent an unwanted charge are before the card is taken, at the moment of consent, and later when the consumer tries to stop the charges. Congress passed the Restore Online Shoppers' Confidence Act because, in the words of that statute's findings, the Internet "must provide consumers with clear, accurate information and give sellers an opportunity to fairly compete with one another for consumers’ business." Source: FTC, Complaint for Permanent Injunction and Other Equitable Relief (quoting 15 U.S.C. §§ 8401–8404)

Enforcement examples

FTC v. AMG Capital Management (payday loans)

FEDERAL TRADE COMMISSION v. AMG CAPITAL MANAGEMENT, LLC (9th Cir.), Brief of the Federal Trade Commission, 16-17197 - November 28, 2017

The loan disclosures told borrowers that the payment schedule would consist of "1 payment" equal to the total of payments, due on their next payday. Source: FTC v. AMG Capital Management, LLC, No. 16-17197 (9th Cir. Nov. 28, 2017) (Brief of the Federal Trade Commission) The FTC's brief says Tucker did something different: on the due date he withdrew only the finance charge and then automatically "renewed" the loan for an additional period without informing the borrower. Source: FTC v. AMG Capital Management, LLC, No. 16-17197 (9th Cir. Nov. 28, 2017) (Brief of the Federal Trade Commission) The only clue to this was an asterisk next to the word "decline," which corresponded to another asterisk buried deeper in the fine print. Source: FTC v. AMG Capital Management, LLC, No. 16-17197 (9th Cir. Nov. 28, 2017) (Brief of the Federal Trade Commission)

Outcome. The brief argues that consumers were never given an option to renew that they could decline, because renewal was automatic and could be avoided only through a convoluted process. Source: FTC v. AMG Capital Management, LLC, No. 16-17197 (9th Cir. Nov. 28, 2017) (Brief of the Federal Trade Commission) On that account, only about 6-8% of consumers managed to navigate the process and cancel automatic renewals during the first loan period. Source: FTC v. AMG Capital Management, LLC, No. 16-17197 (9th Cir. Nov. 28, 2017) (Brief of the Federal Trade Commission)

FTC v. Amazon (Prime subscription)

FTC v. Amazon, Order Denying Defendants’ Motions to Dismiss

During checkout for a purchase on Amazon's online marketplace, customers were offered a 30-day free trial of Amazon Prime to get 2-day free shipping. Source: FTC v. Amazon.com, Inc., No. 2:23-cv-00932-JHC The FTC argued that three material terms were not clearly and conspicuously disclosed: that the free trial automatically converted into a paid subscription, the monthly cost of Prime after the trial, and that consumers were enrolling in Prime at all. Source: FTC v. Amazon.com, Inc., No. 2:23-cv-00932-JHC

Outcome. The court declined to dismiss on the ground that Amazon's webpages showed compliance with ROSCA. Where it is possible that a reasonable consumer would not find the disclosures of the material terms clear and conspicuous, the court could not determine as a matter of law that the FTC failed to state a claim. Source: FTC v. Amazon.com, Inc., No. 2:23-cv-00932-JHC The price of Prime and the fact that the subscription automatically renewed were bolded, but they appeared in smaller black-and-white text at the bottom of the page, while larger or colorful text at the top told consumers they were receiving the gift of a free trial. Source: FTC v. Amazon.com, Inc., No. 2:23-cv-00932-JHC

FTC v. Instacart (grocery delivery membership)

FTC v. Instacart, Complaint for Permanent Injunction, Monetary Judgment, and Other Relief

The complaint alleges that the most common Instacart+ promotion was a 14-day free trial that automatically renewed into a paid annual subscription unless the consumer affirmatively cancelled the renewal or elected a monthly subscription instead. Source: FTC v. Instacart, Complaint for Permanent Injunction, Monetary Judgment, and Other Relief In most instances, it says, nothing on the upsell screen above the enrollment button clearly disclosed that consumers would be enrolled in a paid membership and charged after the trial, and the only disclosure of a charge was in fine print below the button. Source: FTC v. Instacart, Complaint for Permanent Injunction, Monetary Judgment, and Other Relief The complaint further alleges that in most instances the screen did not tell consumers they were enrolling in a paid membership that would automatically renew each year unless canceled. Source: FTC v. Instacart, Complaint for Permanent Injunction, Monetary Judgment, and Other Relief

Outcome. According to the complaint, consumers who clicked the call-to-action button were immediately enrolled in a free trial with a default automatic renewal into a recurring, paid annual subscription. Source: FTC v. Instacart, Complaint for Permanent Injunction, Monetary Judgment, and Other Relief The complaint adds that Instacart required no additional affirmative step before charging for the annual subscription after the trial ended. Source: FTC v. Instacart, Complaint for Permanent Injunction, Monetary Judgment, and Other Relief

FTC v. Shutterstock (stock content subscriptions)

FTC v. Shutterstock, Inc., Complaint for Permanent Injunction, Monetary Judgment, and Other Relief

The complaint alleges that Shutterstock promoted its "annual, paid monthly" plan as a simple arrangement of limited duration without disclosing that the plan automatically renews. Source: FTC v. Shutterstock, Inc., Complaint for Permanent Injunction, Monetary Judgment, and Other Relief Consumers who tried to cancel, it alleges, found for the first time a substantial cancellation fee that was also not adequately disclosed, and a "free trial" automatically converted into the same plan without adequate disclosure. Source: FTC v. Shutterstock, Inc., Complaint for Permanent Injunction, Monetary Judgment, and Other Relief The cancellation obstacles it describes include long wait times for phone cancellation, multiple follow-up steps for email cancellation, and multipage online cancellation flows. Source: FTC v. Shutterstock, Inc., Complaint for Permanent Injunction, Monetary Judgment, and Other Relief

Outcome. The FTC brought the action under Section 5(a) of the FTC Act and ROSCA, and it sought a permanent injunction, monetary relief, and other relief. Source: FTC v. Shutterstock, Inc., Complaint for Permanent Injunction, Monetary Judgment, and Other Relief

Exposure

A violation of the Restore Online Shoppers' Confidence Act (ROSCA) is a violation of a rule promulgated under Section 18 of the FTC Act regarding unfair or deceptive acts or practices, and the FTC enforces ROSCA with the same jurisdiction, powers, and duties it has under the FTC Act. Source: FTC, Complaint for Permanent Injunction and Other Equitable Relief (quoting 15 U.S.C. §§ 8401–8404) Section 5 of ROSCA, 15 U.S.C. § 8404, also authorizes a court to grant such relief as it finds necessary to redress injury to consumers or other persons, including the rescission and reformation of contracts and the refund of money. Source: FTC, Complaint for Permanent Injunction and Other Equitable Relief (quoting 15 U.S.C. §§ 8401–8404)

In practice, the FTC's pleadings ask for more than refunds. In the Shutterstock complaint, the FTC seeks a permanent injunction, monetary relief, and other relief under both the FTC Act and ROSCA. Source: FTC v. Shutterstock, Inc., Complaint for Permanent Injunction, Monetary Judgment, and Other Relief A business also cannot count on an early exit from that kind of case. In the Amazon Prime matter, the court refused to dismiss the FTC's ROSCA claims because a reasonable consumer might not have found the renewal disclosures clear and conspicuous. Source: FTC v. Amazon.com, Inc., No. 2:23-cv-00932-JHC

FAQs

1.Circular 2023-01 Unlawful negative option marketing practices. Consumer Financial Protection Bureau, Circular 2023-01: Unlawful Negative Option Marketing PracticesSee also FTC v. Think All Publishing, L.L.C. and Yuri Mintskovsky - Stipulated Final Judgment and Order for Permanent Injunction. FTC v. Think All Publishing, L.L.C., Stipulated Final Judgment and Order for Permanent Injunction
2.FTC v. Think All Publishing, L.L.C. and Yuri Mintskovsky - Stipulated Final Judgment and Order for Permanent Injunction. FTC v. Think All Publishing, L.L.C., Stipulated Final Judgment and Order for Permanent Injunction
3.Complaint for Permanent Injunction and Other Equitable Relief. FTC, Complaint for Permanent Injunction and Other Equitable Relief (quoting 15 U.S.C. §§ 8401–8404)