Do “negative option” subscription services constitute unfair or deceptive practices under the Consumer Financial Protection Act (CFPA)? According to the Consumer Financial Protection Bureau (CFPB) in its recent circular, these subscription services may violate the CFPA when a seller: 1) misrepresents or fails to clearly disclose the material terms of the 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.

According to the CFPB, a “negative option” subscription service refers to a situation where a seller may interpret a consumer’s silence, failure to take an affirmative action to reject the service, or failure to cancel an agreement as acceptance of the subscription. Examples include: automatic renewal plans where consumers’ subscriptions are automatically renewed when they expire unless consumers cancel by a certain date; continuity plans where consumers agree to continue receiving a product or service until they cancel the agreements; and trial marketing plans where consumers receive products or services for free (or for a reduced fee) for a trial period and, after the trial period, are automatically charged a recurring fee unless they affirmatively cancel.

The CFPB’s stated impetus for targeting “negative option” subscriptions is in response to consumer complaints, including from older consumers, about being repeatedly charged for services they did not intend to buy or no longer want. This is part of a bigger initiative by the CFPB and the Federal Trade Commission to combat “dark patterns,” or website design features allegedly used to trick or trap consumers, previously discussed here.

In its circular, the CFPB warns covered persons that they risk violating the CFPA if they fail to:

  • Disclose the material terms of the offer.
    • The material terms would typically include: that the consumer is enrolling in and will be charged for the service; the amount that the consumer will be charged; that charges will be on a recurring basis unless the consumer takes affirmative steps to cancel; and that, in a trial marketing plan, charges will begin (or increase) after the trial period unless the consumer takes affirmative action.
  • Obtain informed consent.
    • Consent will generally not be informed if a seller mischaracterizes or conceals the “negative option” feature or provides contradictory or misleading information.
  • Erect unreasonable barriers to cancellation.
    • Such conduct would include hanging up on consumers who call to cancel, placing consumers on hold for an unreasonably long time, providing false information about how to cancel, or misrepresenting the reasons for delays in processing consumers’ cancellation requests.

As discussed here, the CFPB filed a complaint late last year against a company over its “negative option” subscription service. In that case, the CFPB alleged that Active Network LLC tricked people trying to sign up for a fundraising race or other community event into subscribing to its discount club Active Advantage. The Active Advantage trial membership automatically converted to a paid subscription with an annual fee of $89.95, unless consumers opted out or canceled.

Troutman Pepper will continue to monitor important developments involving the CFPB and its “dark patterns” initiative and will provide further updates as they become available. Also, in February, the Consumer Finance Podcast will be releasing an episode discussing autorenewals, including how to avoid liability.

Photo of Mark Furletti Mark Furletti

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial services across numerous industries.

Photo of Stefanie Jackman Stefanie Jackman

Stefanie takes a holistic approach to working with clients both through compliance counseling and assessment relating to consumer products and services, as well as serving as a zealous advocate in government inquiries, investigations, and consumer litigation.

Photo of Chris Willis Chris Willis

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending…

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.

Photo of Jill Dolan Jill Dolan

Jill focuses her practice on consumer financial services law, particularly on federal and state law compliance matters. She advises financial institutions, lenders, and sales finance companies in the development and maintenance of closed-end and open-end lending and other programs. Jill’s experience includes drafting…

Jill focuses her practice on consumer financial services law, particularly on federal and state law compliance matters. She advises financial institutions, lenders, and sales finance companies in the development and maintenance of closed-end and open-end lending and other programs. Jill’s experience includes drafting credit card agreements and marketing agreements, regulatory review of advertising, and development and marketing of new products, including credit cards, lines of credit, installment loans, retail installment contracts, and rental-purchase transactions. The matters she advises on include the Truth in Lending Act (TILA), the Fair Credit Reporting Act (FCRA), the Equal Credit Opportunity Act (ECOA), the Telephone Consumer Protection Act (TCPA), and the Electronic Fund Transfer Act (EFTA).

Photo of Caleb Rosenberg Caleb Rosenberg

Caleb is an associate in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and…

Caleb is an associate in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small businesses in the credit and alternative finance products industry.