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Consumer Rights
Negative Option Marketing
Commerce used to be simpler. Merchants would open their stores for business, and consumers would decide whether to walk in the door and what to buy. In today’s consumption-driven environment, however, some merchants take it upon themselves to make the purchasing decision for the consumer. If you are not paying close attention, you could end up paying for something you do not need or want.
For example, some internet retailers engage in a practice known as Negative Option Marketing, in which they automatically sign the consumer up for a product or service—often a membership program of dubious value—unless the consumer chooses not to receive the offer.
This process turns the sales transaction on its head. Instead of a merchant having to sell you a product or service, the merchant starts with the assumption that you have already purchased it. It is then up to you, the consumer, to contact the merchant and cancel the order if you don’t want to complete the transaction.
Negative Option Marketing is commonly utilized by companies selling gym memberships, social networking services, media downloading sites, subscriptions, software, and cellular phone services. In 2009, the Federal Trade Commission (FTC) published a report on the problems that Negative Option Marketing poses for consumers. That same year, the U.S. Senate Committee on Commerce, Science, and Transportation also published a report entitled “Aggressive Sales Tactics on the Internet and Their Impact on American Consumers,” which specifically explores the use of Negative Option Marketing online.
Some examples of negative option marketing may include:
- A music club sends you an offer for a CD and then later sends you the CD if you do not first write the club and explain that you do not wish to purchase the CD (referred to as a pre-notification negative option plan).
- You agree in advance to receive shipments of facial crème every three months until you affirmatively call and cancel future shipments (referred to as a continuity plan).
- You pay an annual subscription for a magazine, and the magazine automatically renews and charges you for an additional year subscription after your first year expires unless you first call and cancel your subscription (referred to as an automatic renewal).
- You sign up for a free trial membership to an online social networking website, and after the trial period, the social networking site begins to charge you a fee unless you first affirmatively cancel your membership (referred to as free-to-pay or nominal-fee-to-pay conversion offers).
- You purchase an airline ticket online, and during the check-out process, you notice a pre-checked box for travelers insurance (referred to as an internal upsell offer).
- You purchase clothing at an online retailer, and after your transaction is complete, you receive a pop-up message offering you a membership to a rewards program if you complete a survey. Buried in the small print on the page that the pop-up directs you to is notification that the rewards program includes a monthly fee, and the company offering this program will obtain your credit card information from the retailer from whom you just shopped in order to charge the fee (referred to as an external upsell offer).
Depending on the circumstances, these types of practices can violate state consumer protection laws that prohibit unfair and deceptive business practices. Further, many states specifically impose restrictions on automatic renewal provisions, one form of Negative Option Marketing. For example, California requires most companies that utilize automatic renewal provisions to disclose the renewals in a clear and conspicuous manner before the commencement of the contractual relationship, including disclosure of full terms, the cancellation policy, and instructions on how to cancel the contract.
In addition, a federal law, known as the Restore Online Shoppers’ Confidence Act, requires online merchants to:
- Disclose when they are not affiliated with the referring merchant
- Provide a clear description of the product or service they’re offering
- Obtain informed consent expressly from consumers before enrolling them in recurring, fee-based programs
- Disclose the terms of any recurring, fee-based programs, including instructions for membership cancellation
- Require consumers to enter all 16 digits of his or her credit card in order to accept a post-transaction marketing offer
For more information related to unauthorized contracts, visit our investigation page.
