In January 2009, the FTC published the results of a workshop it held two years earlier on negative options, particularly those that sprout near and around many Internet sales. How many times have you discovered a charge on your credit card that looks suspicious, and you call the reference telephone number and learn that you actually signed up for a membership to some club when you purchased that shirt, that flash drive, or that book online? These are the sort of negative options that the FTC is most concerned about.

Negative options such as these are sometimes referred to as “free-to-pay” conversion plans. Under these plans, a consumer receives goods or services for free (or for a nominal fee) for a trial period. After the trial period, the seller automatically begins to charge a fee (or a higher fee) unless the consumer affirmatively cancels or returns the goods or services. Often, these sorts of “free-to-pay” plans are placed in conjunction with another purchase. An upsell occurs when a consumer completes a transaction and then receives a solicitation for an additional product or service.

The FTC outlined five principles that should be kept in mind when structuring a negative option plan. First, marketers should disclose the material terms of the offer in an understandable manner. Second, marketers should make the appearance of the disclosures clear and conspicuous. In the Internet context, this second point means that a marketer should place the disclosures in a location on the webpage where consumers are likely to see them, and in a form that is easy to read. Third, marketers should disclose the offer’s material terms before the consumers pay or incur a financial obligation. Making these disclosures more than once is favored by the Commission. Fourth, marketers should obtain consumers’ affirmative consent to the offer. [WHOA! Wait a minute. I thought this blog entry was about negative options! What’s up with “affirmative consent”?] Basically, to demonstrate their consent, the FTC wants marketers to make consumers click a button that says “I accept” or “I agree.” Really, it’s still a negative option because you are simply agreeing to the fact that if you do nothing, you’ll be charged. Finally, marketers should not impede the effective operation of promised cancellation procedures. This is the big one. You can disclose as much as you want, but if the phone number or URL used for cancellation is ineffective, or if the wait on the phone in interminable, the FTC will consider this a frustration of the cancellation procedure, and could determine that it is a violation of § 5 of the FTC Act.

Why this matters. There has been an explosion of free-to-buy conversion negative option offers on the Internet, and the FTC believes that there may be a significant amount of abuse out there with regard to such offers. States such as Washington have also actively sought to beef up their negative option statutes to take into account these more modern methods that tend to produce significant regulatory concern. Where there is a workshop report, FTC enforcement is never far away. So Internet marketers: proceed with caution and keep these five principles in mind.