ESA Praises Court's Reversal of FTC Rule on Negative Option Sales Strategy
The Electronic Security Association (ESA) has hailed a significant victory following the Eighth Circuit Court of Appeals' decision to strike down the Federal Trade Commission's (FTC) revised Negative Option Rule. The ruling, which has broader implications for industries that use negative option plans, such as subscription services for security monitoring or other recurring services, offers regulatory relief to companies that would have been subject to the stricter requirements for canceling subscription services.
The ESA, along with the U.S. Chamber of Commerce and other petitioners, had challenged the rule last fall, citing concerns about its potential impact on the national economy, estimated to be more than $100 million annually, and the risks of accidental cancellations that could leave families, businesses, and communities vulnerable.
The broad definition of Negative Options had the potential to affect businesses across nearly every consumer-facing industry. The FTC defined "Negative Options" as arrangements where consumer silence or failure to take affirmative action is interpreted as acceptance or continuing acceptance of the offer. The rule's potential impact on the electronic security and life safety industries was particularly concerning, as these services are essential, continuous services that safeguard people and property every day.
The Eighth Circuit Court of Appeals found that the FTC failed to follow required procedures, including conducting a proper economic impact analysis. The panel emphasized the FTC's failure to consider the essential and continuous nature of security services.
Taylor Criddle, vice president of advocacy and public affairs for ESA, stated that the ruling is a major win for the industry and the millions of people they protect every day. Melissa Brinkman, ESA Board Member and CEO of Custom Alarm, echoed this sentiment, stating that the outcome is a direct result of standing together and refusing to accept a regulation that would have jeopardized public safety.
Companies in the electronic security and life safety industries are now relieved from complying with the specific requirements of the Negative Option Rule, such as the "click-to-cancel" provision, which mandated easy cancellation methods for consumers. However, they remain subject to other laws and regulations, such as the Restore Online Shoppers’ Confidence Act (ROSCA), state autorenewal laws, and Section 5 of the FTC Act, which prohibits unfair and deceptive acts or practices.
Without the strict "click-to-cancel" requirements, companies may have more flexibility in designing their cancellation processes, potentially leading to more diverse and innovative approaches to service subscription management. However, the absence of the Rule might lead to a focus on existing consumer protection laws to ensure that consumers are adequately protected from unfair practices.
In conclusion, while the decision does not directly impact the electronic security and life safety industry specifically, it has significant implications for any industry that uses negative option plans for recurring services. The ESA is proud to have stood up for their members and ensured that critical protections remain uninterrupted.
[1] Source: ESA press release, dated 12 March 2023 [3] Source: FTC's revised Negative Option Rule, published 2022 [5] Source: Eighth Circuit Court of Appeals' decision, dated 10 March 2023
The ESA's victory against the FTC's revised Negative Option Rule has profound implications for various sectors of the business world, particularly those that utilize negative option plans, such as the finance and technology industries, in addition to the electronic security and life safety industry. The ruling offers regulatory relief to companies across these industries, providing them with more flexibility in crafting cancellation processes for their recurring services. However, these companies must still adhere to other laws and regulations, including the Restore Online Shoppers’ Confidence Act (ROSCA), state autorenewal laws, and Section 5 of the FTC Act, to ensure continued consumer protection.
