CFPB Issues New Guidance on Negative Option Services, Addresses Dark Patterns

Consumer Financial Protection Bureau (CFPB)

The Consumer Financial Protection Bureau (CFPB) recently issued a new circular affirming that companies offering “negative option” subscription services must comply with federal consumer financial protection law. Negative option programs include subscription services that automatically renew unless the consumer affirmatively cancels, and trial marketing programs that charge a reduced fee for an initial period and then automatically begin charging a higher fee.

Companies risk violating the law if they do not clearly and conspicuously disclose the terms of their subscription services and obtain consumers’ informed consent, or if they make it unreasonably difficult for consumers to cancel. Drawing from the Federal Trade Commission’s (FTC) recent policy statement and the CFPB’s past enforcement cases, the circular highlights examples of unlawful behavior by companies that have used dark patterns and other manipulative tactics to trick consumers into paying recurring charges for products and services they do not want.

“Consumers shouldn’t have to jump through hoops to cancel subscriptions they don’t want, and they shouldn’t have to worry about a trial marketing offer turning into an unwanted monthly charge,” said CFPB Director Rohit Chopra. “The CFPB has made it clear that misleading consumers about products or subscription services they don’t want is not only dishonest, but also a violation of law.”

“Deceptive practices that seek to trap consumers into subscriptions they don’t want are a violation of the law,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “[The] circular puts companies on notice that there is a government-wide effort to stop these manipulations.”

Negative option marketing refers to a term or condition under which a seller may interpret a person’s silence or failure to cancel an agreement as continued acceptance of the offer. The CFPB has received complaints from consumers about being charged for products or services they did not intend to purchase or had sought to cancel, and has brought many enforcement actions involving unlawful negative option marketing practices.

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The CFPB took action against Transunion for repeatedly breaking the law by violating a CFPB consent order and for deceptive marketing when selling credit scores, reports, and credit monitoring products. The CFPB sued ACTIVE Network for tricking consumers into enrolling into a costly membership club through the use of digital dark patterns. The CFPB has also entered into consent orders with numerous credit card issuers for deceptively marketing optional “add-on” products that charged recurring fees until consumers affirmatively canceled.

The circular highlights that negative option programs can be particularly harmful when paired with dark patterns because consumers may be misled into purchasing subscriptions and other services with recurring charges and be unable to cancel the unwanted products and services or avoid their charges. Digital dark patterns are design features used to deceive, steer, or manipulate users into behavior that is profitable for a company, but often harmful to users or contrary to their intent.

Companies offering negative option programs risk violating the Consumer Financial Protection Act’s (CFPA) prohibition on unfair, deceptive, or abusive acts or practices where they:

  • Fail to disclose, clearly and conspicuously, the material terms of the negative option offer to the consumer: Companies likely violate the law if they misrepresent or fail to disclose information likely to inform a consumer’s decision about whether to enroll in a negative option service, including the amount of all charges and the fact that charges will continue unless the consumer takes affirmative steps to cancel.
  • Fail to obtain the consumer’s informed consent: Companies should ensure that consumers genuinely agree to the terms of a negative option program. The CFPB has found or alleged that companies engaged in unfair, deceptive, and abusive acts and practices when companies misrepresented or failed to disclose that they were offering negative option programs, which resulted in consumers not understanding that they were enrolling in services with recurring charges.
  • Mislead or impede consumers wishing to cancel: A common practice of bad actors is requiring consumers to jump through complicated hoops to cancel subscription products or services, such as being forced to talk to customer service agents repeatedly, or for unreasonably long times, before granting a request to cancel.
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The circular continues the CFPB’s focus on raising awareness about the growing scourge of dark pattern practices and other harmful tactics that companies are using to trick consumers into paying for products or services they do not want. The CFPB is partnering with the FTC in its effort to combat the rise of digital dark patterns, and both agencies will continue to monitor these practices and bring agency actions where needed.

Read the Consumer Financial Protection Circular, Unlawful negative option marketing practices.

Read the FTC’s October 2021 policy statement on negative option marketing.

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