[Federal Register: May 14, 2009 (Volume 74, Number 92)]
[Proposed Rules]
[Page 22720-22722]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14my09-19]
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FEDERAL TRADE COMMISSION
16 CFR Part 425
Rule Concerning the Use of Prenotification Negative Option Plans
AGENCY: Federal Trade Commission (``FTC'' or ``Commission'').
ACTION: Advance Notice of Proposed Rulemaking; Request for public
comments.
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SUMMARY: As part of the Commission's systematic review of all current
FTC rules and guides, the Commission requests public comment on the
overall costs, benefits, necessity, and regulatory and economic impact
of the FTC's Trade Regulation Rule concerning ``Use of Prenotification
Negative Option Plans.''
DATES: Written comments must be received on or before July 27, 2009.
ADDRESSES: Interested parties are invited to submit written comments.
Comments should refer to ``Prenotification Negative Option Rule Review,
Matter No. P064202'' to facilitate the organization of comments. Please
note that your comment--including your name and your state--will be
placed on the public record of this proceeding, including on the
publicly accessible FTC website, at (http://www.ftc.gov/os/
publiccomments.shtm).
Because comments will be made public, they should not include any
sensitive personal information, such as an individual's Social Security
Number; date of birth; driver's license number or other state
identification number, or foreign country equivalent; passport number;
financial account number; or credit or debit card number. Comments also
should not include any sensitive health information, such as medical
records or other individually identifiable health information. In
addition, comments should not include any ``[t]rade secret or any
commercial or financial information which is obtained from any person
and which is privileged or confidential,'' as provided in Section 6(f)
of the FTC Act, 15 U.S.C. 46(f), and Commission Rule 4.10(a)(2), 16 CFR
4.10(a)(2). Comments containing material for which confidential
treatment is requested must be filed in paper form and clearly labeled
``Confidential.''\1\
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\1\ The comment must also be accompanied by an explicit request
for confidential treatment, including the factual and legal basis
for the request, and must identify the specific portions of the
comment to be withheld from the public record. The request will be
granted or denied by the Commission's General Counsel, consistent
with applicable law and the public interest. See Commission Rule
4.9(c), 16 CFR 4.9(c).
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Because paper mail addressed to the FTC is subject to delay due to
heightened security screening, please consider submitting your comments
in electronic form. Comments filed in electronic form should be
submitted by using the following weblink: (https://
secure.commentworks.com/ftc-NegativeOptionRuleANPR) (and following the
instructions on the web-based form). To ensure that the Commission
considers an electronic comment, you must file it on the web-based form
at the weblink (https://secure.commentworks.com/ftc-
NegativeOptionRuleANPR). If this Notice appears at (http://
www.regulations.gov/search/index.jsp), you may also file an electronic
comment through that website. The Commission will consider all comments
that regulations.gov forwards to it. You may also visit the FTC website
at http://www.ftc.gov to read the Notice and the news release
describing it.
A comment filed in paper form should include the ``Prenotification
Negative Option Rule Review, Matter No. P064202'' reference both in the
text and on the envelope, and should be mailed or delivered to the
following address: Federal Trade Commission/Office of the Secretary,
Room H-135 (Annex Q), 600 Pennsylvania Avenue, N.W., Washington, D.C.
20580. The FTC is requesting that any comment filed in paper form be
sent by courier or overnight service, if possible, because U.S. postal
mail in the Washington area and at the Commission is subject to delay
due to heightened security precautions.
The Federal Trade Commission Act (``FTC Act'') and other laws the
Commission administers permit the collection of public comments to
consider and use in this proceeding as appropriate. The Commission will
consider all timely and responsive public comments that it receives,
whether filed in paper or electronic form. Comments received will be
available to the public on the FTC website, to the extent practicable,
at (http://www.ftc.gov/os/publiccomments.shtm). As a matter of
discretion, the Commission makes every effort to remove home contact
information for individuals from the public comments it receives before
placing those comments on the FTC website. More information, including
routine uses permitted by the Privacy Act, may be found in the FTC's
privacy policy, at (http://www.ftc.gov/ftc/privacy.shtm).
FOR FURTHER INFORMATION CONTACT: Robin Rosen Spector, (202) 326-3740 or
Matthew Wilshire, (202) 326-2976, Attorneys, Division of Enforcement,
Bureau of Consumer Protection, Federal Trade Commission, 600
Pennsylvania Avenue, N.W., Washington, D.C. 20580.
SUPPLEMENTARY INFORMATION:
I. Background
A ``negative option'' is any type of sales term or condition that
allows a seller to interpret the customer's silence or failure to take
an affirmative step as acceptance of an offer. One common ``negative
option'' is the prenotification negative option plan. In such a plan,
consumers receive periodic announcements of upcoming merchandise and
have a set period to contact the company and decline the item. If they
remain silent, the company sends them the merchandise.
The Rule Concerning the Use of Prenotification Negative Option
Plans (``Negative Option Rule'' or ``Rule'') regulates prenotification
negative option plans for the sale of goods. The Commission first
promulgated the Rule (then titled the ``Negative Option Rule'') in 1973
under the FTC Act, 15 U.S.C. 41 et seq., after finding that
prenotification negative option marketers had committed unfair and
deceptive marketing practices violative of Section 5 of the Act. 15
U.S.C. 45.\2\ In 1986, the Commission reviewed the Rule pursuant to
Section 610 of the Regulatory Flexibility Act, 5 U.S.C. 610, to
determine the impact of the Rule on small entities. The Commission
concluded that the Rule had not had a significant impact on a
substantial number of small entities and should not be changed.\3\ In
1997, the Commission reviewed the Rule again and solicited comments on
whether there was a continuing need for the Rule and whether it should
be changed to increase its benefits or reduce its costs or other
burdens.\4\ Based on the response, in August 1998, the Commission
concluded that the Rule ``continue[d] to be of value to consumers and
firms, and [was] functioning well in the marketplace at
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minimal cost.''\5\ The Commission retained the Rule but announced three
technical, non-substantive amendments to clarify it and conform its
language to amendments in the FTC Act.\6\
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\2\ The Rule became effective on June 4, 1974.
\3\ 51 FR 42087 (Nov. 21, 1986).
\4\ 62 FR 15135 (Mar. 31, 1997).
\5\ 63 FR 44555 (Aug. 20, 1998).
\6\ The Commission: deleted a Note that had become obsolete;
amended two paragraphs to read ``in or affecting commerce'' in lieu
of ``in commerce'' to conform the Rule to the FTC Act; and changed
the title from ``Negative Option Rule'' to ``Use of Prenotification
Negative Option Plans'' to better describe the Rule's coverage.
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The Rule requires sellers to clearly and conspicuously disclose the
material terms of a prenotification negative option plan to consumers
before they subscribe and to follow certain procedures in operating the
plan. The Rule enumerates seven material terms that sellers must
disclose clearly and conspicuously.\7\ In addition, the Rule requires
sellers to follow certain procedures, including: abiding by particular
time periods during which sellers must send introductory merchandise
and announcements identifying merchandise the seller plans to send;
giving consumers a specified time period to respond to announcements;
providing instructions for rejecting merchandise in announcements; and
honoring promptly written requests to cancel from consumers who have
met any minimum purchase requirements.\8\
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\7\ These terms are: the aspect of the plan under which
subscribers must notify the seller if they do not wish to purchase
the selection; any minimum purchase obligations; the subscribers'
right to cancel; whether billing charges include postage and
handling; that subscribers will be given at least ten days to reject
a selection; that if any subscriber is not given ten days to reject
a selection, the seller will credit the return of the selection and
postage to return the selection, along with shipping and handling;
and the frequency with which announcements and forms will be sent,
and the maximum number of announcements subscribers should expect to
receive during a twelve-month period. 16 CFR 425.1(a)(1)(i-vii).
\8\ 16 CFR 425.1(a)(2)(3); 425.1(b).
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II. Regulatory Review Program
The Commission reviews its rules and guides periodically. These
reviews seek information about the costs and benefits of the rules and
guides as well as their regulatory and economic impact. These reviews
assist the Commission in identifying rules and guides that warrant
modification or rescission. Therefore, the Commission now solicits
comments on, among other things, the economic impact of, and the
continuing need for, the Negative Option Rule; the benefits of the Rule
to consumers purchasing goods through prenotification negative option
plans; and the burdens the Rule places on firms subject to its
requirements. The Commission also solicits comment on whether it should
expand the Rule to cover additional types of negative option offers.
The Rule covers only a subset of negative option offers--
prenotification negative option plans. There are, however, several
other types of commonly used negative option offers. One such offer is
called a continuity plan. In this type of offer, consumers receive
regular shipments of merchandise until they cancel the agreement. A
second common offer is the trial conversion. Consumers who accept such
an offer agree to receive products or services for a trial period at no
charge or for a reduced price. If the consumers do not cancel their
agreement before the end of the trial period, the product shipments or
provision of services continue and they incur charges. A third familiar
negative option is the automatic renewal. In an automatic renewal, a
magazine seller, for example, may automatically renew consumers'
subscriptions when they expire and charge for them, unless the
consumers cancel their subscriptions.
The Commission seeks comment on whether there is a basis to expand
the Rule to cover these additional offers, and, if so, what
requirements the Rule should include. The Commission's goal in seeking
comment is to determine the best way to protect consumers from
deceptive or unfair practices in negative option marketing. Possible
alternative and/or additional methods of achieving that goal include
consumer education campaigns, industry guidance, and continued law
enforcement actions.
III. Request for Comment
The Commission solicits comments on the following specific
questions related to the Negative Option Rule:
(1) Is there a continuing need for the Rule as currently
promulgated? Why or why not?
(2) What benefits has the Rule provided to consumers? What evidence
supports the asserted benefits?
(3) What modifications, if any, should the Commission make to the
Rule to increase its benefits to consumers?
(a) What evidence supports your proposed modifications?
(b) How would these modifications affect the costs and benefits of
the Rule for consumers?
(c) How would these modifications affect the costs and benefits of
the Rule for businesses, particularly small businesses?
(4) What impact has the Rule had on the flow of truthful
information to consumers and on the flow of deceptive information to
consumers? What evidence supports the asserted impact?
(5) What significant costs has the Rule imposed on consumers? What
evidence supports the asserted costs?
(6) What modifications, if any, should be made to the Rule to
reduce the costs imposed on consumers?
(a) What evidence supports your proposed modifications?
(b) How would these modifications affect the costs and benefits of
the Rule for consumers?
(c) How would these modifications affect the costs and benefits of
the Rule for businesses, particularly small businesses?
(7) Please provide any evidence that has become available since
1998 concerning consumer perception of, or experience with, negative
option offers, including offers for prenotification negative option
plans, continuity plans, trial conversions, or automatic renewals. Does
this new information indicate that the Rule should be modified? If so,
why, and how? If not, why not?
(8) What benefits, if any, has the Rule provided to businesses, and
in particular to small businesses? What evidence supports the asserted
benefits?
(9) What modifications, if any, should be made to the Rule to
increase its benefits to businesses, particularly small businesses?
(a) What evidence supports your proposed modifications?
(b) How would these modifications affect the costs and benefits of
the Rule for consumers?
(c) How would these modifications affect the costs and benefits of
the Rule for businesses?
(10) What significant costs, including costs of compliance, has the
Rule imposed on businesses, particularly small businesses? What
evidence supports the asserted costs?
(11) What modifications, if any, should be made to the Rule to
reduce the costs imposed on businesses, particularly small businesses?
(a) What evidence supports your proposed modifications?
(b) How would these modifications affect the costs and benefits of
the Rule for consumers?
(c) How would these modifications affect the costs and benefits of
the Rule for businesses?
(12) What evidence is available concerning the degree of compliance
with the Rule? Does this evidence indicate that the Rule should be
modified? If so, why, and how? If not, why not?
(13) Are any of the Rule's requirements no longer needed? If so,
explain. Please provide supporting evidence.
(14) Should the Rule define ``clearly and conspicuously,'' given
that it
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requires marketers to make certain disclosures clearly and
conspicuously? If so, why, and how? If not, why not?
(15) What potentially unfair or deceptive practices concerning the
marketing of prenotification negative option plans, if any, are not
covered by the Rule?
(a) What evidence, such as empirical data, consumer perception
studies, or consumer complaints, demonstrates whether there is
widespread existence of such practices? Please provide this evidence.
(b) What evidence demonstrates that such practices cause consumer
injury? Please provide this evidence.
(c) With reference to such practices, should the Rule be modified?
If so, why, and how? If not, why not?
(16) What potentially unfair or deceptive practices concerning the
marketing of negative option plans, not covered by the Rule, are
occurring in the marketplace?
(a) What evidence, such as empirical data, consumer perception
studies, or consumer complaints, demonstrates whether there is
widespread existence of such practices? Please provide this evidence.
(b) What evidence demonstrates that such practices cause consumer
injury? Please provide this evidence.
(c) With reference to such practices, should the Rule be modified?
If so, why, and how? If not, why not?
(17) What modifications, if any, should be made to the Rule to
account for changes in relevant technology or economic conditions?
(a) What evidence supports the proposed modifications?
(b) How would these modifications affect the costs and benefits of
the Rule for consumers and businesses, particularly small businesses?
(18) Does the Rule overlap or conflict with other federal, state,
or local laws or regulations? If so, how?
(a) What evidence supports the asserted conflicts?
(b) With reference to the asserted conflicts, should the Rule be
modified? If so, why, and how? If not, why not?
(c) Is there evidence concerning whether the Rule has assisted in
promoting national consistency with respect to the marketing and
operation of prenotification negative option plans? If so, please
provide that evidence.
(19) Are there foreign or international laws, regulations, or
standards with respect to negative option plans that the Commission
should consider as it reviews the Rule? If so, what are they?
(a) Should the Rule be modified in order to harmonize with these
international laws, regulations, or standards? If so, why, and how? If
not, why not?
(b) How would such harmonization affect the costs and benefits of
the Rule for consumers and businesses, particularly small businesses?
(20) Do current or impending changes in technology affect whether
and how the Rule should be modified?
List of Subjects in 16 CFR Part 306
Negative Options, Trade practices.
Authority: 15 U.S.C. 41-58.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. E9-11226 Filed 5-13-09: 8:45 am]
BILLING CODE 6750-01-S