Did you find money charged to your credit card or deducted from your bank you didn’t expect? You may have been nabbed by the notorious Negative Option Clause!
What Exactly is a Negative Option Clause?
A negative option clause is essentially agreeing to pay for something automatically in advance, with the burden of cancellation on the customer. In other words, unless you expressly tell the company you want to cancel beforehand, it is assumed you agree to the charges for the product or service.
There are of course several legitimate uses for a negative option clause. For example, continuity plans like ones for your cellular phone service would be a pain if you had to call every month and order more service.
Then there are automatic subscription renewals for periodicals, which allow magazines or newspapers to which you subscribe to continue sending it to your door until you stop. This is perhaps a little more controversial as it is often abused. In 2009 the FTC forced 2 telemarketing companies to pay over $2 million in fines for unwittingly signing up subscribers without their implicit consent.
Next down the chain of legitimacy is a prenotification negative option, which is popular with book clubs and the infamous Columbia House, which recently went belly up. With these companies, they send out a notice in advance, and unless you tell them “no”, you will receive the latest selections and be charged accordingly. Even Scholastic Books, publishers of Harry Potter, had to pay a $710,000 fine for failing to properly disclose the terms of their book clubs (customers were unwittingly signed up to 2 separate ones, each with its own rules).
Finally, there is what’s called the “free-to-pay or nominal fee to pay” negative option plan. This is the lowest form, most popular with cosmetic and supplement companies, especially online. Consumers sign up, thinking they are getting a “free trial” for a low price, only to find out that the trial period expired before they knew it and they were billed for hundreds of dollars. This deal is often accompanied by the sneaky auto-ship program.
Is the Negative Option Clause Legal?
Generally, yes. The FTC states in their Negative Option rule these types of transactions can occur as long as the information is disclosed “clearly and conspicuously”.
The FTC conceded in a 2009 Report on Negative Options that “Internet-based negative option marketing poses unique issues not present in print or telephone marketing”; however, after a review of regulations they decided in 2014 to keep the Negative Option Rule unchanged. The reason cited was because the Restore Online Shoppers’ Confidence Act (ROSCA) and proposed amendments to the Telemarketing Sales Rule address these concerns. 9However, ROSCA simply states that the seller “must disclose clearly all material terms” and is not allowed to give credit card info to 3rd party sellers.)
Some states have stepped in to fight back against the negative option. In 2010, California’s Negative Option Law went into effect. While there were no criminal penalties, it allowed consumers to sue as well as keep any goods sent to them without their express permission an “unconditional gift”; Florida has a similar gift law.
How Can I Prevent a Negative Option Scam?
Be very careful about what you buy and where you buy it from online. Always read all the fine print and click on read any TERMS AND CONDITIONS pages. Often times, the negative option clause will be in all caps:
“THIS CONSUMER TRANSACTION INVOLVES A NEGATIVE OPTION, AND THAT YOU MAY BE LIABLE FOR PAYMENT OF FUTURE GOODS AND SERVICES UNDER THE TERMS OF THIS AGREEMENT FOR $119.92 PER MONTH IF YOU FAIL TO NOTIFY THE SUPPLIER NOT TO SUPPLY THE GOODS OR SERVICES DESCRIBED,” reads the clause for Enduros Testo Booster.
Since it is in caps, technically it is “clear and conspicuous”… IF you click on the link, that is!
“They charged me $100 a month and linked me one of their sister companies without my consent, which also charged me $100 per month. That's over a thousand that they stole from me, and I never received any products except the first one in March,” wrote Sarah Thomas from Syracuse, NY about La Lumieres, a cosmetic company with an all-caps negative option clause buried in their terms.
“This product does not work and when you cancel they charge you an additional $79.95, said Susie from Texas.
“One should not have to feel it necessary to need legal assistance to read thoroughly or dissect an easy order form/sales pitch to make sure they aren't being cheated,” said Tami from Jackson, MS.
If you get a phone solicitation, telemarketers are required by law to “clearly and conspicuously” tell you about negative options and now that you know what one is you can simply ask them flat out! If you’d like to learn more about how to stop unwanted telephone calls, read this article!
What Should I Do if I think I’ve Been Duped into a Negative Option?
Contact the FTC at www.ftc.gov or call 877-FTC-HELP.
You should also contact your credit card company and state attorney general – for more information read our article entitled You Got Scammed.
Remember, a negative option is legal, and not likely to go away soon. While you may have recourse through the federal, state, or legal means, that road can be difficult. For example, even though Scholastic paid the aforementioned fine, a class action lawsuit against them was dismissed in 2006 when it was discovered the main plaintiff did consent to receiving the shipment of books they claimed to not know about.
We hope this helps you learn more about the Negative Option Clause and how to avoid it unless obviously necessary. Let us know what you think about our article below!