Navigating Federal and California Negative Option Rules: Key Insights for Businesses

As regulatory scrutiny around automatic renewals intensifies, understanding the Federal Trade Commission’s new “Click-to-Cancel” rule and California’s recently amended Automatic Renewal Law, is essential for companies looking to stay compliant and competitive in an evolving landscape. This article highlights key compliance requirements, offering practical insights to help businesses align their practices with these regulations.

Overview of the Click-to-Cancel Rule: Effective July 2025

As we noted in our previous article, the Federal Trade Commission (FTC) finalized the rule in October 2024.

The Federal Trade Commission (FTC) is set to begin enforcing the much-anticipated “Click-to-Cancel” rule on July 14, 2025, following a 90-day postponement amid ongoing legal challenges. The rule updates the FTC’s long-standing Negative Option Rule, which addresses subscriptions, memberships or free trials where the customer’s inaction is interpreted as consent to be charged for goods or services on a recurring basis, unless and until the customer takes affirmative steps to cancel. Among other requirements, the new rule requires any business offering subscriptions, memberships or other recurring payment programs to make cancellation at least as simple as enrollment.

Key Requirements at a Glance

To help businesses navigate these changes, we’ve highlighted the key obligations under the new rule:

• Clear and Conspicuous Disclosures: Price (including price changes), renewal cadence, cancellation terms and any promotional-period end dates must be visible, unavoidable and easily understandable to the average consumer, before collecting billing information. Consider reviewing your sign-up flows to ensure these details are presented clearly and cannot be missed.
• Customer Consent: Customers must affirmatively agree to the subscription or auto-renewal in a distinct, standalone step that is free of unrelated information that could obscure their understanding. Using a separate checkbox or signature step—without distractions—can help meet this requirement.
• Easy Cancellation: Whether a customer joins online, by phone, or in person, If a customer signs up for a subscription online, by phone, or in person, they must be able to cancel through the same method without extra steps, such as talking to a live representative or chatbot, unless that was part of the sign-up process. Cancellation must be immediate and effective, without delay or additional charges. Test your cancellation process to confirm it is as straightforward as enrollment, with no unnecessary steps or requirements.
• Recordkeeping: Businesses must preserve evidence of consent for a minimum of three years, unless they can show that their technological processes prevent any transaction from being completed without first obtaining consent. Maintain records of customer consents, consent flows, and cancellation confirmations in your systems to demonstrate compliance if needed.
• Penalties for Non-Compliance: Violations may result in civil penalties of up to $53,088 per violation, or the FTC may enforce compliance of the law through the courts.

Overview of the CARL Amendment: Effective July 2025

Effective July 1, 2025, an amendment to California’s Automatic Renewal Law (CARL) will impose new and expanded requirements on companies offering automatically renewing subscriptions or negative option plans to California consumers. The amendment builds on California’s already stringent automatic renewal framework and introduces several key compliance obligations that go beyond the FTC’s new “Click-to-Cancel” rule. Notably, CARL does not apply to business-to-business (B2B) transactions, but its requirements are among the most comprehensive for business-to-consumer (B2C) offerings in the United States. The new requirements apply to contracts entered into, amended or extended on or after July 1, 2025.

Key Requirements at a Glance

To help businesses navigate these changes, we’ve highlighted the key compliance takeaways from the amended CARL:

• Clear and Conspicuous Disclosures: Companies must clearly and conspicuously present all material terms of the negative option offer, including product or service details, renewal terms, frequency and amount of charges, and cancellation methods before obtaining billing information. Disclosures must be provided in a format that can be retained by the consumer (e.g., email).
• Express Affirmative Consent: Businesses must obtain clear, upfront consent from customers for any subscription or auto-renewal terms, including free trials that turn into paid subscriptions. These terms must be shown right next to the mechanism where the customer gives consent, or, for phone calls, mentioned right before the customer agrees.
• Purchase Acknowledgment and Change to Terms Notices: After enrollment, companies must send a written acknowledgment of the negative option terms in a format the consumer can retain. CARL now requires annual reminders of the subscription terms, regardless of the subscription period, and advance renewal notices 15–45 days before renewal for subscriptions of one year or longer. For those converting after a promotional period, renewal notices must be given 2–21 days before conversion. Material changes to terms (e.g., pricing) require notice 7–30 days before the change takes effect.
• Easy Cancellation: CARL mandates a cost-effective, timely and easy-to-use cancellation mechanism. Consumers must be able to cancel using the same method they used to enroll (e.g., online, phone, in-person). For online subscriptions, a prominently displayed “click to cancel” link or button must be provided, and cancellation must be prompt and not delayed by retention offers. For phone cancellations where consumers leave a voicemail, companies must process the request or call the consumer back within one business day.
• Retention Offers: CARL permits companies to present retention or “save” offers during the cancellation process, as long as the cancellation option remains prominent and immediately accessible. For online cancellations, the “click to cancel” button must be continuously and proximately displayed next to any retention offer.
• Recordkeeping: Companies must maintain records of consumer consent for at least three years, or one year after contract termination, whichever is longer.
• Penalties for Non-Compliance: Violations may result in statutory penalties of up to $2,500 per violation, and goods or services provided in violation may be deemed unconditional gifts requiring full refunds. Violations of CARL may also be used to support a private right of action under California’s Unfair Competition Law.

As regulatory requirements continue to evolve, businesses must stay proactive and informed. If you have questions about how these negative option rules may impact your business, or need assistance with compliance, please contact the Orrick team for further guidance.