October 24 – Read the newsletter below for the latest Mortgage Banking and Consumer Finance industry news, written by Ballard Spahr attorneys. In this issue, we discuss the DOJ’s first redlining settlement with a credit union, the FTC’s final rule for cancelling enrollment in negative option programs, the Bank Policy Institute’s AML/CFT NPR critique, and much more.
- This Week’s Podcast Episode: How the CFPB Is Using Interpretive Rules to Expand Regulatory Requirements for Innovative Consumer Financial Products; Part One: Buy Now, Pay Later
- This Week’s Podcast Episode: The Regulation of Negative Option Consumer Contracts – Silence as Consent
- Citadel FCU Is First Credit Union to Settle DOJ Redlining Complaint
- Chopra Says CFPB Finalizing Medical Debt Rule; Agency Issues Advisory Opinion on Debt Collector Practices
- CFPB/Fed/OCC Increase Exemption Thresholds for Appraisal Requirement, Regs Z and M
- Bank Policy Institute Critiques Notice of Proposed Rulemaking to Modernize AML/CFT Programs
- Citing Jarkesy, Asbury Automotive Group Files Suit Challenging FTC Administrative Proceeding
- FTC Issues Final Click to Cancel Rule to Make it Easier for Consumers to Cancel Enrollment in Negative Option Programs
- Join Us at the 13th Annual Utah Fall Employment Seminar
- Looking Ahead
Today’s podcast, which repurposes a recent webinar, is the first in a two-part examination of the CFPB’s use of an interpretive rule, rather than a legislative rule, to expand regulatory requirements for buy-now, pay-later (BNPL) products. Part Two, which will be available next week, will focus on the CFPB’s use of a proposed interpretive rule to expand regulatory requirements for earned wage access (EWA) products.
We open with an overview of what interpretive rules are and how they differ procedurally and substantively from legislative rules. The intended use of interpretive rules is to explain the meaning of an existing provision of law, while legislative rules, which require a more complicated and time-consuming procedure, including a notice and comment period under the Administrative Procedures Act, are intended to be used to expand or implement a provision of law. We also discuss why the CFPB chose to use an interpretive rule and why they decided to include a request for comments when that is not required for interpretive rules.
We then discuss BNPL products, including how they work and some of the features that have made them popular with consumers and merchants. We point out that the interpretive rule seems to represent a change in the views of the CFPB with regard to BNPL. After providing an overview of the CFPB’s history with the product, including a report issued by the Bureau back in 2022, we delve into the details of the CFPB’s interpretive rule. We discuss how the CFPB seems to be expanding the definition of a “credit card” to include what the Bureau calls a “digital user account,” which is how consumers access their BNPL information.
We conclude with thoughts about the implications of the CFPB’s interpretive rule and some of the difficulties that BNPL providers will have complying with the interpretive rule. This includes a discussion of the timing of billing statements and written notice requirements for billing error disputes and merchant disputes.
Former Practice Leader and Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, Alan Kaplinsky, moderates today’s episode, and is joined by John Culhane, Michael Guerrero, and Joseph Schuster, partners in the group. The webinar was recorded before the CFPB issued an FAQ, which purports to answer a number of open questions raised by the BNPL interpretive rule. We recommend that you review the FAQ after listening to this podcast.
To listen to this episode, click here.
Our podcast today focuses on negative option consumer contracts, i.e., agreements that allow a seller to assume a customer’s silence is an acceptance of an offer. Such contracts are ubiquitous in today’s marketplace.
Today’s guests are Kaitlin Caruso, a professor at the University of Maine Law School, and Prentiss Cox, a professor at the University of Minnesota Law School. They have written an article entitled, “Silence as Consumer Consent: Global Regulation of Negative Option Contracts.” The article is available on SSRN and will soon be published in the American University Law Review.
The Professors first describe what they perceive to be some of the consumer harms resulting from the use of negative option contracts – consumers signing up for “free trial” offers that convert to term contracts requiring consumers to pay periodic fees after the free trial period has expired; credit card “add-on” products which are sold through telemarketing, like credit life and disability insurance; subscription contracts which make it difficult for consumers to cancel; subscription contracts for services, which are not used for lengthy periods of time while the consumer continues to pay periodic fees.
The Professors then describe the existing federal and state statutes and FTC regulations and why they are inadequate to protect consumers. They point out that the current FTC negative option rule was promulgated decades before the development of the Internet and obviously does not begin to deal with online sales of goods and services. Instead, the FTC rule is intended to deal with mail order sales like the “Book-of-the-Month” club. While the FTC has proposed a new negative option rule which is a vast improvement over the existing FTC rule, it is unclear when or if a final rule will be promulgated. The Professors also describe the federal Restore Online Shoppers Confidence Act, and the FTC‘s Telemarketing Sales Rule which tangentially pertain to negative option contracts. Finally, the professors discuss a patchwork quilt of state laws (mostly part of state UDAP statutes) which deal with negative option contracts.
After surveying the existing federal and state laws, as well as negative option laws enacted in many foreign countries, the Professors describe the core elements of what a negative option law (be it state or federal) should contain in order to protect consumers. The core elements are:
- A prohibition against converting a “free trial” offer into a term contract;
- A prohibition against automatically converting a negative option contract into another term contract with the contract instead becoming a month-to- month contract. Alternatively, the negative option contract could convert to a term contract, which could then be canceled during the first 90 days after the consumer sees a charge on a credit card statement.
- If a subscription to services is not used by the consumer for at least one year, then the seller must notify the consumer of the dormancy, and if the service remains dormant for another three months thereafter, then the seller must cease charging the consumer for the service.
Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, Alan Kaplinsky, hosts today’s episode.
To listen to this episode, click here.
A link to the article on SSRN can be found here.
Citadel FCU Is First Credit Union to Settle DOJ Redlining Complaint
The Justice Department announced that Citadel Federal Credit Union has agreed to pay more than $6.5 million to resolve allegations that it engaged in a pattern or practice of redlining majority-Black and Hispanic neighborhoods in and around Philadelphia, Pennsylvania from at least 2017 through 2021 in violation of the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA).
The proposed consent order is the Justice Department’s first redlining settlement with a credit union.
According to a complaint filed in the U.S. District Court for the Eastern District of Pennsylvania, Citadel failed to provide mortgage lending services to majority-Black and Hispanic neighborhoods in the Philadelphia area and discouraged people seeking credit in those communities from obtaining home loans.
The complaint also alleged that Citadel’s branches are located almost entirely located in majority-White neighborhoods, with no branches in Philadelphia, which contains more than 75 percent of the majority-Black and Hispanic neighborhoods and 34 percent of the total population in Citadel’s market area.
Under the proposed consent order, which is subject to court approval, Citadel has agreed to invest $6.52 to increase credit opportunities for communities of color in the Philadelphia area.
Specifically, Citadel agreed to:
- Invest at least $6 million in a loan subsidy fund to increase access to home mortgage, home improvement and home refinance loans for residents of majority-Black and Hispanic neighborhoods in Philadelphia.
- Spend at least $250,000 on community partnerships to provide services related to credit, consumer financial education, homeownership and foreclosure prevention for residents of predominantly Black and Hispanic neighborhoods in Citadel’s market area.
- Spend at least $270,000 for advertising, outreach, consumer financial education and credit counseling focused on predominantly Black and Hispanic neighborhoods in Philadelphia.
- Open three new branches in predominantly Black and Hispanic neighborhoods in Philadelphia.
- Hire a community lending officer who will oversee the continued development of lending in communities of color.
Citadel also agreed to retain independent consultants to enhance its fair lending program and better meet communities’ needs for mortgage credit. The credit union also will conduct a community credit needs assessment, evaluate its fair lending compliance management systems and conduct staff training.
Richard J. Andreano, Jr. and John L. Culhane, Jr.
The CFPB is in the process of completing its final rule intended to ban the inclusion of medical debts in credit reports, bureau Director Rohit Chopra said at a White House session intended to focus on practices in the medical debt collection industry.
“Often, predatory companies threaten to put medical debt on people’s credit reports, where lenders, landlords, and employers presume their accuracy,” Chopra said, in his prepared remarks. “Faced with further harm to their financial security, people may feel pressured to pay off these bills, even if the charges are wrong or fake.”
Chopra said that among those with medical debt, more than 40 percent say they received an inaccurate bill, while 70 percent said they were asked to pay a bill that should have been covered by insurance.
The director said that in addition to the upcoming CFPB rule, some states already have banned the use of medical debt in credit reports. Most recently, California enacted such legislation.
Chopra said that the three major nationwide credit reporting agencies have removed medical debts from credit reports, but added that many people still are battling over bills that appeared on those reports in the past.
Chopra said that the CFPB also is specifically concerned about medical debts incurred at nonprofit hospitals. Those hospitals, he said, must offer assistance to patients in need of financial help. However, the CFPB continues to hear complaints that would indicate that those programs are not operating as intended, according to Chopra. In some cases, that is due to eligibility requirements set by the hospital, he said, adding that in other cases, patients are not screened for eligibility or face complicated applications.
Before the event, the CFPB issued an advisory opinion stating that debt collectors are strictly liable under the Fair Debt Collection Practices Act and Regulation F for engaging in such practices as:
- Collecting an amount not owed because it was already paid.
- Collecting amounts not owed due to Federal or State law.
- Collecting amounts above what can be charged under Federal or State law. This includes amounts that exceed limits specified in the No Surprises Act.
- Collecting amounts for services not received.
- Misrepresenting the nature of legal obligations.
- Collecting unsubstantiated medical bills, as debt collectors are required to have a “reasonable basis” for asserting that the debts they are trying to collect on are valid.
John L. Culhane, Jr., Joseph Schuster and Reid F. Herlihy
CFPB/Fed/OCC Increase Exemption Thresholds for Appraisal Requirement, Regs Z and M
The CFPB, Fed, and OCC have announced that they are increasing exemption thresholds that are subject to annual inflation adjustments. Effective January 1, 2025 through December 31, 2025, these exemption thresholds are increased as follows:
- The 2025 threshold for higher-priced mortgage loans that are subject to special appraisal requirements will increase from $32,400 to $33,500.
- Regulation Z generally will apply to consumer credit transactions and consumer leases of $71,900 or less in 2025. However, private education loans and loans secured by real property, such as mortgages, are subject to Regulation Z regardless of the amount of the loan.
- Regulation M generally also will apply to consumer credit transactions and consumer leases of $71,900 or less in 2025.
Richard J. Andreano, Jr. and John L. Culhane, Jr.
Bank Policy Institute Critiques Notice of Proposed Rulemaking to Modernize AML/CFT Programs
The Bank Policy Institute (BPI) has issued its comment on the Federal Functional Regulators’ (the OCC, the Board of Governors of the Federal Reserve System, the FDIC, and the National Credit Union Administration) notice of proposed rulemaking (NPRM) to modernize financial institutions’ anti-money laundering and countering terrorist financing (AML/CFT) programs (“Comment”). The agencies’ NPRM, on which we blogged here, is consistent with FinCEN’s similar and earlier AML/CFT modernization proposal (FinCEN’s NPRM), on which we blogged here (please also see our podcast on these regulatory proposals here).
The Comment, which generally tracks BPI’s earlier comment on FinCEN’s NPRM, is detailed and 23-pages long. We only summarize it here. The Comment is not a positive proponent of the NPRM and suggests significant changes.
Broadly, the Comment initially asserts that “[t]he proposed rule will neither implement the intent of Congress in enacting the AML Act nor facilitate a risk-based approach to identifying and disrupting financial crime.” Likewise, the Comment asserts that “[i]n practice, [bank] examiners are exactingly focused on technical compliance . . . rather than effectiveness. This approach is utterly divorced from a focus on management of true risk.” According to BPI, “the status quo examination oversight of [the AML/CFT] regime does not expressly instruct institutions to dedicate efforts to detecting suspected crime or engaging in innovation to this end—efforts that are surely foundational to the integrity of the banking and financial system.”
The Comment also fires a shot across the bow by suggesting the possibility of future litigation by stating – albeit in a footnote – that “BPI has significant concerns that the proposed rule does not align with the letter and spirit of the AML Act and provides for arbitrary procedural requirements that could render the rule vulnerable to challenge [under the Administrative Procedures Act].”
The Comment then dives into the details.
Higher Risk Customers and “Effective” Compliance Programs
Noting that the NPRM “states that banks must ‘establish, implement, and maintain an effective, risk-based, and reasonably designed AML/CFT program[,]’” the Comment observes that the NPRM does not define the terms “effective” or “risk-based,” nor does it “provide any particular standards for how these terms would be measured or tested.” Consequently, “[w]ithout a minimum standard for evaluating these terms, banks will be forced to construct their AML/CFT programs based on how regulatory agencies and individual examiners decide to examine them or enforce the final rule rather than in response to each banking institution’s unique risk profile.” Without the changes proposed by the BPI and noted below, “there is nothing in the proposed rule to which the bank could point to in its defense when it is managing its inherently limited resources to focus on AML/CFT Priorities over lower-risk customers and activities.”
The Comment therefore urges that the final rule explicitly state that banks may allocate resources to higher-risk customers, and away from lower-risk customers, so that banks may prioritize the allocation of their resources for AML/CFT compliance. The Comment cites 31 U.S.C. § 5318(h)(2)(B)(iv)(II), enacted through the Anti-Money Laundering Act of 2020 (AML Act), which states that AML/CFT programs “should be . . . risk-based, including ensuring that more attention and resources of financial institutions should be directed toward higher-risk customers and activities, consistent with the risk profile of a financial institution, rather than toward lower-risk customers and activities.” The Comment further reasons that if “the Agencies are concerned that Congress’ formulation would tempt banks simply to take resources away from lower-risk customers and activities without redirecting them to higher-risk customers and activities, they are more than capable of assessing whether banks are meeting that mandate or not through the examination.” BPI also asks that bank regulators establish a feedback loop with FinCEN for banks to provide guidance on decisions to reallocate resources from lower-risk to higher-risk activities.
The final rule should adopt a “qualitative three-prong approach” to provide direction on the touchstones of an “effective” risk-based AML/CFT program, which the AML Act recognized as not meaning an infallible program. Specifically, the NPRM should
. . . . make clear that a banking institution can be considered to have an “effective” and “reasonably designed” “risk-based” AML/CFT program if it meets the following three principles:
- Assesses and manages AML/CFT risk as informed by a bank’s own risk assessment processes, including the AML/CFT Priorities and the bank’s business activities as appropriate;
- Maintains a reasonably designed program to promote compliance with the record keeping and reporting requirements under the Bank Secrecy Act; and
- Provides for the reporting of information that the bank reasonably believes is of a high degree of usefulness to government authorities for an institution of its size and risk profile.
The Comment focuses on the key word “effective:” BPI “strongly disagree[s] with the Agencies’ assertion that the ‘addition of the term ‘effective’” will ‘not be a substantive change for banks’ because the term is only a ‘clarifying amendment.’ According to the Comment, Congress used the word “effective” in the AML Act in order to “fundamentally change the way examiners assess banks’ compliance with the AML/CFT program rule, ensuring that examiners focus on the effectiveness outcomes of the AML/CFT program instead of the program’s design.” (emphasis added). The Comment warns against “check-the-box” compliance exams.
The final rule therefore should direct examiners explicitly to follow a “risk based” approach. A clear standard is needed because training of examiners will be insufficient to attain consistency in exams. The Comment urges that the bank regulators provide “actual examples of what is and is not considered ‘risk-based.’” For example, the Comment suggests that the final rule provide that “[a] risk-based approach does not mandate the application of rigid rules or schedules regarding when banks must conduct customer due diligence and enhanced due diligence.”
Risk Assessments
BPI criticizes the NPRM, which requires banks to update risks assessments on “a periodic basis, including, at a minimum, when there are material changes to the . . . [bank’s] money laundering, terrorist financing, and other illicit finance activity risks.” The Comment notes that many banks use multiple risk assessment processes, and the final rule should not assume that a given bank has a single risk assessment. The Comment argues that the final rule should clarify what is meant by “material” changes, and should explicitly leave the timing for, and manner of, updating risk assessments to banks’ discretion. Although the Comment recommends “omitting the prescriptive requirement to update risk assessments following ‘material’ changes, if that requirement is maintained, we urge the Agencies to explicitly define in the rule that ‘material changes’ are only triggered by significant risks to people, processes, and/or technology that require meaningful, additional rigor to identify and mitigate the risk.” (emphasis in original).
In regard to the AML/CFT Priorities, they “and listed business activities should be deemed relevant and incorporated into a bank’s risk assessment processes only if such information is deemed significant to a bank’s unique business model. Banks, in turn, should be considered compliant with the rule by examiners provided they have a reasonable basis at the time of consideration for excluding certain AML/CFT Priorities or business activity risks.” Emphasizing that the AML Act explicitly recognizes that “[f]inancial institutions are spending private funds for a public . . . benefit, including protecting the United States financial system from illicit finance risks[,]” the Comment argues that “[b]anks should have the discretion to prioritize riskier or more impactful aspects of a given AML/CFT Priority and deprioritize other less risky or impactful elements.”
More broadly, BPI posits that “banks should be empowered to make their own determinations that particular practices are producing information that would reasonably be considered highly useful to law enforcement or whether such information is not sufficiently useful to warrant inclusion in the risk assessment processes.” Otherwise, examiners “likely will continue to focus on technical compliance,” which will forces banks to build their risk assessment processes around AML/CFT Priorities which are irrelevant to their business.
The Comment strongly opposes the NPRM’s suggestion that banks must craft their risk assessments by reviewing and evaluating previously-filed Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs). “[A]t the very least,” the NPRM should provide that consideration of filed SARs and CTRs is left to the discretion of the bank.
Implementation Period
The Comment argues that the NPRM must be changed to set the implementation period for the final rule to at least two years, so as to allow sufficient time for banks and examiners to adopt the final rule’s new compliance requirements: “[M]any banks may be implementing technological changes, performing the required reallocation of resources, conducting appropriate configuration and testing, enhancing and incorporating new risk assessment requirements, and establishing the proper policies, procedures, controls, and trainings.” Bank examiners also will need training.
Offshore Personnel
BPI wants the final rule to “clarify” that a bank may use offshore personnel to carry out AML/CFT functions, so long as the bank’s AML/CFT Officer tasked with the duty of establishing, maintaining and enforcing the AML/CFT program is located within the U.S. This request seeks to “help avoid any unnecessary confusion” by making this principle explicit.
Innovation
In addition to requesting that the final rule make clear that deciding whether to engage in innovation should not depend upon a bank’s risk profile, the Comment makes this critical point:
. . . . [W]e are concerned that the lack of guidance in the proposed rule around what is permitted and the absence of any potential regulatory incentives will prevent [the goal of encouraging responsible innovation] from being achieved. It would be meaningful for the Agencies to include language in the preamble to the final rule that makes clear banks should and will be supported by regulatory agencies in seeking reasonable innovation and that potential attempts to innovate (e.g., off-boarding older technological systems, putting together pilot programs, or incorporating AI tools) will not necessarily result in supervisory action if AML/CFT gaps are exposed or discovered.
Board Oversight
Finally, the Comment states that certain language in the NPRM “could be interpreted as conflating the responsibilities of the board of directors with that of management and expanding these responsibilities beyond the board of directors’ traditional role of oversight.” Therefore, the Comment requests that the regulators should state explicitly that the final rule “does not (i) create any supplementary documentation requirements on the part of the board, (ii) hinder the board of directors from delegating work to managers or committees (including approval of the program by a board committee), and (iii) create an expectation that the board of directors be involved in the day-to-day operations of the AML/CFT program.”
If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.
Peter D. Hardy and Kaley N. Schafer
Citing Jarkesy, Asbury Automotive Group Files Suit Challenging FTC Administrative Proceeding
One of the country’s largest automotive retailers filed suit against the Federal Trade Commission (FTC) on October 4, arguing that the Supreme Court’s recent landmark decision in Securities and Exchange Commission v. Jarkesy requires that complaints such as the one filed against it be filed in court, and not considered in an administrative proceeding.
The lawsuit, filed in the U.S. District Court for the Northern District of Texas by Duluth, Georgia-based Asbury Automotive Group, follows an August FTC complaint filed against the company alleging that it systematically charged consumers for add-on products they did not agree to purchase or were unaware were optional. The FTC also alleged that Asbury discriminated against Black and Latino consumers by targeting them with unwanted and higher-priced add-ons. The complaint stated that there were no non-discriminatory reasons for those consumers being charged for those items.
In the Jarkesy decision, issued on June 27, the Supreme Court held that the SEC’s use of administrative hearings before Administrative Law Judges (ALJs) to pursue civil penalties for securities fraud was unconstitutional, since it deprived a person accused of violating agency rules of the right to a jury trial. Rather than using ALJs, the SEC must file such cases in federal court, where defendants may request a jury trial, the court said.
In doing so, the court ruled that the “public rights doctrine” did not apply to the case. Unlike cases involving “private rights” such as life, liberty and property, which must be decided by federal courts established by Congress under Article III of the Constitution, the “public rights doctrine” more narrowly provides that cases that historically involved the Government and persons subject to its jurisdiction need not be decided by Article III courts.
Many agencies beyond the SEC, such as the FTC, have relied on the “public rights doctrine” to adjudicate civil penalties without juries, and those procedures already are ripe for attack under the Seventh Amendment. Similar cases already have been filed in federal court challenging the use of ALJs.
In its suit, Asbury asserts that the FTC’s administrative proceeding violates Asbury’s constitutional rights by allowing the commission to act as prosecutor and judge in the same proceeding. The suit also argues that FTC commissioners and in-house ALJs are insulated from removal by the president, in violation of the Constitution’s requirements.
In August, the FTC filed an administrative complaint alleging that the automotive group systematically charged customers for expensive add-on items that they had not agreed to or were falsely told were required as part of their purchase.
Asbury’s challenge to the FTC’s enforcement proceeding follows a recent post-Jarkesy challenge against the FDIC. We anticipate similar challenges to administrative adjudication as targets of enforcement actions seek relief in federal court.
John L. Culhane, Jr. and Brian A. Turetsky
On October 16, the FTC issued its final amendments to the Negative Option Rule, which now applies to all negative option programs and includes a “click to cancel” provision intended to make it easier for consumers to cancel their enrollment in order to halt continued charges.
“Negative option” is a term used to describe commercial transactions in which an underlying condition or term will continue unless the consumer takes an affirmative action to either cancel the agreement or reject the good or service. These plans typically take the form of agreements or subscriptions that automatically renew, continuity plans (where a consumer agrees in advance to receive goods or services periodically), or free trial marketing (where a consumer receives goods or services for free or for a nominal price for a limited time period). The amendments issued by the FTC expand the coverage of the rule beyond pre-notification plans – in which sellers send periodic notice offering goods or services to consumers and then charge them for the goods or services if they fail to affirmatively decline – to all other forms of negative option marketing. Until now, the Negative Option Rule did not cover continuity plans, automatic renewals, and trial conversions.
The FTC said the final rule is intended to provide a consistent legal framework by prohibiting sellers from:
- Misrepresenting any material fact made while marketing goods or services with a negative option feature.
- Failing to clearly and conspicuously disclose material terms prior to obtaining a consumer’s billing information in connection with a negative option feature.
- Failing to obtain a consumer’s express informed consent to the negative option feature before charging the consumer.
- Failing to provide a simple way to cancel the negative option feature and immediately halt charges.
Under the amendments to the rule, the FTC may obtain monetary redress and impose civil penalties for first time violations.
According to the FTC, while negative option marketing programs may be convenient for consumers and sellers, it receives thousands of complaints about negative option and recurring subscription practices every year. The number of complaints has increased during the past five years. In 2024, the commission has received nearly 70 consumer complaints each day, up from 42 per day in 2021. The commission said it is attempting to modernize the rule to fight unfair or deceptive practices related to “subscriptions, memberships, and other recurring-payment programs in an increasingly digital economy where it’s easier than ever for businesses to sign up consumers for their products and services.”
Most of the final rule’s provisions will go into effect 180 days after it is published in the Federal Register. However, provisions related to misrepresentations and other procedural requirements are effective 60 days after publication.
The commission issued its proposed rule in March 2023. Several key changes were made to the rule from the proposed rule. The final rule:
- Removes a requirement to disclose the exact amount (or range) of each charge that will be submitted for payment. Instead, sellers are required to provide a reasonable approximation of the amount when an exact figure is impossible.
- Modifies recordkeeping to require sellers to maintain verification of consumer consent for three years from the date of consent, rather than three years or a year after cancellation, whichever is longer
- Requires that the cancellation mechanism be as easy to use as the mechanism used to enroll in the negative option feature.
- Removes a requirement that sellers be required to obtain a consumer’s unambiguously affirmative consent before presenting additional offers, modifications to an existing agreement, arguments for keeping the arrangement in place, or similar information when a consumer attempts to cancel..
- Removes a requirement for sellers to provide annual reminders to consumers enrolled in negative option plans.
- Adds a new section that allows sellers to petition the FTC for partial or full exemptions from the rule if they can demonstrate that the rule’s requirements are not necessary to prevent the acts or practices to which the rule relates.
The Commission vote approving publication of the final rule in the Federal Register was 3-2, with Commissioners Melissa Holyoak and Andrew N. Ferguson voting no. In a statement, Holyoak warned that she believes the final rule may not survive a legal challenge, noting that the Commission is issuing a broad final rule even though the ANPR was far narrower and that it fails to define with specificity acts or practices that are unfair or deceptive.
We would note that the FTC rule is not the only agency pronouncement on negative option marketing. The CFPB issued a circular on negative option marketing in January 2023 addressing the circumstances in which negative option marketing may constitute an unfair, deceptive, or abusive act or practice under the Consumer Financial Protection Act.
Finally, last week, we hosted two law professors—Kaitlin Caruso from the University of Maine Law School and Prentiss Cox from the University of Minnesota Law School—on our Consumer Finance Monitor Podcast, for a discussion of their article “Silence as Consumer Consent: Global Regulation of Negative Contracts,” which will soon be published in the American University Law Review. We recommend this podcast to anyone who wants to learn more about the existing regulatory framework and development of the Negative Option Rule.
John L. Culhane, Jr. and Brian A. Turetsky
Join Us at the 13th Annual Utah Fall Employment Seminar
November 13, 2024 | 8:00 AM – 12:00 PM
Please join us for an in-depth half day program focused on core issues and developments in labor and employment law with the greatest impact on Utah employers. Our panelists are Ballard Spahr’s Jason Boren, Charles Frohman, and Nima Darouian. Topics to be announced.
This program will be of interest to in-house counsel, compliance, finance, and human resources. Breakfast will be provided, with opportunities to network and share experiences with your colleagues. Register today to secure your spot.
Location
Little America Hotel
500 Main Street
Salt Lake City, UT 84101
Registration Fee: $25.00
Additional Information
In an effort to go green, conference materials will be distributed electronically.
This program is approved for CA, NV, NJ, NY, & PA CLE credits. HRCI & SHRM credits are pending. Uniform Certificates of Attendance will also be provided for the purpose of seeking credit in other jurisdictions.
For more information, contact Meg Connolly at connollymr@ballardspahr.com.
Jason D. Boren, Charles Frohman and Nima Darouian
Post-Election Webinar - The Impact on the Banking and Consumer Financial Services Industry
A Ballard Spahr Webinar | November 12, 2024, 12:00 PM – 1:00 PM ET
Speakers: Alan S. Kaplinsky, John L. Culhane, Jr.
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