Negative Option Billing
As per the Federal Trade Commission, negative option billing refers to “a type of commercial transaction where sellers construe a customer’s failure to take positive action, like rejecting an offer or canceling an agreement, as implicit agreement to be billed for products and services.”
Unlike traditional subscription offers, the customer isn’t required to actively acknowledge or consent to subsequent charges in a negative option billing framework. Instead, customers are automatically enrolled and given the choice to opt-out.
This presents an appealing opportunity for merchants. For instance, Forrester Research reveals that merely 18% of individuals respond to opt-in or opt-out requests. Consequently, negative option billing could result in approximately 82% of customers subscribing, compared to the 18% success rate of traditional opt-in subscriptions.
The heavy reliance on often-overlooked fine print in agreements has led to repeated scrutiny and regulation of negative option billing by both the FTC and major card networks.
Historically, certain merchants have deliberately obscured recurring charges, assuming that many customers wouldn’t notice such charges they don’t recall signing up for. However, the enhanced conversion rates offered by negative option billing are enticing even for ethical merchants.
While subscriptions that incorporate a free trial period before charging customers may fall under the negative option billing category, these offers often circumvent legal and regulatory concerns associated with traditional negative option billing by ensuring subscription costs are clear throughout the signup process.
Written by Andrii Vovk