Gone are the days when subscriptions were limited to Netflix or Amazon. Today, you can find subscription services for nearly anything—from meal kits to beauty products and beyond. For companies, these subscriptions offer a lucrative, ongoing revenue stream, converting a potential one-time purchase into a steady flow of monthly profits. Consumers often find themselves automatically charged month after month until they actively decide to cancel, which isn’t always an easy task. In response to widespread complaints—more than 16,000 comments from the public—the Federal Trade Commission (FTC) has introduced the “Click-to-Cancel” rule.
This rule is designed to make it significantly easier for consumers to cancel recurring subscriptions and memberships, addressing the frustrations many have faced when trying to navigate cumbersome cancellation processes.
The new rule targets nearly all forms of negative option selling, where a company interprets a consumer’s inaction as consent to continue charging for a product or service. These practices include:
- Automatic Renewals: Subscriptions that renew automatically unless the consumer opts out.
- Continuity Plans: Ongoing deliveries or access to services for a recurring fee.
- Free-to-Pay or Fee-to-Pay Conversions: When a free trial period ends and automatically converts to a paid subscription.
- Pre-Notification Negative Option Plans: Where consumers must proactively decline an offer to avoid charges.
The “Click-to-Cancel” rule sets out specific requirements for sellers to ensure transparency and simplicity in subscription services.
To comply with the rule, sellers must:
Clearly State the Offer:
- Sellers must clearly state all material terms before a consumer enrolls in a subscription, including key dates like cancellation deadlines, the end of free trials, and billing dates, as well as details on the range of potential charges. Additionally, they must inform consumers about how to access a simple cancellation method. These disclosures need to be straightforward and easy to understand, ensuring consumers can make informed decisions before committing to a subscription.
Obtain Proof of Consent:
- Sellers must retain proof that consumers agreed to subscription terms, ensuring consent is clear and not misleading. They must obtain unambiguous consent to the Negative Option feature separately from other parts of the transaction and avoid presenting information that could undermine informed consent. Verification of consent must be kept for at least three years, unless the seller can prove that its process ensures consumers cannot complete the transaction without giving consent. Acceptable proof includes a checkbox, signature, or other forms of verification.
Provide a Simple Cancellation Process:
- A core principle of the rule is that canceling a subscription should be as easy as signing up. Sellers must provide a simple mechanism for consumers to cancel any negative option feature, and ensure the process to cancel is at least as easy as the original consent method. For online sign-ups, cancellations must be accessible through a user-friendly online method without requiring interaction with a representative. For phone sign-ups, a cancellation option must be available during business hours at no additional cost. If consent was obtained in person, an in-person cancellation option should also be provided where feasible. Sellers cannot require consumers to engage with a representative to cancel, and any telephone cancellation must be promptly processed at no extra charge, avoiding unnecessary costs.
Failing to comply with these new standards constitutes an unfair and deceptive practice under the FTC Act. The FTC has the authority to pursue monetary damages for violations under Section 19 of the Act without needing to follow prior administrative procedures, as well as seek injunctions under Section 13. Violators may also face civil penalties, highlighting the importance of adherence to these regulations.
The rule will become effective 180 days after its publication in the Federal Register. If published in October 2024, the provisions will be enforceable starting in April 2025 and will be codified in 16 C.F.R. Part 425. This timeline provides sellers a limited opportunity to revise their practices to align with these new consumer protections, ultimately striving to create a fairer subscription marketplace.