New Rule Eases Subscription Cancellations: Consumer Protections Tightened

Federal Trade Commission website homepage screenshot.

The Federal Trade Commission (FTC) has introduced a “Click-to-Cancel” rule, aiming to simplify subscription cancellations and protect consumers from deceptive practices.

At a Glance

  • FTC’s new rule requires subscription cancellations to be as easy as sign-ups
  • Rule targets “negative option” programs and deceptive marketing tactics
  • Businesses must obtain explicit consumer consent and provide clear cancellation methods
  • Rule will take effect 180 days after publication in the Federal Register

FTC Takes Action Against “Subscription Traps”

The Federal Trade Commission has finalized a new rule aimed at protecting consumers from deceptive subscription practices. The “Click-to-Cancel” regulation, set to take effect 180 days after its publication in the Federal Register, will require businesses to make canceling subscriptions as straightforward as signing up for them. This move comes in response to thousands of consumer complaints about difficult cancellation processes across various services, including streaming platforms, cable TV, and gym memberships.

The rule specifically targets “negative option” programs, where consumers are charged for goods or services unless they take action to decline. Under the new regulations, businesses must clearly disclose all material terms before obtaining billing information and secure informed consent from consumers before charging them for these features.

Protecting Consumer Rights and Promoting Fair Practices

FTC Chair Lina M. Khan emphasized the importance of this rule in safeguarding consumer interests. The commission received over 16,000 public comments on the March 2023 proposal, highlighting widespread concern over the growing subscription economy and rising costs.

“Too often, businesses make people jump through endless hoops just to cancel a subscription,” said Commission Chair Lina M. Khan. “The FTC’s rule will end these tricks and traps, saving Americans time and money. Nobody should be stuck paying for a service they no longer want.”

The rule is part of the FTC’s broader effort to modernize its 1973 Negative Option Rule, addressing evolving market practices and technological advancements. It prohibits sellers from misrepresenting facts, failing to disclose terms, and failing to provide a simple cancellation mechanism.

Implementation and Impact on Businesses

While the rule aims to protect consumers, it also presents new challenges for businesses. Companies will need to review and potentially overhaul their subscription practices to ensure compliance. The rule applies to all forms of negative option marketing, including automatic renewals, continuity plans, and free-to-pay conversions, across all transaction types.

The FTC’s decision to publish the rule was approved by a 3-2 vote, with dissenting opinions from Commissioners Melissa Holyoak and Andrew N. Ferguson. This split decision reflects the complex balance between consumer protection and business interests. The rule expands the FTC’s authority to impose monetary redress and civil penalties for first-time deception violations involving negative options, potentially increasing the stakes for non-compliance.

Looking Ahead: Consumer Benefits and Business Adaptation

As the implementation date approaches, consumers can anticipate easier subscription management and fewer unexpected charges. The rule’s provisions on disclosures, consent, and cancellation will take effect 180 days after publication, while misrepresentation prohibitions will be enforced in just 60 days.

For businesses, particularly those in the subscription-based economy, this rule signals a need for greater transparency and user-friendly practices. Companies like Adobe, Amazon, and various fintech startups, which have faced criticism for difficult cancellation processes, will need to adapt quickly to avoid potential penalties and maintain consumer trust.

As the subscription economy continues to grow, the FTC’s “Click-to-Cancel” rule represents a significant step towards balancing consumer rights with business practices in the digital age. Its success will depend on effective implementation and ongoing oversight to ensure both consumers and businesses benefit from clearer, fairer subscription processes.

Sources:

  1. FTC takes on subscription traps with ‘click to cancel’ rule
  1. Federal Trade Commission Announces Final “Click-to-Cancel” Rule Making It Easier for Consumers to End Recurring Subscriptions and Memberships
  1. FTC Finalizes ​“Click to Cancel” Rule; Brings Vast Changes and New Risks to Subscription Plans, Repeat Delivery Offers
  1. Federal Crackdown Begins on Streaming Services’ Cancellation Policies
  1. FTC ‘Click-to-Cancel’ Rule Finalized to End Recurring Subscriptions Easily