New FTC Rule Targets Simplification of Subscription Cancellations Amid Complaints

The Federal Trade Commission (FTC) has taken a significant step to protect consumers from subscription traps with its new “Click to Cancel” rule.

At a Glance

FTC updates “Negative Option” rule to simplify subscription cancellations
New rule requires cancellation process to be as easy as sign-up process
Rule will take effect 180 days after publication in the Federal Register
Aims to address rising consumer complaints about subscription cancellations

FTC Takes Action Against Subscription Traps

In a move to protect American consumers, the Federal Trade Commission has announced a significant update to its “Negative Option” rule. This change, dubbed the “Click to Cancel” rule, aims to simplify the process of canceling recurring subscriptions and memberships. The decision comes in response to a surge in consumer complaints, with reports of misleading subscription practices rising from an average of 42 daily in 2021 to 70 daily in 2024.

The new rule mandates that businesses must make the cancellation process as straightforward as the sign-up process. This means that if a consumer can subscribe to a service with a single click, they should be able to cancel it just as easily. The FTC’s decision addresses longstanding frustrations among consumers who have found themselves trapped in subscriptions they no longer want or need.

In 2021 the FTC received 42 complaints per day from consumers trying to cancel subscriptions.

In 2024, it's nearly 70 every day.

But today, the FTC issued a final rule that makes it as easy to cancel a subscription as it is to sign up. https://t.co/BAv0VWZR6R

— Douglas Farrar (@DouglasLFarrar) October 16, 2024

Key Provisions of the “Click to Cancel” Rule

The updated rule encompasses nearly all negative option programs across various media. It prohibits sellers from misrepresenting material facts in negative option marketing and requires them to disclose important information before obtaining billing information and charging consumers. Sellers must also obtain consumers’ informed consent before charging for negative option features.

“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 to address deceptive practices in the digital economy. It follows a notice of proposed rulemaking in March 2023, which received over 16,000 public comments, indicating significant public interest in the issue.

Implementation and Impact

Most provisions of the rule will take effect 180 days after publication in the Federal Register. This timeline gives businesses a grace period to adjust their practices and ensure compliance. The FTC can impose civil penalties on companies that violate the rule, providing a strong incentive for businesses to adhere to the new regulations.

“The “click-to-cancel” rule will require businesses to “make it as easy for consumers to cancel their enrollment as it was to sign up,” according to the announcement, which noted the rule will become effective six months after it is published in the Federal Register.”

Consumers will benefit from this change by having straightforward cancellation options and clear information about subscription terms. Businesses, on the other hand, must ensure that consumers understand and consent to subscription terms and provide easy cancellation methods. This shift may impact companies like Adobe, Amazon, and various fintech startups that have faced criticism for difficult cancellation processes.

A Step Towards Consumer Protection

The FTC’s “Click to Cancel” rule represents a significant step towards protecting consumers in the digital age. By simplifying the cancellation process and requiring clear disclosure of subscription terms, the rule aims to prevent consumers from being trapped in unwanted subscriptions. As the rule takes effect, it will be crucial for businesses to adapt their practices and for consumers to be aware of their rights under this new regulation.

While the rule passed with a 3-2 Commission vote, indicating some dissent, its implementation signals the FTC’s commitment to addressing consumer concerns in the evolving digital marketplace. As subscription-based services continue to grow, this rule may set a new standard for consumer-friendly practices in the digital economy.