FTC Click to Cancel Rule Makes Cancellations Easier

On October 16, 2024, the FTC delivered long overdue relief to subscription customers. Anyone who has ever tried to cancel a membership or recurring subscription knows how intentionally difficult this can be. The FTC calls this negative option marketing.

What Does Negative Option Marketing Mean?

Negative option marketing is the common sales tactic where a consumer's inaction is treated as consent to continued billing or automatic signup. Have you ever forgotten to cancel a free trial and ended up with an unwanted subscription? That's just one familiar example.

The new FTC rule called Click to Cancel expands its consumer protection scope to include continuity plans, automatic renewals, and free trials, whether the offer appears online, is delivered on the phone, or in person.

And, unlike previous FTC consumer rulings, the new Click to Cancel rule covers business-to-business transactions as well as business-to-consumer transactions. This means the rule applies to almost any negative option program your business offers. It also means if you enroll your business in a negative option program, your business gets the same protection as an individual consumer.

How Will Consumes Benefit from the Click to Cancel Ruling?

These are key requirements businesses must comply with.

• Cancellation Ease: The cancellation process must be as simple as the sign up. If the customer subscribes or enrolls with one click, then the cancellation must also be one click. If the offer was accepted by phone, then either a phone call or online cancellation is acceptable.

Three important points to keep in mind:

1. A business can’t require a customer to talk to a live or virtual representative to cancel if they didn’t have to do that to sign up.

2. If the company is offering phone cancellation, they can’t charge extra for that service, and they have to answer the phone or take a message during normal business hours. If they take a message, they have to respond to people promptly. (The FTC doesn’t clarify “promptly”.)

3. If people originally signed up for a product or service in person, they can cancel in person if they want to but it can’t be required. Every customer, regardless of how they originally signed up, can cancel online or by phone. How many times has that gym made you show up in person to cancel? Those days are thankfully coming to an end.

• Pre-signup Disclosure: The company must provide clear, readily visible information about subscription terms and the scope of services that are likely to influence the customer’s buying decision before gathering any billing information.

This might include promotional period, length of subscription, billing frequency, renewal terms, and how to cancel. Certain essential information related to charges and cancellation must clearly appear every time when and where the customer agrees to the product or service.

• Obtain Express Consent: Customers must actively agree to the terms of the offer before any charges are made. The company must be able to show that their customers fully understand what they are signing up for before they begin the checkout process.

Companies should maintain proof of consent for three years. This doesn’t have to be overly burdensome. It can be as simple as an online checkbox or signature. For offers made over the phone, the Telemarking Sales Rule applies as well.

• Material Misrepresentations Prohibited: Companies are prohibited from making false claims about the important aspects of their offer, including the terms and conditions, the purpose of the product or service, or anything else that is likely to matter to the customer. ("Likely to matter" sounds broad and vague.)

What Are the Impacts and Penalties for Non-Compliance?

Companies that don’t comply could be subject to legal action, civil penalties, and reputational harm. This rule applies to all companies offering some form of subscription, membership, trial offers, automatic renewal, and recurring billing products and services whether online, phone, or traditional retail. Ecommerce, SaaS, telemarketing, and software companies are especially impacted.

Some provisions of this rule will start to go into effect within 60 days, with most parts in full effect within 180 days of the Federal Register publication.

This ruling is good news for all of us as consumers. Take a few minutes and look at all the services you currently use. Which ones already check the new Click to Cancel compliance box? Which providers will finally have to step up and treat you better?

If your company offers any product or service on a subscription basis, membership, automatic renewal, free trial, recurring billing, then you need to carefully study this ruling now. What changes need to be made to your online or offline sales, marketing, and signup messaging and process?