FTC Click-to-Cancel RulingHere’s the Rundown on What You Need to Know

FTC Publishes New “Click-to-Cancel” Rule: Here’s What Merchants Need to Do to Stay Compliant

The Federal Trade Commission (FTC) have been exploring the idea of simplifying subscription cancellations for a long time. As we covered on our blog, regulators proposed a “click-to-cancel” provision as an update to their Negative Option Rule in early 2023.

Now, as announced in a press release published on October 16, the FTC have finally made their move.

The finalized click-to-cancel rule imposed by the FTC will require sellers to “make it as easy for consumers to cancel their enrollment as it was to sign up.” As noted in the press release, this change doesn’t come out of nowhere — the FTC made this rule in response to more than 16,000 comments from the public. And, as we see below, response to the announcement has been overwhelmingly positive (if a little sardonic):

“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.”

This is a big shakeup in the FTC’s approach to regulating negative-option business practices. So, what are the key points that merchants need to know going forward?

What is the New Rule?

In simple terms, the new click-to-cancel rule requires businesses to provide a simple, one-click method for consumers to cancel their subscription services.

Businesses will not be allowed to make customers jump through hoops or navigate confusing cancellation processes if they want to end a subscription service. The process of canceling a service has to be at least as easy to navigate as the process of enrolling.

The rule is also going to require merchants to get clear and informed consent from buyers before enrolling them in any kind of automatic renewal or continuous service plan. By “clear and informed consent,” they mean providing all necessary information about the terms of the subscription up front.

Merchants can’t hide important details about the terms of service or billing in the fine print. All these need to be provided before obtaining the customer’s billing information and charging them. Finally, merchants also have to get affirmative, express consent to those terms, and keep that written consent on file.

Why is the FTC Making This Move?

As per the press release, the rule change is part of an ongoing review and update of their 1973 Negative Option Rule, “which the agency is modernizing to combat unfair or deceptive practices related to subscriptions, memberships, and other recurring-payment programs in an increasingly digital economy where it’s easier than ever for businesses to sign up consumers for their products and services.”

...in other words, it’s basically a modernizing effort.

The new ruleset is supposed to be seen as an acknowledgement from the FTC that times have changed. The digital market is a lot different from the brick-and-mortar market of the early ’70s, and new rules need to be put in place to keep people safe.

The FTC is concerned that automatic renewal and continuous service programs can mislead consumers. That’s understandable; as the commentors we spotlighted a second ago demonstrate, that’s definitely a current in the water. But, a lot of the problem stems from the difficulty people run into when trying to cancel subscription services.

A lot of companies have complicated cancellation processes. Some even hide their cancelation processes altogether, in an attempt to stop buyers from canceling and avoid being charged for a service they no longer want. The new rule will introduce penalties for this behavior.

Benefits For Consumers

First of all, there’s the convenience factor. By simplifying the cancellation process, consumers will be able to avoid getting charged for unwanted services without having to scramble through a mound of red tape. That’s probably enough of a benefit for most people on it’s own. But, let’s extrapolate out a bit anyway.

Everyone can be a more informed and discerning buyer if merchants have more transparency in place. Businesses will need to provide a quality service that consumers actually want to pay for, if they expect to thrive in the subscription space. So, honest businesses that sell quality products will rise to the top, while scammers will sink to the bottom.

Finally, it will give consumers more control over their finances, and let them allocate their funds to services they actually want, rather than spending money on those they just can’t escape. This could incentivize merchants to offer better services and products, thereby driving innovation.

This is Good News for Merchants, too.

That’s all great news for buyers. But, what about sellers? Well, you might think it’s weird to say at first, but honest retailers should actually see this rule change as a win.

It’s true that nobody likes customer attrition. Every buyer you lose is money that is not going into your account. Honest businesses that know they have a quality product shouldn’t be afraid of buyers being allowed to cancel their service, though. If your product is good, and you stand behind it, you should not rely on trapping customers with impossible-to-navigate cancellation practices in the first place.

With fewer sketchy merchants operating in the subscription space, those honest operators will benefit from greater consumer trust. Getting trapped in a contract is one of the main objections to subscription services. But, buyers will be more likely to enroll if they know they can cancel easily.

This heightened trust in subscription merchants can lead to fewer disputes, too. Under current rules, buyers know they’re at risk of getting locked into a subscription that they can’t escape. That makes them more likely to panic and turn to chargebacks as a means of getting out of the contract. But, if you can cancel a service with the click of a button... that trigger finger hovering over the “dispute charge” button in their bank app might not be so itchy.

What Do Merchants Need To Do?

Already abiding by the tenets of the rule? That’s good. But, it’s probably still wise to give your policies and practices a second look anyway.

With FTC rule updates, it’s always best to be proactive to ensure compliance and foster consumer trust. Here are some key actions I’d recommend:

By following these actions, you can do more than just stay compliant — you’ll also build a positive reputation and foster trust with customers.