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Have you ever tried to cancel a membership or subscription but couldn’t because the process of doing so was an endless, circular maze specifically designed to wear you down? If so, the FTC’s new “Click-to-Cancel” Rule, announced October 16th, is for you.
The Rule will require retailers, gyms and other businesses to make canceling subscriptions as easy as enrolling in them, and to make the subscription process more transparent.[1] In its press release, the FTC explained it is combatting unfair and deceptive practices related to subscriptions, memberships, and other recurring-payment programs.[2] The Rule is set to the backdrop of an increasingly digital economy where it is easier than ever for businesses to sign up consumers for their products and services.[3] The FTC also noted that it receives thousands of complaints each year, with the number of complaints steadily increasing over the past five years.[4]
Specifically dealt with by the Rule are negative option features, which are contract provisions “under which a consumer’s silence or failure to take affirmative action to reject a good or service or to cancel the agreement is interpreted by the negative option seller as acceptance or continuing acceptance.”[5] Negative option programs generally fall into four categories: prenotification plans; continuity plans; automatic renewals; and free trial conversion offers.[6] First, in prenotification plans, such as book clubs, sellers send periodic notices offering goods and if consumers take no action, sellers send the goods and charge consumers.[7] Second, in a continuity plan, consumers agree in advance to receive periodic shipments of goods, which they continue to receive until they cancel the agreement.[8] Third, in an automatic renewal, sellers may automatically renew a consumer’s subscription and charge for it when it expires unless the consumer cancels the subscription.[9] Finally, in free trial conversion, consumers receive goods or services for free for a trial period, after which sellers automatically begin charging a fee unless consumers affirmatively cancel or return the goods or services.[10]
The Rule is primarily concerned with four concepts: misrepresentations, disclosures, consent, and click-to-cancel. Under the Rule, it is unfair and deceptive business practice for a business to (1) misrepresent any material fact made while marketing a negative option feature; (2) fail to clearly and conspicuously disclose material terms prior to obtaining a consumer’s billing information in connection with a negative option feature; (3) fail to obtain a consumer’s express informed consent to the negative option feature before charging the consumer; and (4) fail to provide a simple mechanism to cancel the negative option feature and immediately halt charges.[11] One of the bigger picture takeaways here is that businesses must now ensure easier cancellation of subscriptions through precise timing and content obligations.[12] The Rule may also impact the entertainment industry through the obligations it creates for content providers like Netflix and HBO.[13] As it pertains to companies like these, the Rule requires a cancellation mechanism that is easy to find at the time the consumer decides to cancel.[14]
The misrepresentation provision takes effect within 60 days of the Rule’s publication in the Federal Register, and the disclosure, consent, and click-to-cancel provisions take effect within 180 days of the Rule’s publication in the Federal Register.[15] On October 23, 2024, in the Fifth Circuit, the Internet & Television Association, Interactive Advertising Bureau, and the Electronic Security Association filed a petition arguing the Rule is “arbitrary, capricious, and an abuse of discretion” under the Administrative Procedure Act, claiming it imposes onerous regulatory burdens on businesses by requiring them to make subscription cancellations as easy as sign-ups.[16] On October 22, 2024, in the Eleventh Circuit, the Chamber of Commerce for the United States and the Georgia Chamber of Commerce filed a lawsuit echoing similar concerns about the Rule’s broad regulatory scope and its impact on consumer contracts across various sectors.[17] On October 22, 2024, in the Sixth Circuit, the Michigan Press Association and the National Federation of Independent Businesses’ lawsuit emphasized the FTC’s perceived overreach and lack of specificity in defining unfair or deceptive practices.[18] These legal challenges highlight the turbulent times ahead for the FTC and subscription-based service providers. In the meantime, while litigation is decided, businesses should review their current negative option offers, develop remediation plans, and otherwise comply with the Rule.[19]
[1] Federal Trade Commission Announces Final “Click-to-Cancel” Rule Making It Easier for Consumers to End Recurring Subscriptions and Memberships, Federal Trade Commission (Oct. 16, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/10/federal-trade-commission-announces-final-click-cancel-rule-making-it-easier-consumers-end-recurring.
[2] Id.
[3] Id.
[4] Id.
[5] Timothy Butler, FTC Announces Final ‘Click-to-Cancel’ Rule for Subscription Services and Other Negative Option Offers, Greenberg Traurig (Nov. 27, 2024), https://www.gtlaw.com/en/insights/2024/10/ftc-announces-final-clicktocancel-rule-for-subscription-services-and-other-negative-option-offers#:~:text=The%20rule%20requires%20sellers%20to,civil%20penalties%20for%20rule%20violations.
[6] Jill Goldsmith, FTC Sets Final “Click-To-Cancel” Rule For Subscriptions, Including Streaming, Deadline (Oct. 16, 2024), https://deadline.com/2024/10/federal-trade-commission-sets-final-click-to-cancel-rule-streaming-subscriptions-1236117774/.
[7] Negative Options: A Report by the staff of the FTC’s Division of Enforcement, Federal Trade Commission (Nov. 27, 2024), https://www.ftc.gov/sites/default/files/documents/reports/negative-options-federal-trade-commission-workshop-analyzing-negative-option-marketing-report-staff/p064202negativeoptionreport.pdf.
[8] Id.
[9] Id.
[10] Id.
[11] Negative Option Rule, Federal Trade Commission (Nov. 27, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/p064202_negative_option_rule.pdf.
[12] Saskia Mooy and Katherine Staba, Click-to-Cancel: FTC’s Final Rule Will Change the Subscription Landscape Across Industries, JD Supra (Oct. 28, 2024), https://www.jdsupra.com/legalnews/click-to-cancel-ftc-s-final-rule-will-9857922/.
[13] Id.
[14] Goldsmith, supra note 6.
[15] Butler, supra note 5.
[16] Jonathan Marashlian, FTC’s Latest “Click to Cancel” Rule Challenged in Court, Common Law Group (Oct. 24, 2024), https://commlawgroup.com/2024/ftcs-latest-click-to-cancel-rule-challenged-in-court/#:~:text=The%20Federal%20Trade%20Commission’s%20(FTC,various%20industry%20groups%20and%20associations.
[17] Id.
[18] Id.
[19] Butler, supra note 5.