New ‘Click-To-Cancel’ Rule Will Make Ending Subscriptions Easier: What To Know

16 Oct 2024 by Antonio Pequeño IV · Forbes

Topline

The Federal Trade Commission will soon implement a rule making it easier for consumers to cancel their subscriptions and memberships, according to an announcement Wednesday, effectively clamping down on companies who complicate the cancellation process and threatening them with civil penalties if they continue to do so.

The FTC announced the finalized rule Wednesday. (Photo by Beata Zawrzel/NurPhoto via Getty Images)NurPhoto via Getty Images

Key Facts

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.

The FTC voted 3-2 on Wednesday to approve the rule after a surge in consumer complaints about recurring subscription practices over the past five years, as the commission received an average of nearly 70 consumer complaints per day in 2024, a significant jump from the average of 42 it received each day in 2021.

The rule is part of the FTC’s review and modernization of its 1973 Negative Option Rule, which targeted deceptive marketing practices linked to subscriptions.

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How Will Consumers Benefit From The New Rule?

Consumers should be able to cancel subscriptions or memberships just as easily as they signed up for them, the FTC says. For example, subscriptions signed up for online should have a simple “click-to-cancel” opt-out, while sign-ups made in person should have online or over-the phone opt-out options. Consumers should also be informed of what kind of subscription or membership conditions they’re agreeing to before signing up.

How Are Businesses Impacted By The New Rule?

Businesses must be able to show that consumers knew what they agreed to before signing up for a service. The FTC also says businesses cannot misrepresent facts while marketing goods or services with a “negative option” feature, which the FTC defines as companies assuming a customer accepted a service unless they specifically rejected it (e.g. a consumer agreeing to a one-week trial and not canceling it before being billed for a regular membership). Businesses also have to provide “simple cancellation mechanisms to immediately halt all recurring charges” for consumers who want to opt out of a service and must get consumers’ “express informed consent” to the negative option feature before charging the consumer. The FTC can seek civil penalties or compensation to consumers when companies violate the rule.

What Companies Have Been Criticized For Hard-To-Cancel Subscriptions?

The FTC has gone after companies like Adobe and Amazon for allegedly making consumers’ subscriptions hard to cancel, accusing the latter company of enrolling customers in Amazon Prime without their consent while also making it difficult for them to cancel their subscriptions. Fintech startups like TomoCredit and Albert have received hundreds of complaints related to difficulties with canceling a subscription, according to Forbes, which noted New York fintech Brigit was ordered by the FTC to refund $18 million to customers last year over deceptive cancellation practices. Gym memberships have also raised the ire of consumers who feel health clubs make it too hard to cancel subscriptions. Planet Fitness was one gym franchise criticized repeatedly by consumers when the FTC sought comments on the click-to-cancel rule last year, as customers blasted the gym’s membership cancellation policy which requires customers to cancel in person, through written notice or email (Planet Fitness notes on its website the cancellation process can vary from club to club).

Key Background

When the commission announced an earlier draft of the “click-to-cancel” rule, last year, it received “16,000 comments from consumers and federal and state government agencies, consumer groups, and trade associations. The increased concern around hard-to-cancel subscriptions and memberships has materialized alongside a growing subscription economy and a spike in subscription prices. A 2022 C R Research study found 42% of consumers had forgotten they were paying for services they did not use. The study also concluded consumers underestimated the monthly cost of their subscriptions by an average of $133. The streaming service industry is a prime example of rising subscription costs, with companies like Netflix, Disney+ and Hulu continuing to raise the price of their subscriptions.