FTC “Click to Cancel” Rule Set to Simplify Subscription Cancellation

As a continuation of the US government’s effort to make widespread improvements to customer experiences, particularly in the realm of digital experiences, the Federal Trade Commission (FTC) has announced a new ruling meant to simplify membership cancellations. This rule, which is being dubbed “Click to Cancel” is actually a modernization of the 1973 Negative Option Rule, as part of an ongoing review of how FTC regulations apply in the digital age. While customers are likely to be in favor of the ruling, its uniqueness makes it controversial. 

What does the rule mean?

According to the Consumer Financial Protection Bureau, “negative option” refers to “a term or condition under which a seller may interpret a consumer’s silence, failure to take an affirmative action to reject a product or service, or failure to cancel an agreement as acceptance or continued acceptance of the offer.” 

Negative option practices are commonly subscriptions, including services like gyms, mail order sellers, “of the month” clubs and more. Gyms are touted as the most well-known example of negative option selling because certain gyms make it very difficult for customers to cancel their memberships–some even requiring an in-person authentication to cancel. These types of customer headaches are the situations this ruling seeks to eradicate, centering on the idea that it should always be as easy to cancel a subscription as it was to sign up.

This practice is widely disliked by consumers–the FTC receives dozens of complaints every single day about the practice. The growing number of complaints has led the FTC to take action and adapt the 1973 ruling to more modern digital practices.

Under the new rule, which could be considered a “common sense” ruling due to its subjective, generalized language, includes mandates to make certain information surrounding the negative option abundantly clear. In simple terms, the ruling makes the following changes to existing practices:

• The prohibition of misleading or convoluted language regarding a negative option
• The requirement to disclose relevant information regarding negative options, including the mechanics of the negative option at the time of collecting customers’ billing information
• The prohibition of negative option practices if customers are not able to give informed consent
• The requirement of a simple cancellation mechanism for customers using a negative option practice

“Some businesses too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place,” said FTC Chair Lina M. Khan. “The proposed rule would require that companies make it as easy to cancel a subscription as it is to sign up for one. The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties.”

A noteworthy precedent for the FTC

This ruling is more wide-reaching than most FTC regulations, prompting some internal and external pushback. One FTC commissioner dissented on the vote, citing, among other reasons, the rush to finalize the rule prior to the November election and the breadth of the ruling. While the entire commission agrees that this practice can deceive customers, there are real benefits of negative option practices for both sellers and buyers. Negative option allows customers to engage in long term relationships with brands without having to repeatedly enter their billing information. When customers are well informed on a brand’s practices and the agreements they’re making, negative option streamlines communications from the brand, leveraging stored customer data to create fewer touchpoints and more efficient interactions. Unfortunately, without informed consent, the practice just sacrifices customer trust for the sake of expedited billing. 

As broad as the new FTC rule is, it was finalized without several of the proposed clauses that may have made it more controversial to begin with. Among the omissions from the final rule are the mandate for companies to provide customers with an annual reminder detailing their negative option agreement, and a prohibition of the practice of convincing customers to maintain a membership with a brand when the customer is attempting to sever ties and did not ask for more information.

Practical implications of the ruling

In today’s world, customer trust is essential for any e-commerce business. With the amount of personal data at stake in our volatile world, customers need complete assurance that the brands they do business with are taking great care of their personal information. The experience of discovering that your credit card has been charged by a brand without your knowing– even if it was in the fine print of the agreement–can destroy the trust you have in a brand. 

We all use dozens of different paid subscriptions, from streaming services to scheduled deliveries to memberships of organizations. Keeping track of all of one’s subscriptions has become so prevalent that companies like Rocket Money are able to generate revenue by helping customers find and unsubscribe from them. Many subscriptions–whether they’re expressly negative option or not–must ensure their practice is satisfactory by offering ample notice when a customer’s on-file payment is about to be charged. 

Efficiency and convenience will never be the priority when a customer feels deceived or misled. As business leaders, whether the ruling impacts your company’s practices or not, this action reiterates something most know to be true already: well-informed customers are a necessity, not an option. 

Still confused about the Negative Option rule? Check out the FTC’s fact sheet for a TLDR on the ruling. 

Image by Anna Shvets on Pexels.