Here’s how the FTC’s “click-to-cancel” rule gives consumers more power

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. This effectively targets companies that complicate the termination process and threatens them with civil penalties if they continue to do so.

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

NurPhoto via Getty Images

Important facts

The “click-to-cancel” rule requires companies to “make it as easy for consumers to cancel their registration as it was to subscribe,” the announcement said, noting that the rule will come into effect six months after it was announced The publication will take effect and will be entered into 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 Increase over the average represents 42 received every day in 2021.

The rule is part of the FTC’s review and modernization of the 1973 Negative Option Rule, which targeted deceptive subscription-related marketing practices.

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How will consumers benefit from the new regulation?

Consumers should be able to cancel subscriptions or memberships just as easily as they signed up for them, the FTC says. For example, subscriptions taken out online should have an easy click-to-cancel option, while in-person subscriptions should have online or telephone unsubscribe options. Consumers should also be informed of what subscription or membership terms they agree to before signing up.

What impact does the new regulation have on companies?

Companies must be able to demonstrate that consumers knew what they were agreeing to before signing up for a service. The FTC also says companies must not misrepresent facts when marketing goods or services with a “negative option.” The FTC defines companies as assuming that a customer has accepted a service unless they have specifically declined it (e.g., when a consumer agrees to a one-week trial). do not cancel before regular membership is billed). Companies must also provide “easy cancellation mechanisms to immediately discontinue all recurring charges” for consumers who wish to opt out of a service and must obtain consumers’ “express informed consent” to the negative opt-out feature before charging the consumer. The FTC can seek civil penalties or compensation for consumers if companies violate the rule.

Which companies have been criticized for their hard-to-cancel subscriptions?

The FTC has taken action against companies like Adobe and Amazon for allegedly making it harder for consumers to cancel subscriptions, accusing the latter company of enrolling customers in Amazon Prime without their consent while making it difficult for them to cancel their subscriptions. According to Forbes, fintech startups like TomoCredit and Albert have received hundreds of complaints related to difficulty canceling a subscription. New York-based fintech company Brigit was ordered by the FTC last year to refund $18 million to customers over fraudulent cancellation practices. Gym memberships have also drawn the ire of consumers who believe gyms make it too difficult to cancel subscriptions. Planet Fitness was a gym franchise that was repeatedly criticized by consumers when the FTC sought comments on the click-to-cancel rule last year, as customers criticized the gym’s membership cancellation policy, which requires in-person cancellation via written notice or email -Prescribe email (Planet Fitness). notes on its website that the cancellation process may vary from club to club.

Important background

When the commission announced an earlier draft of the click-to-cancel rule last year, it received “16,000 comments from consumers as well as federal and state government agencies, consumer groups and trade associations.” There has been increasing concern about difficult-to-cancel subscriptions and memberships manifested along with a growing subscription economy and an increase in subscription prices. A 2022 study by CR Research found that 42% of consumers had forgotten to pay for services they didn’t use. The study also concluded that consumers underestimated the monthly cost of their subscriptions by an average of $133. The streaming services industry is a prime example of rising subscription costs. Companies like Netflix, Disney+ and Hulu continue to increase the prices of their subscriptions.