Regulatory Influencer: FTC Issues Final “Click-to-Cancel” Rule

In recent years, regulators and consumers have expressed growing concerns over deceptive subscription practices and negative option marketing. Although the Federal Trade Commission (FTC) has sought to address these practices through individual law enforcement actions and a patchwork of laws and regulations, problems persist, as demonstrated by the thousands of consumer complaints it receives each year. 

To address these practices, in March 2023 the FTC proposed a rule provision making it easier for consumers to “click to cancel” recurring subscriptions and memberships. In October 2024, the FTC issued the Negative Option Rule, commonly referred to as the “click-to-cancel” rule that will require sellers to make it as easy for consumers to cancel their enrollment as it is for them to sign up. 

The bigger picture

As explained by the FTC, negative option programs can provide substantial benefits for both sellers and consumers. However, consumers cannot realize these benefits when sellers make material misrepresentations to induce consumers to enroll in such programs, fail to provide important information, bill consumers without their consent, or make cancellation difficult or impossible. 

Negative option programs come in a variety of forms, but all share a central feature: each contains a term or condition that allows a seller to interpret a customer’s silence, or failure to take an affirmative action, as acceptance of an offer.

The FTC’s Negative Option Rule applies to all negative option programs in any media and is designed to make it significantly easier for consumers to cancel recurring subscriptions and memberships. Under the rule, the following acts and practices are now defined as unfair or deceptive within the meaning of Section 5 of the FTC Act:

• To misrepresent any material fact made while marketing using a negative option feature.
• To fail to clearly and conspicuously disclose material terms prior to obtaining a consumer’s billing information in connection with a negative option feature.
• To fail to obtain a consumer’s express informed consent to the negative option feature before charging the consumer.
• To fail to provide a simple mechanism to cancel the negative option feature and immediately halt charges. 

Why Should You Care?

The FTC’s Negative Option Rule will have a significant impact on subscription-based businesses like Netflix, Amazon Prime and other companies in the subscription service industries. Understanding the implications of the FTC’s rule is essential for several reasons

• Clear and conspicuous disclosures: Under the rule, in connection with promoting or offering for sale any good or service with a negative option feature, businesses must disclose all material terms to a consumer, prior to obtaining the consumer’s billing information. The required “important information” includes:
  • That consumers will be charged for the good or service, or that those charges will increase after any applicable trial period ends, and, if applicable, that the charges will be on a recurring basis, unless the consumer timely takes steps to prevent or stop such charges. 
  • Each deadline (by date or frequency) by which the consumer must act to prevent or stop the charges. 
  • The amount (or range of costs) the consumer will be charged and, if applicable, the frequency of the charges.
  • The information necessary for the consumer to find the simple cancellation mechanism. 
• Consent: The FTC now requires negative option sellers to obtain the consumer’s express informed consent before charging the consumer. In obtaining such expressed informed consent, businesses must: 
  • Obtain the consumer’s unambiguously affirmative consent to the negative option feature offer separately from any other portion of the transaction.
  • Not include any information that interferes with, detracts from, contradicts, or otherwise undermines the ability of consumers to provide their express informed consent to the negative option feature. 
  • Keep or maintain verification of the consumer’s consent for at least three years. However, if the seller can demonstrate by a preponderance of the evidence that it uses processes ensuring no consumer can technologically complete the transaction without consent, such seller does not have to maintain these records for such transactions. 
• “Click-to-cancel” requirement: This new requirement mandates that companies provide a simple mechanism for a consumer to cancel their subscriptions. At a minimum, the simple mechanism for cancellation must be provided through the same medium the consumer used to consent to the negative option feature. 
• Enforcement and penalties: Subscription-based services may face significant penalties for violations, with fines of up to $51,744 per violation. 

Next steps

“Click to cancel” may force some companies to overhaul their subscription management processes, making it easier for consumers to cancel, ensuring clarity about ongoing costs, and maintaining compliance to avoid financial repercussions. Although this could potentially lead to higher customer turnover (as users are no longer deterred by difficult cancellation processes) it will ensure companies are aligned with growing consumer expectations for transparency and fairness in subscription services. 

As of November 2024, the rule has not yet been published in the Federal Register. Once published, the rule's provisions will take effect at different intervals: the prohibition on misrepresentations will be enforceable 60 days after publication, while other requirements, including easy cancellation mechanisms and recordkeeping for consent, will become mandatory 180 days post-publication.