FTC’s new Click to Cancel rule—what brands need to know

Most consumers know the frustration of trying to cancel a subscription or membership that was quite simple to purchase—an experience that often goes like this: It only takes a minute and a couple of clicks online to sign up for the annual membership at the Pilates studio—the really expensive one that renews your membership every year unless you cancel before they charge your card again. But canceling is not that easy. There is no “cancel” button in the “Membership” tab of your app and no information online about the cancellation process. You ask about cancellation at the front desk and the employee tells you to send an email to the studio with a copy of your driver’s license and a detailed reason for why you want to cancel. Once the studio receives that email, they might call you and explain the benefits of maintaining your membership before finally allowing you to cancel. The experience is exhausting and thousands of consumers have complained to the Federal Trade Commission. And recently, the FTC took action. See all of Ad Age’s 40 Under 40 honorees here On Oct. 16, the commission announced a new rule, colloquially known as “Click-to-Cancel,” which was motivated by practices that the FTC describes as “saddling shoppers with recurring payments for products and services they never intended to purchase nor wanted to continue buying” and takes direct aim at so-called negative options. The Click-to-Cancel rule aims to ensure consumers are fully aware of the terms of negative option programs and are able to cancel their subscriptions/memberships just as easily as they signed up. But what is a negative option program? In general, the term refers to a program or tactic where a lack of action by the purchaser results in acceptance of an offer and its terms. The four most common categories of negative options are: 1. Prenotification plans (where goods are shipped and billed to subscribers if subscribers don’t expressly reject merchandise in a specified time period, such as a book club plan) 2. Continuity plans (where consumers receive periodic shipment of goods, such as bottled water delivery) 3. Automatic renewals (where a subscription is automatically renewed at its expiration unless a consumer affirmatively cancels, as is often the case in studio fitness subscriptions or credit monitoring services) 4. Free trial conversions into paid programs (where consumers receive an initial free or nominal-free trial that automatically converts to a paid or higher-fee version unless consumers affirmatively cancel, as may happen in software free trial situations) When Click-to-Cancel goes into effect in April 2025, sellers will be prohibited from: Sellers who use negative option programs should review their programs and policies now to ensure compliance with the rule by April of next year or risk civil penalties of up to $51,744 per violation. While further actions might be required, all businesses with negative option programs should check cancellation policies, terms flows and consent mechanisms and make changes as needed to align with the rule. This new rule provides the FTC with a powerful new enforcement tool, so sellers should: Check the cancellation policy Make sure that the cancellation process is at least as easy as signing up. If a consumer can sign up online, they should be able to cancel online, and the “Cancel” button cannot be hidden or difficult to find. If sign-ups occur only in person, businesses should make sure that consumers can cancel either online or over the phone—though in-person options can also be offered in addition to those options. Check the terms flow When are the material terms of an offer presented to consumers? All material terms must be presented to consumers clearly and conspicuously prior to the request for billing information. “Material terms” include, for example, that consumers will be charged, whether charges will increase after any applicable trial period, whether charges will be on a recurring basis, any deadlines by which consumers need to act to prevent or stop charges, the amount or range or charges and any information that a consumer needs to cancel. In other words, clearly disclose where the “cancel” button is located. Check the checkboxes The rule requires that negative option sellers secure “express informed consent” to the negative option. The rule requires sellers to receive “unambiguous affirmative consent” separately from any other portion of the transaction. If your “I consent” checkbox is muddled in with other portions of the transaction, placed with information that detracts from or undermines it, or happens after an initial charge, that should be changed. And verification of that consent must be kept for at least three years (unless technology does not allow consumers to complete the transaction without such express informed consent).

FTC’s new Click to Cancel rule—what brands need to know

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