Last month, the US Federal Trade Commission (FTC) adopted a final “click-to-cancel” rule requiring businesses to make canceling a subscription as easy as signing up for it in the first place. Whether it’s a magazine subscription, gym membership, or monthly payment for a streaming service, stopping an unwanted recurring subscription will become easier for consumers.
On Thursday, the Consumer Financial Protection Bureau (CFPB) announced in a blog post that it “can enforce the new click-to-cancel rule, which will further enable the CFPB to protect consumers from being tricked into paying for products or services they do not want or need.”
According to the CFPB — a government agency charged with protecting consumers from unfair treatment by financial institutions — subscription and membership revenue models “create incentives for firms to make it difficult to cancel recurring payments and charges.” When consumers struggle to cancel services, the agency noted, they often file disputes with banks to counteract these recurring charges, with more consumer complaints going to the CFPB.
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Similarly, the FTC proposed the click-to-cancel provision after finding that many companies were engaging in “unfair” and “deceptive” subscription practices. Specifically, the FTC sued Adobe for harming consumers by enrolling them in its default subscription plan without properly disclosing the plans’ terms. The commission also sued Amazon for signing people up for Prime “without their consent” and “sabotaging” consumers’ attempts to cancel, and it criticized Microsoft for “product degradation” related to Xbox Game Pass price increases.
Under the newly passed rule, businesses are forbidden from using a cancellation method other than the one used by consumers to sign up. Moreover, the FTC will also require businesses to disclose the terms of their subscriptions and obtain customer consent before charging them. This applies to any automatically renewing subscription. Furthermore, sellers using negative option programs must provide all pertinent information to consumers in advance.
According to the ruling, “negative-option programs 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 affirmative action, as acceptance of an offer. Negative-option programs generally fall into four categories: prenotification plans, continuity plans, automatic renewals, and free trial (i.e., free-to-pay or nominal-fee-to-pay) conversion offers.”
Several industry groups have sued the FTC in the Fifth Circuit Court of Appeals arguing that “the FTC acted beyond its statutory authority, in violation of the US Constitution.” These groups include the Internet & Television Association, the Electronic Security Association, and numerous companies in the cable, home security, and online advertising industries.
The CFPB stated that it will take action against consumer financial firms and other entities that violate the click-to-cancel rule to further protect consumers against deceptive and predatory practices.
As of today, the final rule has not yet been published; however, most of the provisions in the click-to-cancel ruling will go into effect 180 days after it’s officially published in the Federal Register.
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