The Federal Trade Commission (FTC) proposes a new rule requiring companies to provide an easy click-to-cancel option for subscriptions.
The agency aims to clamp down on companies that use burdensome subscription cancellation practices, such as “click to subscribe, call to cancel” systems. Instead, the FTC wants companies to make it as easy for customers to cancel recurring payments as it is to sign up.
According to commission Chair Lina Khan, consumers often get stuck paying for auto-renewing contracts because companies force them to sit on lengthy phone calls to cancel subscriptions while signing up requires just a few clicks online. The proposed rule would clean up the competitive landscape for businesses and provide them with a level set of rules to follow.
Ms. Khan believes that “once you allow companies to engage in deceptive tactics, it creates an incentive across the market. We think this will also be good for honest businesses that don’t actually want to engage in these tactics in the first place.” The proposal would create a level playing field for all businesses, regardless of whether they are engaged in deceptive tactics or not.
The subscription economy has matured, but some companies still use opt-out mechanisms that many see as deliberately tricky and time-consuming for customers to navigate. The call-to-cancel technique, for example, requires customers to track down an often-obfuscated phone number, wait for an agent, and listen to a sales pitch before confirming they want to cancel.
The boom in subscriptions has “created more opportunity for mischief” regarding tricky cancellation procedures, Ms. Khan said. As a result, the FTC hopes to modernize and strengthen its rules governing negative option marketing. Other proposals alongside the easy online cancellation condition include a requirement to send an annual reminder to consumers enrolled in programs involving anything other than physical goods before they are automatically renewed and an option for consumers to opt out of hearing about additional offers or better deals when trying to cancel.
The “click-to-cancel” plan is part of a package of proposed changes to the FTC’s Negative Option Rule, which was introduced in 1973 to monitor the practice of charging for goods or services when a customer fails or forgets to reject an offer or cancel an agreement, including a subscription. The agency said it filed 17,427 complaints under the rule in 2022, up from 16,020 in 2021.
Companies that violate the updated rules would be subject to civil penalties, and the FTC would redress customers harmed by the tactics. The FTC has already come down on companies it considers to have engaged in deceptive subscription practices, while some states have enacted laws to ban irksome cancellation tactics.
For example, a California law requires companies to let customers cancel subscriptions online without “engaging any further steps that obstruct or delay the consumer’s ability to terminate immediately.” The law reinforces an existing rule that stipulates customers who sign up for a subscription online must be able to cancel online.
Colorado mandates that companies providing automatic renewal contracts should “provide a simple, cost-effective, timely, easy-to-use, and readily accessible mechanism for canceling an automatic renewal contract or trial period offer,” illustrated as a one-step cancellation link.