What the FTC's Click to Cancel Rule Means for Subscription Services

Subscription-based services are a lynchpin of the services industry and the current focus of the Federal Trade Commission’s (FTC) new “click to cancel” rule. Responding to customer complaints focusing on the difficulty of cancelling subscription services, the FTC recently issued an update to its existing Negative Option Rule, outlining new disclosure, consent and cancellation requirements for subscription services. The changes, if upheld, will significantly impact the marketing, purchase and cancellation procedures for subscription services.

Scope of Final Rule

The FTC has retitled the existing Negative Option Rule as the “Rule Concerning Recurring Subscriptions and Other Negative Option Programs” (Final Rule). The Final Rule will apply to all forms of negative option marketing, including prenotification plans, continuity plans, auto-renewals, and free/discount to pay conversion plans, in any form of media (e.g., phone, electronic, print, in-person). The Final Rule applies to B2B transactions and B2C transactions.

Misrepresentations Prohibited

The Final Rule prohibits a seller offering a subscription with auto-recurring fees from misrepresenting any material facts relating to any term of the auto-renewal feature, including consumer consent, any deadline to prevent or stop a charge, the cost of the subscription, or the cancellation of the auto-renewal feature.

Clear and Conspicuous Disclosure of Important Information

Prior to obtaining a customer’s billing information, a marketer must disclose all material terms of an offer. The FTC said such terms include, without limitation:

    • that a customer will be charged for a good or service, or that charges will begin or increase after a trial period ends and that charges will be recurring unless a consumer timely takes steps to stop such charges;
    • each deadline by which a consumer must act to stop the charges;
    • the amount the consumer will be charged and the frequency of charges; and
    • the information a consumer needs to find the required simple cancellation method described below.

Each disclosure must be “clear and conspicuous” which the FTC defines as “easily noticeable (i.e., difficult to miss).” The Final Rule requires that for any communication that is solely visual or audible, the disclosure must be made through the same means. In a communication that is both visual and audible (such as a television ad), the disclosure must be presented simultaneously in both visual and audible portions of the communication. A visual disclosure must stand out from any accompanying text or other visual elements.

Consent to Negative Option Feature

The Final Rule requires sellers to obtain a consumer’s express affirmative consent to the automatic renewal feature of an offer separately from any other portion of the transaction.

The Final Rule does not require sellers to obtain separate consent to the rest of a transaction as had been proposed initially. The FTC agreed with numerous commenters that requiring another consent was unnecessary, confusing and hard to implement. However, the Final Rule prohibits marketers from including any information that interferes with, detracts from, contradicts or otherwise undermines a consumer’s ability to provide express informed consent to the automatic renewal feature.

The Final Rule also requires sellers to retain verification of consent for at least three years, unless the seller can prove that its process ensures consumers cannot complete the transaction without providing consent. Acceptable proof includes a checkbox, signature, or other substantially similar methods. This new requirement will likely require sellers to modify the content of their offers to ensure that they obtain specific affirmative consent to the automatic renewal component. In addition, sellers are required to disclose the important information described above immediately adjacent to the means of obtaining consent to the automatic renewal.

Click to Cancel Requirement

A core focus of the FTC’s initial proposal as well as the Final Rule is that sellers must provide a simple mechanism for consumers to cancel any automatic renewal feature of a subscription, hence, the name “Click to Cancel.” The FTC noted that there was “overwhelming support” for a simple cancellation mechanism and the Final Rule requires that sellers must at a minimum allow consumers to cancel through the same medium they used to consent to the negative option feature. If a consumer signs up electronically (through, for example, a website, app, text message or email), the seller must allow cancellations through a user-friendly online method without requiring live or virtual interactions with a representative. For phone sign-ups, a telephone cancellation option must be available during business hours at no additional cost. Telephone cancellations must be promptly processed with no extra charges. The FTC acknowledges that sellers can ask consumers to verify their identity or confirm their intent to cancel but warned that these steps should not create “distinctly asymmetrical experiences.”

Proposals Not Included in the Final Rule

The Final Rule does not include two elements that were part of the FTC’s initial proposal: a requirement that sellers provide consumers with annual reminders of the negative option feature for longer term subscriptions and a prohibition on sellers offering alternative options and offers to consumers cancelling subscriptions — i.e., efforts to save the customer — without their express consent. The FTC said that the proposed save-the-customer prohibition did not achieve the right balance between protecting consumers from unfair tactics intended to prevent cancellations and allowing sellers to provide consumers with necessary and important information about cancellation. However, the FTC will seek further comments on these issues in a supplemental notice of proposed rulemaking.

Most State Laws Are Not Preempted

Many states have comprehensive regulations governing auto-renewal subscriptions. The Final Rule expressly does not supersede or alter any state law that is not inconsistent. As such, sellers will still need to abide by certain state law requirements for subscription services, which may include sending annual reminders for long-term subscriptions and sending detailed confirmations to customers following the purchase of an auto-renewing subscription.

Effective Dates

The prohibition on misrepresenting information with respect to a negative option/automatic renewal offer will become effective 60 days after the Final Rule is published in the Federal Register. The requirements regarding clear and conspicuous disclosures, obtaining specific affirmative consent to an automatic renewal feature and providing a simple cancellation method will become effective 180 days after the Final Rule is published in the Federal Register.

Associations from a variety of industries, including those representing cable and internet providers, home security providers and online advertisers, have already filed requests for review of the Final Rule by Courts of Appeals, and we expect that additional appeals will be filed.