Federal Trade Commission Proposes New Rule Governing Consumers' Ability to Cancel Recurring Subscriptions and Memberships
On March 23, 2023, the Federal Trade Commission ("FTC") announced that it would propose a "click to cancel" provision in its rules governing subscriptions and recurring memberships. According to the FTC, the proposed rule would require that companies "make it as easy to cancel a subscription as it is to sign up for one."
The notice of proposed rulemaking was announced as a part of the FTC's ongoing review of its "Negative Option Rule." The Negative Option Rule was first promulgated in 1973 and applies only to prenotification plans for the sale of goods. This requires a seller to notify consumers of the material terms of a subscription prior to signing up. Along with a "patchwork" of other regulations, the FTC enforces the Negative Option Rule to combat unfair or deceptive practices related to subscriptions, memberships, and other recurring payment programs.
In order to achieve the FTC's goal of making cancellation "as easy … as it is to sign up," the proposed rule would require sellers to offer cancellation through the same medium as signup. For example, if an individual signs up for a membership online, the rule would require the seller make the cancellation mechanism also available online and feasible in the same number of steps as signing up. In situations where a consumer signed up in person, the proposed rule would require that a simple cancellation method be made available through the internet or by telephone.
Separately, the proposed rule would allow sellers to pitch new products when the consumer tries to cancel their enrollment in a product—but before making such a pitch, the seller would be required to seek the consumer's assent to being presented those offers.
Lastly, the proposed rule would also require sellers to provide annual reminders before automatically renewing any program. This final provision would not apply to programs involving physical goods (e.g., pet food).
In the FTC's announcement, Chair Lina Khan stated that "some businesses too often trick consumers into paying for subscriptions they no longer want or didn't sign up for in the first place." She noted further that "the proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties."
According to the FTC, the current law applicable to such recurring payments is fractured and does not provide consumers or industry with a consistent legal framework. The proposed rule would not alter the current civil penalty schedule for violations of the law within the FTC's jurisdiction.
