WASHINGTON — The Federal Trade Commission on Wednesday released the final text of a new “click-to-cancel” rule aimed at making it easier for consumers to cancel online subscriptions.
“Too often, businesses make people jump through endless hoops just to cancel a subscription,” Commission Chair Lina M. Khan said in a statement. “The FTC’s rule will end these tricks and traps, saving Americans time and money. Nobody should be stuck paying for a service they no longer want.”
The updated rule, the FTC statement noted, “will apply to almost all negative option programs in any media.” The rule defines negative options as programs that “contain a term or condition that allows a seller to interpret a customer’s silence, or failure to take an affirmative action, as acceptance of an offer,” including automatic renewal and free-to-pay offers.
The rule updates the Negative Option Rule, originally adopted in the 1970s to protect consumers from being automatically enrolled in subscription plans without their consent.
According to the FTC statement, the final rule will provide “a consistent legal framework” by prohibiting sellers from:
- misrepresenting any material fact made while marketing goods or services with a negative option feature;
- failing to clearly and conspicuously disclose material terms prior to obtaining a consumer’s billing information in connection with a negative option feature;
- failing to obtain a consumer’s express informed consent to the negative option feature before charging the consumer; and
- failing to provide a simple mechanism to cancel the negative option feature and immediately halt charges.
The FTC announced its proposed changes in March 2023. In response, the commission received more than 16,000 comments from consumers, government agencies, consumer groups and trade associations.
At the time, industry attorney Corey D. Silverstein cautioned website operators that while the proposed amendments would make it much easier for consumers to cancel unwanted subscriptions and would help protect them from deceptive practices, it could also potentially cause “major headaches for website operators” due to requiring substantial changes to sign-up and cancellation practices.
Following evaluation of public comments, the FTC dropped from the new rule a proposed requirement that sellers provide annual reminders to consumers of the negative option feature of their subscription, as well as a proposed prohibition on sellers offering consumers alternatives to cancellation if the consumers did not ask to hear about such offers.
The Commission voted 3-2 to approve the final rule, with Commissioners Melissa Holyoak and Andrew N. Ferguson dissenting. Holyoak issued a statement, in which she argues that the new rule is too vague in defining “unfair or deceptive” practices, that it “fails to demonstrate that the unfair or deceptive acts or practices related to negative option billing are ‘prevalent,’” that it incentivizes companies to avoid negative option features that help both businesses and consumers, that it puts “political expediency over getting things right” and that it is overbroad and therefore may not survive legal challenge.
Industry attorney Corey Silverstein told XBIZ that he agrees with Holyoak that “the timing here reeks of politics with US elections only weeks away.”
“I believe the FTC is overreaching and even abusing its power,” Silverstein said. “Holyoak couldn’t have said it any better: ‘Rather than engage in blatant electioneering to advance political ends, the Commission should have instead focused on stewarding its resources effectively and in ways that restore our institutional legitimacy, not further undermine it.’
“I do believe a legal challenge is likely, but the timing of such a challenge remains very uncertain and we may not see it until the FTC attempts to enforce this rule,” he added. “And these days, predicting how the federal judiciary may rule on a constitutional issue is like finding a needle in a haystack. We continue to see outrageous decisions from various circuit courts and the Supreme Court has become even more unpredictable than ever. Regardless, I have serious reservations about the likely success of such a challenge.”
Most of the new rule’s provisions will take effect 180 days after it is published in the Federal Register. However, many operators that sell subscriptions already abide by similar rules, especially since both Visa and Mastercard regulations specify disclosure and consent requirements for negative options. There are also other existing relevant federal and state regulations. The Restore Online Shoppers Confidence Act, enacted by Congress in 2010, has been enforced against adult businesses, and last month, California enacted a new law significantly tightening rules regarding automatic renewal of paid website subscriptions.