On October 16, 2024, The Federal Trade Commission (FTC) announced a significant update to its regulations governing negative option programs. This new “click to cancel” rule aims to make it easier for consumers to cancel a subscription or recurring payment. With the rise of subscription services in the digital age, the FTC’s new rule addresses growing concerns about deceptive practices and aims to protect consumers from being trapped in services they no longer want.
What Are Negative Option Programs?
Negative option marketing refers to a sales model in which a business uses a consumer’s inaction—such as not canceling a subscription or failing to opt out of a service—as consent to continue billing them. This practice is common in subscription services, memberships, and other recurring-payment programs. While convenient for both sellers and consumers, negative option programs can easily lead to unwanted charges when the cancellation process is unclear or deliberately complicated.
In recent years, the FTC has received thousands of complaints regarding negative option practices, with many consumers reporting frustration over complicated cancellation procedures or hidden terms. In 2024 alone, the FTC saw nearly 70 complaints per day, up from 42 daily complaints in 2021.
The New “Click-to-Cancel” Rule
The FTC’s newly adopted “click-to-cancel” rule is an update to the FTC’s 1973 Negative Option Rule. The updated rule includes several new provisions designed to make it easier for the consumer to cancel a subscription and protects against unfair and/or deceptive practices. The primary benefits of the new rule include:
- Easy/Simplified Cancellation Process: The core feature of the rule is that it requires sellers to offer consumers a cancellation process that is as simple as the sign-up process. Sellers must provide a straightforward way to cancel a subscription and stop future charges. Whether a consumer signed up in person or online, they should have a cancellation option that is as easy and direct as the original sign-up process.
- Truthful and Clear Information: The rule prohibits sellers from misrepresenting any material facts while marketing negative option programs. This includes ensuring that terms such as pricing, cancellation options, and billing details are clear and easy to understand before a consumer provides their billing information.
- Informed Consent: Before charging consumers for a subscription, sellers must obtain explicit consent from the consumer for the negative option feature. This ensures that consumers are fully aware of the recurring payments they are agreeing to.
How Does This Rule Update Existing Regulations?
The original 1973 Negative Option Rule was primarily designed to address print media subscriptions. However, the explosion of digital services has gone beyond the scope of the original rule, leading to increasing complaints about deceptive or manipulative practices.
The new rule addresses these gaps by applying to all forms of media and digital platforms where negative option marketing is used. Additionally, the new provisions ensure greater transparency, making it harder for businesses to hide important details about their recurring charges or make it difficult for consumers to cancel. The new rule will also allow the FTC to impose civil penalties and redress for/from violators.
Consumer Protections Under the New Rule
The updated Negative Option Rule offers significant advantages to consumers:
- Protection Against Misleading Practices/Statements: The rule prohibits misrepresentations of any material fact while marketing using negative options. Material facts refer to aspects such as the existence or terms of a negative option feature, the cost of the product or service, the intended purpose or effectiveness of the product or service, and any health or safety information. Although these examples help clarify what is considered material, the rule also features a catch-all clause for “any other material fact.” This expansion of the definition increases the chances that a variety of misrepresentations could be seen as violations of the rule.
- Mandatory Disclosures: Sellers must clearly disclose key terms, such as pricing and cancellation options, ensuring consumers have all necessary information before committing to a subscription. The rule provides a non-exhaustive list of terms that must be disclosed.
- No More Hidden Barriers to Cancellation: Any attempts to mislead or deter customers with these “hidden barriers” are now prohibited. These hidden barriers can take various forms, such as placing cancellation options in obscure areas of websites or apps, using ambiguous language that confuses consumers about how to proceed, or requiring consumers to jump through multiple hoops—like answering tedious questions or providing excessive information—before their cancellation can be processed. Companies can no longer use tactics like mandatory waiting periods or the need for a customer service call, which can serve as pressure points to dissuade customers from opting out.
The FTC’s new rule is designed to save consumers time and money, but it appears to dissuade companies from using negative options due to increased risks. Moreover, the 230-page rule contains ambiguities that may complicate its implementation and enforcement. For example, as stated above, the broad definition of “material fact” makes it difficult to know if a company is complying with this portion of the rule because “any other material fact” is undefined. Additionally, the rule is unclear whether companies offering services with and without negative options need to make all disclosures in all circumstances.
Most of the rule is expected to go into effect 180 days after its publication in the Federal Register. However, the rule’s provisions regarding misrepresentations will take effect 60 days after publication. To promote adherence to the updated Rule, the FTC has heightened the penalties for non-compliance. The FTC is empowered to impose penalties reaching as high as $51,744 for each violation.
For additional information regarding the content of this article or how to comply with the FTC new rule, please contact Robert E. Zulandt III (rez@kjk.com; 216-736-7259) or any attorney in KJK’s eCommerce group at 216-696-8700.