Loyola University Chicago School of Law, JD 2024
The Federal Trade Commission (FTC) is proposing a rule that would make it easier for consumers to cancel subscription services and free trials they no longer want. This proposal, the “click to cancel” provision, was announced on March 22 and is part of the FTC’s ongoing review of its 1973 Negative Option Rule. This Rule regulates any and all unfair and deceptive practices related to subscriptions, memberships, and other recurring-payment programs.
What is negative option membership?
Negative option membership in terms of subscriptions is when consumers agree (usually unknowingly) to an automatic billing cycle after their free-trial period ends. This automatic billing only stops when the consumer takes affirmative action to cancel the membership.
According to the FTC, in 2022 alone, it received more that 17,000 complaints regarding negative option membership-related violations.
What is the purpose of the FTC’s proposal?
Through adding a provision requiring companies to provide a simple, “click to cancel” option, the FTC’s goal is to eliminate the current hassles consumers face when attempting to end an unwanted subscription. FTC Chair Linda Khan said the following regarding their proposal: “Some businesses too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place” Khan went on to say, “The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties.”
Overall, Khan continued to highlight the fact that companies should not be able to manipulate their customers into paying for things they no longer wish to have, such as subscriptions.
What does the proposal wish to implement?
- A simple cancellation mechanism: In an effort to address the issues that come with the negative option membership, the proposed rule would require companies to make memberships as easy to cancel as it is to join and start free trials. Specifically, the FTC notes that if a customer can sign up for a subscription online, they must be able to cancel the subscription online as well, and most notably, in the same number of steps.
- New requirements before making additional offers: Before companies can pitch customers with additional offers and modifications, there must be an option to plainly cancel a subscription. If the customer chooses to cancel their subscription, no additional offers or modifications can be presented to them. Through this requirement, the FTC is highlighting the power consumers have, rather than business through using various manipulating tactics.
- New requirements regarding reminders and confirmations: All customers must be reminded of their subscriptions prior to an automatic renewal process.
What is the importance of this proposal?
The FTC works to both protect and educate consumers. Without regulatory bodies like the FTC, companies could continue to take advantage of their susceptible users. Thus, it is crucial to have laws and regulations that force companies to take reasonable and ethical measures to avoid exploiting vulnerable consumers.
This proposal is likely to resonate positively with many Americans. Specifically, think about the following scenario: you see an advertisement for a free trial period for your favorite streaming platform. The company assures you that you can cancel your subscription after the 14-day free trial period is over, but requires you to put a credit card on file. A few months later you realize you were hoodwinked. What you didn’t realize is that although the first 14-day trial period was free, you were automatically charged on a monthly basis with the credit card on file because you didn’t cancel what you thought to be a trial. Thus, you unwittingly signed up for a monthly subscription for this streaming service when you only initially planned to test it out with the free trial period.
This scenario perfectly illustrates why the FTC is proposing this new rule: to stop companies from manipulating their customers into paying for things they not only don’t want but may not even realize they are paying for.
This FTC proposed ruling marks a monumental event, highlighting continued and enhanced measures for increasing protection for consumers on a day-to-day basis, through enforcing laws and regulations that must be complied with. These proposed rules would result in an immediate and significant benefit for numerous Americans and are a step in the right direction of placing power back in consumers’ hands.