The Federal Trade Commission (FTC) issued its final “click-to-cancel” rule (the Final Rule) requiring companies selling services or goods to make it easier for consumers to cancel their enrollment in a subscription. Part of the Final Rule went into effect on January 15th with the majority of the Final Rule becoming enforceable on May 14, 2025 (subject to the myriad of lawsuits and political uncertainty, which may ultimately delay or defeat the Final Rule). We are recommending that our clients begin the process now to comply with the Final Rule in anticipating that it, or a similar version, will eventually go into effect.
What is the new “Click-to-Cancel” Rule?
Since 1973 the FTC has had a “Negative Option Rule” in place to protect consumers from unfair or deceptive practices regarding subscriptions, memberships and other recurring payment programs. As an ongoing effort to modernize this rule, the FTC has issued its latest Final Rule. In general, a “negative option” refers to a term or condition that allows a business selling a good or service to interpret a customer’s failure to take action or silence as an acceptance of the service or offer. There are four scenarios where negative options typically arise: (1) automatic renewals, (2) free trials (which then convert to a paid subscription), (3) prenotification plans (such as where sellers provide a notice of an offering and then send, and charge for, the goods if the consumer takes no action) and (4) continuity plans (where consumers agree in advance to receive periodic shipment of good, such as monthly wine club). What this means in practice is that the Final Rule applies to any program where if the buyer does not cancel or take action to suspend the recurring nature of the transaction, the buyer will continue to be charged for the goods or services that they may no longer want or may not have intended to purchase.
The Final Rule applies to both business-to-consumer and business-to-business transactions and covers anyone who offers, charges, sells, or otherwise markets a service or good with a negative option component. Importantly, the Final Rule does not require that a consumer buy it or take the business up on the offer. Just that the business offers it in the first place.
What are the Requirements of the Final Rule?
- No Misrepresentations -The Final Rule prohibits misrepresentations of any material fact made while marketing any good or service that contains a negative option feature. It is worth noting that this particular requirement went into effect January 15, 2025.
- Disclosures Required -The Final Rule requires that the seller provide certain disclosures to the consumer prior to obtaining the consumer’s billing information and charging the consumer. In particular, the disclosures must contain:
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- The fact that consumers will be charged for the good or services, that the charges will increase, if that is the case, or that the charges occur on a recurring basis;
- The deadline by which consumers must act to stop recurring charges;
- The amount the consumer will be charged and the date each charge will be submitted for payment; and
- The information necessary for the consumer to find the cancellation mechanism.
- All four terms must appear immediately adjacent to the means of recording the consumer’s consent to the negative option feature.
- Consent – Companies must obtain a consumer’s unambiguous affirmative consent to the negative option feature before charging them for the good or service. The consent must be separate from any other portion of the transaction (such as having a separately presented check box). For example, a separate checkbox that says ““I agree to enroll in a recurring annual subscription for $___/year”. The consent cannot include any information that interferes with or undermines the ability of the consumer to consent.
- The business must maintain verification of the consumer’s consent for three years from the date of consent (unless they can demonstrate that it uses processes ensuring no consumer can technologically complete the transaction without consent).
- Cancellation – The cancellation method must be as easy as the mechanism used for consent, easy to find, and cannot require that the consumer interact with a live or virtual representative if the consumer did not have to do so when consenting to the negative option feature.
- If the initial consent was via phone or in-person then then there are further requirements for cancellation.
- Companies can still use “saves” (i.e. making additional offers to keep the customer) but they need to be careful that it doesn’t negate the simple and easy process of cancellation. In other words, requiring the consumer to click through too many “offers” will likely be seen as not complying with the same method as consent for cancellation requirements.
- Where applicable, companies may also need to comply with the new California subscription law (effective July 1, 2025). Governor Newsom signs consumer protection bills targeting medical debt, overdraft fees, and unfair subscription practices | Governor of California. While very similar to the FTC Final Rule, California adds an additional component requiring that annual reminders about upcoming renewals by sent to consumers.
Failure to Abide by the Final Rule
Assuming the Final Rule survives the various legal challenges, then failure to comply may expose the violator to redress and civil penalties and, we suspect, exposure to class action lawsuits.
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If you have further questions regarding the “Click-to-Cancel” Rule, please contact Brandon Smith at [email protected].
– Written by Brandon Smith