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On Oct. 16, the Federal Trade Commission (FTC) published the final federal “Click-to-Cancel” rule requiring all companies to provide an easy way for customers to cancel subscriptions. It takes effect on March 10, 2025. While several lawsuits have already been filed challenging the new rule, companies should nevertheless prepare for it to take effect as planned.
The FTC took action on this issue following widespread complaints from U.S. consumers about deceptive subscription practices not covered by the original Negative Option Rule promulgated in 1973. Negative-option billing programs contain a term or condition that allows a company to interpret a customer’s silence or failure to cancel as accepting ongoing charges. Examples include automatic renewals, free trials, prenotification plans and continuity plans such as those used by streaming services. The 1973 rule only covered prenotification plans and, therefore, did not apply to the vast majority of negative option programs currently used by companies.
The updated Negative Option Rule is far more comprehensive and covers all negative option billing programs to better protect consumers. As of March 10, companies will be required to:
- Provide clear disclosures. Companies must clearly and conspicuously disclose the terms of any recurring payments or subscriptions, including price, frequency of charges and how to cancel.
- Secure consent. Companies must obtain a customer’s express informed consent before charging them for products or services.
- Provide easy cancellation. Cancellation processes must be straightforward. If customers can sign up online, they should be able to cancel online without unnecessary hurdles.
- Request authorization for material changes. If any significant changes occur to the subscription terms for recurring payment, companies must get the customer’s explicit consent for these changes before continuing the service.
With less than 180 days until the new rule takes effect, companies should immediately assess all negative option programs to ensure compliance with the new Negative Option Rule. Recommended actions include:
- Provide clear disclosures to customers at sign-up. Clearly disclose important details upfront, like the subscription terms, renewal process and cancellation steps. Transparency from the start helps customers understand how they can cancel and reinforces compliance with the rule.
- Providing an easy, one-click cancellation option online. If customers can sign up for a subscription online, then companies should provide them with a clear and simple cancellation option (like a “Cancel Subscription” button) online, too. Companies should avoid requiring customers to make calls, send emails, or take extra steps beyond clicking to cancel.
- Sending clear renewal reminders for auto-renewing subscriptions, which explain the renewal date, cost, and how to cancel if the customer no longer wishes to continue the service.
- Providing cancellation confirmations. After a customer cancels, companies should consider sending confirmation messages via email or text to reassure customers that their cancellation was successful and to prevent misunderstandings or accidental recharges.
- Test the cancellation process often to ensure it remains simple, easy to use, and meets all FTC guidelines – this might include inviting customer feedback to spot any issues or areas of confusion that need improvement.
Members of the RJO Retail Industry Trade Regulation practice group are available to assist companies as they prepare for the updated Negative Option Rule to take effect. There are many factors to consider to ensure you are in compliance, and we recommend starting soon.
Please do not hesitate to contact your primary RJO attorney for assistance. You can also reach out to Retail Trade practice co-chair Alecia Cotton (acotton@rjo.com) or Whitney Miner (wminer@rjo.com).
