FTC finalises ‘click to cancel’ rule to enhance consumer protection

The Federal Trade Commission (FTC) has finalised the “click to cancel” rule, significantly overhauling regulations surrounding subscription cancellations. Announced on 16th October, this development marks a pivotal shift in consumer protection, aimed at easing subscription cancellations and preventing deceptive practices tied to recurring-payment schemes.

The rule is an extension of the FTC’s update to the 1973 Negative Option Rule, targeting unfair practices in modern subscription formats. The Commission’s approval arrives after the March 2023 announcement of the proposed rule, and it incorporates feedback from public comments. The final version of the rule reflects decisions made along partisan lines and introduces several key changes from its initial draft. Notably, it rescinds a previous requirement for sellers to send annual reminders about subscription features and removes certain restrictions on offering consumers alternatives to cancellation.

The new rule is comprehensive in scope. It applies to anyone marketing goods or services with a “negative option feature” – a term covering a variety of subscription plans, including automatic renewals, continuity plans, and transitions from free to paid services. This ensures that the regulation impacts negative option marketing across all channels, whether online, via phone or through traditional media.

Key stipulations of the rule include the prohibition of misleading representations during the marketing of such features. Sellers must now also furnish critical information prior to billing, secure explicit consent from consumers, and offer straightforward methods for subscription cancellation to halt recurring charges instantaneously.

To support compliance, the FTC has released a succinct fact sheet outlining the crucial elements of the rule. Among the obligations under the rule, sellers must transparently present all “material terms” to consumers, covering a spectrum of details such as billing timelines, the frequency of charges, and how one might cancel them. The rule further mandates that sellers disclose if consumers will be charged, any increase in charges, and other recurring billing information.

Implementation of the rule will be staggered. Provisions related to disclosures, consent, and cancellations will come into force 180 days after publication in the Federal Register, while those addressing misrepresentations will be enacted within 60 days.

While this expansive rule is expected to encounter challenges, the FTC clarified that its mandate extends to business-to-business transactions. Moreover, a misrepresentation within a company’s privacy policy could potentially breach this rule, reflecting its broad reach.

Businesses engaged in subscription models are advised to closely examine the finalised rule to assess its implications for their operations and ensure compliance. As the landscape for subscription services evolves, the FTC’s directive seeks to provide a clearer, more consumer-friendly framework for managing these increasingly prevalent consumer transactions.

Source: Noah Wire Services