If your business offers subscriptions or memberships that automatically renew, the Federal Trade Commission (FTC) has new rules you will soon need to follow. The FTC's Negative Option Rule, also known as the "Click to Cancel" rule or the Rule, requires companies to make it easier for their customers to unsubscribe from auto renew paid products. The Rule was announced on October 16, 2024, and will go into effect on May 14, 20251.
The Rule applies to "negative option–based products," which are basically any products that automatically charge a consumer until they opt out – essentially, auto renew paid subscriptions or other recurring payment services, including free-to-paid trials. Negative option features are contract provisions (i.e. online terms of service) where silence or inaction from the customer results in a charge or other acceptance of an offer.
Specifically, the Rule imposes new requirements for both the sign-up process and the unsubscribe or cancelation process.
Initial Sign Ups (to Subscribe)
For initial sign ups, the Rule requires that
companies:
- Not Misrepresent any Material Facts. Companies will be prohibited from misrepresenting any material fact in marketing these products (even if that fact is unrelated to the opt out process). Under the Rule, "material" facts are defined as those "likely to affect a person's choice [or] conduct." Given that the FTC's Truth in Advertising laws already cover this obligation, this requirement is primarily intended to clarify and reemphasize that any misrepresentation about pricing, cancellation terms, or the product/service itself will not be allowed.
- Disclose All Material Terms. All material terms will need to be clearly and conspicuously disclosed before companies can collect any recurring billing info. In some cases, the Rule requires disclosures to be "immediately adjacent" to where users subscribe, including those relating to the charges, whether they are recurring, any deadlines for cancellation to avoid future charges, and clear instructions on how to cancel.
- Obtain Express Informed Consent. The consumer's express informed consent to subscribe must be obtained, which, notably, is required to be separate from consent to the overall transaction. Acceptable consent mechanisms include an opt-in method, such as a check-box or signature.
- Maintain Records. A record of customers' consent must be maintained (typically for about three years).
Cancellations
For cancellations, the Rule requires that companies provide
"simple mechanisms" by which customers can cancel their
subscriptions "immediately" and via the "same
medium" as the customer signed up, with the cancellation being
processed promptly, as follows:
- Easy-to-Find Cancellation Option
All cancellation options must be clear and easy for customers to locate, and at least as equally visible as the sign-up option.- A simple mechanism to cancel and immediately stop any recurring charges will not create unnecessary barriers or complications.
- An easy-to-find cancellation option will not be buried in terms and conditions or hidden behind other screens.
- For telephone cancellations explicitly, a clear telephone number for cancellations that is easily accessible is required to ensure all calls are answered promptly during normal business hours and are not more costly than the call used to consent to subscribe.
- Symmetry Between Sign-Up and Cancellation
The same method(s) for both signups (online, phone, chat, in-person, etc.) and cancellations must be made available. For example, if a user can sign up online, they need to be able to cancel online (i.e., a company cannot require a phone call or chatbot for those users to unsubscribe).
Making the cancellation process as easy to use as the mechanism by which the consumer initially consented to auto renewing recurring charges. If it takes 2 minutes to subscribe, cancellation cannot take 5-10 minutes to complete. The cancellation process must be at least as easy and quick as the sign-up process and all cancellations must be processed promptly.
Other Considerations
- State Laws Still Apply
About 20 states and Washington D.C. have similar laws on automatic renewals. The Rule does not override these laws unless they conflict, including if they offer greater protection to consumers. Therefore, it is important to stay informed about state-specific regulations that apply to your business.
- Consequences of Non-Compliance
Failing to comply with the Rule will be considered an unfair or deceptive act under the FTC Act, potentially leading to investigations, fines, or lawsuits.
- Exemptions
Entities can petition the FTC for exemptions from this rule if they can demonstrate that the rule's application is unnecessary to prevent deceptive practices.
The Rule is likely to face legal challenges from industry and trade groups who view its requirements as excessively burdensome. Recent changes in the FTC's leadership also pose uncertainty as to the future of this new law. Nonetheless, companies may wish to begin preparing for compliance with the Rule.
Footnote
1 It is important to note that while the disclosure, consent, and click-to-cancel provisions under the Rule are set to take effect on May 14, 2025, the Rule's misrepresentation provisions took effect on January 14, 2025.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
