Click-to-Cancel: FTC's Final Rule Will Change The Subscription Landscape Across Industries

In an era where subscriptions are just a click away, getting out of them often frustrates consumers. Responding to that frustration, the Federal Trade Commission (FTC) revised its existing Negative Option Rule, now retitled the "Rule Concerning Recurring Subscriptions and Other Negative Option Programs," on 16 October 2024 (New Rule).¹ Long awaited, the New Rule is designed to put an end to subscription headaches by ensuring a smoother, more transparent subscription cancellation process.² In this alert, we explain the New Rule and offer practical compliance guidance.³

BACKGROUND

The FTC Negative Option Rule was first adopted in 1973 (Prior Rule). To date, its scope has been limited to one specific variety of negative options known as prenotification plans whereby sellers provide notices offering goods to participating consumers, and consumers are then sent such goods unless they decline (e.g., book-of-the-month clubs).⁴ The Prior Rule has long co-existed with a patchwork of related federal⁵ and state laws.⁶ However, even collectively, the framework left several gaps in coverage as the types and channels of these offerings expanded and modernized.⁷

The road to the New Rule was far from clear sailing. Proposals for the New Rule began nearly five years ago with the 2019 Advance Notice of Proposed Rulemaking. During the next five years, the FTC issued a 2021 Enforcement Policy Statement, a 2023 Notice of Proposed Rulemaking (which itself garnered over 16,000 public comments in response), and an informal hearing and subsequent public briefing in January and February 2024.

KEY TAKEAWAYS FROM THE NEW RULE

Key takeaways, confirmations, and changes to consider from the New Rule and its co-published Supplementary Information can be separated into several organizing principles:

Scope Issues

• Covers negative option features of all types (auto-renewal, continuity plan, free-to-pay conversion, prenotification pan) offered in all media (telephone, electronic communication (e.g., Internet, text, email), print media, and in-person transactions).
• Applies to B2B transactions as well as B2C transactions.
• Applies to misrepresentations of any material⁸ fact regarding the negative option feature or the underlying product or service, even unrelated to the negative option made while marketing using negative option features.
• Sellers may seek full or partial exemption from application of the New Rule under limited circumstances.
• Does not supersede, alter, or affect state statutes, regulations, orders, or interpretations, except to the extent the state corollary is inconsistent with the New Rule (which excludes greater consumer protections required by states).⁹

Precise Timing and Content Obligations

• Consent to negative option must be unambiguous, affirmative, and informed, and consent must be kept for three years unless exempted.
• Use of a checkbox or similar method requiring affirmative acceptance by a consumer to the negative option feature alone is deemed to be compliant with the obligation to have unambiguous and affirmative consent.
• Early, "unavoidable" disclosure requirements stating all material terms of the subscription plan before obtaining billing information or obtaining the consumer's consent to use saved billing information. For illustration, material terms include (a) the fact that reoccurring charges (as originally paid or if increased after trial) will be made unless stopped; (b) each deadline (by date or frequency) by which the consumer must act to stop charges; (c) instructions on how to find the simple cancellation methods; and (d) specific amount or range of charges due unless the timely cancellation is made.

Symmetry Between Sign-Up and Cancellation

• Click-to-cancel requirements must provide an easy and accessible way for consumers to cancel the negative option feature that is at least as easy as and at least through the same medium as the initial consent process, which is easy to find and use at the time of cancellation and offers immediate cessation of charges.¹⁰
• Consumers cannot be required to talk to a live person (by phone, chat, or messaging) if the consumer did not have to do so in their online sign-up for the negative option feature.
• For cancellations permitted by telephone, the call cannot be more expensive than the call used to enroll and the number must be answered or must record messages during normal business hours and the cancellation effectuated promptly thereafter.
• In-person sign-ups must offer either an online or telephone cancellation option.

What Is Not Covered?

There are several notable absences in the New Rules in both concepts and language from the proposal, including:

1. The New Rule did not adopt the requirement for companies to send annual reminders to consumers about their negative option engagements for nonphysical goods.
2. The New Rule does not address or prohibit making "save" offers (e.g., presenting different offers or reasons to retain the subscription when a consumer attempts to cancel a subscription).
3. The FTC declined to adopt language stating that disclosures presented by hyperlink or icon-hovering fail to meet clear and conspicuous standards, citing space-constrained disclosure needs.
4. The FTC declined to adopt a requirement that consent to the negative option be separate and apart from consent to the rest of the product or service transaction.
5. In the Supplementary Information to the New Rule, the FTC declined to offer an exemption from the definition of "negative option seller" for payment processors and other intermediaries.

The first two issues, however, are not necessarily settled. The FTC indicated that it will seek further comments on the above two points through a supplemental notice of proposed rulemaking.

PRACTICAL GUIDANCE

What does this mean for your business or offerings? With the New Rule, businesses offering negative option features, like automatic renewal programs, free (or nominal)-to-pay conversions, continuity plans, or prenotification plans, may want to:

1. Map sign-up processes and channels (phone, chat, in-person, clickthrough) to possible cancellation processes and channels.
2. Identify technical capabilities required to present and track stand-alone negative option checkboxes and allocate website geography for required disclosures.
3. Review sign-up and cancellation processes for asymmetry in access and ease, including specifically for any interference or lack of clarity in finding or executing cancellations.
4. Review disclosure content, timing, and placement for each channel to identify any alterations (e.g., customer service scripts, supporting vendor contractual obligations).
5. Scrutinize any automatic renewal reminders for consistency of language and commitments to sign-up disclosures.
6. Confirm length and scope of internal record retention practices.
7. Assess whether any intermediary businesses (e.g., payment processors) are involved in transactions and review corresponding contractual commitments.
8. Conduct internal training of sales, marketing, and customer service teams.

The firm regularly counsels clients on a range of consumer-facing issues, including implementing negative option programs.

Click here for the text of the New Rule and click here for the FTC's fact sheet summarizing the New Rule.

Audio Version

Footnotes

1 The majority of the New Rule goes into effect 60 days after its publication, with specific sections related to specific disclosures, consent, and click-to-cancel obligations (16 C.F.R. § 425.4-.6) taking effect 180 days after publication.

2 Following AMG Cap. Mgmt., LLC v. FTC, 141 S. Ct. 1341 (2021), trade regulation rulemaking under the Magnuson-Moss Warranty Act (15 U.S. C. § 45(m)(1)(A)) allows the FTC to pursue civil penalties in enforcement. Click here for a summary of this decision.

3 Following the announcement of the New Rule on 16 October 2024, a lawsuit was filed just days later on 23 October 2024, marking the start of what may be a wave of legal challenges. The Electronic Security Association, Interactive Advertising Bureau, and NCTA – The Internet & Television Association have filed a petition for review, asking the Fifth Circuit Court of Appeals to vacate the New Rule on the grounds it is "arbitrary, capricious and an abuse of discretion within the meaning of the Administrative Procedure Act" and that the New Rule is "unsupported by substantial evidence." Petition for Review, Electronic Security Assoc. v. FTC, No. 24-60542 (5th Cir. Oct. 23, 2024).

4 The Prior Rule has since been updated and clarified a handful of times, including (a) in 1989, the Prior Rule was amended to require consumer express written consent before enrolling in a negative option plan; (b) in 1999, the Prior Rule was further amended to clarify disclosure requirements for negative option offers; and (c) in 2010, the FTC issued updated guidance emphasizing the need for companies to provide clear and conspicuous disclosures about negative option offers and obtain consumers' informed consent before enrolling in such programs; however, (d) in 2014, the FTC declined to expand coverage to additional types of negative option plans, leaning instead on coverage under the then recently passed Restore Online Shoppers' Confidence Act (ROSCA).

5 See, e.g., federal laws addressing negative option marketing practices in telemarketing (Telemarketing Sales Rule, 16 C.F.R. pt. 310) and those during Internet transactions without certain disclosures and consents (ROSCA), 15 U.S.C. 8401–05).

6 By illustration, California's Automatic Renewal Law (Cal. Bus. & Prof. Code §§ 17600 et seq.) (ARL) was first enacted in 2010 and amended recently in 2021 to require specific renewal reminders and immediate online cancellation. Again, nearly in tandem with the New Rule, on 24 September 2024, the ARL was amended under Bill No. 2863 (Automatic Renewal and Continuous Service Offers). The newest amendment brings the California ARL closer in line with (but not identical to) the New Rule and takes effect 1 July 2025. Deviations include: (a) for free-to-pay conversions, consent to the paid subscription terms must be received with the free trial sign-up; (b) affirmative consent must be received for the negative option features in addition to the agreement containing the relevant terms; (c) "saves" are expressly permitted so long as the cancellation method is also prominently displayed; and (d) changes to amounts charged require notices to be sent between seven to 30 days before the change occurs with information on how to cancel.

7 For example, the Prior Rule did not address continuity plans, automatic renewals, and free-to-pay conversions.

8 "Material" defined as "likely to affect a person's choice of, or conduct regarding, goods or services." 16 C.F.R. § 437(i).

9 As discussed supra, note 6.

10 In response to public comment support, the FTC declined to adopt a blanket exception to a seller's obligation to offer cancellation ease that would have excluded a seller's activities in connection with consumer authentication and verification. Accordingly, if necessary, authentication and verification processes must likewise fulfill the "as easy as" standard.

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.