Consumers and Business Owners – Are You Prepared?
On October 16, 2024, the Federal Trade Commission (FTC) finalized its Negative Option Rule, often called the "Click-to-Cancel" rule, which imposes significant new requirements on automatically renewing subscriptions, free trials that convert to paid subscriptions, and recurring product shipments. This rule is designed to protect consumers from deceptive practices and ensure they have clear and easy options for managing their subscriptions. The final rule retains most of the provisions of the proposed rule, but also includes some key changes1. Violations of the rule can result in civil penalties of up to $51,744 per violation, as well as consumer refunds and damages.
Scope of The Click-to-Cancel Rule
The Rule applies to "negative options," which are contracts where a consumer's silence or failure to take action is interpreted as acceptance of an offer. This includes recurring subscriptions and product shipments, as well as free trials that convert into paid subscriptions. The rule applies to all methods of sale, whether online, by phone, in print, or in person. This is a key distinction, as previous regulations such as the Restore Online Shoppers’ Confidence Act (ROSCA) and the Telemarketing Sales Rule (TSR) had narrower scopes. ROSCA only applied to online subscriptions, and the TSR only applied to subscriptions sold over the phone. The new rule applies regardless of how the offer is made.
Click-to-Cancel Rule: Key Requirements
The Rule introduces several key requirements for subscription marketers and sellers:
1) Prohibition on Misrepresentations: The Rule prohibits any express or implied misrepresentations of material facts related to a subscription or the underlying product or service. This includes, for instance, misrepresenting the intervals at which a subscription renews or when a free trial expires.
2) Clear and Conspicuous Disclosure of Material Terms: Before obtaining a consumer’s billing information (or confirming use of previously provided information), sellers must disclose all material terms. These terms include:
That consumers will be charged on a recurring basis unless they cancel, including increased charges after any trial period ends.
Each deadline to prevent or stop charges.
The amount or range of costs consumers will incur.
Information on how consumers can find the cancellation mechanism:
- Any terms that are likely to affect a person’s choice or behavior are considered “material”.
- The disclosures must be “clear and conspicuous,” placed immediately adjacent to where the consumer consents to the negative option.
- All other required disclosures must be provided before consent is obtained.
3) Express Affirmative Consent: Sellers must obtain "unambiguously affirmative consent" to the recurring subscription separately from any other part of the transaction.
This consent can be obtained through an unchecked checkbox, signature, or a similar method.
The consent request must be clear and unambiguous, and not interfere with or undermine a consumer's ability to provide consent.
Sellers must keep a record of consumer consent for three years, or prove that a consumer cannot complete a transaction without providing consent.
4) Simple Cancellation: The cancellation process must be as simple as the one used to initiate the charges, and must be available through the same medium.
For digital methods, the cancellation mechanism must be easy to find, and consumers cannot be required to interact with a live or virtual representative if they did not agree to do so during sign-up.
Additional rules apply to cancellations by phone and in-person agreements.
Key Changes from the Proposed Click-to-Cancel Rule
The final rule includes some key changes from the proposed rule:
Reminders: The proposed rule would have required annual reminders for recurring subscriptions not involving physical products. The FTC decided that they require more information about the value of annual reminders and the specifics of when they should be issued before implementing this requirement.
“Saves”: The proposed rule would have required sellers to obtain consent before making retention offers or providing information about subscription benefits during the cancellation process. The FTC felt this proposal was not properly balanced, as some offers may be valuable to consumers. However, the FTC is still considering rule-making on these issues.
Important Details to Know About The Click-to-Cancel Rule
Increased FTC Enforcement: The FTC is expected to increase enforcement of these rules, and brands should expect scrutiny of their subscription practices, including offers, disclosures, and cancellation mechanisms.
State Laws Still Apply: The Rule does not preempt state laws that provide greater protections for consumers. Businesses must still comply with more than 25 state laws, including California’s Automatic Renewal Law.
Applies to B2B: The Rule applies to both business-to-business and business-to-consumer transactions, even if the business is large or sophisticated.
Potential Legal Challenges: The rule has already faced a dissent from a commissioner and court challenges from trade associations, but the FTC maintains that many of its requirements are applicable through other laws.
Compliance Timeline
Key dates necessary for maintaining compliance:
The prohibition on misrepresentations takes effect on January 14, 2025 (60 days after publication in the Federal Register).
All other requirements go into effect on May 14, 2025 (180 days after publication in the Federal Register).
Businesses should review their recurring subscription procedures to ensure compliance with the new rule. This includes reviewing disclosures, consent mechanisms, and cancellation procedures.
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