US to bring in ‘click-to-cancel’ rule to ban subscription traps

• The Federal Trade Commission announced a final ‘click-to-cancel’ rule that will require sellers to make it as easy for consumers to cancel their enrollment as it was to sign up.

• The Commission’s updated rule will apply to almost all negative option programs in any media. 

What does the new rule say?

• The rule also will prohibit sellers from misrepresenting any material facts while using negative option marketing; require sellers to provide important information before obtaining consumers’ billing information and charging them; and require sellers to get consumers’ informed consent to the negative option features before charging them.

The final rule will provide a consistent legal framework by prohibiting sellers from:

i) Misrepresenting any material fact made while marketing goods or services with a negative option feature.

ii) Failing to clearly and conspicuously disclose material terms prior to obtaining a consumer’s billing information in connection with a negative option feature.

iii) Failing to obtain a consumer’s express informed consent to the negative option feature before charging the consumer.

iv) Failing to provide a simple mechanism to cancel the negative option feature and immediately halt charges.

Applicability of the Rule

The rule applies to “almost all negative option programs in any media”, which includes:

• Pre-notification and continuity plans 

• Automatic renewals 

• Free trial offers 

• Offers made online, over the phone, or in person.

The FTC defines “negative option” programs as situations where companies assume that a customer has accepted a service unless they explicitly reject it. For example, this includes scenarios where a consumer agrees to a one-week trial and is later billed for regular membership if they do not cancel before the trial ends.

Purpose of the Rule

• The rule is part of the FTC’s ongoing review and modernisation of its 1973 Negative Option Rule to address unfair or deceptive practices related to subscriptions, memberships, and recurring payment programs in today’s digital economy.

• The FTC aims to protect consumers from misleading practices, as it receives thousands of complaints annually about negative option and recurring subscription practices, which have been steadily increasing. 

• For instance, daily complaints rose to nearly 70 in 2024, up from 42 in 2021. 

• The growing subscription economy, alongside rising subscription prices, has heightened concerns regarding difficult-to-cancel subscriptions. A 2022 study by C.R. Research found that 42 per cent of consumers had forgotten about subscriptions they were paying for, and consumers generally underestimated their monthly subscription costs by an average of $133.

(The author is a trainer for Civil Services aspirants.)