On October 16, 2024, over 18 months after first issuing its proposed rule, the Federal Trade Commission (“FTC”) issued a final rule to make it easier for consumers to cancel their subscriptions, memberships, automatic renewals, and other recurring payment options. This rule reaches consumers and businesses in all sorts of industries: from gym memberships to e-commerce and delivery app subscriptions, internet services, cable, cell phone, and broadband and streaming services, gift box services, and even spa memberships, the examples abound. The purpose behind the rule is to increase transparency and make it easier for consumers to cancel subscriptions, saving them time and money by ending the “doom loop” some may find themselves in when trying to cancel such a feature.
The rule will not go into effect until April 2025 to give businesses and industry sufficient time to comply and change their product/service cancellation flows. So, what do you need to do now and how will you comply?
- Disclose material terms of the subscription, membership or auto-renewal offer in a clear and conspicuous way before the consumer agrees to the program, including its existence, cost, and how to cancel.
- Avoid making any material misrepresentation about the subscription, membership or auto-renewal program.
- Obtain the consumer’s informed consent before charging them.
- Provide and honor a simple mechanism to cancel and immediately halt charges.
This last component is likely to cause the most “disruption” to how businesses currently operate. On this, the FTC said that it must be as easy to cancel the subscription as it was to sign up. In other words, it cannot be buried behind many different screens or otherwise difficult to navigate to. Next, the consumer must be able to cancel by the same means and channel the consumer used to sign up – so if the consumer signed up for a subscription online, the business cannot force the consumer to place a cancellation request via phone. Third, there should not be a lot of interference when implementing or executing the cancellation; no questionnaires about why the consumer wants to cancel or multiple screens to navigate through once the cancellation flow has begun or to confirm the cancellation choice.
Notably, the FTC did not prohibit businesses from offering consumers incentives or “sweetheart deals” to change their mind, or otherwise ban businesses from explaining to consumers the effects and consequences of cancelling the service before confirming the cancellation choice. The FTC received over 16,000 public comments to the March 2023 proposed rule, many of which the FTC said addressed this issue. The FTC explained that while some consumers just want to be able to cancel their subscription or membership without any further discussion or counteroffer, others appreciated knowing this information or being offered deals. As such, the FTC declined to rule-make on this point, indicating that it would study the issue further and revert as appropriate.
The practical effect for businesses: audit your cancellation flow and make sure your customers can easily find and navigate to it and cancel with just a few clicks.
For further information, please contact:
Joanna Rosen Forster, Partner, Crowell & Moring
jforster@crowell.com
