Podcast - The FTC's Click to Cancel Proposal

It's a privilege to be with you today. Today's topic is Negative Options: The FTC's Click to Cancel Proposal. Negative option plans refer to any situation where the customer is presumed to continue to accept an agreement or offer unless they affirmatively decline it. This structure can be harmless, and can even benefit consumers, when properly disclosed. Problems arise when businesses manipulate consumers away from taking that affirmative step, which can result in customers paying for things they don't want or don't need. Where consumer protection laws are inadequate, or inadequately enforced, dishonest companies will keep developing ways to make it easier to inadvertently subscribe and ever harder to cancel, harming consumers and honest competitors along the way.

Changes Proposed by the FTC

The Federal Trade Commission on March 24 proposed a "click to cancel" provision requiring sellers to make it as easy for consumers to cancel their enrollment as it was to sign up. That is just one of several updates the commission is proposing to its rules regarding subscriptions and recurring payments. The FTC claims that the new click to cancel provision, along with other proposals, would go a long way to rescuing consumers from seemingly never-ending struggles to cancel unwanted subscription payment plans for everything from cosmetics to newspapers to gym memberships. FTC Chair Lina M. Khan said: "Some businesses too often trick consumers into paying for subscriptions they no longer want or didn't sign up for in the first place. The proposed rule would require that companies make it as easy to cancel a subscription as it is to sign up for one. The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties." The notice of proposed rulemaking announced is part of the FTC's ongoing review of its 1973 Negative Option Rule, which the agency uses to address unfair or deceptive practices related to subscriptions, memberships and other recurring-payment programs. These programs are widespread in the marketplace and can provide substantial benefits to both consumers and businesses. But the FTC believes that they can become problematic when marketers fail to make adequate disclosures, bill consumers without their consent or make cancellation either difficult or impossible — such as by requiring customers to cancel in person or keeping them stuck on hold waiting to talk to customer service. Each year, the FTC receives thousands of consumer complaints about such practices. The current patchwork of laws and regulations available to the FTC do not provide consumers and industry with a consistent legal framework. Accordingly, the proposal would make several specific changes, including implementing the following:

One: A simple cancellation mechanism. If consumers are unable to easily leave any program when they want to, the negative option feature becomes nothing more than a way to continue charging them for products they no longer want. To address this issue, the proposed rule would require businesses to make it at least as easy to cancel a subscription as it was to start it. For example, if you can sign up online, you must be able to cancel on the same website, in the same number of steps.

Two: New requirements before making additional offers. The proposed rule would allow sellers to pitch additional offers or modifications when a consumer tries to cancel their enrollment. But before making such pitches, sellers must first ask consumers whether they want to hear them. In other words, a seller must take "no" for an answer and, upon hearing "no," must immediately implement the cancellation process.

Three: New requirements regarding reminders and confirmations. The proposed rule would require sellers to provide an annual reminder to consumers enrolled in negative option programs involving anything other than physical goods, before they are automatically renewed.

The commission vote approving publication of the notice of this proposed rulemaking was 3-1, with Commissioner Christine S. Wilson voting no. Chair Khan issued a separate statement, in which she was joined by Commissioners Rebecca Kelly Slaughter and Alvaro Bedoya. Commissioner Wilson issued a dissenting statement. Once the notice has been published in the Federal Register, comments can be submitted comments electronically.

Key Takeaway

The FTC is proposing to change the Negative Option Rule requirements with a new click to cancel provision. If your business practices use negative options, pay attention to how this proposal proceeds. So stay tuned to further programs as we identify and address the key issues and developments and provide strategies for success. I wish you continued success and a meaningful day.