FTC’s New “Click-to-Cancel” Rule Targets Companies Using Recurring Subscriptions, Automatic Renewals, and Other “Negative Option” Programs

By Robert M. Horwitz

On October 16, 2024, the Federal Trade Commission issued a Final Rule that dramatically changes its prior rules governing recurring subscriptions and memberships and other “negative option programs.” The latter term refers to a term or condition that allows a seller to interpret a customer’s silence, or failure to take an affirmative action, as acceptance of an offer. This includes such practices as automatic renewals, the conversion of free trials to paid subscriptions, and prenotification plans, such as “___ of the month” programs that deliver and charge consumers for goods unless they take steps to stop the program.

The FTC issued the” Click-to-Cancel” rule, as the new edict is often referred to, because, in its words, “Unfair and deceptive negative option practices have been a persistent source of consumer harm for decades, saddling shoppers with recurring payments for products and services they never intended to purchase nor wanted to continue buying.”

As is usually the case with any new regulation that has wide-ranging impacts, litigation challenging the Final Rule was filed shortly after it was published. Any potential court intervention aside, however, most elements of the rule will become effective 180 days after publication in the Federal Register, which should make for an effective date in April 2025, though the prohibition against misrepresentations goes into effect 60 days after publication. 

What the “Click-to Cancel” Rule Prohibits

Under the Final Rule, each of the following acts and practices are considered unfair and deceptive trade practices prohibited by the FTC Act:

• Misrepresenting any material fact made while marketing using a negative option feature.
• Failing to clearly and conspicuously disclose material terms before obtaining a consumer’s billing information in connection with a negative option feature.
• Failing to obtain a consumer’s express informed consent to the negative option feature before charging the consumer.
• Failing to provide a simple mechanism to cancel the negative option feature and immediately halt charges.

The Final Rule applies to almost all negative option marketing programs, regardless of the medium in which they are offered. It also extends to business-to-business relationships, not just those between businesses and consumers. 

Cancellation Must Be as Easy as Enrollment 

Most consumers have dealt with the contrast between how easy companies make it to purchase something or enroll in a program online and how difficult they can make it to cancel, including not providing an online option or requiring an in-person visit.

Under the Final Rule, companies need to make it as simple to terminate as they do to sign up (i.e., click to cancel). Specifically, consumers must be able to cancel through the same medium they enrolled in, and the cancellation method must be quickly and easily accessible. The FTC has advised businesses to keep the following “guardrails” in mind when establishing or revising their cancellation policies:

• You can’t require a customer to talk to a live or virtual representative to cancel if they didn’t have to do that to sign up.
• If you’re offering phone cancellation, you can’t charge extra for that service, and you must answer the phone or take a message during normal business hours. If you take a message, you must respond to customers promptly.
• If customers originally signed up for your program in person, you can offer them the opportunity to cancel in person if they want to, but you can’t require it. Instead, you need to offer a way for them to cancel online or on the phone.

Clear and Conspicuous Disclosure of All Material Terms Before Sign-Up

Before a customer enrolls in any negative option program and before a business can ask for the customer’s billing information, the business must clearly and conspicuously provide all material terms of the deal. This includes such items as:

• How much and how frequently the consumer will be charged.
• When and what charges will be incurred after a free trial.
• Explicit descriptions of fees and billing methods.
• Deadlines for cancellation or withdrawal.
• Cancellation methods and options.

Express Informed Consent to Terms Before Enrollment

The Final Rule requires businesses to obtain the consumer’s “express informed consent” to the negative option program terms before obtaining their billing information. That consent must be requested and confirmed separately from any other part of the transaction. Businesses must also maintain verification of each customer’s consent for at least three years.   

The FTC is empowered to enforce the Final Rule and impose civil penalties for violations, including injunctive relief and monetary penalties of up to $51,744 per violation. Of course, acts or omissions that would constitute violations of the “Click-to-Cancel” rule may also run afoul of other laws and regulations, including state-level legislation on negative options and unfair and deceptive trade practices/consumer protection statutes. The Final Rule explicitly states it does not preempt state laws that provide greater consumer protections. 

Preparing for the New Negative Option Landscape

While the Final Rule does not prohibit negative option marketing programs outright, companies that use such strategies will need to thoroughly audit their existing programs to ensure they comply with the rule’s new requirements. 

Simplicity, clarity, ease of use, and conspicuous honesty at all stages of customer interaction are imperative. In addition to potentially redesigning processes, language, and other aspects of the user experience, businesses should also ensure that employees are trained on the new requirements and limitations and that all marketing initiatives across all platforms align with any alterations to the negative option program or enrollment processes.

Also, as noted, the Final Rule is not the only compliance concern that must be addressed, and businesses should work closely with counsel to understand any state laws implicated by their negative option programs.

If you have questions or concerns about the “Click-to-Cancel” rule, or would like assistance auditing or modifying your company’s negative option programs and marketing, please contact Robert Horwitz at Maddin Hauser.