Over time, the Federal Trade Commission (FTC) has been considering ways to simplify subscription cancellations.

The idea of a “click-to-cancel” rule was proposed by the regulators as an amendment to their Negative Option Rule in early 2023. The FTC, on October 16, announced their decision in a press release.

The final click-to-cancel mandate by the FTC necessitates that providers must facilitate an easy process for consumers to cancel their enrollment, akin to the simplicity of signing up. This rule, as highlighted in the press release, is in response to over 16,000 public comments and has been received positively by commenters on social media.

“The FTC’s rule will put an end to crafty tactics, saving Americans both time and money. No one should be trapped into paying for a service they no longer want,” stated Commission Chair Lina M. Khan.

This indicates a significant shift in FTC’s stance towards regulating negative-option business practices.

Understanding the New Rule

Put simply, the new click-to-cancel rule mandates businesses to offer an uncomplicated, one-click method for customers to terminate their subscription services.

Businesses will be prohibited from complicating the cancellation process as a measure to retain clients. The cancellation should be as simple as the enrollment process.

Moreover, the rule requires merchants to secure clear, well-informed consent from consumers before signing them up for any automatic renewal or continuous service plan. This means all relevant information regarding the subscription terms should be provided upfront.

Merchants cannot conceal important details related to the service terms or charges in the fine print. All such information needs to be rendered before obtaining customer’s billing information and charging them. It is also mandatory for merchants to procure express consent to the terms, and maintain a written record of the same.

The rule will be in effect 180 days after it is published in the Federal Register, which will probably be around April or May 2025.

Rationale Behind the FTC’s Decision

According to the press release, this rule revision is part of an ongoing modernization of their 1973 Negative Option Rule. This is being done to combat unfair or deceptive practices related to subscriptions and memberships, and other recurring-payment programs in a fast-evolving digital economy.

This modernization effort by the FTC is a recognition of the changed times. The digital market is quite different from the pre-internet period of the early ’70s. It needs new rules to safeguard people.

The concern is that automatic renewal and continuous service programs could mislead consumers. Therefore, it is essential to make subscription cancellation straightforward, and apply penalties for non-compliance.

Benefits for Consumers

The convenience this rule brings is immense. Simpler cancellation processes will save consumers from being billed for unwanted services without having to navigate through cumbersome procedures.

Being more well-informed and discerning as buyers, thanks to greater transparency from businesses, will eventually lead to businesses having to provide top-quality service if they wish to survive in the subscription landscape. As a result, legitimate businesses offering quality products will flourish, while fraudulent ones will perish.

Lastly, it gives consumers greater control of their finances, allowing them to allocate funds to desired services, instead of being stuck with services they can’t get out of. This could prompt merchants to offer superior services and products, thereby driving innovation.

This is Favorable News for Merchants, too.

While it appears to be great news for consumers, does this new rule offer any benefits to sellers? Surprisingly, yes. Conscious retailers may initially perceive this rule as a victory.

It’s a well-known fact that customer attrition is undesirable. However, legitimate businesses confident about their product quality need not fear customers cancelling their service. If your product is excellent, and you stand by it, you shouldn’t depend on trapping customers with complex cancellation procedures in the first place.

As fewer questionable operators function in the subscription space, honesty will be rewarded with enhanced consumer trust. One of the main objections to subscription services is being locked in a contract. However, knowing that cancellation is easy will make consumers more likely to enroll.

Increased trust in subscription vendors may also lead to fewer disputes. At present, customers are aware of the risk of being trapped in a subscription they can’t get out of, leading them to resort to chargebacks as an escape route. However, knowing that they can terminate a subscription with a single click may dissuade them from disputing charges.

What Should Merchants Do?

Merchants that are already complying with the rule’s principles should be commended. However, it would be wise to review one’s policies and practices once more.

Here are some key recommendations to guarantee compliance and nurture customer trust:

• Clearly Display Cancellation Options

• Simplify The Cancellation Process

• Train Customer Service Teams

• Be Transparent

• Stay Updated on Regulations

By following these actions, merchants can do more than just stay compliant — they’ll also build a positive reputation and foster trust with customers.