FTC ‘Click to Cancel’ Rule Update

Highlights

The Federal Trade Commission has finalized a rule requiring that canceling a subscription must be as easy as signing up, with enforcement beginning on March 31, 2025

NCTA - The Internet & Television Association and other stakeholders have filed a lawsuit challenging the rule, which could affect its enforcement and applicability

Despite the ongoing litigation, businesses should consider preparing to comply with the new requirements to avoid potential penalties

The Federal Trade Commission (FTC) recently finalized the "click-to-cancel" rule, a major update to the Negative Option Rule that requires subscription-based businesses to simplify cancellation processes. The rule mandates that canceling a subscription must be as easy as signing up. Enforcement is set to begin March 31, 2025, providing businesses limited time to comply with the new requirements.

NCTA - The Internet & Television Association and other industry stakeholders have already expressed concerns over the rule's effect on certain business practices, culminating in a lawsuit against the FTC. Businesses affected by this litigation should closely monitor developments, as the lawsuit may affect the rule's implementation or enforcement.

Key Requirements of the Click-to-Cancel Rule

Under the click-to-cancel rule, subscription-based companies must simplify the cancellation process, ensuring it's as accessible and straightforward as the original sign-up. Core provisions include:

• Equally simple cancellation: Consumers must be able to cancel through the same method used for sign-up. For example, an online subscription must have an online cancellation process without requiring additional steps, such as calling a customer support line.
• Clear disclosures: Businesses must provide clear, conspicuous disclosures of subscription terms, including renewal policies and cancellation instructions, at the point of enrollment
• Renewal reminders: Long-term subscription services must send renewal reminders, giving consumers an opportunity to opt out before automatic renewals
• Non-obstructive retention offers: Retention offers can be presented, but only after a consumer indicates intent to cancel, and they cannot impede or complicate the cancellation

The NCTA Lawsuit

The NCTA's lawsuit claims that the FTC exceeded its statutory authority in implementing the click-to-cancel rule, arguing that the rule disrupts business models that depend on direct customer interaction, such as telecom services. According to the NCTA, the rule's stringent requirements may conflict with industry practices, where retention offers and customer engagement through personalized support are key. The lawsuit highlights concerns that the rule could impose unwarranted costs on businesses and could potentially lead to decreased customer satisfaction by reducing opportunities for tailored retention efforts.

Although the legal outcome remains uncertain, a successful challenge could modify or delay enforcement of certain provisions, particularly in highly regulated industries. Businesses are advised to proceed with compliance preparation but should watch for updates in the case, as it could influence the application of specific rule components.

Compliance Deadline

Affected businesses should consider taking the following steps toward compliance to avoid the risk of penalties:

• Evaluate current processes: Review existing subscription and cancellation practices, identifying any steps that may complicate cancellation for consumers
• Streamline online interfaces: Simplify online cancellation to match the ease of the original sign-up process, such as adding a "one-click" or similarly straightforward cancellation option
• Revise consumer disclosures: Ensure that terms, renewal details, and cancellation instructions are clearly disclosed up front and at enrollment
• Establish renewal reminders: Set up protocols to send clear renewal reminders for long-term subscriptions, ensuring customers have the option to cancel before auto-renewals
• Train customer service teams: Educate staff on compliant retention practices, preparing them to offer retention options without obstructing cancellation

Takeaways

The click-to-cancel rule emphasizes the FTC's focus on protecting consumers from deceptive subscription practices, but its legal standing is being contested by stakeholders such as the NCTA. Regardless of the lawsuit's outcome, the new rule presents penalties for non-compliance, making compliance preparation essential.

For more information, please contact the Barnes & Thornburg attorney with whom you work or Dana Amato Sarros at 312-338-5921 or [email protected].

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This Barnes & Thornburg LLP publication should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.

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