What the FTC’s “Click to Cancel” Rule Means for Your Business
After more than a year, the Federal Trade Commission announced a final “click to cancel” rule. While consumers rejoice over the requirement to make it as easy to cancel a subscription as it is to sign up, we at Privacy Ref understand that this may pose logistical challenges. We’ve provided this breakdown of the rule and what it requires of impacted businesses.
Quick overview
While often called “click to cancel,” its true title is the “Rule Concerning Recurring Subscriptions and Other Negative Option Programs” or abbreviated “Negative Option Rule.” This rule will apply to all negative option programs in any media.
A negative option program is not defined in this rule but in the FTC’s Telemarketing Sales Rule. It is a provision in an offer or agreement to sell or provide any goods or services whereby acceptance is inferred from the consumer’s failure to take an affirmative action to reject or cancel. These may look like automatic renewal or free trial conversion offers.
The rule goes into effect in part 60 days from publication in the Federal Register, with some sections not in effect until 180 days from publication.
As of this to-be-determined date, businesses will be prohibited from:
- misrepresenting any material fact in marketing the negative option program and features,
- failing to disclose material terms prior to billing for the feature,
- failing to obtain express consent, and
- failing to provide a simple cancel mechanism.
Changes from original draft
The original notice of proposed rulemaking was delivered in March of 2023 and met with over 16,000 comments. Language has been removed from the original rulemaking that prohibited sellers from sending attempts to keep the consumer subscribed without first obtaining affirmative consent and required sellers to inform consumers of the negative option feature annually.
Business obligations
The final rule effectively requires businesses to properly inform, obtain consent from, and provide a simple cancellation mechanism relative to negative option programs.
In more detail, before the date of applicability, subscription sellers must:
- Provide information about material terms to consumers prior to collecting billing information and charging consumers for the subscription, namely:
- how to notify the seller if they do not wish to purchase the subscription;
- minimum purchase obligations;
- the consumer’s right to cancel;
- whether billing charges include postage and handling;
- a time period of at least 10 days to reject the subscription;
- if at least 10 days are not provided to reject, the seller will credit the return;
- the frequency of announcements to be delivered; and
- the time periods for sending merchandise.
- Obtain unambiguous, affirmative consent from consumers for the negative option feature prior to charging consumers.
- Make simple cancellation mechanisms available to consumers that are at least as easy to use as the consent mechanism.
- Immediately stop recurring charges upon receipt of a cancellation request.
Overcoming business impacts
For business units, especially marketing and sales, it may seem as if privacy is constantly at battle with the success of the business. Just as with privacy law requirements to permit consumers to opt out of third party sharing or sales, the reaction to needing to provide a simple mechanism and immediately stop recurring charges may be negative. It may occur to these teams that the simpler cancellation mechanism will decrease revenue because more consumers will therefore cancel their subscription.
However, if you talk to any privacy professional, they will explain that allowing consumers more control over the use of their personal information helps to create trust and add value. This mechanism may actually bring in more consumers now that they can easily cancel, who may previously have opted not to try the subscription at all knowing how difficult it would be to cancel. The FTC writes in the finalized rule that research finds “the perceived monetary and psychological costs from switching products or services can lead consumers to make sub-optimal decisions.” Additionally, adopting this mechanism ahead of the requirement date may make the business stand out against those who don’t.
In addition to the value of consumer trust, failing to adopt privacy requirements comes with greater fines that possibly exceed any loss of revenue from cancellations. The FTC may fine the organization up to $50,000 per infraction per day for failing to comply.
Reach out to Privacy Ref with all your organizational privacy concerns, email us at info@privacyref.com or call us 1-888-470-1528. If you are looking to master your privacy skills, check out our training schedule, register today and get trained by the top attended IAPP Official Training Partner.