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FTC Releases New Click to Cancel Rule for Subscriptions

The Federal Trade Commission (FTC) has introduced a significant regulation known as the “click to cancel” rule, aimed at enhancing consumer protection against deceptive and unfair practices associated with negative option plans. This rule is comprehensive, applying to a wide array of negative option plans across all media, including automatic renewal programs, continuity plans, free-to-pay or fee-to-pay conversions, and pre-notification negative option plans. It affects both business-to-consumer (B2C) and business-to-business (B2B) transactions, and will have a major impact to e-commerce and SaaS businesses.

Key Requirements of the FTC’s New Rule:

  • No Misrepresentations: Sellers are prohibited from misrepresenting any material fact in the marketing of their negative option plans.
  • Disclosure Before Billing: Important information must be disclosed to consumers before collecting billing information or initiating charges.
  • Obtaining Consent: Sellers must secure the unambiguously affirmative consent of consumers before enrolling them in a negative option plan and charging them.
  • Simplified Cancellation: The rule mandates that sellers provide a straightforward cancellation method that immediately halts all recurring charges, ensuring that the cancellation process is as easy as the enrollment process.

Understanding Simple Cancellation:

The essence of the “click to cancel” provision is to ensure that consumers can easily cancel their negative option plans without undue hassle. This means that the cancellation process should not be more complicated than the enrollment process and should be readily accessible, especially for online or in-app cancellations. The rule explicitly states that sellers cannot use “save” offers to unduly complicate the cancellation process, nor can they require interaction with a live agent or chatbot for cancellation if such interaction was not necessary for enrollment.

Consent Requirement:

A critical aspect of the new rule is the requirement for sellers to obtain express informed consent from consumers before charging them for a negative option plan. This consent must be obtained separately from any other transactional agreement and must not be undermined by any conflicting information. Sellers are also required to maintain records of consumer consent for at least three years, although there is an exception if the seller can demonstrate that its transaction process technologically ensures consent.

Effective Dates and State Law Interaction:

The rule’s provisions on disclosures and misrepresentations will take effect 60 days after publication in the Federal Register, while the consent and cancellation requirements will become effective 180 days post-publication. It’s important to note that the FTC’s rule sets a baseline for compliance, meaning that while it will preempt less stringent state laws, it will not override state laws that offer greater consumer protection or impose additional requirements.

View the FTC final rule here.

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