On October 16, 2024, the Federal Trade Commission (“FTC”) announced its final rules applicable to recurring subscription plans. According to the FTC, these rules were implemented to make it easier for consumers to stop paying for services they no longer need. As our readers are aware, the public has been submitting commentary on the FTC’s subscription rule amendments for well over a year. After careful consideration, the FTC implemented some of its proposed amendments, while dropping others. The goal in crafting the final rules, stated FTC Chair Linda Khan, is to end the practice of forcing “people [to] jump through endless hoops just to cancel a subscription.”
The FTC’s updated subscription rules apply to almost all businesses that utilize any form of negative option programs to retain customers. The amendments take effect 60 days after they are published in the Federal Register. Below are some of the most important takeaways from the final rule.
What are the Proposed Changes to the FTC’s Subscription Renewal Rules?
The FTC promulgated its subscription renewal rules pursuant to authority granted to it, in part, by Section 18 of the FTC Act. Under this rulemaking authority, the FTC defined the following as unfair or deceptive within the meaning of Section 5 of the FTC Act:
- Misrepresenting any material fact in the course of advertising automatically renewed subscription programs, such as: 1) when a seller offers a product for “free” when it is not; 2) additional processing or shipping fees; 3) the seller’s use of the customer’s billing information; 4) automatic renewal and payment deadlines; 5) whether consumer authorization will be required for additional automatic charges; and 6) refund and cancellation policies;
- Failing to clearly and conspicuously disclose material terms prior to obtaining a consumer’s billing information in connection with a negative option feature, which includes, at a minimum: the existence of the negative option offer, the offer’s total cost, the transfer of a consumer’s billing information to a third party, if applicable, and how to cancel the offer; and
- Failing to provide a simple mechanism to cancel the negative option feature and immediately halt charges; and
- Failing to clearly disclose, and acquire customer consent to, the terms of the subscription’s negative option feature. A consumer’s consent to the negative option feature must be acquired separately and apart from any other portion of the transaction.
The FTC’s proposed simple subscription cancellation mechanism received a great deal of commentary. After careful consideration, the FTC decided that these simple mechanisms must meet certain requirements:
- The seller must offer the simple mechanism through an Interactive Electronic Medium or through a telephone number;
- An “Interactive Electronic Medium” is defined as “any electronic means of communicating (except via telephone calls), including Internet, mobile application, text, chat, instant message, email, software, or any online service.” Cancellation via an Interactive Electronic Medium: the simple cancellation mechanism must be “easy to find” when the consumer wants to cancel. Consumers must not be required to interact with a live or virtual representative to cancel if the consumer did not do so when consenting to the negative option feature.
- Cancellation via telephone call: the seller must promptly effectuate cancellations requested by the consumer, via a live agent or a voicemail, by calling a telephone number provided by the seller. The telephone cancellation mechanism must be made available during normal business hours, and the cancellation telephone call should not cost more to use than the call used to consent to the negative option feature.
The FTC also made clear that the final rule covers business to business (“B2B”) transactions.
Which FTC Proposed Subscription Rule Amendments were not Implemented?
After evaluating public commentary, the FTC decided not to implement two previously proposed requirements:
- The FTC proposed requiring an annual reminder to be sent to consumers for non-physical goods sold with a negative option feature. Under this proposal, reminders would have identified the product or service, the frequency and amount of charges, and the means to cancel. The FTC determined that, as evidenced by businesses that now charge a fee to manage subscriptions, consumers have difficulty tracking all the negative option services and products reminders. As such, consumers may already be dealing with “notification fatigue,” and the FTC needs additional time to reevaluate a periodic reminder requirement; and
- Prohibiting sellers from informing consumers seeking to cancel their subscription that their plans can be modified and/or providing them with reasons to keep existing subscriptions without first asking if they want to hear about them.
Experienced Attorneys Can Help Ensure Compliance with the FTC’s Amended Subscription Renewal Rules
In light of the above, businesses that offer automatic renewal plans must comprehensively review their compliance procedures. Hiring experienced counsel can ease the burden of keeping up with the long list of ever-changing regulations and requirements. The attorneys at Klein Moynihan Turco have significant experience in both defending businesses against allegations of negative option law violations, and ensuring compliance so that future claims may be prevented.
If you require assistance with automatic renewal law compliance or related litigation defense, please email us at info@kleinmoynihan.com or call us at (212) 246-0900.
The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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Photo by Wes Hicks on Unsplash
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