Businesses and customers alike benefit from the advantages of automatic renewal subscription services. Among other things, companies can effectively maintain a consistent customer base, predict future earnings, and make associated decisions based on this data. Consumers, likewise, may easily sign up for subscription services and depend on the continuity of the plan, without having to think about, or go to the trouble of,periodically renewing. However, the Federal Trade Commission (“FTC”) is concerned about certain bad actors who may use unfair or deceptive practices to sign up consumers and prevent them from easily cancelling subscriptions, memberships, and other recurring-payment programs. To address this concern, the FTC is now proposing, among other things, a “click to cancel” provision that would require sellers “to make it as easy for consumers to cancel their enrollment as it was to sign up.”
FTC Receives Consumer Complaints Regarding Subscription Service Practices
According to its press release, each year the FTC receives thousands of automatic renewal subscription services-related consumer complaints. Some of the specific allegations include:1) failing to provide adequate disclosures to consumers; 2) billing consumers without their informed consent; and 3) making cancellation difficult or even impossible. The FTC maintains that existing laws and regulations simply cannot provide businesses and consumers with a consistent legal framework to adequately control this industry.
How Would the FTC’s Subscription Services Proposed Rule Work?
First, it is useful to explain what the FTC characterizes as a Negative Option offer. Such offers come in a variety of forms, but all share a central feature: each contains a term or condition that allows a seller to interpret a customer’s silence, or failure to take an affirmative action, as acceptance of an offer. The associated Negative Option Rule (“Rule”) is a tool that the FTC uses to combat unfair or deceptive practices associated withsubscriptions and other recurring payment programs.
To address consumer complaints, and to provide businesses and customers with consistency in how subscription services should work, the FTC is proposing amendments to the Rule. Essentially, the FTC wants to simplify, and make it easier to undertake, the cancellation of subscription-based product andservice plans. According to an FTC “Fact Sheet,” the proposed changes would amend the Rule to: 1) prohibit misrepresentations; 2) give consumers important information in clear ways; 3) make sure that consumers know what they’re agreeing to; and 4) let people cancel simply and easily (if you can sign up online, you should be able to cancel online).
The amended Rule would also set clear, enforceable, performance-based requirements. The Rule amendments would apply to all subscription features, regardless of media. Companies would be required to make sure that people understand and agree to what they are buying and allow them to cancel without much effort. In fact, consumers would need to be able to cancel their plans on the same websites that they originally signed up on. For subscriptions not involving physical goods, consumers would need to receive reminders, at least annually, identifying the product or service, the frequency and amount of charges, and a means to cancel. In addition, according to the proposed Rule, when a consumer attempts to cancel her/his subscription, the seller must immediately cancel the negative option plan unless she/he indicates an interest in another product or service offer. Please note that these amendments would also apply to certain B2B plans.
How to Comply with the FTC’s Proposed Subscription Services Rule
The FTC is seeking public comment on the proposed Rule. Assoon as notice of the amended Rule is published in the Federal Register, a 60-day comment period will begin. If the revised Rule is approved, companies that offer subscription-based goods or services will need to reevaluate their policies to comply with the updated provisions.
To ensure that your subscription-based practices comply with FTC regulations, it is essential that you consult with seasoned legal professionals. The attorneys at Klein Moynihan Turco have years of experience dealing with federal and state automatic renewal law compliance.
If you need assistance with updating your marketing practices and procedures, please email us at info@kleinmoynihan.com or call us at (212) 246-0900.
The material contained herein is provided for informational 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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