FTC allows online cancellation for online subscriptions

Consumers dreading the hassle of trying to cancel a subscription or membership they signed up for online will soon see some relief under a Federal Trade Commission rule finalized Wednesday.

Once the so-called click-to-cancel rule comes into effect, companies will be required to offer ways to cancel services that are as quick and easy as the way a customer signed up. the FTC said.

FTC Chair Lina Khan said companies often make consumers “jump through endless hoops” to cancel subscriptions, including those with recurring fees.

“The FTC’s rule will put an end to these tricks and traps, saving Americans time and money. No one should have to keep paying for a service they no longer want,” Khan said.

The committee voted 3-2 to adopt the rule, formally known as the “negative option” rule, under which a customer’s failure to act or remain silent is interpreted as consent. It would take effect six months after it is published in the government’s daily compendium of public notices, the Federal Register.

The rule would also force sellers to provide information that is truthful, clear and easy to find; require that consumers know and that companies can demonstrate that they know what they are signing up for; and allow violators to be fined.

Subscription-based products have been growing for years. In April, Zuora Inc., a subscription revenue company, said companies in the Subscription Economy Index had grown more than three times as fast than companies in the Standard & Poor’s 500 stock index of the past twelve years.

The FTC’s move drew praise from liberal economic and consumer groups.

“Consumers should not have to navigate through a Rube Goldberg machine to cancel a subscription they have purchased at the touch of a button. This new rule will put an end to this predatory pricing model, saving consumers time and money,” said Lindsay Owens, Executive Director of Groundwork Collaborative.

The rule’s finalization also came amid speculation about Khan’s future as head of the FTC during the presidential election.

“When Big Tech and Big Business billionaires attack Lina Khan and the FTC, they are attacking common-sense consumer protections like the ‘click to cancel’ rule,” said Emily Peterson-Cassin, director of corporate power at the Demand Progress Education Fund.

But it was the political fallout that was decisive, according to an FTC commissioner who opposed the change.

“If the political leadership at the Commission had taken more time to engage with other Commissioners to refine and improve the Rule, my vote and statement would look very different. Instead, less than a month after November 5, the president has used political expediency to get things in order,” said Melissa Holyoak in a derogatory statement about the rule.

“Why the haste? There is a simple explanation. Less than a month after Election Day, the Speaker is rushing to finalize a rule addressing a campaign promise made by the Speaker’s favorite presidential candidate.”

Holyoak said she voted against the rule because it went further than the original 2023 proposal; it lacked specific information about what would be prohibited; and the commission had failed to demonstrate that abuse was widespread.

The FTC made two changes before the rule became final: removing the requirement that companies annually remind customers of their cancellation options and allowing companies to notify customers of changes or reasons to keep their subscriptions without telling customers first to have to ask.