The Federal Trade Commission is proposing a new “click to cancel” rule to help folks get out of hard-to-stop free trials, auto-renewals and subscriptions.
Or has this happened to you?
You see an ad for a face cream you want to sample. You’re okay with paying the shipping cost to test it out for free. The company promised you could cancel after a 14-day trial.
Then you realize you were hoodwinked.
That $5.99 shipping fee is bait to get you to provide your credit or debit card information. What you didn’t realize is that you’ve unwittingly signed up for a monthly subscription for the face cream, which keeps coming at $90 a jar, charged to your card.
You’re outraged because you don’t recall seeing any language indicating you were automatically signing up for a subscription service. You probably missed — by design — some checked box that says you agreed to the monthly payments. Many consumers have fallen victim to face-cream fraud.
Eventually, you may be successful in canceling the subscription. Or so you thought.
The next month, you get a bank or credit card charge for the product trial you revoked.
This cancellation trap is often part of “negative option” marketing.
With a negative-option membership or subscription, consumers agree to automatic billing after trying something out for free or following a special discount offer. Billing stops only after the consumer takes some action to cancel. That’s where the “negative” part comes in.
Illegal practices involving companies tricking people into subscriptions or failing to let them out are a big problem. And it’s a particular concern now, given the economic pressures a lot of consumers face.
This is a pocketbook issue for a lot of consumers, said Samuel Levine, director of the FTC’s Bureau of Consumer Protection.
“With prices rising in many sectors of the economy and uncertainty around the economy in general, a lot of consumers are looking to save money,” Levine said.
A lot of businesses are using subscription models because of the recurring income. Done right, with clear disclosure, it works. People easily sign up, and cancellation is an easy click or call. But this practice can be costly to consumers when companies purposely make it difficult to cut ties. Customers end up being charged long after they no longer need or want the service or product.
In 2022, the FTC said it received about 17,400 complaints about negative-option-related violations.
Last year, New Jersey-based Vonage, the internet phone service provider, agreed to pay $100 million to settle FTC charges that it created significant cancellation hurdles, including making it difficult for customers to find a phone number on its website.
The complaint alleged that beginning in 2017, Vonage started forcing customers to speak to a “retention agent” on the phone to cancel. In many cases, people were told they had to pay an early termination fee of hundreds of dollars even though such a charge was not clearly disclosed.
Learning app ABCmouse (not affiliated with ABC network or Disney) paid $10 million to settle FTC charges that it failed to tell consumers that the subscription would automatically renew. The California-based company also misrepresented the ease with which people could stop paying for the yearly membership, the FTC said.
In the ABCmouse case, the FTC says, the company refused to accept cancellation requests made over the phone, via email or through a form on its website. Instead, people were directed to a portal on the company’s website, where they had to navigate anywhere from six to nine screens before being able to end their subscriptions.
Neither Vonage nor ABCmouse admitted wrongdoing as part of the agreements.
The FTC has proposed a “click to cancel” rule that would require businesses to simplify cancellations.
“The vision is that it should be as easy for consumers to cancel subscriptions as it is to enroll,” Levine said. “If they enrolled online, the company should use online mechanisms to let consumers cancel. If they enrolled on the phone, they should be able to cancel on the phone without waiting on hold forever.”
Among other provisions, companies would have to provide an annual reminder to consumers enrolled in negative-option programs involving anything other than physical goods before they are automatically renewed.
In the process of trying to persuade you to stay — it’s referred to as a “save” — companies would have to ask whether you would like to consider such offers or modifications to your subscription plan. But once you decline, they must cancel the negative-option arrangement immediately.
The agency’s notice of proposed rulemaking is part of its effort to strengthen existing consumer protections in the negative-option space.
Unscrupulous companies have become incredibly clever in taking consumers down a rabbit hole where they can’t find their way to cancellation.
Negative-option marketing has only increased, along with abuses, FTC Chair Lina Khan and two other commissioners wrote in a statement.
“Where consumer protection laws are inadequate, or inadequately enforced, dishonest companies will keep developing ways to make it easier to inadvertently subscribe, and ever harder to cancel, harming consumers and honest competitors along the way,” they wrote.
Although not available just yet, comments regarding the negative-option rule can be filed electronically at Regulations.gov. The FTC will publish a consumer alert when the notice appears, so subscribe at ftc.gov/ConsumerAlerts.
“We’re not asking for legal briefs,” Levine said. “We want ordinary people who have experienced cancellation problems or anybody who wants to weigh in to file a comment.”
This is your chance to be heard. If you have a horror story about canceling a free trial, auto-renewal or subscription, tell the FTC.
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