On October 16, 2024, the Federal Trade Commision announced updates to its “Click-to-Cancel” rule, in an attempt to modernize the original 1974 “Negative Option” rule for subscription merchants. In a recent press release, the FTC stated the rule was put in place to “combat unfair or deceptive practices related to subscriptions, memberships, and other recurring-payment programs in ana increasingly digital economy where it’s easier than ever for businesses to sign up consumers for their products and services.”
The FTC receives thousands of complaints about negative option and recurring subscription practices every year, and this new rule will require merchants to adjust their practices as follows:
- Auto-renewal terms and pricing must be clearly stated upfront.
- Customers must positively acknowledge these terms.
- Cancellation must be as simple as sign-up.
While some merchants may be concerned about the impact on their operations and revenue, most will only need to make slight adjustments to stay compliant.
Proponents of the rule view this as a win for consumers frustrated by difficult cancellation processes or sudden price hikes without adequate warning. For instance, some gym memberships have required cancellation by certified letter or in-person visits—barriers designed to apply a “hard save” tactic.
“Too often, businesses make people jump through endless hoops just to cancel a subscription,” said Commission Chair Lina M. Khan. “The FTC’s rule will end these tricks and traps, saving Americans time and money. Nobody should be stuck paying for a service they no longer want.”
Fortunately, most merchants, especially those operating in multiple states with similar regulations, are already positioned for compliance.
Click to Cancel Rule Fact Sheet
Federal vs. State Requirements
Some of these new federal rules align closely with existing state laws. For instance, California requires merchants to offer online cancellation, making it as easy for consumers to cancel as it was to sign up. In states like New Jersey, customers might still need to interact with a representative to cancel. However, with the federal rule, this variation will be streamlined.
A digital subscription provider, for instance, may already have the necessary online framework in place. If not, the federal rule will require them to adapt quickly. Consumers may even notice that switching their home address to California unlocks online cancellation options—a testament to these location-based regulatory requirements.
Tweaks to Current Subscription Practices
The Click to Cancel Rule also mandates that merchants disclose auto-renewal terms upfront, with positive customer confirmation and next-renewal pricing. For industries familiar with subscription marketing, like magazines, many of these practices are already in place. Though some marketers may resist due to potential conversion rate impacts, the clarity and compliance these changes bring make it worthwhile. Legal teams and the FTC will prioritize an “unambiguous” customer experience, meaning vendors should seriously consider adding a next-renewal price instead of vague language like “then-current rate.”
Legal Challenges and Compliance Timeline
To complicate matters, a lawsuit has been filed against the FTC, with some claiming the FTC overstepped its bounds in certain provisions. However, this should not delay internal preparation, as vendors will have 180 days from the rule’s publication date to implement these changes. Non-compliance could result in fines up to $50,000 per incident once the rule takes effect.
Next Steps
We strongly recommend that you consult with your legal team (or a legal consultant) as soon as possible. Many of our clients are already addressing these updates across all levels of their organization, which we highly encourage. Stay informed of any lawsuit developments that may impact the rule, as some early provisions, such as exclusions around Cancel/Save options and Annual Reminder Notices, have already been reversed.
Additionally, discussing compliance steps with industry peers and your Optimized Payments consultant can offer valuable insights, especially as interpretations of the rule evolve.