Overview:
The FTC has finalized its Click to Cancel rule. How will this rule change the way subscription-based businesses market and disclose cancellation policies? And how could consumer surveys be used in disputes?
Background on Click to Cancel and the FTC
From milkmen to magazines, the subscription model has been around for hundreds of years. What is new is how easy it is to subscribe to services and product delivery–but how hard it is to unsubscribe. Businesses may advertise that consumers can “Cancel Anytime,” “Try risk-free,” or have a “Risk-Free Trial,” which is convenient for consumers and possibly good marketing for the business.
But the Federal Trade Commission is keeping an eye on these claims. The FTC has recently brought out a new “Click to Cancel” rule applying to businesses that use negative option marketing, which is when a seller interprets a consumer’s failure to cancel the service as acceptance of an offer. Covered policies include automatic renewal, repeat delivery offers, and free trials. The FTC rule includes provisions that address not only businesses that market directly to consumers, but also businesses that market to other businesses.
Below is a brief overview of major provisions in the final rule:
- Simple Cancellation: Sellers must provide a way to cancel the service that is at least as easy to use as the method for signing up or consenting. If consumers clicked to subscribe, they should be able to click to cancel. For electronic cancellations, the method for canceling must be easy to find and not involve interacting with a bot. By phone, there must be a representative available during regular business hours to conduct the cancellation.
- Express Affirmative Consent: The rule expressly requires sellers to obtain “unambiguously affirmative consent” to the negative option feature. The rule specifies that the consent must be separate from the transaction, must not include information that would confuse the consumer as to what they are consenting to, and must be obtained prior to the consumer being charged. It also requires that sellers keep a record of consent for three years.
- Misrepresentations: Sellers may not misrepresent “material facts” when they use negative option marketing, even if the fact is not related to the negative option feature. The rule defines “material” and provides examples of material facts, including the cost of the service, the negative option feature, the purpose of the goods, or the safety of the goods. (Survey research can measure whether marketing statements are material to consumers.)
- Mandatory Disclosures: Negative option sellers must clearly and conspicuously disclose all material terms, whether they relate to the negative option feature or not. This includes the charge for the goods or services, the date when charges for a service will increase, and how consumers can cancel. The FTC specified that these disclosures must occur before the business obtains a consumer’s billing information, and should appear next to the place where a consumer consents to the negative option.
Are Subscriptions Cancelled? Final FTC Ruling on Click to Cancel
This rule subjects businesses that fail to properly notify consumers about negative option marketing to a risk of civil penalties. Marketers and advertisers who do not already adhere to this guidance must adjust their communications to be sure that they are in compliance with the new rule. MMR Strategy Group conducts consumer research for businesses looking to measure consumer sentiment for planning, advertising, or litigation purposes, and has extensive experience conducting surveys to provide evidence for or against false advertising claims. If you need this kind of survey, contact MMR Strategy Group to discuss how we can help.