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Oct. 25, 2024

Impact of FTC's Click-to-Cancel Rule on Autorenewal Subscriptions

By Jim Dudukovich

An “autorenewal subscription” is an arrangement by which a product or service is sold to the customer via a subscription under which the seller will at some point begin automatically charging the customer’s card on file at prescribed intervals for continued access or ongoing deliveries unless and until the customer takes affirmative action to pause, cancel, or terminate the arrangement. 

In addition to a continually evolving patchwork of state laws, there are currently two federal laws on the books that specifically govern autorenewal subscriptions and other “negative option” programs:

  • the Rule Concerning Use of Prenotification Negative Option Plans (the “Negative Option Rule”), a trade regulation rule promulgated by the Federal Trade Commission in 1973 to outline requirements for “book-of-the-month-club” type programs, and

  • the Restore Online Shoppers Confidence Act (“ROSCA”), a statute passed by Congress and signed into law by President Obama in 2010 to govern the offering of autorenewal subscriptions online. 

Each of these has relatively narrow application in the area of modern autorenewal subscriptions, but on October 16, the FTC announced amendments to the Negative Option Rule which will rename it the “Rule Concerning Recurring Subscriptions and Other Negative Option Programs” (generally referred to as the “Click-to-Cancel Rule”) and which will significantly expand the scope of its application, essentially overtaking ROSCA as the governing federal law in this space.  The chart below outlines the current state of affairs under ROSCA and what the new federal requirements will be once the Click-to-Cancel Rule becomes binding.[1]

 

CURRENT:  ROSCA

FUTURE:  Click-to-Cancel Rule

Scope/Limitations

Applicable only to autorenewal subscriptions for any products or services purchased through the Internet.

Applicable to any autorenewal subscription in any media, including, but not limited to, Internet, mobile apps, telephone, print, and in-person transactions.

The Click-to-Cancel Rule does not preempt state laws that are more stringent, so any state law that provides even greater protection to consumers will still be applicable.

Marketing Messaging

N/A

Seller may not materially misrepresent, expressly or by implication, any material fact.  This extends jurisdiction of the Rule beyond the autorenewal subscription and governs advertising of the actual product or service being sold.

Sign-up Process:

Disclosure of Terms

The Seller must clearly and conspicuously disclose all material terms of the autorenewal subscription before obtaining the customer’s billing information; if the offer includes a free or promotional offer, this includes disclosing when the trial period will end or prices will increase and the deadline by which the customer must act to prevent or stop or prevent charges. 

“Clearly and conspicuously” means in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language. In the case of an audio disclosure, clear and conspicuous means in a volume and cadence sufficient to be readily audible and understandable.

In addition to how ROSCA has been interpreted (left), the Click-to-Cancel Rule also states that, for an audiovisual message, clear and conspicuous requires that the disclosure be simultaneously both visual and audible.

The prevailing view by the FTC in connection with the Click-to-Cancel Rule and other guidance it has promulgated recently is that “clear and conspicuous” means difficult to miss/unavoidable; this also means that the information at issue can’t be behind a hover button or link.

Under the Click-to-Cancel Rule, the information that must be clearly and conspicuously disclosed prior to obtaining the customer’s billing information includes:

  • that it is an autorenewal subscription under which the customer will be charged on a recurring basis unless they take affirmative action to cancel (this is referred to as the “Negative Option Feature”);
  • all information that would be material to the customer’s purchase decision;
  • if and when charges will increase;
  • the deadline (by date or frequency) by which the customer must take action to stop charges;
  • the amount and frequency of charges;
  • information necessary for the customer to find the cancellation mechanism(s).

Importantly, the above information must be placed before and immediately adjacent to the mechanism for obtaining consent (below).

Sign-up Process:

Affirmative Consent

The Seller must obtain the customer’s express informed consent to the autorenewal subscription before charging the customer. 

The express informed consent to the Negative Option Feature must be obtained separately from any other portion of the transaction before charging the customer, and the Seller must not include any information that would detract from or interfere with being able to obtain that express informed consent.  A pre-checked box likely would not be acceptable, and if one consent is obtained for the entire transaction, the Negative Option Feature should at least be in a standalone paragraph.

The Seller must maintain verification of the customer’s consent to the Negative Option Feature for at least three (3) years unless it can demonstrate by a preponderance of the evidence that no customer could have completed the transaction without providing consent to accept the Negative Option Feature (and no other part of the transaction), e.g., through a checkbox, signature, or other substantially similar method.

Cancellation Process:

Seller must provide “simple mechanisms” for a customer to stop recurring charges (i.e., to cancel).

Specifically:

  • The cancellation mechanism must be at least as easy as the method used to sign up (i.e., to provide consent to the Negative Option Feature);
  • Cancellation must be available through the same medium the customer used to sign up;
  • For cancellation via the Internet, mobile apps, or other electronic methods, the cancellation mechanism must be easy to find, and in no event must a customer be required to interact with a live or virtual agent to cancel if they did not do so when they signed up;
  • For cancellation by telephone, the Seller must promptly effectuate cancellation and the phone call cannot be more expensive than the phone call used to sign up.
  • For cancellation in person, the Seller must also make an Internet mechanism or a telephone number.

Private Right of Action Available?

No

No

Damages

ROSCA authorizes the FTC or any State Attorney General to obtain civil penalties of up to $51,744 per violation as well as consumer redress/restitution and injunctive relief.

Remedies are the same, but the Click-to-Cancel Rule does not grant jurisdiction to the State AGs.

Good Faith Exception?

No

The Rule specifically contemplates/permits businesses to petition the FTC for a partial or full exemption if application of the Rule (or part of it) is not necessary to prevent the acts or practices to which the Rule relates.

Confirmations, Renewal Reminders, and Notices

N/A (although certain state laws have requirements related to one or more of these)

N/A (although certain state laws have requirements related to one or more of these)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

While the Click-to-Cancel Rule is in many respects a replacement for ROSCA because it is broader in scope and has far more detailed requirements, it is important to note that ROSCA gives State AGs the right to bring claims – something that the Click-to-Cancel Rule doesn’t do.

The Click-to-Cancel Rule is being issued at a time of significant internal debate at the FTC, with some Commissioners raising concerns about the scope of the Commission’s rulemaking authority (see, e.g., the Dissenting Statement issued by Commissioner Holyoak regarding this Rule).  Given the Supreme Court's recent decision in Loper Bright and other potential challenges to federal agency authority, as well as the upcoming federal election, legal challenges to the Click-to-Cancel Rule may arise under a future administration and/or once the FTC begins using it as an enforcement tool.  In fact, several industry groups have already filed preemptive lawsuits in the 5th, 6th, and 11th Circuits seeking to have the Rule set aside as “arbitrary, capricious, and an abuse of discretion.”

Despite these challenges, however, the Click-to-Cancel Rule's requirements should not be overlooked. In fact, many of the requirements of the Click-to-Cancel Rule already exist in some form or another under the various states’ laws.  For example, some of the enhanced requirements around obtaining consent and simplifying cancellation requirements mirror provisions of California’s amended statute (which is effective in July 2025).  As such, businesses offering autorenewal subscriptions should audit their marketing practices, sign-up procedures, recordkeeping, and cancellation processes to ensure compliance with current and forthcoming regulations.

For information or assistance, please contact Jim Dudukovich in our Atlanta office:  jim.dudukovich@nelsonmullins.com.

 


[1] The majority of the new Rule will take effect 180 days following publication in the Federal Register (meaning the effective date will likely be in late April 2025), except for the provision making it a violation to materially misrepresent any material fact regarding the autorenewal subscription or the product or service it covers (listed under “Marketing Messaging” in the chart above), which will be effective 60 days following publication in the Federal Register (meaning the effective date for that part of the Rule will likely be in late December 2024).

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