WHAT IS THE NEW 'CLICK-TO-CANCEL' RULE ANNOUNCED BY US FTC?

• The United States’ Federal Trade Commission (FTC) will soon implement a “click-to-cancel” rule, which will make it significantly easier for consumers to cancel their subscriptions and memberships, and make companies liable to face civil penalties for complicating the cancellation process.

Highlights:

• The Federal Trade Commission (FTC) of the United States is set to implement a "click-to-cancel" rule aimed at simplifying the cancellation process for consumers and holding companies accountable for complicating it.

Key Highlights

FTC's Rationale:

• FTC Commission Chair Lina M. Khan emphasized that businesses often create obstacles for consumers wishing to cancel subscriptions, and this new rule aims to eliminate such practices. The FTC approved the rule with a 3-2 vote on October 16.

What Does the New Rule Entail?

• According to the FTC's press release, the new rule requires sellers to make cancellation as straightforward as signing up. Key components include:

Cancellation Process Requirements:

• Medium of Cancellation: Cancellations must be offered through the same method (online, phone, etc.) used for sign-up.
• No Extra Charges: Companies cannot charge additional fees for phone cancellations and must respond to calls or messages during business hours.
• Online and Phone Options: For subscriptions initiated in person, companies must provide online or phone cancellation options.

Scope of the Rule:

• The rule applies to “negative option programs” across various media, including:
• Prenotification and Continuity Plans
• Automatic Renewals
• Free Trial Offers

Definition of Negative Option:

• The FTC defines "negative option" programs as situations where consumers are assumed to accept a service unless they explicitly reject it.

Legal Framework:

• The final rule prevents sellers from:
  • Misrepresenting marketing facts related to negative options.
  • Failing to disclose material terms before obtaining billing information.
  • Charging consumers without express informed consent.
  • Providing a complicated cancellation process.

Why Was This Rule Introduced?

• This regulation is part of the FTC’s modernization efforts of its 1973 Negative Option Rule to address unfair or deceptive practices in subscriptions and recurring payment programs.

Growing Concerns:

• The FTC has noted a significant rise in complaints about negative option practices, with daily complaints increasing from 42 in 2021 to nearly 70 in 2024. This rise correlates with the growing subscription economy and increasing subscription costs.

Consumer Insights:

• A 2022 study revealed that 42% of consumers forgot they were paying for unused services, with an average underestimation of monthly costs by $133.

Previous Enforcement Actions:

• The FTC has previously targeted companies like Adobe and Amazon for creating difficult cancellation processes.

Is There a Similar Regulation in India?

• Currently, India does not have any regulations akin to the FTC's new rule.

Prelims Takeaways:

• Federal Trade Commission (FTC)