Click to Cancel Rule – FTC to penalize difficult-to-cancel subscriptions

On March 23, 2023, The Federal Trade Commission (FTC) proposed a rule requiring companies to have a “click to cancel” option for subscriptions and recurring memberships, making it as easy to cancel a subscription as it is to sign up for one. The proposal is part of the FTC’s review of the Negative Option Rule, a 50-year-old legal framework that mandates sellers disclose sales terms before consumer subscriptions and inform them about cancellation processes.

The new rule would require companies to offer a simple cancellation mechanism that will allow users to cancel subscriptions using the same method they used to sign up. For example, a consumer wouldn’t have to cancel a subscription in-person or over the phone if they signed up for it online.

FTC’s “click to cancel” proposal aims to save consumers both time and money. It also serves as a timely reminder that legal authorities can hold subscription-based companies legally responsible for making the cancellation process excessively difficult for consumers. Meanwhile, businesses that persist in using subscription tricks or tactics are liable to face severe penalties.

According to reports, between July 2021 to July 2022, approximately 60% of subscription-based companies witnessed an increase in online payment fraud, which is higher than the average in the e-commerce industry.

Monica Eaton, CEO of Charegbacks911 states, “While no retailer wants to see their customers cancel services, having a tedious cancellation process could push customers to file a chargeback, or file a complaint with entities like the FTC—even if the retailer is fully compliant and following all payment processing guidelines that govern their merchant account.”

Subscription businesses are prone to friendly fraud due to customers forgetting to cancel, declining to pay after a free trial, or not recognizing a recurring charge on their statement. These chargebacks are challenging to avoid since they appear to be genuine purchases at the time of sale. It is only apparent that friendly fraud has occurred after a chargeback is filed. Additionally, fraudsters commonly test a first transaction using stolen information through subscription accounts, as the lower purchase amounts enable them to go unnoticed.

“With a difficult cancellation process, businesses risk customers resorting to chargebacks in the form of friendly fraud, and complaints, even if they are compliant with payment processing guidelines. Innovative technology has forever changed consumer behavior and the expectations they have in dealing with businesses. This is why companies must prioritize providing an intuitive and seamless cancellation process to avoid losing customers to their banks or credit card companies which often offer concierge-like services to meet their customers’ needs,” notes Eaton.

 

Monica Eaton, CEO of Chargebacks911 can speak on the following: 

• What is the “Click to Cancel” rule proposed by the FTC?
• How does the rule help consumers?
• What potential consequences could businesses face if they persist in using subscription tricks?
• Why is a tedious cancellation process bad for businesses?
• How does subscription cancellation effect retailers?
• How are subscription-based businesses prone to friendly fraud?

 

To speak with Monica Eaton, contact me via khelms@jotopr.com or call 727-777-4619 

 

About Chargebacks911 
Chargebacks911 is the global leader in chargeback prevention and remediation technology. As a provider or supplier to financial technology companies, Chargebacks911 helps safeguard more than 2.4 billion transactions per year on behalf of clients in 87 countries around the world. For details on Chargebacks911’s comprehensive chargeback management solutions, visit https://chargebacks911.com