Publication
FTC Click to Cancel Rule
By CJ Utter and Tony Caldwell
In 2023, the U.S. Federal Trade Commission (FTC) sought public comments on how to combat perceived unfair and deceptive trade practices, recurring subscription charges, and cancelation of such plans. Born out of these comments was the FTC’s “Click to Cancel” rule, which was finalized on October 16, 2024.
Application
The “Click to Cancel” rule applies to any business that offers recurring subscription services to individual or business customers, including subscriptions that auto renew, offer free, or discounted services that later evolve into a regular subscription, and subscriptions that rely on silence or non-action from the individual or business customer as consent to continue to charge for such subscription.
Impact
Despite a flurry of legal and political challenges, here is what businesses can expect when “Click to Cancel” enforcement begins on March 31, 2025:
- Cancellation:
- “Click to Cancel” requires that all impacted businesses offer customers a cancellation mechanism at least as easy and capable of being initiated through the same method used to initiate the subscription. In other words, it should be as easy for someone to cancel the subscription as it is to sign up to the subscription. While the cancellation mechanism may not follow the same process as the sign up, it should be substantially similar in terms of the burden and various steps on the subscriber and the means to cancel.
- “Click to Cancel” requires cancellations be presented in the same medium as subscribing to the service. Simply put, if the individual subscribed online, the mechanism to unsubscribe should be online as well. However, one caveat for online subscriptions is that the business must make the simple cancellation mechanism easy to find and not require the subscriber to utilize a webpage bot, or agent, unless that was how the user initially subscribed to the service. The cancellation mechanism does not have to be on the same website or application.
- Representations of subscription:
- “Click to Cancel” prohibits business misrepresentations related to any aspect, including the nature of the recurring subscription service. As such, the business must have clear and conspicuous disclosure of the terms of the transaction presented to the potential subscriber before obtaining customers’ billing information. One billing aspect to keep in mind is that “Click to Cancel” does not require the disclosure of the dates when the charges will be processed for payment.
- Consent to charge:
- “Click to Cancel” requires businesses to obtain a customer’s consent separately from any other portion of the transaction for the recurring subscription and that the business does not present the customer with any other confusing or otherwise distracting information. The FTC noted that this can be done any number of ways and there was not a preference for either a tick box or any other means to evidence consent. Further, if the subscriber’s billing information is stored from a previous transaction, once again, the business must make the required disclosures for the new subscription prior to obtaining the consent to use the saved billing information again. Proof of consent must be maintained for three years.
- Violations:
- “Click to Cancel” comes with the ability of the FTC to impose a penalty of $51,744 per violation (and multiple violations can be part of just one transaction).
State Law Considerations
The “Click to Cancel” rule does not preempt state law requirements to the extent that the state laws provide greater protections for individuals. For example, California recently passed ARL amendments to the 2010 California Automatic Renewal Law (California ARL). These California amendments seek to further align and strengthen the 14-year-old California law to keep up with the ever-changing technology landscape, and reflect heightened legislative interest in greater disclosure of auto renewals and “free trials” where the terms and subscription requirements can be murky.
Accordingly, here is what California businesses can expect from the California ARL:
- Scope of ARL:
- The California ARL amendments cover a broad swath of transactions, such as traditional automatically renewing subscriptions to any free trials, pilot programs or evaluations that convert to a paid subscription.
- However, a noteworthy departure from the “Click to Cancel” rule is that the scope of the California ARL only pertains to transactions between businesses and individuals, and not businesses to businesses.
- Cancellation:
- In line with the “Click to Cancel” rule, under the California ARL, individuals must have the ability to cancel their subscriptions in the same manner in which they subscribed or purchased their subscription. If the individual called a phone number to make the purchase, the same ability to call and cancel must be offered by the business.
- Notices:
- California businesses must send reminders and notices to the individual for annual subscriptions that are subject to auto renewal, that includes helpful information such as how to cancel, the charge amount and billing frequency.
- Further, California businesses must give the applicable notices prior to confirming the consumer’s billing information including the length of the term, how to cancel, the costs associated with the service, any additional terms and other pertinent information.
- Consent:
- The customer must give express consent to the California business prior to any automatic renewals or continuous service terms; however, the amendments are silent on what constitutes consent in this scenario. It is noted, however, that affirmative consent is required, therefore the more passive means of consent would not suffice.
- Incentives not to cancel:
- California businesses are still permitted to offer incentives not to cancel, when a subscriber wants to cancel. However, a California business must provide all the terms and disclosures as previously mentioned in the process. If the subscriber still wants to cancel after such offer, the business must act promptly to effectuate the cancellation. If a California business offers an individual a benefit, such as a discount on the subscription to not cancel, the business must also have a cancellation button adjacent to the offer.
- Violations:
- California regulators can seek $2,500 per violation and there is a private right of action for violations of the California ARL.
Snell & Wilmer will continue to monitor FTC and U.S. state level rulemaking and enforcement actions.
About Snell & Wilmer
Founded in 1938, Snell & Wilmer is a full-service business law firm with more than 500 attorneys practicing in 16 locations throughout the United States and in Mexico, including Los Angeles, Orange County and San Diego, California; Phoenix and Tucson, Arizona; Denver, Colorado; Washington, D.C.; Boise, Idaho; Las Vegas and Reno, Nevada; Albuquerque, New Mexico; Portland, Oregon; Dallas, Texas; Salt Lake City, Utah; Seattle, Washington; and Los Cabos, Mexico. The firm represents clients ranging from large, publicly traded corporations to small businesses, individuals and entrepreneurs. For more information, visit swlaw.com.
