The Federal Trade Commission (FTC) recently finalized its “Click-to-Cancel” rule, which covers regulations dealing with negative option marketing, where companies interpret a customer’s silence or failure to take action as an indication that they approve of future offers. Unfortunately, the new rule is overly broad, arbitrary, and likely to produce negative unintended consequences for consumers and businesses alike.
The FTC’s new Click-to-Cancel rule amends the older Negative Option Rule by requiring companies to provide customers with an option to cancel their subscriptions that is at least as easy to choose as it was to sign up. The purpose of the rule change is to protect consumers from “misleading enrollment tactics, billing practices, and cancellation policies” that are allegedly widespread in the marketplace and establish clear rules of the road.
Unfortunately, the new rule will create more problems than it solves by significantly restricting a company’s ability to offer discounts and other basic services to consumers, ultimately reducing consumer options and leading to higher prices. It would do this by introducing new regulatory hoops a company must jump through before extending offers, such as by first obtaining the customer’s affirmative consent, and imposing civil penalties on those who fail to comply.
While there are certainly examples of subscriptions that are needlessly difficult to cancel, such as common gym membership, not all subscriptions are the same, nor are they typically unfair or deceptive. In fact, many are pro-consumer and are applied lawfully, with businesses taking extra care to clearly describe terms and conditions. Many gaming and streaming services also only require a few simple steps to cancel a subscription, with most dedicating entire help pages to the process.
But the new rule fails to distinguish between these and is applied broadly.
As FTC Commissioner Melissa Holyoak noted in her dissent, the new rule is “not limited to misrepresentations relating to deceptive terms of negative option features (or some other specific, deceptive conduct), but instead, applies broadly to any material fact,” meaning the mere presence of a negative option feature may be deemed unfair. In other words, the rule blurs the line between what are just creative design choices or standard business practices with practices that are deceptive and worthy of further government scrutiny.
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Nate Scherer is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us at www.TheAmericanConsumer.Org or follow us on X @ConsumerPal.