The Federal Trade Commission continued its crackdown on businesses that deceptively market and sell subscription services, adopting a rule Wednesday requiring companies to let consumers cancel a gym membership, streaming video service or other subscription as easily as they started it.
The rule expands the FTC’s restrictions on “negative option” offers, which automatically start, renew or expand a service unless a consumer takes action to stop it. Examples include free trials that convert automatically to paid subscriptions and one-year contracts that renew endlessly on their own.
Long in the works — the commission began looking into the issue in 2019 — the FTC’s rule is similar to a California “click to cancel” measure that Gov. Gavin Newsom signed into law last month. The main requirement is that subscription services allow people to cancel as simply as they signed up — for example, though an easy-to-find link online or a single phone call.
The rule also requires businesses to obtain explicit consent before signing someone up for a subscription, bars them from withholding important information or lying about the services they’re selling, and requires them to “clearly and conspicuously” disclose the terms before collecting a customer’s payment information.
As more companies and product lines have shifted from one-time payments to recurring monthly fees, more consumers have bemoaned the hurdles they have to clear to extricate themselves from the subscriptions they no longer want. The FTC said it had received nearly 70 complaints a day on average from consumers about recurring subscriptions and negative options this year, up from 42 a day in 2021.
In an email, Lindsay Owens of the Groundwork Collaborative, an advocacy group that supports the new rule, said examples of the problems included “sitting on hold to try to cancel a subscription that you signed up for online in seconds, having to drive to the gym to cancel a subscription when you can access every other part of your account from the website, [and] having to navigate a slew of unwanted and often misleading ‘deals’ designed to keep you enrolled.”
She added, “The digital economy has made purchasing, signing up, and enrolling a breeze. Now the FTC has made a rule that consumers must be able to cancel a subscription just as seamlessly as they can enroll, without the tricks, traps, extra time and roadblocks companies have deployed deceptively for years to keep people on autopay.”
In a statement, Teresa Murray, consumer watchdog director at Public Interest Research Group, likened many subscription services and memberships to “a visit to Hotel California: ‘You can check out any time you like, but you can never leave.’” Now, she said, “You’ll be able to leave.”
Many consumers also complained about trying to cancel a service only to encounter “a never-ending phone tree or online maze that required click after click after click, only to find themselves back at the beginning.” The FTC’s new restrictions and requirements, she said, “give consumers more freedom to switch providers, read a different news service, buy a different pet food or none at all.”
The rule split the commission along partisan lines, with the three Democratic appointees in favor and two Republicans opposed. In her dissenting statement, Commissioner Melissa Holyoak said the rule not only exceeded the agency’s legal authority but also “incentivizes companies to avoid negative option features that honest businesses and consumers find valuable.” Predicting that the rule would not survive a legal challenge, she accused the commission’s chair, Lina Khan, of rushing to finalize the rule before the election to help the Democratic candidate for president, Vice President Kamala Harris.
Unless a court intervenes, the new rule will go into effect in about six months. The new state law (Assembly Bill 2863) will kick in a few months later, applying to subscription contracts signed or renewed after July 1, 2025.
Robert Herrell of the Consumer Federation of California, which sponsored the state law, welcomed the FTC rule but noted that AB 2863 goes further. In particular, he said in an email, it includes two requirements the FTC originally proposed but dropped from the final rule: that consumers receive a reminder before a subscription automatically renews each year, and that subscribers can cancel without having to wade through multiple discount offers and other attempts to persuade them to renew.
The state law also will continue to apply to California consumers if the FTC’s new rule is enjoined by a federal judge or blocked by Congress, Herrell said.
