FTC's "Click To Cancel" Rule Adds New Requirements to Subscription-Based Services By March 2025🖱️
At a time when many accountants, tax professionals, and bookkeepers are migrating to subscription-based services, understanding the new FTC Guideline is critical.
“Click To Cancel” Rule Could Have Rippling Impact on Firms Implementing Subscription Services
The Federal Trade Commission (FTC) recently amended their Negative Option Rule (FTC Act, 15 USC 41); the Rule was originally implemented in 1973 and has undergone multiple amendments over the years. The most recent amendment, dubbed the “Click To Cancel” Rule addresses the growing concern regarding memberships, subscriptions, and services.
Okay - but what does that really mean? Have you ever subscribed to a gym membership right on their website? It takes, what, 45 seconds to start you monthly billing. However, when you decide to cancel, you have to sell off your middle child, provide a blood sample, and take sixteen college credits. Maybe not that extreme, but it is much more challenging to cancel than subscribe. That is one of the many improvements this Rule is hoping to make.
The Rule requires businesses to make the cancellation process as simple as the sign-up process, preventing deceptive or unfair practices that trap consumers in unwanted subscriptions. The purpose of the Rule is to empower consumers, reduce their frustration, and enhance transparency in purchases.
What is the Timeline?
Small portions of the Rule go live in mid-January but the largest and remaining portion goes live March 31, 2025.
What Are the Key Requirements?
Simple and Clear Cancellation Process:
Businesses must provide a cancellation mechanism that is as simple as the method used to sign up - without needing to call, email, or take other unnecessary steps.
Same Medium for Cancellation:
Companies must allow consumers to cancel using the same medium they used to subscribe.
If a subscription was started on a website, cancellation should also be available on the website.
If sign-up occurred via phone, cancellation must be possible over the phone.
Avoiding Retention Tactics:
Companies are prohibited from using aggressive retention tactics to delay or complicate cancellations.
Businesses cannot force consumers to go through multiple steps or upselling offers before finalizing a cancellation.
Consent for Retention Offers:
If a company wants to present retention offers (e.g., discounted rates, free trials) during the cancellation process, they must:
Obtain explicit consent from the consumer to proceed with such offers.
Offer the ability to decline the offer and immediately complete the cancellation.
Confirmation of Cancellation:
Companies must provide confirmation to consumers after their subscription has been successfully canceled.
This confirmation can be sent via email, text message, or another medium chosen by the consumer.
Clear Disclosure Requirements:
At the time of sign-up, companies must clearly disclose key terms of the subscription, including billing intervals, renewal terms, and cancellation procedures.
What Happens if a Business is Non-Compliant?
There are significant penalties and actions that can be taken against a business that is not compliant.
The FTC can take currently unidentified actions.
Civil penalties, which can total up to $51,744.
Provide full refunds to customers impacted.
Injunctive relief impacting the business’ ability to operate until corrected.
What Does This Apply Towards?
The Rules has broad reach including streaming services such as Netflix, subscription box services such as meal kits and beauty products, online services such as cloud storage, gym membership, magazines and other print products, and any other traditional auto-renewing subscription-based service.
How Can a Business Prepare?
To prepare for the upcoming deadline, a business should review their current offerings to understand if any subscriptions apply, review those subscriptions for compliance, ensure their cancellation process is at the same level of ease/complication as their sign-up, and ensure that their disclosures are transparent and up-do-date.
What Does This Mean for Accountants and Financial Services?
Actually, a lot! Many tax professionals, accountants, payroll processors, financial planners, and bookkeepers have migrated to subscription-based services. As they have implemented these subscriptions, they must now review their entire process to ensure their cancellation process is just as easy as their enrollment.
This may be challenging as many of the proposal and enrollment products currently available within the industry do not support the Rule as of yet. Given the short timeframe of the Rule, firms should begin having conversations with their vendors to ensure compliance. If their vendor is not able to comply and meet the deadline, firms must locate similar avenues to cancellation with at least a similar or easier path.
Financial Guardians has been working with multiple vendors on compliance. If you are struggling to comply with the Rule, please reach out to us for assistance.
Financial Guardians is a proud member of InCite, the recently launched online community exclusively for tax professionals, bookkeepers, and accountants. InCite members receive a 30% discount.
