Subscription Cancellation Developments and FTC Rules

The "Click to Cancel" Rule: A federal appeals court has struck down a Federal Trade Commission (FTC) rule aimed at prohibiting practices that make cancelling subscriptions and memberships more difficult than the initial sign-up process. The U.S. Court of Appeals in St. Louis invalidated the 'Click to Cancel' rule just days before its scheduled effective date of July 14, finding that the Commission failed to follow proper procedures when formulating the rule, a claim the Commission had previously denied. The court's ruling affirmed that it does not 'condone the use of unfair and deceptive practices in marketing negative options'.

The FTC's Stance: The Federal Trade Commission has not officially commented on the ruling; a spokesperson told Checkbook that the Commission is 'reviewing its options'. However, given that the Commission is currently under a Republican administration that voted against the rule last year, an appeal is unlikely. In general, the second Trump administration has not shown strong support for new rules aimed at strengthening consumer protection.

Reactions: Erin Witte, Director of Consumer Protection at the Consumer Federation of America, a strong proponent of the rule, expressed her dismay on platform X, stating: 'Clearly, listening to 16,000 real people about subscription traps wasn't enough, because companies profiting from these traps didn't get enough opportunities to explain how much they don't want to stop trapping subscribers. Solid American logic.'

What the Rule Would Have Achieved

Prevalence of Subscription Programs: Subscription programs are prevalent in almost everything, from TV streaming services and gym memberships to automatic shipments of cosmetics and dietary supplements. These programs offer significant benefits to consumers, such as free shipping, discounted prices, convenience, and access to exclusive offers.

Reasons for the Rule: However, as Checkbook previously reported, the Federal Trade Commission created this rule after receiving thousands of complaints annually about the complex and time-consuming obstacles imposed by some merchants when consumers attempted to cancel subscriptions.

Cancellation Requirements: The rule would have required companies to make the cancellation process as easy as signing up: the same number of steps and the same mechanism. If a subscription was initiated with a single click online, cancellation should also be available with a single click. And if a customer subscribed via phone, the company would have to provide a phone cancellation option.

Disclosure Requirements: The rule would also have obligated companies offering subscriptions to 'clearly and conspicuously' disclose essential information, including the value of recurring fees and their due dates, the cancellation deadline, and any potential increase in the initial price.

Previous Optimism: When the rule was set to take effect in October 2024 (with implementation postponed until July to give companies time to adapt), consumer advocates were optimistic that it would bring about a radical change in the market.

Expert Opinion: At the time, Shennan Kavanagh, litigation director at the National Consumer Law Center, a non-profit organization, stated that the rule's 'sensible' provisions would ensure that money would not be 'pulled from consumers' accounts unknowingly for services or products they no longer want'.

Current Situation and How to Protect Yourself

Company Expectations: 'While this ruling is a setback for proponents of the rule, the good news is that many companies – especially those that allow online subscription to their services – have already adopted more transparent policies,' wrote Teresa Murray, a consumer watchdog at U.S. PIRG, in a post. 'These companies are not expected to backtrack and change their interfaces, at least in the short term.'

State Laws: One of the main reasons many companies have adopted consumer-friendly cancellation policies is that California and New York have enacted their own laws providing similar protections to those that the FTC rule would have imposed.

Tips for Consumers: But regardless of the state you reside in, consumers should exercise caution when subscribing to any service or making recurring purchases. PIRG suggests following these guidelines:

Know What You're Agreeing To: Read all terms and conditions carefully before agreeing.

Look for Pre-Checked Options: Pay attention to boxes that are automatically checked and commit you to terms not clearly stated in the advertisement, such as additional fees or ongoing email promotions. Uncheck any boxes you don't agree with.

Use Your Calendar for Reminders: If you subscribe to a service, whether for a month or a year, mark the cancellation date on your calendar and set a reminder before the deadline to avoid forgetting.

Delete Payment Information: After canceling a subscription, try to remove your credit card information from your account to ensure you are not charged for a new billing cycle.

Don't Give in to Retention Offers: When attempting to cancel, some companies may offer incentives or temporary promotional prices to persuade you to stay. If you wish to continue and can afford the cost, it might be worth considering, but don't let them convince you into something you genuinely don't want. Note down the expiration date of promotional offers so you can cancel before the price increases.

Beware of Free Trial Offers

The Problem with Free Trials: 'Free trial' offers are particularly problematic. In most cases, if you don't cancel on time, you will be charged for the 'free' product or service. You might be automatically enrolled in an ongoing subscription program without realizing it, as these terms are often not clearly disclosed or are hidden in the fine print.

Difficulty of Cancellation: Cancelling a subscription can be difficult at best, and impossible if you fall victim to a free trial scam. Since the company has your credit or debit card number, provided to cover shipping and handling costs, it can continue to charge you.

Advice: Use a credit card to pay for any automatically billed subscriptions. Debit cards are linked to your bank account, making it more difficult to recover recurring charges if the company does not comply with your cancellation request. When paying with a credit card, you can dispute these charges directly with your card issuer.

Reporting Problems: If you are having difficulty cancelling a subscription program or membership, or have been deceived by a free trial offer, file a complaint with the Federal Trade Commission and your state's attorney general.

FTC Lawsuit Against Amazon Prime Subscriptions Still Ongoing

Impact of the Ruling: The appeals court's ruling does not affect the lawsuit filed by the Federal Trade Commission against Amazon in June 2023.

Allegations Against Amazon: As Checkbook reported at the time, the Commission accuses Amazon of enrolling customers in its Prime program without their explicit consent and intentionally making the cancellation process difficult and complex – an accusation Amazon denies.

Trial Developments: According to Courthouse News Service, the trial is set to begin in late September. Earlier this month, U.S. District Judge John Chun reprimanded Amazon and its attorneys, noting that 'their conduct during discovery borders on bad faith' after the court found that Amazon 'withheld nearly 70,000 documents' until the eve of the April discovery deadline and beyond. The judge wrote: 'Similar conduct in the future may result in more severe sanctions.'