The FTC’s Final Click-to-Cancel Rule

On October 16, 2024, the Federal Trade Commission voted 3-2 to approve a final version of the Negative Option Rule, sometimes also called the “click-to-cancel” rule. The final rule includes several changes from the draft first proposed in 2023, made in response to the deluge of comments the FTC received. The rule squeaked by, garnering the minimum number of votes to be enacted, and drew a detailed dissent from Commissioner Melissa Holyoak.

Here are the key things to know.

Where Did the Rule Come From?

No FTC rule is enacted overnight. This particular rule reaches back to March 2023, when the FTC issued an advance notice of proposed rulemaking, which elicited more than 16,000 comments from a wide range of voices. The impetus behind the rule was a slew of complaints from consumers who had difficulty canceling unwanted subscriptions that were deceptively easy to sign up for, or in extreme cases, that consumers never signed up for in the first place.

As FTC Chair Lina M. Khan explained when the notice of proposed rulemaking came out, “Some businesses too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place. The proposed rule would require that companies make it as easy to cancel a subscription as it is to sign up for one.”¹

What Does the Rule Say?

As Chair Khan said, the crux of the click-to-cancel rule is that it must be as easy to cancel a subscription as it was to sign up for one. Reading the final rule, though, it appears that in some cases, it must be even easier to cancel than to sign up.

The rule applies to negative option marketing, including continuity plans, auto-renewals, and free trial offers. It also covers both business-to-business transactions and business-to-consumer transactions.

Key Provisions:

• Clearly State the Offer: All material terms of the offer must be clearly disclosed to consumers before enrollment. Material terms include important dates, like deadlines for withdrawal, the end of free trial periods, and the dates customers will be charged. The seller must also disclose how the customer can find the simple cancelation method and the range of charges the customer will incur.
• Obtain Proof of Consent: Sellers must also be able to produce some documentation that the customer consented to the offer. In obtaining the consent, the seller may not present any information to the customer that would interfere with, detract from, contradict, or undermine their ability to provide informed consent. The consent must be free of information unrelated to the consumer’s acceptance of the negative option feature. As for what will qualify as acceptable documentation of customer consent, the click-to-cancel rule carves out transactions subject to the preauthorization provisions of the Electronic Fund Transfer Act and Regulation E. For all other transactions, there are options on how to prove consent. A checkbox or signature will be enough.
• Provide for Simple Cancelation: The new rule makes it an unfair and deceptive practice to fail to provide a simple means of canceling a negative option feature. “Simple” has different meanings depending on how the customer signed up in the first place. If the customer signed up online, then there must be a simple online method to cancel that is easy to find. The rule prevents sellers from requiring customers to speak with a live or virtual representative to cancel if the customer clicked to sign up. If the sign up occurred via telephone, then cancelation must also be possible via a telephone number that is available during business hours and that does not cost more to use than the sign-up line. If consent was obtained in person, then in-person cancelation must also be offered where practical, but in addition, the seller must also offer cancelation online or via phone.

What Is the Penalty for Violations?

The FTC has jurisdiction to enforce this rule and is empowered to seek monetary damages for violations under Section 19 of the FTC Act without first pursuing administrative process. The FTC can also seek to enjoin violations of this rule under Section 13 of the FTC Act. There is also the potential for civil penalties to be assessed.

When Does the Rule Take Effect?

The provisions of the rule outlined above will not take effect until 180 days after the rule’s publication in the Federal Register. Assuming the publication occurs at some point in October 2024, these provisions will take effect in April 2025. It will eventually be codified at 16 C.F.R. Part 425.

What Is the Rule’s Effect on State Law?

The rule will preempt inconsistent state laws but will not affect any state laws that require more stringent consumer protections.

Will the Rule Stand if Challenged in Court?

This is the big question, and the answer remains to be seen. Earlier this year, the FTC enacted a sweeping non-compete ban, which was enjoined by the U.S. District Court for the Eastern District of Texas on the basis that the FTC had overstepped its authority. Commissioner Holyoak’s dissenting statement identified several legal bases on which the new rule may be challenged, and forecasts that it may not survive judicial review.² Specifically, the Commissioner explains that the FTC exceeded its power by failing to follow the FTC Act’s prescribed rulemaking process in three ways: (1) the rule is much broader than what was initially announced in the advance notice of proposed rulemaking; (2) the rule improperly generalizes industry-specific issues to the entire U.S. economy; and (3) the rule does not demonstrate that the unfair practices being curbed by the rule are prevalent.

Her dissent included the scathing statement: “Today, I believe we are seeing another low in our abuse and misuse of the tools Congress has given us. Rather than engage in blatant electioneering to advance political ends, the Commission should have instead focused on stewarding its resources effectively and in ways that restore our institutional legitimacy, not further undermine it.”

[1] See https://www.ftc.gov/news-events/news/press-releases/2023/03/federal-trade-commission-proposes-rule-provision-making-it-easier-consumers-click-cancel-recurring.

[2] https://www.ftc.gov/system/files/ftc_gov/pdf/holyoak-dissenting-statement-re-negative-option-rule.pdf.