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.
That is problematic because the rule is likely to have high compliance costs. As businesses are forced to adjust operations and marketing strategies, retrain employees, and maintain records for longer to ensure that consumers give their explicit consent to recurring charges, precious resources are diverted away from providing good customer service and unique product options. For instance, at an informal FTC hearing in January before the new rule was finalized, NCTA president and CEO Michael Powell stated that complying with the rule may require cable companies to entirely rebuild their online systems, costing the national economy over $100 million for initial implementation alone.
There is some debate as to the exact cost of compliance. And although the FTC contends the new rule’s benefits would outweigh its costs, it still acknowledged in its Notice of Proposed Rulemaking that annual labor costs for disclosures and additional employee work would cost millions, not to mention non-labor costs like enhanced record-keeping.
Regardless of the total cost, it is consumers who will pay the price since companies will be forced to spend more resources on acquiring customers rather than on offering lower prices and good deals. It is also possible that the rule will generate unnecessary confusion for consumers, who may have a more straightforward path to canceling their subscriptions but be unaware of the unintended consequences of doing so. For example, a consumer may choose to cancel only one part of a service bundle, not realizing it raises the price of those remaining services. They also may find themselves with less access to information about available discounts since businesses must first acquire permission before they can share them.
The FTC’s final Click-to-Cancel rule establishes broad guardrails for businesses that are not needed and wrongly assumes that all negative option marketing is deceptive or makes canceling a subscription unnecessarily difficult. This simply isn’t true. But it is true that this new rule is sure to produce unintended consequences for businesses and customers alike. The FTC would be wise to carefully consider whether its new rule is truly the best path forward to protecting consumers.
