The U.S. Federal Trade Commission (FTC) is introducing a new rule designed to simplify the process for canceling recurring subscriptions and memberships.
The “click-to-cancel” rule requires businesses offering subscription-based services, such as streaming platforms and gym memberships, to make cancellation as easy as the initial sign-up process. This rule applies to any service that renews automatically, including those offering free trials that transition into paid plans if not canceled on time.
The rule, which passed with a 3-2 vote by the FTC, will take effect 180 days after its publication in the Federal Register. It is an update to the FTC’s 1973 Negative Option Rule, which previously targeted misleading marketing tied to subscriptions.
Under the new rule, businesses must allow customers to cancel through the same method used to sign up. For example, if someone subscribes online, they should be able to cancel with a simple online “click-to-cancel” option. Businesses are also required to inform customers about the subscription details, including how to cancel, before obtaining any payment information.
Why The Rule Was Made
This rule follows a rise in consumer complaints, with the FTC receiving an average of 70 complaints per day in 2024, compared to 42 daily complaints in 2021. Many consumers have expressed frustration with complex cancellation processes. FTC Commissioner Lina Kahn commented that many businesses create unnecessary obstacles for customers trying to cancel, and the new rule aims to address these concerns.
Initially, the FTC considered including a requirement for businesses to send annual reminders on how to cancel subscriptions, but this was excluded from the final version of the rule. While companies can now present alternative offers or modifications during the cancellation process, they must first get explicit consent from the customer to do so.
The FTC has previously targeted companies that have made it difficult to cancel subscriptions. Amazon, for example, has faced accusations of enrolling customers into Amazon Prime without proper consent and complicating the cancellation process. Fintech companies such as TomoCredit and Albert have also been criticized, with New York-based Brigit ordered to refund $18 million to customers over deceptive subscription cancellation practices. Gym memberships, particularly at Planet Fitness, have also been a point of frustration for consumers, as some clubs require in-person or written cancellations.
Growth of Subscriptions Drives Need for Simplicity
The new rule is being introduced in a rapidly growing subscription economy where services and prices continue to expand. A 2022 study by C R Research revealed that 42% of consumers had forgotten about subscriptions they no longer used, and many underestimated their monthly subscription costs by an average of $133. Streaming services like Netflix, Disney+, and Hulu have also increased prices, making it essential for consumers to have an easier way to cancel subscriptions they no longer want.
Under the FTC’s new rule, businesses that do not comply may face civil penalties or be required to compensate affected consumers. The rule is intended to protect consumers from being locked into services they no longer wish to pay for, reducing the difficulties many face when trying to opt out of recurring charges.
