The FTC’s proposed ‘click to cancel’ rule to impact ecommerce subscription businesses
The U.S. Federal Trade Commission’s (FTC) proposed new “click to cancel” rule could make canceling subscriptions much easier for consumers. It would apply to any retailers that sell products or services with subscriptions, automatic renewals, or similar systems.
The rule would require companies to offer an easy way to cancel subscriptions and recurring memberships.
- The ruling would ban requiring consumers to call to cancel subscriptions that they’d signed up for online.
- Retailers would also be required to give more information about subscription beginning and end dates and how to cancel.
- Retailers would also need to send annual reminders to customers for subscriptions that don’t involve physical goods.
Subscriptions have long been promising territory for ecommerce retailers hoping to build a returning customer base. The global subscription box market reached $26.9 billion in 2022, according to Expert Market Research. The firm expects the subscription box market to reach $74.2 billion by 2028.
The legality of automatic subscription renewals can be difficult to navigate, according to lawyer Robert Freund, who focuses on ecommerce.
Subscriptions and cancellations are governed by many laws across the U.S. The 2010 Restore Online Shoppers’ Confidence Act (ROSCA) requires retailers to provide “simple mechanisms for a consumer to stop recurring charges.” In 2021, The Federal Trade Commission issued a statement warning companies about employing “illegal dark patterns” to keep customers from canceling memberships.
The federal law is somewhat vague, and many states have adopted their own, stricter laws. The combination of federal laws, FTC enforcement, and differing state laws is difficult to comply with.
Retailers open themselves to friendly fraud when they automatically renew subscriptions or make them difficult to cancel, according to Chargebacks911, a risk management software provider that helps retailers in billing disputes.
The company’s CEO Monica Eaton told Digital Commerce 360 that a tedious cancellation process could push customers to file a chargeback, or file a complaint with entities like the FTC even if the retailer is fully compliant and following all payment processing guidelines that govern their merchant account.
Customers who forget to cancel a free trial or don’t recognize a recurring subscription charge on their bank statement can file a dispute with their bank. Retailers may then have to pay additional chargeback fees, or pay to fight the charges. Too many chargeback requests can lead to a retailer losing processing capabilities.