Regulation targets simplified cancellations and consumer protections in subscription-based services
By David Bland
Federal regulators have enacted broad-reaching requirements for companies offering subscriptions or negative option features, such as auto-renewal and free-to-pay conversions. Finalized on Oct. 16, 2024, the rule simplifies subscription cancellations, enhances disclosure requirements, and mandates that companies secure explicit consent for recurring charges.
This development addresses longstanding issues with “negative option” marketing—where companies treat
consumer inaction as consent to continue billing—across a range of sectors, from streaming services to direct sellers. By focusing on transparency and convenience, the FTC has crafted a rule that aims to reshape how companies interact with consumers in subscription and auto-renewal contexts.
FTC Chair Lina M. Khan emphasized the significance of the new rule: “Too often, businesses make people jump through endless hoops just to cancel a subscription. The FTC’s rule will end these tricks and traps, saving Americans time and money. Nobody should be stuck paying for a service they no longer want.”
The Evolution of the FTC’s Negative Option Rule
The FTC’s Negative Option Rule has been part of consumer protection law for several decades. Originally, it was designed to protect consumers from fees and charges for services they might not realize they were signing up for. Early on, these rules targeted practices such as free trials that automatically transitioned to paid subscriptions if the consumer did not take action to cancel.
However, with subscription-based business models becoming ubiquitous in the digital era—from streaming services and meal kits to software licensing and e-commerce delivery programs—negative option tactics have become far more complex and, for some consumers, frustrating.
Increasing numbers of complaints about difficulties in exiting subscription services have highlighted a gap in protections. In 2024 alone, the FTC reportedly received close to 70 complaints daily, reflecting widespread dissatisfaction with difficult or misleading cancellation processes. In response, the Commission has expanded its oversight in ways that align with the digital economy and the prevalence of subscription services.
Broad Applicability and New Standards for Transparency
One of the defining characteristics of the new rule is its expansive scope, which covers both consumer and business-to-business (B2B) transactions. Traditionally, B2B transactions were considered outside the purview of negative option protections, under the assumption that business clients, as more sophisticated entities, would be less susceptible to complex marketing tactics.
However, the FTC recognized that business customers, too, can face confusing or misleading terms, and that transparency is just as important in B2B dealings. By applying the rule across both domains, regulators are effectively standardizing expectations for all business interactions involving recurring charges, regardless of the type of customer.
Another significant feature is the rule’s stringent requirements for transparency. It applies across all channels—whether a subscription service is marketed online, over the phone, in print, or in person. Companies must clearly disclose all material facts, including the frequency of charges, deadlines to avoid fees, and how customers can cancel.
Interestingly, the Commission has broadened its definition of “material facts” to include not only terms specific to the negative option (such as automatic renewal) but also details about the product itself, like its purpose, cost, and potential health and safety impacts. For businesses, this broader definition of material facts may mean a more meticulous review of marketing materials and a proactive approach to disclosures.
The final rule comes after the FTC received more than 16,000 public comments, reflecting widespread interest and input from consumers, businesses, and other stakeholders.
Prohibition of Misrepresentation: Expanded ‘Material Facts’ Definition
The new rule prohibits companies from misrepresenting any material fact when marketing products with negative options, aiming to ensure full transparency. This requirement extends beyond just the specifics of the negative option itself. The rule states that any “material fact” that might affect a customer’s decision—such as product cost, efficacy, or other pertinent details—must be conveyed accurately.
The FTC has outlined specific examples of what constitutes material facts, including a product’s price, purpose, effectiveness and potential health or safety impacts. However, the rule also includes a broad clause, allowing any detail that might influence a customer’s decision to fall under the definition of “material.” While this broader interpretation intends to bolster consumer protections, it may also pose compliance challenges for businesses that may be uncertain of how far-reaching this requirement could be in practice.
Mandatory Disclosures: Setting New Transparency Standards
A central element of the new rule is its strict disclosure requirement, which mandates that companies clearly present all key terms of a transaction before collecting any billing information from customers. Companies must specify details such as the frequency and amount of recurring charges, important deadlines to avoid extra fees, and clear instructions for canceling the service.
The rule includes some flexibility by allowing companies to specify recurring deadlines either by exact date or general frequency. However, the FTC stresses that these disclosures must be easy to find and understand. Additionally, businesses are prohibited from providing contradictory or unclear information that could mislead consumers. For companies offering both negative-option and standard products, this requirement may add complexity, as it’s not entirely clear if the same disclosure standards apply to all offerings.
Securing Explicit Affirmative Consent
The new rule introduces an added layer of consumer protection by requiring “unambiguously affirmative consent” for any negative option feature. Companies must now obtain clear and specific consent for this aspect, separate from other transaction details. To meet this standard, businesses are required to use distinct consent tools, like a dedicated checkbox or signature prompt, ensuring that customers knowingly agree to any recurring charges or automatic renewals.
In practice, this rule means adjustments for sales and marketing processes, particularly in online settings where multiple layers of consent may now be necessary. The FTC has also included a “safe harbor” provision for companies using clear methods like checkboxes, as long as it’s evident that the customer intended to subscribe.
Simple Cancellation Requirements: Implementing the ‘Click to Cancel’ Provision
At the heart of the new rule is the “Click to Cancel” provision, which requires that canceling a subscription be as easy as signing up. If customers initially signed up online, they should be able to cancel online with similar ease. Likewise, companies that register customers over the phone must provide a phone-based cancellation option, and in-person sign-ups should have an equally accessible in-person or remote cancellation method.
For digital cancellations, companies must offer a clearly visible cancellation option, avoiding unnecessary steps like requiring a conversation with a representative. This change will likely lead to significant updates on websites and in customer service systems across subscription-heavy industries, where prominent “Cancel” buttons or online forms may be needed to align with FTC standards.
Dissenting View: Commissioner Holyoak’s Concerns
FTC Commissioner Melissa Holyoak issued a strong dissent, questioning the FTC’s authority to finalize such a sweeping rule. She argued that the rule exceeds the FTC’s rightful rulemaking power, which she believes is constitutionally vested in Congress, not regulatory agencies.
“Whenever we engage in rulemaking, the Commission should recall that Article I of the Constitution vests legislative powers in Congress, not with agencies,” she stated, stressing that these powers are “derived from the people” and should stay with their elected representatives.
Holyoak, a Republican, was joined in her dissent by Commissioner Andrew N. Ferguson, resulting in a 3-2 party-line vote to publish the final rule in the Federal Register. Holyoak suggested that this approach overreaches, creating civil penalties for practices already governed by existing laws, such as the Restore Online Shoppers’ Confidence Act (ROSCA).
“The Rule represents a missed opportunity to devote scarce staff resources to bringing enforcement actions… rather than conducting an overbroad rulemaking that cost years of staff time,” she added.
Holyoak’s dissent raises questions about the rule’s legal durability, suggesting it may face judicial scrutiny.
Channel Impact: A New Reality for Direct Selling and Subscription-Based Businesses
The rule could have notable implications for the direct selling industry, which frequently relies on auto-ship and subscription models. Implementing a straightforward, compliant cancellation process may require significant reorganization of some sales processes and digital platforms.
Together with auditing subscription programs and refining member benefits, these updates suggest a meaningful evolution in the management of recurring revenue models across industries. For companies operating internationally, the rule’s alignment with similar regulations in other regions will provide an opportunity to adopt universal compliance frameworks that satisfy multiple jurisdictions.
Global Trend Toward Consumer-Friendly Subscription Practices
The FTC’s “Click to Cancel” rule is part of a broader international shift toward consumer-centered policies in subscription management. Regulatory bodies around the globe are enforcing similar standards to protect consumers from hard-to-cancel subscriptions, unexpected recurring fees and ambiguous terms. This trend reflects a growing focus on consumer empowerment, as regulators worldwide push for greater transparency and control over subscription-based services.
Regions like the European Union, United Kingdom, and Canada have enacted regulations promoting clear disclosures, straightforward cancellation processes, and explicit consent for recurring charges.
This convergence in regulatory standards offers multinational corporations an opportunity to streamline compliance by adopting policies that align with expectations across regions. For businesses operating in multiple markets, this alignment could simplify the complexities of meeting different regulatory standards.
Looking Ahead: A Shift Toward Consumer Empowerment
As international regulations similar to the FTC’s “Click to Cancel” rule evolve, companies worldwide will face higher expectations to deliver clear, flexible and accessible subscription options.
Ultimately, the international momentum behind these regulations highlights a shared recognition of the need to safeguard consumers in the digital marketplace. Companies that anticipate these regulatory changes and implement global best practices for subscription transparency are well-positioned to succeed in a world where consumer protection is increasingly valued and enforced.