FTC Wants to Penalize Firms for Onerous Call-to-Cancel Subscriptions

From a Wall Street Journal story by Katie Deighton headlined “FTC Proposed Penalizing Firms for Onerous Call-to-Cancel Subscriptions”:

The Federal Trade Commission is proposing a new rule requiring companies to offer an easy click-to-cancel option for subscriptions.

The proposal forms part of the FTC’s efforts to clamp down on companies that operate burdensome subscription cancellation practices, including “click to subscribe, call to cancel” systems.

The FTC wants companies to make it as easy for customers to cancel recurring payments as it is to sign up, commission Chair Lina Khan said. Consumers often get stuck paying for auto-renewing contracts because they are forced by companies to sit on lengthy phone calls to cancel subscriptions, while signing up requires just a few clicks online.

The rule also would clean up the competitive landscape for businesses and provide them with a level set of rules to follow, Ms. Khan said.

“Once you allow companies to basically engage in deceptive tactics, it creates an incentive across the market,” she said. “We think this will also be good for honest businesses that don’t actually want to engage in these tactics in the first place.”

The proposal comes as more companies offer memberships and subscriptions to supplement or bolster their revenue. Consumers who signed up for one or two recurring payments for services such as gyms and newspaper deliveries in the past can now find themselves locked into countless subscriptions for streaming platforms, airlines, food delivery services and even daily tacos.

But while the subscription economy has matured, some companies still use opt-out mechanisms that are seen by many as deliberately tricky and time-consuming for customers to navigate. The call-to-cancel technique, for example, requires customers to track down an often-obfuscated phone number, wait for an agent and listen to a sales pitch before confirming they want to cancel.

The boom in subscriptions has “created more opportunity for mischief” when it comes to tricky cancellation procedures, Ms. Khan said.

“That’s why it also felt especially urgent for us to be addressing this head on,” she said.

Some companies say they are already moving away from the call-to-cancel model.

Satellite service DirecTV LLC is testing a click-to-cancel mechanism for its streaming service customers, an option it plans to roll out in the coming weeks, a company spokesman said. Those customers previously had to speak to a representative on the phone or web chat to cancel, he said.

The “click-to-cancel” plan forms part of a package of proposed changes to the FTC’s Negative Option Rule, which was introduced in 1973 to monitor the practice of charging for goods or services when a customer fails or forgets to reject an offer or cancel an agreement, including a subscription.

The agency said it filed 17,427 complaints under the rule in 2022, up from 16,020 in 2021. Consumers routinely complain about getting tricked into signing up for recurring payments in the first place, as well as not being able to get out of them.

The FTC hopes to modernize and strengthen its rules governing negative option marketing. Other proposals alongside the easy online cancellation condition include a requirement to send an annual reminder to consumers enrolled in programs involving anything other than physical goods before they are automatically renewed, and an option for consumers to opt out of hearing about additional offers or better deals when trying to cancel.

Companies that violate the updated rules would be subject to civil penalties, Ms. Khan said. The FTC would also redress customers who were harmed by the tactics, which are sometimes referred to in design circles as dark patterns, she added.

The FTC has already come down on companies it considers to have engaged in deceptive subscription practices, while some states have enacted laws to ban irksome cancellation tactics.

A California law requiring that companies let customers cancel subscriptions online without “engaging any further steps that obstruct or delay the consumer’s ability to terminate immediately” went into effect last July, reinforcing an existing rule that stipulated customers who sign up to a subscription online must be able to cancel online.

Colorado, meanwhile, mandates that companies providing automatic renewal contracts should “provide a simple, cost-effective, timely, easy-to-use, and readily accessible mechanism for canceling an automatic renewal contract or trial period offer,” illustrated as a one-step cancellation link.


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