FTC Finalizes ‘Click to Cancel’ Rule to Combat Junk Fees

In a move aimed at curbing so-called “junk fees,” the U.S. Federal Trade Commission (FTC) has enacted a new rule requiring businesses to simplify the cancellation process for subscriptions and memberships. Known as the “click to cancel” rule, the policy mandates that companies must ensure the cancellation process is as straightforward as signing up, per a statement issued by the FTC on Wednesday. This is the agency’s final major regulatory move ahead of the upcoming November 5 election.

The rule affects a wide range of businesses, including gyms, retailers and online subscription services, requiring them to obtain explicit consent from consumers for auto-renewals, subscriptions and free trials that transition into paid memberships. According to the FTC, the new regulation prohibits practices that have made it unnecessarily difficult for customers to terminate their subscriptions. As FTC Chair Lina Khan emphasized in an interview, the rule responds to growing complaints from consumers about businesses using deceptive tactics to make cancellations overly complex. “Companies shouldn’t be able to trick you into paying for subscriptions that you don’t want,” Khan stated.

Under the new guidelines, businesses that allow sign-ups through apps or websites will no longer be permitted to force customers into complex cancellation processes involving chatbots or customer service agents. For in-person sign-ups, companies must offer the option to cancel via phone or online. Khan highlighted that the pandemic revealed the extent to which businesses were creating “endless hoops” for consumers to jump through when trying to cancel services. She pointed out the absurdity of requiring in-person cancellations during times when businesses themselves were closed.

The rule follows thousands of public comments submitted to the FTC, with consumers sharing their frustrations about difficult cancellation processes. Certain companies, including Planet Fitness, HelloFresh, and Savage X Fenty, were mentioned by consumer advocates for using such tactics. The FTC has previously relied on existing laws, such as the Restore Online Shoppers’ Confidence Act, but noted that these regulations left gaps, leading to the need for more specific rules like “click to cancel.”

Read more: Restaurants Resist Regulatory Crackdown on ‘Junk Fees’

While the rule has garnered widespread support from consumer advocacy groups, some business sectors have expressed concern. According to Reuters, car washes and news publishers are among the groups that have said parts of the proposal were overly burdensome. The FTC ultimately decided to drop certain aspects of the original proposal, including requirements for businesses to send periodic reminders about recurring charges and to let consumers opt out of last-ditch retention offers.

The rule passed by a narrow 3-2 vote, with the FTC’s two Republican commissioners opposing the measure. The move comes as part of a broader effort by the Biden administration to address “junk fees,” which President Biden has called a priority for ensuring fairness in the U.S. economy. With Election Day just weeks away, Vice President Kamala Harris has also underscored the importance of the “click to cancel” rule, calling it a critical step toward making the marketplace more transparent for consumers. Harris has signaled that addressing junk fees will be one of her key priorities if she is elected to office.

Khan declined to comment on whether she has discussed a role in a potential Harris administration or responded to remarks from some Harris supporters who have called for her replacement. However, she reiterated the FTC’s commitment to creating an economy that is “fair and honest,” stressing that consumers deserve straightforward and transparent business practices.

The new rule is set to take effect in the coming months and will require businesses to review their subscription and cancellation procedures to ensure compliance.

Source: Reuters