We recently reported on a win for tech companies over consumers over subscriptions that automatically renew without a legitimate “opt-in” from the user. YouTube users claimed that the company’s auto-renewals for paid subscriptions violated Oregon laws by not clearly disclosing renewal terms or obtaining proper consent. They argued YouTube failed to provide clear cancellation information, leading to unauthorized charges.
YouTube defended its practices, stating all terms were clearly disclosed and consent was obtained – and it got away with it. Technically, it complied with the state law, and there was no federal law at the time that set a higher bar for companies. We mentioned that the Federal Trade Commission (FTC) had proposed a "click to cancel" rule that would make it as easy for consumers to cancel subscriptions and recurring payments as it is to sign up for them. At the time, the rule was still at the stage where the public could comment on the proposed rule. The FTC was still reviewing feedback and had not decided on the next steps, so the rule was not enforceable.
It seems like YouTube got out just in the nick of time.
FTC’s Oversight
The FTC is the federal agency responsible for promoting consumer protection and fair competition in the marketplace. One of its key areas of focus is regulating business practices related to auto-renewing subscriptions, also known as negative option subscriptions. While auto-renewals bring benefits for companies and even consumers by streamlining the renewal process for those who genuinely want it, they become problematic for consumers who lose track of their subscriptions and have a hard time opting out.
The FTC governs these practices by enforcing laws and guidelines that protect consumers from deceptive or unfair business tactics. Specifically, it requires companies to clearly and conspicuously disclose the terms of auto-renewing subscriptions, including the length of the subscription period, the amount and frequency of recurring charges, and the method for canceling or terminating the subscription. The agency’s rules prohibit companies from making misrepresentations about their subscription policies or failing to honor cancellation requests. Companies must also obtain consumers' express informed consent before charging them for a subscription.
Companies that fail to comply with these regulations may face enforcement actions, including fines, lawsuits, and mandatory changes to their business practices. By governing auto-renewing subscription policies, the FTC aims to ensure that consumers are treated fairly and have the information they need to make informed decisions about their subscription services.
Old Rules Get Rusty
Unfortunately, as we’ve gotten further into the digital age, more and more American consumers have been relying on virtual subscriptions – and often being taken advantage of. The FTC has been making rules for a long time, and some of them haven’t kept pace with the needs of the increasingly digital consumer.
One rule that dates all the way back to 1973 is known as the Negative Option Rule. As the name implies, it prohibits businesses from interpreting a consumer's silence or failure to respond as consent to be charged for goods or services. This rule was established to protect consumers from deceptive practices, particularly in the context of subscription-based services or continuity plans.
Under this rule, businesses are required to obtain explicit consent from consumers before charging them for products or services, and cannot assume consent based on a consumer's inaction or failure to opt-out. The Negative Option Rule aims to ensure that consumers are not unexpectedly charged for goods or services they did not intend to purchase, and to promote transparency and fairness in business practices.
Problems Persist
However, despite previous efforts through individual enforcement actions and a patchwork of regulations, issues persisted, as evidenced by numerous consumer complaints and ongoing legal cases. The Negative Option Rule still left a lot of room for companies to retain subscriptions that users no longer wanted, simply by making it somewhat difficult to cancel them.
Companies will sometimes bill consumers without their consent or fail to make adequate disclosures about the cancellation terms. Very commonly, companies will make cancellation difficult or near-impossible, such as requiring customers to come in person to cancel a membership (which is especially hard if you’re out of state) or keeping them on long holds on the phone with customer service. It probably won’t surprise you that the FTC receives thousands of complaints from consumers about these types of practices every year. As FTC Chair Lina M. Khan remarked last year, “businesses too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place.”
So, the agency began reviewing deficiencies in its current rules, including the Negative Option Rule, to see where modifications or new rules were needed to ensure that the modern consumer is protected.
New Rule Proposed
It proposes a new rule that aims to establish clear, enforceable requirements to prevent misrepresentations, ensure consumers are informed and give consent before being charged, and provide easy cancellation options. The idea was to establish a comprehensive approach, intended to protect consumers and ensure they can benefit from negative option programs without being misled or trapped in unwanted agreements.
A major part of that proposal was a “click to cancel” provision that required companies to make cancellations as easy as sign-ups. Khan explained: “The proposed rule would require that companies make it as easy to cancel a subscription as it is to sign up for one. The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties.”
Final Rule to Take Effect Soon
After a year of opening the rule up for commentary to the public, the final rule was announced on Wednesday. It addresses the common problems of disingenuous companies that leave out important information or don’t tell the entire truth, as well as those that make it hard to cancel subscriptions. Under the amended Negative Option Rule, “important information must be truthful, clear, and easy to find,” consumers “have to know what they’re agreeing to before they sign up, and companies even have to “be able to show that people knew what they agreed to before they signed up.” Cancellation options have to be available online or over the phone, even if you signed up in person. Cancellation has to be as “quick and easy as it was to sign up.”
And, of course, companies and sellers that violate these new rules will be liable for civil penalties and other forms of redress. The rule will take full effect 180 days after publication in the Federal Register, as per the FTC’s process.
Related Resources:
- Did I Waive My Right to Sue Disney By Accepting Their Terms and Conditions? (FindLaw's Law and Daily Life)
- YouTube Wins Lawsuit Over 'Sneaky' Subscription Model (FindLaw's Federal Courts)
- Can I Sue a Satellite or Streaming Company? (FindLaw's Learn About the Law)
