Tag: Federal Trade Commission

CNN
 — 

New rules from the US government could soon let Americans more easily cancel free trials and subscriptions they no longer want, according to the Federal Trade Commission.

The proposed rule change announced Thursday would apply to vast swaths of the US economy, covering both digital and physical subscriptions. Products subject to the new rule would include gym memberships, digital streaming and e-commerce, cable TV service, traditional print media and more.

The FTC regulation could hit some of America’s biggest retailers and online platforms and a huge range of smaller businesses. It would affect millions of consumers in virtually every aspect of their lives, as subscription-based goods and services have become commonplace in industries as varied as music distribution, video gaming and pet care.

Americans should not have to jump through hoops or be hounded by unwanted retention offers just to cancel their subscriptions, FTC Chair Lina Khan told reporters on a conference call Wednesday.

“The idea here is pretty simple,” Khan said. “Companies should not be able to manipulate consumers into paying for subscriptions that they don’t want.”

Broadly speaking, the rule change would prohibit companies from trying to retain customers through deceptive or burdensome tactics intended to stymie or delay them from quitting a subscription, such as by making customers mail in paperwork to cancel a subscription they initially signed up for online. For each violation of the rule, companies would be on the hook for potentially tens of thousands of dollars a day in fines — not to mention the consumer refunds the FTC could seek under the rule. While the FTC can currently pursue those types of remedies in specific sectors where cancellation rules exist, such as telemarketing, there is no such rule covering the economy as a whole, Khan said.

The FTC voted 3-1 to introduce the proposal to amend the agency’s so-called Negative Option Rule, with the commission’s lone Republican, Christine Wilson, opposing the measure. The rules have not yet been finalized, the FTC said, and the public will have an opportunity to comment on the proposal. The agency also said it was not claiming any new legal authority, but that the rule would allow regulators to enforce against deceptive practices related to subscription cancellations without having to litigate each violation in a court.

“We get countless complaints about this in our complaint database,” Khan said, “and we’re now putting an end to it.”

Under the proposed change, companies would have to offer consumers the option to cancel a subscription using at least the same method they used to sign up; if a customer signed up for a service online or by phone, he or she would have to be able to cancel online or by phone.

The proposed regulations include an array of other specific dos and don’ts. For example, companies would be required to first ask consumers who are requesting to cancel whether they would be open to retention offers, before the company could try to entice them back with discounts or deals. At the outset, all companies would be required to provide detailed information to consumers about a subscription’s terms before they could ask for billing details. Currently, the FTC said, there is no uniformity in how businesses present details such as how long a free trial period may last, the final date a customer can cancel a trial without charge, or the frequency of charges.

The proposed FTC rule, which the agency calls “click to cancel,” comes as regulators have increasingly criticized the use of subtle techniques to steer consumers toward decisions that benefit a company’s bottom line.

In the digital space, regulators have increasingly focused on so-called “dark patterns,” or the use of digital design interfaces that, for example, may use brightly colored buttons to encourage consumers to give up their personal information while simultaneously making opt-out buttons harder to see. More recently, Justice Department officials have argued that, depending on the context, the use of dark patterns could be considered an antitrust violation. On Wednesday, Khan adopted a similar view, telling reporters that the FTC’s consumer protection efforts — in this case, on deceptive cancellation practices — have antitrust implications because unchallenged deception tilts markets in favor of dishonest businesses that compete unfairly.

The FTC in 2021 warned companies against deploying illegal dark patterns that trick or trap consumers into subscription services.

The agency said at the time it was ramping up its enforcement in response to a rising number of complaints about deceptive sign-up tactics, including unauthorized charges or ongoing billing that is impossible to cancel. The FTC receives thousands of such complaints a year, it said.

Since 2021, the FTC has been investigating Amazon

(AMZN) over allegations the company uses deceptive sign-up and cancelation practices in its Amazon

(AMZN) Prime product. The probe, whose sprawling scope now covers nearly a half-dozen Amazon

(AMZN) services, was publicly disclosed in an Amazon

(AMZN) filing accusing the FTC of harassing founder Jeff Bezos and CEO Andy Jassy; the FTC has said both men must personally testify in connection with the investigation.

Thursday’s announcement underscores how the FTC’s scrutiny of user experience design extends to the enormous range of real-world commercial activity it oversees.

The FTC has said it would pursue action against companies that did not provide easy and simple cancellations.

Gyms, newspapers, phone companies and other businesses have faced lawsuits for imposing obstacles on consumers who try to cancel their services.

In 2022, the FTC announced it reached a settlement with internet phone service provider Vonage over its cancellation policies. Vonage was required to pay $100 million in refunds to consumers harmed by the company’s actions, make its cancellation process simple and transparent, and stop charging consumers without their consent.

Online children’s education company ABCmouse agreed in 2020 to pay $10 million to settle FTC allegations that it failed to disclose membership terms that led to consumers being charged without their consent.