The May 14, 2025 Click to Cancel Compliance Deadline is Around the Corner: Have You Checked All the Boxes to Avoid the FTC’s Wrath?
If you sell products or services to consumers and/or businesses and provide subscription terms that include automatic contract renewals – you better take note. The Click-to-Cancel rule (the “Rule”),[1] which went into effect on January 14, 2025, requires sellers to fully comply by May 14, 2025.
The purpose of the Rule is to curb deceptive or unfair negative option practices — whether relating to products or services sold online or offline. It includes gym memberships, online subscriptions, software, and mobile apps.[2] Importantly, the Rule applies to business-to-consumer and business-to-business transactions.[3]
Most people have experienced the frustrating consequences of negative options. A “negative option” usually takes the form of an automatic contract renewal or automatic transition from a trial to a longer term agreement, which does not offer the opportunity to get out of the agreement before a fee is charged for a potentially unwanted contract term. It is then close to impossible to get out of it.
In the parlance of the Rule, a “Negative Option Feature . . . is a provision of a contract under which the consumer’s silence or failure to take affirmative action to reject a good or service or to cancel the agreement is interpreted by the negative option seller as acceptance or continuing acceptance of the offer.”[4]
SLG is pleased to provide the following overview of the Rule.
The FTC Click-to-Cancel Rule Summary. The Rule imposes requirements regarding: (i) a simple way for customers to cancel negative option plans; (ii) truth in marketing negative option plans; (iii) clear and conspicuous disclosures of material terms of negative option plans; and (iv) separate and specific written customer consent to negative option plans, in addition to any other consent to the terms and conditions of a transaction.[5]
Five (5) Main Requirements Under the Rule. The following mechanisms and disclosures mustbe implemented under the Rule:
- No Misrepresentations in Descriptions of Negative Option Features. The Rule prohibits the making of any false or misleading statements (express or implied), in connection with the offer and sale of Negative Option Features.
This part of the Rule went into effect on January 14, 2025 and is directed to misrepresentations concerning: (a) a Negative Option Feature or any term thereof, including customer consent, deadlines to prevent or stop a charge, or the cancellation of a Negative Option Feature; (b) cost; (c) purpose or efficacy of the underlying good or service; (d) health or safety; or (e) any other material fact.[6]
- A Simple Cancellation Mechanism (“Click to Cancel”). For any Negative Option Features offered by businesses, the Rule requires that there is a simple cancellation mechanism for customers that would immediately halt any further charges. This mechanism must be:
- offered through the same medium used to consent to the Negative Option Feature;
- easy for customers to locate; and
- as simple to use as the mechanism used for the originally acceptance of the Negative Option Feature.[7]
Critically, businesses can not require a customer to cancel by contacting a live or virtual representative (such as a chatbot) ifthe initial customer acceptance of the Negative Option Feature was not also done through a live or virtual representative.[8]
- Disclosure of Material Terms Before Obtaining Billing Information. The Rule requires businesses to disclose all material terms clearly and conspicuously to customers before obtaining their billing information, including: (1) that the customer will be charged for the good or service, including any increase or recurring expenses; (2) each deadline by which the customer must act to prevent or stop such charges; (3) the costs and frequency of charges; and (4) how to find the simple cancellation mechanism required pursuant to the Rule.[9]
- Specific and Separate Informed Consent to Negative Option Plan. The Rule requires businesses to specifically and separately obtain the customer’s express informed consent to the Negative Option Feature before the customer is charged (the “Informed Consent”).
Per the Rule, the express Informed Consent requirement can be satisfied by obtaining the required consent through:
- a check box;
- signature; or
- other substantially similar method.[10]
The consent request must be presented in a manner and format that is clear, conspicuous, unambiguous, non-deceptive, and free of any information not directly related to the customer’s acceptance of the Negative Option Feature.[11]
Importantly, there is no requirement to obtain an additional consent following the completion of a free trial because adherence to the Rule’s disclosure and consent requirements at the time of entering the free trial is adequate.[12]
- Three (3) Year Record Retention Requirement. Subject to the exemption described below, the Rule requires businesses to maintain proof of each instance of an Informed Consent by each customer for a period of three (3) years.[13] Similar record keeping requirements apply for the Informed Consent of customers who signed up for a free trial and cancelled it before being charged.[14]
Exemption to the Record Retention Requirement. There is an exemption from the above record retention requirement where the seller uses a process that would not permit a customer to technologically complete the transaction without providing Informed Consent.[15] Specifically, where it would be impossible for customers to enroll in a Negative Option Feature without providing unambiguous and affirmative consent, the seller will not be required to follow the record retention requirement.[16]
SLG has extensive experience advising clients regarding FTC rules and practices, false and deceptive advertising, unfair competition, and related laws and regulations. For further guidance on the Rule, please contact SLG at info@shelgroup.com to schedule a consultation or check out our website at www.shelgroup.com for more information about the firm.
_________________________
[1] 16 CFR §§ 425.1-.9.
[2] 16 CFR § 425.2(4).
[3] 16 CFR §§ 425.1-.9.
[4] 16 CFR § 425.2.
[5] 16 CFR § 425.1-.9.
[6] 16 CFR § 425.3.
[7] 16 CFR § 425.6.
[8] 16 CFR § 425.6(c)(1).
[9] 16 CFR § 425.4.
[10] 16 CFR § 425.5(c).
[11] Id.
[12] 16 CFR § 425.5.
[13] 16 CFR § 425.5(a)(3).
[14] Id.
[15] Id.
[16] Id.