Would You Pass the Click-to-Cancel Test?
Don’t Let this new FTC Rule Catch Your Small Service or Membership Business Off Guard!
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Why the FTC has created the Click-to-Cancel Rule
Think back on those times you ordered something online, late at night, while grieving a break-up and devouring a tub of ice cream. The next day, you decide to cancel, only there was no confirmation email with cancelation instructions. So you scour the internet for the website, and spend an hour resetting your password trying to get logged in. Finally! You’re logged in, only to find out there isn’t a cancellation button in your account settings. Now you search for the extra small print on the website for the cancellation policy and contact information. You’re given a phone number to call. You wait on hold for 2 hours, get hung up on, call back, wait on hold again, get transferred, get disconnected. You try again the next day, sit on hold, get transferred, get a person, and are told the purchase is non-refundable even though the commercial you bought off of said the opposite. Are you frustrated yet?
So are thousands of other Americans who file complaints with the FTC every year and that number is growing. While Negative Option programs can offer convenience to both businesses and customers, the FTC consistently receives a high volume of complaints about these practices. Over the past five years, the number of grievances has been on the rise. In 2024, the Commission averaged nearly 70 complaints daily, a significant increase from the 42 complaints per day recorded in 2021.
The FTC decided to do something about, so if you are also the owner of a business that sells any sort of recurring fee product or service, it’s time to find out if you can pass the Click-To-Cancel test.
What’s inside:
Why the FTC has created the Click-to-Cancel Rule
What is the Negative Option Rule?
What are Negative Options?
Why Negative Options are a Positive for Consumers and Businesses
What is the Click-to-Cancel Rule?
What Should Small Businesses do About the Click-to-Cancel Rule?
Small Businesses Need to Comply with the Click-to-Cancel Rule
What is the Negative Option Rule?
The Negative Option Rule is a…
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What is the Negative Option Rule?
The Negative Option Rule is a regulation established by the Federal Trade Commission (FTC) in 1973 to protect consumers from deceptive subscription practices. It ensures businesses are transparent and fair when offering products or services with automatic renewals, subscriptions, or recurring billing.
What are Negative Options?
Negative option offers come in a variety of forms, but all share a central feature: each contain a term or condition that allows a seller to interpret a customer’s silence, or failure to take an affirmative action, as acceptance of an offer. For example, a customer’s failure to cancel a subscription or a member is taken as consent to continue charging for said subscription.
Why Negative Options are a Positive for Consumers and Businesses
This model is often very convenient for both buyers and sellers. Could you imagine having to manually purchase your Netflix, Gym, and Magazine subscriptions each and every month?
What is the Click-to-Cancel Rule?
On October 16th, 2024 the FTC issued an update to the Negative Option Rule known as the “Click-to-Cancel” Rule. This will effect a LOT of businesses, big and small.
Under the Negative Option Rule, businesses must:
Clearly Disclose Terms:
Provide all essential details upfront, such as pricing, billing frequency, and cancellation policies, so consumers understand exactly what they’re agreeing to before making a purchase.Obtain Explicit Consent:
Customers must actively agree to the terms, such as by checking a box or clicking a clearly labeled “I Agree” button. Pre-checked boxes or unclear opt-ins are prohibited.Simplify Cancellations:
The cancellation process must be easy and convenient, matching the ease of signing up for the service. For example, online subscriptions should have online cancellation options without hidden barriers.
The rule protects consumers from being unknowingly locked into subscriptions and helps businesses build trust by promoting honest and transparent practices. The FTC’s recently amended version strengthens enforcement and expands the rule’s coverage.
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What Should Small Businesses do About the Click-to-Cancel Rule?
The good news for small businesses is that most of you are using software platforms to run your subscriptions newsletters, coaching groups, communities, and other membership programs and the responsibility will fall to the software platforms to make compliance with these requirements possible.
Things for small businesses to watch out for:
E-Commerce Stores and Membership Platforms:
Run through the ordering process on your online store, community membership platform, or other payment application. Verify that the checkout and cancellation processes are compliant with the Click-to-Cancel Rule. If something seems off, check your admin settings or contact your software provider’s support team for guidance.
Custom Payment Buttons:
If your business uses customized payment buttons from platforms like Stripe or PayPal to collect recurring payments, ensure these options include clear subscription terms and an easy way to cancel. You may need to collaborate with a web designer to make necessary updates.
Service-Based Businesses with Automated Billing:
If you automatically invoice clients or charge credit cards directly through platforms like QuickBooks, double-check that your invoices clearly outline the terms of service and include an accessible cancellation process. Transparency is key to compliance.
Live Sales Calls:
If you close sales during live calls and collect payment information verbally, review your process carefully. Are you verbally disclosing all terms, including cancellation policies? Are those terms reiterated in writing through an automated follow-up email? If you lack a web page with clear terms for customers to review and agree to, create a detailed written workflow to ensure compliance and customer understanding.
Subscription-Based Physical Products:
If you run a business offering subscription boxes or recurring shipments (e.g., meal kits, beauty boxes), ensure customers can cancel the subscription online with a simple, clear button on your website. Avoid requiring phone calls or lengthy email chains for cancellations.
Freemium-to-Paid Services:
If you offer free trials that auto-convert into paid subscriptions, clearly disclose this during the signup process. Ensure the cancellation option is accessible before the trial ends to prevent unintentional charges.
Mobile App Subscriptions:
If you sell subscriptions through a mobile app, check that cancellation processes comply with the platform’s requirements (e.g., Apple App Store, Google Play Store). Non-compliance with these platform rules could also violate the Click-to-Cancel Rule.
Hybrid Models with Manual Payment Handling:
If your business combines manual invoicing with automated payments (e.g., personal trainers, therapists), make sure clients have easy access to terms and a straightforward way to request cancellations, such as via email or an online form.
Recurring Donations:
Non-profits and small charities that accept recurring donations need to provide donors with an easy way to modify or cancel their contributions. Ensure this process is visible and intuitive on your website.
Multiple Cancellation Steps:
If your cancellation process involves multiple steps, such as confirming through a follow-up email or completing a feedback form, these steps should be optional and must not prevent or delay immediate cancellation.
Language Barriers:
If your target audience includes non-native English speakers, ensure that your terms and cancellation processes are available in multiple languages or written in universally clear terms to avoid confusion.
Small Businesses Need to Comply with the Click-to-Cancel Rule
Navigating the FTC’s Click-to-Cancel Rule might feel overwhelming at first, especially for small businesses without dedicated legal teams. However, compliance is not only about avoiding penalties — it’s about building trust with your customers by offering them transparency and respect.
Start by auditing your current subscription and cancellation workflows. Simplify processes where needed and ensure all terms are crystal clear. Remember, software platforms often provide built-in tools to make compliance easier, so take full advantage of their features. By proactively addressing these requirements, you not only protect your business from potential legal issues but also strengthen your reputation for fairness and customer care.
Stay Magical,
Cheryl
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