In October 2024, the Federal Trade Commission (FTC) introduced the "Click-to-Cancel" rule, a regulatory update intended to protect consumers from the frustration and inconvenience of canceling subscriptions. This update directly responds to 16,000 consumer complaints and comments about complicated cancellation processes that some businesses engage in, highlighting the need for more straightforward cancellation options.  The new ruling applies to any business with an online subscription option. Here's what local businesses need to know to ensure compliance, build customer trust, and avoid penalties.

What the Rule Requires

The FTC's Click-to-Cancel rule requires that if customers can sign up for a subscription online, they should be able to cancel it just as easily online without unnecessary hurdles. This is especially relevant for businesses offering subscriptions or recurring services online, whether it's a local gym, meal delivery service, cleaning service, or online membership. If a company allows online signup, then the rule prohibits that company from requiring customers to call, wait for callbacks, answer lengthy questions, or handle in-person cancellations with very few exceptions.

Key Compliance Points for Local Businesses

1. Simple Online Cancellation Process

If customers can start a subscription online, they should be able to end it the same. Consider adding a "Cancel Subscription" button or a similar option to your online customer portal. It should be clearly visible, accessible, and easy to navigate.

2. Clear Disclosure of Terms and Charges

All terms, especially billing frequency, charges, and renewal details, must be clearly disclosed before a customer completes the sign-up process. If you offer a trial period, make sure to explain when and how customers will be charged once it ends.

3. No Hidden Barriers to Canceling

Hidden barriers, such as forcing users to answer a series of questions or redirecting them to customer service, are prohibited. Businesses should avoid tactics that create friction or confusion in the cancellation process. The rule pointedly prohibits unnecessary steps that delay or complicate cancellations.

4. Obtain and Record Informed Consent

Businesses must obtain explicit consent from the customer before starting recurring charges. This can be done using checkboxes or acknowledgment forms that confirm the customer's understanding of the subscription's recurring nature. Keep records of this consent for at least three years.

Penalties for Non-Compliance

Failing to comply with these new standards could result in substantial penalties—up to $51,744 per violation (FTC Adjusted Civil Penalty Amounts 2024). This emphasizes the importance of simplifying cancellation processes and updating subscription practices to ensure that customers have an easy exit option if they choose to cancel.

How This Rule Benefits Local Businesses

While it might seem challenging at first, the Click-to-Cancel rule offers an opportunity for local businesses to strengthen customer relationships. By adopting transparent practices, businesses build trust, reduce the risk of disputes, and improve customer loyalty. When customers feel respected and know they can easily cancel at any time, it creates a sense of trust and removes a major psychological barrier to signing up. This trust can lead to stronger relationships and makes customers more likely to remain paying clients.

Staying up-to-date with these changes helps avoid penalties and contributes to a positive brand image. Updating subscription processes, ensuring clear terms, and offering a straightforward cancellation option are small adjustments that can significantly improve customer experience and retention.

As a local business owner, review your subscription services to ensure compliance. Simplifying your cancellation processes, ensuring transparent terms, and building customer-friendly practices can turn compliance into an opportunity to strengthen the relationship with your clients. Embracing these practices not only keeps your business within legal requirements but also positions you as a trusted brand with which customers are happy to do business.

For more details on the FTC’s “Click-to-Cancel” rule, see the full article on the FTC’s website www.ftc.gov/news-events/news/press-releases/2024/10/federal-trade-commission-announces-final-click-cancel-rule-making-it-easier-consumers-end-recurring).

The information provided in this article is for general informational purposes only and should not be construed as legal advice. Business owners are encouraged to consult with a legal professional to ensure full compliance with applicable laws and regulations.