Understanding the FTC's New Rule on Recurring Subscriptions: What Businesses Need to Know

Federal Trade Commission (FTC).

On November 15, 2024, the Federal Trade Commission (FTC) introduced its final Rule Concerning Recurring Subscriptions and Other Negative Option Programs, which includes the widely discussed "Click to Cancel" rule. This groundbreaking regulation impacts businesses offering automatically renewable contracts across almost every industry, including B2B and B2C agreements. The rule introduces stricter compliance measures for transparency, consumer consent, and contract cancellation mechanisms.

What Are Negative Option Programs?

"Negative option" refers to agreements where inaction by the consumer results in contract acceptance or continuation. Common examples include:

  • Automatic Renewals: Subscription services that renew unless canceled.
  • Free-to-Paid Conversions: Trials that transition into paid services.
  • Continuity Plans: Periodic delivery agreements (e.g., bottled water services).

Key Requirements Under the Rule

The new FTC Rule enforces the following:

  1. No Material Misrepresentations: Sellers cannot misrepresent any aspect of goods or services with negative option features.
  2. Clear Disclosures: Businesses must notify consumers of charges, deadlines, and cancellation methods.
  3. Informed Consent: Sellers must obtain explicit consent before initiating charges.
  4. "Click to Cancel" Mechanism: Cancellation must be as simple as the initial subscription process.

Violations could result in civil penalties for unfair or deceptive practices under the FTC Act.

Timeline for Compliance

  • Misrepresentation Prohibitions: Enforcement begins March 14, 2025.
  • Full Compliance: Required by May 14, 2025.

Challenges and Potential Rollbacks

The incoming Trump administration may challenge the rule’s implementation. Concerns over regulatory overreach, particularly in B2B transactions and general misrepresentation prohibitions, have fueled skepticism. Tools such as the Congressional Review Act and the Major Questions Doctrine could be leveraged to rescind or limit enforcement.

What This Means for Businesses

Regardless of potential changes, businesses should prepare for compliance:

  • Audit Agreements: Ensure transparency and clear disclosures in all contracts.
  • Streamline Cancellation Processes: Implement user-friendly systems for cancellations.
  • Consult Legal Experts: Seek guidance on navigating compliance and potential regulatory changes.

The rule underscores the FTC’s commitment to consumer protection while signaling increased scrutiny for businesses. To safeguard against penalties, businesses must act proactively to meet the requirements or adapt swiftly to potential regulatory changes.

Need legal guidance on how these changes affect your business? The South Texas Business Lawyers are here to help. Schedule your free 15-minute Strategy Consultation today and ensure your contracts and practices meet compliance standards.

Disclaimer: This article is made available for educational purposes only, to give you general information and a general understanding of the law, not to provide specific legal advice. By using this article, you understand and acknowledge that no attorney-client relationship is formed between you and The South Texas Business Lawyers, nor should any such relationship be implied. This article should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.