If your business relies on recurring subscriptions, the FTC’s updated “Rule Concerning Recurring Subscriptions and Other Negative Option Programs” (the “Subscriptions Rule”) stands poised to change the game. Formerly known as the Negative Option Rule, the Subscriptions Rule was revamped by the FTC to address complaints about misleading practices, the Subscriptions Rule will require businesses across industries to overhaul how they handle subscriptions, cancellations, and customer disclosures, or face fines.
Key provisions start rolling out in December 2024, with most of the rules, especially those focused on subscriptions and cancellations, taking effect in April 2025. This means your business will need to rethink how you present subscription offers, simplify cancellation processes, and manage customer consent and data storage.
Why the FTC Subscriptions Rule Could Impact Your Business
The FTC made these changes in response to growing complaints about misleading subscription practices. For years, many businesses have made it difficult for consumers to cancel subscriptions or understand the full costs of signing up. Hidden fees, vague terms, and complicated cancellation processes have left customers frustrated and stuck paying for services they no longer want.
The FTC highlighted specific issues like free trial scams and misleading “continuity plans” as examples of what businesses need to avoid. For instance, failing to clearly disclose that a free trial automatically converts into a paid subscription could now trigger enforcement action.
While the FTC Subscriptions Rule is aimed at protecting consumers, it presents new challenges for businesses that rely on subscription revenue. Compliance will require investing time, money, and resources into redesigning user interfaces, updating terms and conditions, and simplifying cancellation systems.
What the New Rule Requires
The FTC Subscriptions Rule requires businesses to be crystal clear about their subscription terms. Companies must disclose key details upfront before collecting a customer’s billing information. This includes clear explanations of costs, renewal schedules, and cancellation deadlines in plain, easy-to-understand language.
The rule also tackles misrepresentation. Businesses are prohibited from making false or misleading claims about subscriptions, whether related to costs, benefits, or the ease of cancellation. For example, if you advertise “no hassle” cancellations, you’re expected to deliver on that promise.
One of the biggest changes is the introduction of a “click-to-cancel” requirement. Companies must provide a straightforward way for consumers to cancel subscriptions using the same method they used to sign up. If a customer subscribes online, they must be able to cancel online without navigating frustrating obstacles. The process needs to be quick, simple, and user-friendly, eliminating the long phone calls or multi-step cancellations that have frustrated consumers for years.
The Business Impact of the FTC Subscriptions Rule
The new Subscriptions Rule doesn’t just target one sector; it applies to nearly every industry offering subscriptions. Streaming services, gyms, e-commerce platforms, software providers, telecom companies, and even consumer goods brands will need to ensure compliance.
Businesses that rely on recurring revenue will need to overhaul their systems to meet the new standards. Marketing teams will have to rethink how they promote subscription plans to make terms more transparent, while customer service teams will need tools to handle quick and easy cancellations, particularly online.
Challenges to Implementation
The new rule’s blanket prohibition on deception is scheduled to take effect on January 15, 2025, and the provisions related to the disclosure, consent, and cancellation of negative option features will be effective on May 14, 2025.
However, the Subscriptions Rule is currently being challenged in multiple courts, and in light of the fact that both Republican FTC commissioners objected to the final version of the Subscriptions Rule, the incoming Republican administration might trim its requirements or cancel it entirely. A Republican majority in Congress might also elect to nullify the rule under the Congressional Review Act. Thus, there are strong odds that the Subscriptions Rule, or certain of its provisions, will not take effect as scheduled.
What Businesses Should Do Now
While the ultimate fate of the FTC Subscriptions Rule lies in the hands of the new administration, even if it is ultimately repealed or amended, keep in mind that there are still multiple state law equivalents to the Rule that also mandate changes to subscription models.
For example, new amendments to California’s Automatic Renewal Law become effective on July 1, 2025, and many aspects of that law are more onerous than those included in the Subscriptions Rule. Thus, planning for compliance regardless of whether the new rule takes effect in its entirety is likely the right decision.
While adapting to the requirements mandated by the Subscriptions Rule may feel like yet another compliance headache, ignoring them could lead to significant fines and lost customer trust. Start preparing now by reviewing your subscription processes and identifying gaps. Ask yourself:
- Are disclosures clear and easy to understand?
- Is the cancellation process as simple as signing up?
- Are customer consents properly documented and stored?
Addressing these questions now can help you avoid trouble later.
If your subscription policies require updating, be certain to communicate changes proactively with customers. Clearly explaining improved cancellation processes or updated terms can build trust and reduce confusion or complaints. Taking a transparent approach will put your business in a stronger position as these new rules take effect.
