What the FTC's New "Click-to-Cancel" Rule Means for Your Startup

If your startup offers (or is thinking about offering) subscription services, memberships, or any other recurring payment programs, heads up – there is a new rule you can’t afford to ignore. The Federal Trade Commission (FTC) just announced a rule that will affect how your business handles cancellations for these types of programs. Let's break down what this means for your business and how to use this as an opportunity to not only ensure compliance, but also as a way to improve transparency and build trust with your customers. Here’s what you need to know.

Overview of the New Rule

The FTC’s “click-to-cancel” rule is aimed at protecting consumers by making cancellations as seamless as it was to sign-up. In response to the common frustrations consumers face when trying to cancel subscriptions or recurring services, the FTC now mandates that businesses offering “negative option” programs – where a service continues until the customer takes action to cancel – must make the cancellation process as simple as enrollment. 

This rule applies broadly to negative option programs across any medium, including online, phone, and in-person transactions. This means if your startup uses a recurring payment program, it’s time to review your cancellation processes.

Key Provisions of the “Click-to-Cancel” Rule

Under the new rule, businesses are prohibited from taking the following actions:

1. Misrepresenting any material fact made while marketing goods or services with a negative option feature;
2. Failing to clearly and conspicuously disclose material terms prior to obtaining a consumer’s billing information in connection with a negative option feature;
3. Failing to obtain a consumer’s express informed consent to the negative option feature before charging the consumer; and
4. Failing to provide a simple and easily accessible mechanism to cancel the negative option feature and immediately halt charges.

What You Need to Build Into Your Processes

To align with the FTC’s new rule, it is important to consider implementing the following measures into your startup’s recurring payment-based program:

Simplify the Sign-Up Flow. Transparency starts at enrollment – the days of buried terms and surprise charges are no more. Ensure that subscription terms, fees, and cancellation policies are clearly disclosed upfront to your customer base so customers know exactly what they are getting into. Think of it as building trust from day one.

Smart Consent Management. Before charging a customer or subscriber, make sure you've got solid proof that your customers know exactly the terms of their subscriptions.

Friction-Free Cancellation Process. In short, create a cancellation process that is simple and easy for customers to navigate. As a general rule of thumb, this process should be just as easy for your customers as the sign-up process is. Whether it’s a single click on your website or an easily accessible “cancel” button in your app, the process must be user-friendly.  

Train Your Team. Your employees should be well versed in the new requirements under this rule. Providing training to your team ensures a consistent approach to compliance across your business and shows customers that your startup prioritizes their experience and values their trust. 

Looking Ahead

Remember, regulations like these aren't just hoops to jump through – they're opportunities to build better, more sustainable businesses. Regulatory landscapes are always evolving, thus  startups that embrace this mindset early on will be the ones that thrive in the long run.

Need more details or have questions about implementing these changes? Our team is ready to guide you through this process and make the necessary changes to make your recurring payment-based program FTC-compliant. Contact us today to ensure your subscription model is compliant and designed for growth.

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