It’s a familiar experience for almost anyone who has signed up for a subscription service in recent years: You give your information to a company, perhaps enticed by a “free trial” offer, and go about your day. But when you decide you don’t want it anymore, the company makes it incredibly hard—even impossible—to cancel.
The Federal Trade Commission said yesterday (Oct. 28) that such deceptive practices may be illegal. FTC commissioner Lina Khan said it should be as easy to cancel a service as it is to sign up for one.
“Today’s enforcement policy statement makes clear that tricking consumers into signing up for subscription programs or trapping them when they try to cancel is against the law,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in the policy statement. A policy statement isn’t a new rule, but refers to the enforcement of regulations that already exist in the agency.
Rising subscriptions, rising consumer complaints
Companies across a spectrum of business, from e-commerce to fitness to home security, have adopted subscription models in recent years, and the so-called “subscription economy” is expected to grow by an annual average of 18% in the coming years, according to the financial research firm UBS. The covid-19 pandemic was particularly good for subscription businesses, as Americans stuck at home signed up for streaming accounts, fitness classes, and food delivery services. A JD Power survey found the average US consumer paid $47 a month for video subscription services alone by December 2020, compared with $38 a month in April.
But so-called “dark patterns” can trap buyers into paying more than they intend to for these services, according to the FTC. Companies may convert “free trials” into paid subscriptions before the trial ends, for example, or automatically renew memberships without disclosing the terms of the agreement to subscribers up front. They may also make it hard to cancel subscriptions.
The FTC calls such practices “negative options,” and in 2019 said it was considering changes to a rule to better protect consumers from such behaviors. Khan said today the agency has continued to receive complaints about “unauthorized charges & impossible-to-cancel billing.” An estimated 61 million US consumers have at least one retail subscription.
The FTC wants businesses to follow three rules in accordance with the law
In the policy statement the FTC identifies three requirements businesses must follow to avoid running into trouble with the law:
- Disclose clearly the terms of the product or service: Companies must tell customers how much a product or service costs, how often they will be charged for it, by when they have to act to avoid further charges, and how to cancel, if they want to.
- Obtain customers’ informed consent before charging them for a product or service, including for any so-called “negative option” features.
- Make cancellation easy and simple.
The ramp-up in enforcement comes as more companies have faced heightened legal scrutiny for their subscription businesses in recent years. The subscription-based fitness company Noom is the target of an ongoing class-action lawsuit alleging that its automatic renewal feature is “deceptive and illegal,” while the FTC settled with education company Age of Learning last September for $10 million after a lawsuit similarly alleged the company did not clearly disclose to customers that their memberships automatically renewed.