By Trey Price, American Consumer Institute
To combat unnecessarily complicated cancelation policies, the Federal Trade Commission (FTC) is considering changes to existing rules which would simplify companies’ cancelation processes. The FTC contends that such changes are needed to combat unfair and deceptive business practices. If adopted, the rule change would go beyond the problems it intends to solve and harm consumers by restricting a company’s ability to offer discounts and other services.
In March of 2023, the FTC proposed changes to the Negative Option Rule that would require companies provide customers with an option to cancel their subscription using the same steps that they used to subscribe. Or they could simply “click to cancel.” Additionally, customers would need to be asked if they want to hear about other offers before they can be told what they are.
The stated goal of the rule change is to stop companies from charging customers for subscriptions they no longer want, as well as to combat business tactics where firms attempt to prevent customers from canceling their subscriptions.
Some subscriptions are unnecessarily difficult to cancel. One of the most notorious offenders is gym memberships. Canceling with gyms varies by contract but it can be difficult and sometimes it is even dependent on extenuating circumstances, such as moving or medical reasons. If you are eligible to cancel at all it often requires going in person to fill out a form or sending it in via mail.
Rules that exist just to make the process more complicated for the consumer deserve more scrutiny. However, as written, the rule may actually do more than make cancelations easier.
Among those opposed to the rule change are former FTC Commissioner Christine Wilson, who in her dissenting opinion, argued that the proposed rule would unnecessarily lump pro-consumer behavior with deceptive business conduct. Industry groups have also weighed in on the rule change, with many complaining that the new rule would make it more difficult for them to offer better deals to customers.
While intended to protect consumers from legitimate harm, it would also prohibit pro-consumer tactics and design choices. This includes offering discounts to retain customers who may be canceling because of cost, which is different than companies making customers go through unnecessarily difficult steps to cancel.
As noted in the informal hearing, the FTC has not produced any evidence that shows harm from practices designed to retain customers in the cancellation process. Nor has the Commission demonstrated that such policies negatively impact a consumer’s ability to cancel their subscription. On the contrary, these policies often result in better offers that are designed to convince customers to retain their subscriptions. Adding requirements that make it more difficult for companies to provide such deals misses the mark on trying to improve consumer welfare.
In addition, these new requirements are not needed by many of the companies that would be impacted. For many streaming companies, the process to cancel a subscription is pretty intuitive and only requires following a few easy steps on their website. Some subscription services allow you to pause your subscription, which could be ideal for someone facing temporary financial limitations. These practices do not belong in the same category as those intentionally designed to prevent cancelation.
By making it more difficult to provide these options to customers, the rule could harm the overall customer experience and cause people to lose out on services they may otherwise enjoy. The proposed rule goes beyond stopping consumer harm and could reduce consumer welfare.
Trey Price is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us at www.TheAmericanConsumer.Org.