The 411 on FTC’s ‘Click To Cancel’ Rule Proposal

The 411 on FTC’s ‘Click To Cancel’ Rule Proposal

Just last month, the Federal Trade Commission, USA, (FTC) proposed a “click-to-cancel” provision to its Negative Option Rule, requiring retailers to make it just as easy for their customers to cancel a recurring subscription as it was when they initially subscribed. According to dispute experts at Chargebacks911, the world’s first chargeback and remediation technology platform, merchants should take action now to streamline their subscription cancellation process and invest in tools that provide more self-service options for reactivating subscriptions and managing automated billing schedules.

The 411 on this relevant topic indicates consumer behaviour trends are aligned with reduced friction when it comes to cancelling subscriptions. Whether or not the proposed FTC regulation becomes a reality, improving the customer experience in a way that allows them to self-manage their accounts is not only forward-thinking, but a growing market demand, according to executive leadership at Chargebacks911.

The rule proposal is part of the FTC’s review of its Negative Option Rule, a 50-year-old legal framework that requires sellers to disclose the terms of sale before consumers subscribe, and provide information about how consumers can go about cancelling.

The FTC website states that the rule change would also require businesses to make it at least as easy to cancel a subscription as it was to start it.

“For example, if you can sign up online, you must be able to cancel on the same website, in the same number of steps,” read an excerpt from an FTC press release.

According to the FTC, the Negative Option Rule does not go far enough, as the regulatory agency receives thousands of complaints from consumers each year who have either been billed without their consent for recurring or subscriptions services, or have dealt with a retailer who makes it incredibly difficult—or sometimes impossible—to cancel a subscription.

“Some businesses too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place,” said FTC Chair Lina Khan as to the agency’s rationale for the proposed regulation. “The proposed rule would require that companies make it as easy to cancel a subscription as it is to sign up for one. The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties.”

Another indication of the growing consumer demand for convenience and efficiency is the heightened growth rate of friendly fraud or first-party misuse, cited by Visa as being 75 per cent of digital eCommerce chargebacks. Friendly fraud commonly happens to subscription retailers when consumers contact their bank rather than the merchant to cancel a subscription. These retailers are often unaware that an irreversible, negative chargeback will be raised against them in effort to cancel a recurring subscription on the consumer’s behalf.

First-party fraud is a growing industry concern, with subscription retailers shouldering a significant share of this burden. According to LexisNexis True Cost of Fraud Report, every US $1 in chargebacks costs the merchant approximately $3.75 and evokes a negative reputational statistic that even if contested, is never removed from their record.

Despite the industry advocating for retailers to exchange more feedback on these types of chargebacks and educate consumers of the harmful effects of their often accidental or unintentional actions, the process is laden with complexities and can require significant resources for merchants to address.

Monica Eaton, founder of Chargebacks911 comments, “With the rise of banking apps and digital communication platforms, innovative technology has forever shifted the behaviour and expectations of consumers. The drive to digitisation requires experiences to be safe and secure, but also faster, better, and more transparent. Providing customers with a tool that allows them to cancel a subscription is only part of the challenge. To remain competitive and address growing demands, users require a more comprehensive self-service experience. Today’s consumer wants intuitive flexibility, payment scheduling options, and frictionless convenience; otherwise, retailers face steep competition with their customers’ banks and credit card companies—many of which supply a concierge-like service to efficiently address their customers’ needs and wants. And unfortunately, in the absence of information (exchanged between the customer and retailer), an open door for first-party fraud becomes a permanent wedge.”

Whether or not this proposed rule change is adopted by the FTC, it has been suggested for decades that merchants should have clearly-stated terms and conditions when it comes to recurring billing.

Eaton adds, “While no retailer wants to see their customers cancel services, having a tedious cancellation process could push customers to file a chargeback, or file a complaint with entities like the FTC or Better Business Bureau—even if the retailer is fully compliant and following all payment processing guidelines that govern their merchant account.”

It has been widely published by the largest card networks that year over year, the growth of chargebacks is largely attributed to disputes filed on subscription products and services, with the vast majority of these disputes considered to be first-party fraud or misuse. Compared to the growth of e-Commerce transactions in the U.S., the growth of chargebacks has surged ahead by nearly 20 per cent, according to a study conducted by Chargebacks911. This is a worrying statistic that not only penalises retailers with guilty-before-innocent fines and fees, but depending on volumes, can even lead to a merchant’s account being revoked or terminated, where the company loses the ability to process card payments altogether.

Consumers, however, are hit worst by this problem, suffering losses and policy restrictions as a result of inflation, low margins, and unfair market pressures.

Chargebacks911 advises that companies should include recurring billing information, as well as terms and conditions, within the checkout process and to make sure the information is easily accessible for customers. They also suggest that companies increase the frequency of reminders and billing confirmations ahead of renewal dates.

The FTC has detailed its proposed changes to the Negative Option Rule in a fact sheet, and is seeking input from the public on the proposed rule changes.


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