The Federal Trade Commission (FTC) plays a pivotal role in protecting consumers from deceptive and unfair practices in the marketplace, including those related to subscription services. As subscriptions become an increasingly common business model across various industries, the FTC has ramped up its efforts to ensure that companies adhere to legal standards regarding transparency, billing practices, and cancellation processes.

The Rise of Subscription Services

Subscription services have proliferated in the digital age, encompassing everything from streaming media platforms and meal delivery kits to software applications and fitness memberships. These services offer consumers the convenience of automated payments, regular access to goods or services, and sometimes discounts for long-term subscriptions. However, the very features that make subscription services attractive—automatic renewals and ease of access—can also lead to consumer complaints if businesses are not transparent about the terms and conditions.

Common Issues with Subscription Services

The FTC has identified several recurring issues with subscription services:

1. Hidden Charges: Consumers are often unaware of recurring charges associated with a service. Companies may offer a free trial that automatically converts into a paid subscription without adequately informing customers.
2. Lack of Consent: Businesses sometimes fail to obtain explicit consent from consumers before charging their accounts, leading to unauthorized billing complaints.
3. Complicated Cancellation Processes: Many consumers report that canceling a subscription is unnecessarily difficult, requiring them to navigate complex steps or face long hold times when attempting to cancel via customer service.
4. Automatic Renewals without Notice: Some companies do not provide adequate notice before automatically renewing subscriptions, leaving consumers surprised by charges they didn’t expect.

The FTC’s Role

Under its mandate to protect consumers, the FTC enforces several laws and regulations that apply to subscription services. Two primary regulatory frameworks are the Restore Online Shoppers’ Confidence Act (ROSCA) and the Telemarketing Sales Rule (TSR).

1. Restore Online Shoppers’ Confidence Act (ROSCA): ROSCA prohibits online businesses from charging consumers for services unless they clearly and conspicuously disclose the material terms of the transaction and obtain the consumer’s express informed consent. This includes providing information about recurring charges upfront, as well as clear instructions on how to cancel the service.
2. Telemarketing Sales Rule (TSR): The TSR requires that businesses using telemarketing to sell subscriptions must disclose all material terms, including the fact that the customer will be charged on a recurring basis, the frequency of those charges, and how to cancel. Additionally, telemarketers must obtain express consent before processing payments.

Recent FTC Actions

The FTC has pursued legal actions against several companies that have violated these regulations. One prominent case involved ABCmouse, an online early education platform. The FTC alleged that ABCmouse made it difficult for consumers to cancel their subscriptions and failed to adequately disclose that their subscriptions would automatically renew. In 2020, ABCmouse agreed to pay $10 million to settle the charges and made significant changes to its subscription processes.

In another case, MoviePass, a subscription service for movie tickets, faced FTC scrutiny for deceptive practices. The company was accused of making it difficult for subscribers to use the service as advertised and for implementing hidden limitations on its offerings without informing customers. The FTC required MoviePass to implement a clearer, more consumer-friendly subscription model.

The “Click to Cancel” Rule

The FTC has proposed updates to its rules to further crack down on subscription-related issues, including a “Click to Cancel” provision. This rule would require businesses to offer a simple, straightforward way for consumers to cancel their subscriptions online, matching the ease with which they can sign up for them. Companies would be prohibited from making consumers endure long retention efforts or navigate complex cancellation processes.

Best Practices for Businesses

In light of the FTC’s increased focus on subscription services, companies should adopt best practices to avoid running afoul of regulatory standards. Key practices include:

• Clear Disclosure: Businesses should provide upfront, easy-to-understand information about recurring charges, renewal dates, and cancellation procedures.
• Simplified Cancellation: Companies should offer simple, easily accessible cancellation methods, such as online cancellation through the same platform used to subscribe.
• Renewal Reminders: Sending reminder notices before automatic renewals is a good way to ensure that consumers are aware of upcoming charges.
• Consent and Documentation: Obtaining clear, explicit consent from consumers before charging them and keeping records of these consents are essential for compliance.

As subscription models continue to grow in popularity, the FTC’s oversight has become increasingly crucial in safeguarding consumer rights. By enforcing transparency in billing, ensuring that consumers have the ability to cancel easily, and preventing deceptive practices, the FTC plays a critical role in maintaining trust in the marketplace. Both businesses and consumers must stay informed about their rights and obligations in the evolving landscape of subscription services