What You Need To Know About The FTC’s ‘Click To Cancel’ Rule
One of the most annoyingly tedious tasks that you can do is cancel a subscription. A business that doesn’t require you to jump through hoops to unsubscribe is practically unheard of. The good thing is that this may be changing. The Federal Trade Commission (FTC) recently proposed a rule requiring companies to have a “click to cancel” option for subscriptions and recurring memberships. The “click to cancel” option will make it as easy to sever your relationship with a business as it is to start it.
According to the proposal, the rule would require companies to offer a simple cancellation mechanism that will allow users to cancel subscriptions using the same method they used to sign up. This means that if you subscribed on the company’s website, you shouldn’t have to call or email them in order to cancel your membership. If the proposal goes through, businesses will be penalized for using tactics to keep subscribers. The ultimate mission of the FTC’s “click to cancel” proposal is to save consumers both time and money.
According to reports, between July 2021 to July 2022, approximately 60% of subscription-based companies witnessed an increase in online payment fraud, which is higher than the average in the e-commerce industry. Fraud is extremely common with subscription-based services, resulting in a lot of chargebacks. The proposal may help to mitigate this.
More specifically, subscription-based businesses are more prone to friendly fraud – when a customer uses their credit card and then disputes the charge with their bank. This is mostly due to customers forgetting to cancel, declining to pay after a free trial, or not recognizing a recurring charge on their statement. These chargebacks are hard to avoid because they usually appear to be genuine purchases at the time. Fraudsters also commonly test a first transaction using stolen information through subscription accounts, as the lower purchase amounts enable them to go unnoticed.
“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—even if the retailer is fully compliant and following all payment processing guidelines that govern their merchant account,” said Monica Eaton, CEO of Chargebacks911.
As a provider or supplier to financial technology companies, Chargebacks911 works to provide safeguard services for more than 2.4 billion transactions per year on behalf of clients in 87 countries around the world. Eaton often explains to clients that a tough cancellation process is harmful to them.
“Innovative technology has forever changed consumer behavior and the expectations they have in dealing with businesses. This is why companies must prioritize providing an intuitive and seamless cancellation process to avoid losing customers to their banks or credit card companies which often offer concierge-like services to meet their customers’ needs,” she added.
Difficult cancellation processes that result in chargebacks are bad for retailers for multiple reasons.
“If a customer files a chargeback with their bank because a merchant makes it difficult to cancel services, you don’t just lose that customer, but you also incur chargeback penalty fees, as well as spend more on administrative and chargeback management costs,” she said. “On average, chargebacks cost merchants around $3.60 for every transactional dollar lost to a chargeback. Furthermore, through social media, review sites, and message boards, the word could get out that your cancellation process is intentionally difficult and damage your reputation as a retailer.”
If you’re a business owner, start preparing yourself to comply with the FTC’s “click to cancel” proposal. It will not only be necessary for you to avoid any legal penalties, but it will also be better for your business in the long run.
