FTC Subscription & Recurring Billing Update

Jun 22, 2023

FTC Rule Update! Subscription Merchants & Recurring Billing Will Be Affected!

The Federal Trade Commission (FTC) has recently revealed its intent to revise the Negative Option Rule, with the aim of bolstering consumer safeguards and tackling longstanding challenges connected to recurring payments and subscription-based services. 

These changes are set to address elusive practices, insufficient disclosures, and difficulties in terminating unwanted subscriptions. Although these revisions won’t take effect immediately, it’s beneficial for subscription merchants to understand how they may be impacted by the proposed changes.

Understanding the FTC’s Suggested Rule Amendments

The proposed adjustments to the Negative Option Rule cover several important provisions intended to boost transparency and simplify the process of subscription cancellation for consumers. Here’s an overview of these provisions and their potential impact on merchants:

Simplifying Subscription Cancellation

A standout proposed change is the “click to cancel” rule. This mandates sellers to make the cancellation process as straightforward as the sign-up procedure.

If customers can subscribe online, they should also be able to cancel their subscriptions online just as easily. This aims to eliminate hurdles that make it tough for consumers to cancel their subscriptions.

Ensuring Transparent Disclosures

Merchants must guarantee that all essential details, such as the subscription’s duration, frequency and amount of charges, and cancellation procedures are conveyed in a clear and conspicuous manner. This is intended to avert deceptive practices and ensure consumers fully understand what they’re signing up for.

Consent for Additional Offers

Merchants can still extend additional offers or modifications to consumers attempting to cancel their subscriptions under the revised rule. However, they must obtain explicit consumer consent before proceeding. This provision makes sure that consumers have the opportunity to reject offers and proceed with the cancellation process without issue.

Reminders and Confirmations

Merchants will be obliged to send an annual reminder to consumers subscribed to programs involving automatic renewals.

The goal here is to ensure customers are aware of the upcoming and future renewals, giving them the chance to make an informed decision about continuing or terminating their subscription. Physical goods would be exempt from this requirement.

The revised rule will also lead to the renaming of the Negative Option Rule to the “Rule Concerning Recurring Subscriptions and Other Negative Option Plans” to reflect its wider scope.

Recurring Billing

Implications of Negative Option Rule Amendments for Merchants

The FTC’s planned amendments to the Negative Option Rule will have substantial consequences for merchants:

Compliance Costs

Merchants may have to invest in updates to their systems and processes to comply with the new stipulations. Changes could be required in online platforms, ensuring clear disclosures, and streamlining cancellation processes. The cost of compliance may vary depending on the merchant’s operations’ size and complexity.

Enhanced Consumer Trust

The proposed changes aim to improve transparency and empower consumers with more control over their subscriptions. The goal is to boost transparency and in return boost the trust that consumers have with merchants. 

Hopefully slowing down the pace of mistrust that many current online shoppers have, and increasing the revenue and trust of reliable merchants.

Changes in Business Practices

Merchants heavily dependent on negative option billing models may need to reassess their business practices.

 The proposed changes may necessitate adjustments in pricing structures, trial periods, cancellation policies, and customer retention strategies. Merchants will need to assess these changes’ impact on their revenue and devise strategies to adapt to the new rules.

At Easy Pay Direct we have worked with many brands, helping them to adjust their subscription models in a way that poses less risk, but still keeps revenue flowing and business thriving.

Sometimes simple changes can be made in order to follow the regulations and rules set by both the FTC, card brands, and merchant service providers.

Legal Consequences

Merchants failing to comply with the proposed changes may face legal repercussions, including potential investigations, penalties, and reputational damage.

This is why it’s important for merchants to stay updated on the rule changes, track developments, and take preemptive measures to ensure compliance and mitigate legal risks.

Subscription billing has been under serious scrutiny in recent years, with Visa launching new rules for subscriptions in 2020, and Mastercard updating their subscription rules in 2022.

Subscription business model

What are the best merchant accounts for subscription businesses?

If you offer a subscription service or any type of recurring billing your business falls into a higher risk category. Even if you’ve never had problems with a customer, chargebacks, or your payment provider. 

The issue is that many merchants in the subscription industry use black hat tactics and have very high chargeback rates. These issues trickle down and affect every business that offers subscriptions as a whole. 

Even Netflix couldn’t escape it and was forced to re-evaluate its free trial offer which led to a subscription. 

Almost all merchants like yourself that offer subscriptions end up facing huge merchant account issues such as freezes, holds, or entire account shutdowns. Thankfully companies like Easy Pay Direct that specialize in merchant accounts for subscription businesses have a solution.  

Get worry-free payment processing by having your account underwritten, that way you can get a merchant account that is perfectly paired with your business and marketing model. 

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