Introduction

The Federal Trade Commission’s (FTC) new “Click-to-Cancel” rule officially went into effect on January 14, 2025 and gives businesses until May 14, 2025 to ensure full compliance.

Finalized on October 16, 2024, the rule aims to simplify the cancellation process for consumers who want to terminate recurring subscriptions like streaming services, pet insurance, gym memberships, or web hosting.

If your business offers subscription-based services or recurring payment agreements, there are new requirements to become familiar with to avoid potential penalties and ensure a smoother experience for your customers.

Background

The core principle behind the Click-to-Cancel rule is straightforward: businesses should make the cancellation process as simple as the sign-up process. The rule specifically applies to “negative option” programs—subscription services that automatically renew unless the customer cancels, as well as free or low-cost trial offers that convert to paid subscriptions.

By implementing this new rule, the FTC aims to curb deceptive marketing practices that make subscription cancellations unnecessarily difficult. According to the FTC’s Statement of Basis and Purpose (SBP), these harmful marketing practices have generated tens of thousands of consumer complaints each year.

The Rule

Starting on May 14, the Click-to-Cancel rule will require businesses to comply with the following:

• Honest marketing and disclosures: Click-to-Cancel takes a firm stance against misleading marketing of negative option features. It mandates that businesses clearly disclose key information about the subscription including total cost, cancellation instructions, and terms before collecting the consumer’s billing details. This requirement aims to ensure that consumers are fully informed before making their decision.
• Informed consent: Businesses must ensure that consumers explicitly agree to the subscription’s terms by making disclosures clear and easy to understand.
• Simple cancellations: The cancellation process must be as simple as the sign-up process. For example, if consumers can sign up for a service online, they should also be able to cancel it online—without encountering any unnecessary obstacles or delays.
• Pause on charges: Businesses must stop billing immediately once a consumer initiates the cancellation to protect consumers from unexpected charges.

Risks & Recommendations

Failure to comply with the new rule can result in penalties of up to $51,744 per violation, in addition to civil liability and class action lawsuits. Businesses should be ready to change processes and procedures to comply with the new rule and avoid stiff fines.

While preparing for compliance with Click-to-Cancel, some companies might also be concerned about the increased risk of fraudulent use of promotional offers and trial subscriptions. Businesses can take proactive steps to combat potential fraud, including limiting promo code usage, transaction monitoring, and customer information verification to ensure that multiple promo code uses are not originating from the same account or IP address.

Businesses should implement fraud protection mechanisms to prevent losses and abuse of the Click-to-Cancel requirement. Microsoft Dynamics Fraud Protection (DFP) assists in proactive fraud management, abuse of free trials, incentives and promos with:

• Payment fraud prevention: Merchants must proactively manage the ever-evolving landscape of fraud to protect their customers and revenue. DFP protects merchants’ revenue by reducing wrongful rejections and improving bank acceptance rates, thereby enhancing revenue opportunities, reducing fraud losses, and minimizing checkout friction.
• Advanced machine learning algorithms: DFP’s advanced machine learning algorithms analyze vast amounts of data to detect and predict fraudulent activities, allowing businesses to proactively prevent abuse.
• Identity verification: DFP’s robust identity verification processes prevent fraudsters from creating multiple accounts to exploit free trials and promotions. These features include verifying email addresses, phone numbers, and account names.
• Device fingerprinting: By tracking the devices used to sign up for trials or promotions, DFP detects and blocks multiple sign-ups from the same device, even if different email addresses are used.
• Behavioral analytics: DFP analyzes user behavior to identify patterns indicating fraud, such as rapid sign-ups or unusual usage patterns. This pattern identification helps businesses flag and investigate suspicious activity.

Conclusion

Taking proactive steps now to comply with the FTC’s Click-to-Cancel rule will not only help your business avoid costly legal risks and penalties but will position your company as a customer-first brand in the increasingly regulated subscription space.

By simplifying your cancellation process, increasing pricing transparency, and ensuring clear consumer consent, your brand can demonstrate that it values both compliance and customer satisfaction.  At FiveBy, we specialize in risk intelligence and fraud protection. Our expertise can help businesses proactively manage fraud and prepare for compliance with the upcoming Click-to-Cancel rule and support teams in implementing fraud prevention mechanisms.