Almost no one doubts that some subscription companies make it difficult for their customers to cancel.
The Federal Trade Commission (FTC) is recommending a streamlined path toward subscription cancellations, and FlexPay CEO Darryl Hicks told Karen Webster that the new “click to cancel” proposal will need some fine-tuning.
“On the surface, I agree with the spirit of what the FTC is trying to accomplish,” he told Webster. “The challenge lies in the ambiguity of some of this proposed rulemaking.”
The end result? At least some firms are going to face fines and disruptions to some tried-and-true methods of doing business. And we may see the end of free trials altogether.
That’s because the lines are not drawn — not yet, anyway, and not enough — to separate truly bad actors from companies that unwittingly or unintentionally run afoul of the FTC’s proposals.
The new “click to cancel” provision mandates that businesses must make canceling memberships as easy as signing up for them. If they don’t — and indeed, if they are found to have procedures in place that keep consumers paying for subscriptions they don’t want — then they’re on the hook for fines and penalties.
Also under the regulators’ microscope are “negative option” subscription services, which are those that renew automatically unless the consumer cancels, or that begin with a lower fee and then automatically shift to a higher price.
The proposed changes at the FTC also mandate that companies get subscribers’ permission before serving up offers or modifications to subscriptions to those individuals or households that have signaled their intent to cancel.
At a high level, Hicks said, “there are many bad actors out there still in 2023.”
No one should be forced to call a toll-free number to cancel a subscription that’s been set up online, or be allowed only to cancel a subscription during business hours, he said. These practices delay cancellations and frustrate and confuse consumers. Many companies embrace those archaic practices on purpose.
“We want to make sure that we get rid of all the ‘dark gray’ and ‘absolutely black,’” operators who get away with bad business practices, he said.
The ultimate goal of the FTC should be a regulatory framework that’s completely unambiguous, so subscription companies have a clearly defined set of rules to operate within.
But unfortunately the current proposals will likely create unintended consequences, he said. In a bit of paradox, firms run the risk of making it too easy for consumers to jettison their subscriptions, which could have negative ripple effects for a company’s business model.
Hicks was quick to point out that there are some real benefits to be gleaned from the FTC’s new proposals. For one thing, companies must disclose a lot upfront, including pricing terms, how much they charge, when, and exactly what consumers get in return.
But elsewhere, “It’s not clear anymore how subscription businesses should behave,” he said. And it’s not easy to figure out what’s easy for consumers but winds up hurting merchants.
In particular, the FTC, in Hicks’ estimation, is singling out digital products, which may be harder for consumers to track (after all, getting coffee in the mail every month is a constant reminder you’re paying for something, and thus may be a prompt to shut it down).
Will a simple email suffice? Will a customer need to acknowledge they’ve received the email and agreed to it? These details have yet to be hammered out.
Hicks questioned the FTC’s proposal on requiring consent before consumers are approached with offers meant to dissuade them from canceling. Those methods — offering an additional month free or adding a new service to a bundle — may now become suspect, when in fact they’ve long been used as a part of everyday business, and in fact are desired and valued by customers.
Free trials may go by the wayside, as merchants will be leery of letting them evolve into paid subscriptions, lest that business practice suddenly be viewed as deceptive. Merchant processors may be also be placed at particular risk of inviting the FTC’s scrutiny and penalties because they’ll be under the microscope about fees (especially bundled fees), he said.
“It makes total sense to weed out the bad actors,” said Hicks. “The only way to do that is with a clear regulatory framework.”
As he noted to Webster, “There are merchants who deliberately play in the gray zone. They’re making money by deceiving customers. They slip through extra charges. They make it way too hard to cancel. And we definitely need to clean that up. Society at large benefits as a result.”
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