The Federal Trade Commission (FTC) has proposed a rule provision that would change the way recurring memberships can be canceled, the FTC announced on March 23.
The new click to cancel provision would require companies to allow consumers to cancel recurring memberships and subscriptions in the same way that they signed up for them.
IHRSA, the trade association and lobbying group for commercial health clubs, is speaking out against the proposal.
The new provision, along with other proposals, would mean consumers could more easily cancel unwanted membership and subscription payment plans.
“Some businesses too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place,” said FTC Chair Lina M. Khan. “The proposed rule would require that companies make it as easy to cancel a subscription as it is to sign up for one. The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties.”
The notice of proposed rulemaking is part of the FTC’s ongoing review of its 1973 Negative Option Rule, which the agency uses to combat unfair or deceptive practices related to subscriptions, memberships, and other recurring-payment programs.
These programs are widespread in the marketplace and can provide substantial benefits to both consumers and businesses. But they can become problematic when marketers fail to make adequate disclosures, bill consumers without their consent, or make cancelation either difficult or impossible—such as by requiring customers to cancel in person or keeping them stuck on hold waiting to talk to customer service, according to the FTC. Each year, the FTC receives thousands of consumer complaints about such practices.
The current patchwork of laws and regulations available to the FTC do not provide consumers and industry with a consistent legal framework.
However, IHRSA takes issue with the proposal’s one-size-fits-all assumption to a rule dealing with complex and diverse types of contracts between consumers and service providers.
“This proposed rule demonstrates that FTC and Biden Administration officials who support it, fundamentally misunderstand the nature and reality of the brick-and-mortar gym and studio business model,” IHRSA President and CEO Liz Clark said.
Gyms, studios, and related providers help more than 60 million Americans improve their physical and mental health, typically through exercise, classes and services delivered in-person at clubs that may have multiple locations and many of which offer bundle or short-term packages, she said.
The provision appears more oriented toward online games, services, programs, and products rather than physical gym and studio locations where consumers regularly visit, she added.
“IHRSA looks forward to having a dialogue with the FTC and Biden Administration officials on the positive mental and physical health benefits of our industry’s services as well as the pro-consumer platforms, agreements, and interaction arrangements already in place to ensure fair and transparent membership contracts with our millions of customers,” Clark said. “Online abuses and junk fee situations are rife in some app and online service areas of the digital universe, but not the brick-and-mortar space of gyms and studios that are Main Street businesses with a physical presence in every corner of the country.”
The proposal would make several specific changes, including requiring businesses to make it at least as easy to cancel a subscription as it was to start it. For example, if consumers can sign up online, they must be able to cancel on the same website, in the same number of steps.
The proposal would allow companies to pitch additional offers or modifications when a consumer tries to cancel their enrollment, but only after the seller first asks consumers whether they want to hear them. In other words, a seller must take “no” for an answer and upon hearing “no” must immediately implement the cancellation process.
The proposed rule would require sellers to provide an annual reminder to consumers enrolled in negative option programs involving anything other than physical goods, before they are automatically renewed.
Once the notice has been published in the Federal Register, consumers can submit comments electronically. The public also may submit comments in writing by following the instructions in the “Supplementary Information” section of the Federal Register notice.
The FTC has developed a fact sheet summarizing the proposed changes to the Negative Option Rule.