Discover the Game-Changing Underwriting Provision from the FTC: Your Ultimate Guide!

The Federal Trade Commission (FTC) proposed a “click to cancel” provision to its Negative Option Rule, which requires retailers to make it just as easy for your customers to cancel a recurring subscription as when they initially signed up. Merchants should take steps now to streamline their subscription cancellation process and invest in tools that provide more self-service options for reactivating subscriptions and managing automated billing schedules.

So-called “opt-out” services are nothing new. These companies offer products on a trial basis and then initiate a subscription unless the customer specifically declines the service prior to billing. However, the US Federal Trade Commission announced changes to its negative options rules with a fact sheet published in March.

These proposed changes would seek to avoid misrepresentation and would require more detailed disclosures. It would also require sellers to adopt a simple and streamlined cancellation process.

As the FTC explains, this “click to cancel” provision is intended to make it as easy for customers to cancel a recurring subscription as it was for them to start one.

Related: The subscription economy is growing rapidly. This is how your business can adapt and thrive.

What is changing?

The proposal is part of the FTC’s review of its negative option rule. This decades-old legal framework requires sellers to disclose the terms of a sale before initiating a subscription. The existing rule set also requires merchants to provide information about how consumers can cancel a subscription service.

Although this rule is in force, the regulatory agency informs that They receive thousands of complaints each year from consumers regarding subscription services. These claimants often claim that they have been billed for services without their consent or that they have dealt with a retailer that makes it incredibly difficult, even impossible-Cancel.

The updated rules would require that if customers can sign up for a service online, they must be able to cancel it on the website itself. This process should also involve the same number of steps (or fewer) than are required to start the service. It would also prohibit misrepresentation and require merchants to provide people with important information in a clear way so shoppers know what they are agreeing to.

The amended rules would “establish clear, enforceable, performance-based requirements” and would be applicable to all subscription features across all media. Ultimately, the FTC wants to make sure people can cancel services “without going through a lot of hoops.”

“Some companies too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place,” FTC Chair Lina Khan said of the agency’s logic. “The proposed rule would require companies to make unsubscribing as easy as signing up. The proposal would save consumers time and money, and companies that continued to use subscription tricks and cheats would be subject to stiff penalties.”

Related: ‘Click to cancel’ rule could end cycle of subscription cheating

Underwriting best practices will reduce the chances of disputes and chargebacks

Buyers expect convenience and efficiency in the digital marketplace. A clear indicator of this is the rapid growth in misuse of the chargeback process.

Visa claims that First-party fraud of this variety is responsible for 75 percent of digital e-commerce chargebacks. So-called “friendly fraud” commonly occurs with subscription retailers when consumers contact their bank, rather than the merchant, to cancel a subscription. The retailer on the other end of the chargeback often doesn’t realize a dispute is being filed against them until it’s too late.

Relative to the number of e-commerce transactions in the US, the growth of chargebacks has increased by almost 20 percent, according to a study published by Chargebacks911. This is a concerning statistic, as the chargeback process penalizes retailers with fines and “guilty rather than innocent” fees. Add to that the fact that chargebacks typically require significant resources for merchants to address. That’s assuming they can look past the bogus dispute reason codes and identify chargeback sources to address the issue. absolutely.

Unfortunately, in the absence of information sharing between the customer and the retailer, an open door for first party fraud becomes a permanent wedge.

Related: Your subscription service, simply more successful

Better communication will be essential

Reducing friction when it comes to canceling subscriptions is a net positive move for both consumers and merchants. It will naturally improve the customer experience and align with growing market demand.

The best approach for merchants is to try to avoid this problem by meeting customer expectations. By optimizing the customer experience And by providing better lines of communication, merchants can prevent many disputes before they happen. However, providing the means for customers to cancel a subscription is only part of the challenge. Merchants need comprehensive self-service experiences to stay competitive and meet growing demands.

Today’s consumer wants intuitive flexibility, payment scheduling options, and frictionless convenience. If retailers can’t meet those expectations, they will face stiff competition from their customers’ banks and credit card companies, many of whom provide a “concierge-like” service to address the needs and wants of customers. customers efficiently.

As mentioned above, the year-over-year growth in chargebacks is largely attributed to disputes filed over subscription products and services. Nor are we going to see this change in consumer expectations reversed; instead, merchants must adapt to changing customer expectations.

Related: How to Give Your Subscribers an ‘Ease of Ordering’

Adapt to survive in the new digital space

Whether or not the FTC adopts this proposed rule change, it has been suggested for decades that merchants should have clearly stated terms and conditions when it comes to recurring billing. However, this is no longer enough.

Merchants must act now to expedite their unsubscribe process. A tedious cancellation process could push customers to dispute charges or even file complaints with entities like the FTC or Better Business Bureau, regardless of whether the retailer complies and follows the payment processing guidelines that govern their account.

I advise businesses to include recurring billing information, as well as terms and conditions, within the checkout process and ensure that the information is easily accessible to customers. I also suggest that businesses increase the frequency of billing reminders and confirmations prior to renewal dates. Finally, merchants need to invest in tools that provide more self-service options for reactivating subscriptions and managing automated billing schedules.

There is no “silver bullet” to solve the problem of subscription chargebacks and negative option. However, bringing processes up to standard in terms of providing a better and more transparent service can allow merchants to prevent too many disputes from happening in the first place.