The Federal Trade Commission (FTC) has recently implemented a new rule known as the “Click to Cancel” rule, impacting software-as-a-service (SaaS) companies and other businesses that offer subscription-based services. This rule is designed to make canceling a subscription as straightforward as signing up. If your SaaS company operates on a subscription model, here’s what you need to know about the new regulations and how to stay compliant.
What Is the ‘Click to Cancel’ Rule?
The “Click to Cancel” rule is part of the FTC’s broader enforcement against unfair and deceptive
practices in subscription-based businesses. The rule requires businesses to offer a simple,
accessible way for customers to cancel their subscriptions—ideally with a single click or a
straightforward, online path. The primary goal is to prevent companies from engaging in “dark
patterns,” where the process to cancel a subscription is complex, hidden, or misleading.
The FTC’s new rule largely applies to negative option marketing, which is a business practice
where a customer’s failure to take action to cancel a contract or reject an offer is interpreted as
acceptance.
The FTC’s new rule essentially does the following:
- Requires that all companies that engage in negative option marketing offer customers a
cancellation mechanism at least as simple and capable of being initiated through the same
method used to initiate the subscription, - Prohibits misrepresentations related to any aspect of the recurring product or service,
including misrepresentations unrelated to the recurring nature of the product or service, - Requires disclosure of the negative option and other terms of the transaction before
obtaining customers’ billing information, and - Requires that companies obtain customers’ consent to the negative option.
Why This Matters for SaaS Companies?
The subscription model is central to many SaaS businesses, making customer retention a key
revenue driver. However, practices that intentionally make it hard to cancel have come under
scrutiny, as they can lead to consumer frustration, complaints, and potential legal issues.
The FTC’s rule aims to protect consumers by preventing these practices, creating a smoother and
fairer process for cancellations. Failure to comply could result in fines, legal challenges, and
reputational damage.
How SaaS Companies Can Ensure Compliance?
Companies have 180 days after the new rule is published in the Federal
Register to come into compliance with its provisions.
Here are steps your SaaS business can take to stay compliant:
- Audit your current cancellation process: Begin by reviewing your cancellation process to
identify any barriers, extra steps, or areas that could be seen as unclear or misleading.
The aim is to provide a path that is as easy as the signup process. - Implement a ‘one-click’ option, where possible: The simplest path to compliance is to
offer a “one-click” cancellation option directly within the customer’s account settings. If
a single click isn’t feasible, aim for a very straightforward process (for example, a single
confirmation page following the initial cancellation click). - Use clear and transparent language: The cancellation option should be visible and
written in straightforward language. Avoid jargon or terms that could confuse users
about their rights, or the steps involved in cancellation. - Offer cancellation through the same channel as signup: If customers signed up online,
they should be able to cancel online. Avoid directing them to a different platform (like
phone or email) unless these options were part of the signup process. If a customer
signed up in person, they should be able to cancel online or over the phone. - Review and update your terms of service: Update your terms of service and cancellation
policy to reflect the new process, and ensure these documents are accessible. This helps
build trust with customers and demonstrates your commitment to fair practices.
Potential Consequences of Non-Compliance
Failure to comply with the “Click to Cancel” rule can result in hefty fines and enforcement
actions by the FTC. Beyond financial penalties, your company’s reputation could suffer as frustrated customers share their negative experiences online, potentially deterring new customers.
By aligning with the rule, SaaS companies not only avoid legal risk but also position themselves
as customer-centric, transparent, and trustworthy.
Questions?
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The attorneys at Foundry Law Group have years of experience in helping businesses manage and
protect themselves from risks and concerns. Our team follows the latest developments affecting
our clients’ operations, and we apply that knowledge as we build proactive strategies for long-
term protection. We are always here to help so make sure to contact our talented team now!
