Earlier this summer, the Federal Trade Commission’s (FTC’s) “click-to-cancel” rule was overturned by the U.S. Court of Appeals for the Eighth Circuit, just days before the new rule was set to go into effect. According to the court, the FTC failed to conduct a preliminary regulatory analysis, which they said was required for the new rule since it would have had an annual impact of more than $100 million on the U.S. economy.

The FTC’s “click-to-cancel” rule would have required companies to implement a “simple” cancellation mechanism that allows customers to unsubscribe to an automatic renewal offer as easily as they enrolled. The new rule also included a number of new disclosure and cancellation requirements.

Amid consumer complaints about difficult cancellation procedures, unclear terms and unauthorized charges, the FTC is actively pursuing enforcement actions against companies that fail to provide clear disclosures, obtain consumers’ informed consent or offer simple cancellation methods.

Recent Enforcement FTC Activity

When the “click-to-cancel” rule was invalidated by a federal appeals court, many wondered whether automatic renewal enforcement would remain on the FTC’s radar. Now, just two months after the court’s ruling, the FTC has made clear that subscriptions are still a priority, as the commission has pursued four companies for issues related to subscription offers. With these enforcement actions, the FTC has made clear that it will continue enforce its existing rules against unfair or overly complicated subscription services and cancellation procedures.  

Below is a quick summary of the FTC’s most recent enforcement actions:

• Chegg. The FTC recently announced a $7.5 million settlement with Chegg for alleged violations of the Restore Online Shoppers' Confidence Act (ROSCA). According to the FTC’s complaint, Chegg failed to provide a simple mechanism to cancel recurring charges its subscriptions and made its online cancellation option difficult to find and get through. Chegg’s cancellation user flow was said to be confusing and unintuitive, and even if customers successfully completed the cancellation flow, the FTC alleges that Chegg still continued to charge those customers.   
• LA Fitness. The FTC is pursuing an action against LA Fitness for its exceedingly difficult and opaque cancellation process. To cancel an LA Fitness gym membership, customers were often required to fill out a detailed form, go to a physical gym location during certain (restricted) hours, and speak to specific managers who were often not present or made themselves otherwise unavailable. The FTC’s complaint also alleges that LA Fitness had a practice of training staff to deny cancellation requests made by phone or email. Not only does the FTC allege that these practices violate ROSCA, but it has also alleges these practices violate Section 5 of the FTC Act because they are unfair or deceptive. A settlement has not yet been reached. 

The FTC is also actively pursuing its cases against two well-known companies for Section 5 and ROSCA violations. The commission has made recent filings in both cases. 

 What Health & Wellness Companies Need to Know

Subscriptions are an important revenue model for many health and wellness companies. The FTC’s recent enforcement activity further underscores how important it is for companies to comply with ROSCA.

Many companies like supplements, fitness memberships, telehealth services and wellness apps all rely on subscription models. While automatically renewing subscriptions are the preferred revenue stream for the health and wellness industry, they also come with some meaningful regulatory risk if handled improperly. Inadequate compliance with ROSCA (and consumer complaints) can lead to FTC investigations, reputational damage, and in some cases, refunds and restitution to affected consumers.

Specifically, ROSCA prohibits companies from charging online subscription fees for goods or services, unless the seller: 

• Clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information
• Obtains the consumer’s express informed consent before making the charge
• Provides simple mechanisms to stop recurring charges

Under ROSCA, “material” terms of an offer include: 

• The method of cancellation
• That their add-on services and amenities are separate negative option
• Programs that are subject to separate cancellation requirements

Where a seller fails to clearly and conspicuously disclose all material terms before obtaining the consumer’s consent to be charged (or does not obtain the consumer’s consent to be charged), the FTC can also pursue claims under Section 5 for unfair or deceptive acts and practices. 

Given the FTC’s renewed focus on automatically renewing subscriptions, health and wellness companies should proactively review their subscription sign-up flows, renewal disclosures and cancellation processes. Companies should also pay close attention to state automatic renewal laws, as sometimes those laws include more specific, or different, compliance requirements.