BALTIMORE — A federal rule designed to make it easier for consumers to cancel subscriptions was blocked by a court just days before it was set to take effect.
John Letard knows the frustration all too well. "My first attempt to cancel was in February," he said.
Letard found himself trapped in a $500 monthly fitness subscription service that was easy to sign up for but nearly impossible to cancel. Despite his efforts, the charges continued.
"In April, they charged me again," Letard said.
When he tried to cancel again, he was told, "It takes 31 days to fill out the form, but it's only been 30 so you get charged again."
The Federal Trade Commission and consumer protection groups have been fighting against these practices. In response to more than 16,000 comments from customers in 2023, the FTC crafted the Click-to-Cancel rule, also known as the Negative Option rule, which would require companies to make cancellation processes as simple as signing up for services.
"We've likened it to that old song by The Eagles. It's like the 'Hotel California.' You can check in anytime you like, but you can never leave and that's the way that companies have treated a lot these subscriptions," said Teresa Murray, Director of the Consumer Watchdog program at U.S. Public Interest Research Group (PIRG).
However, on July 8, days before it would become enforceable on July 14, the FTC rule was canceled following a court ruling. The federal appeals court found that the FTC didn't follow proper procedures by detailing costs and benefits of the regulation.
The Health and Fitness Association called the court's decision a "major win," writing that the rule was inflexible and lacked understanding of how fitness businesses operate. They specifically objected to the requirement that billing would immediately terminate upon cancellation, arguing this would set businesses up for potential chargebacks and refund disputes.
However, Monica Eaton, Founder and CEO of Chargebacks911, which helps merchants prevent chargebacks, believes the rule would do the same.
"If we have standards, and everyone is behaving with the same standards, there's no reason why our banks aren't going to make sure that we go to the merchant ourselves as well," Eaton said.
She added that consumers may not realize how costly chargebacks are for merchants.
"Merchants are charged a fee, a penalty. They are guilty before proven innocent. Imagine you're getting traffic tickets that you cannot ever erase, and eventually, if you get too many, then you lose your ability to drive. And in this case, you lose your ability to process credit cards," Eaton explained.
While chargebacks are sometimes necessary, Eaton noted they've become increasingly common due to the difficulties consumers face when trying to cancel recurring charges.
"We need things that are more efficient. And, you know, a happy consumer is always going to make a happy retailer. So, yeah, look at the long term results," she said.
Eaton also recommends businesses act as if the rule were implemented because the FTC could satisfy the procedural requirements and restart the rulemaking process.
PIRG also noted that because the rule was blocked less than a week before it was to take effect, many companies were already working on becoming compliant. However, they still recommend consumers avoid signing up for free trial subscriptions without knowing the cancellation process and suggest putting reminders in your phone a week or several days ahead of any renewal deadlines. Click here for their other recommendations on avoiding unwanted charges.
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