Why is it so hard to cancel subscription services?

by | Mar 11, 2022 | Litigation & Local Counsel, Regulatory Risk Analysis and Compliance

Dollar Shave Club, BarkBox, HelloFresh—subscription services can be convenient and cost-effective. Unfortunately, breaking up with your subscription service is often hard to do. The Federal Trade Commission recently announced it is “ramping up enforcement” against companies that make it difficult for consumers to cancel a subscription service. Federal law requires online merchants to provide “simple mechanisms” for a consumer to cancel a subscription service. Several states have adopted similar laws, but not Texas. 

Subscription businesses collectively grew more than 300% from 2012 to 2018, about five times faster than revenues of S&P 500 companies. A major challenge facing subscription businesses is churn—consumers “quickly cancel services that don’t deliver superior end-to-end experiences.”

Some companies use shady practices to discourage cancellation, like requiring consumers to call to cancel, making them wait on hold for long periods of time, and having representatives use multi-part retention sales scripts. These shady practices can be illegal, depending on the circumstances and applicable law.

Federal law

The Restore Online Shoppers’ Confidence Act (“ROSCA”) (15 U.S.C. §§ 8401-8405), requires online merchants to “provide[] simple mechanisms for a consumer to stop recurring charges[.]”

In October 2021, the FTC issued a new enforcement policy statement on ROSCA,  directing businesses to “provide cancellation mechanisms that are at least as easy to use as the method the consumer used to buy the product or service in the first place.” The FTC explains:

[S]ellers should not subject consumers to new offers or similar attempts to save the negative option arrangement that impose unreasonable delays on consumers’ cancellation efforts. . . . sellers should provide their cancellation mechanisms at least through the same medium (such as website or mobile application) the consumer used to consent to the negative option feature. . . . If the seller also provides for telephone cancellation, it should provide, at a minimum, a telephone number, and answer all calls to this number during normal business hours, within a short time frame, and ensure the calls are not lengthier or otherwise more burdensome than the telephone call the consumer used to consent to the negative option feature.

A policy statement isn’t law, but rather, an elaboration of the FTC’s current views on the application of relevant statutes and regulations.

The FTC also announced it is “ramping up enforcement” against companies that “trick or trap consumers” into subscription services. “Firms that deploy dark patterns and other dirty tricks should take notice,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection.

“Tricks and traps” can have huge financial consequences—in 2020, an online children’s education company agreed to pay $10 million and change its negative option marketing and billing practices to settle FTC charges that it made misrepresentations about cancellations and failed to disclose important information to consumers, leading tens of thousands of people to be renewed and charged for memberships without proper consent.

State laws

California,[1] New York,[2] Virginia,[3] Vermont,[4] Colorado,[5] Delaware,[6] Illinois,[7] Oregon,[8] and the District of Columbia[9] have adopted state laws regulating subscription services. The state laws are generally more specific than ROSCA.

Most state laws require sellers to allow consumers to cancel a subscription using the same method the consumer used to enter the subscription. For example, under California’s Automatic Renewal Law, a seller must provide a method of termination online, either: (i) in a prominently located direct link or button (which may be located within a customer account or profile) or within device or user settings; or (ii) by an immediately accessible termination email formatted and provided by the business that a consumer can send without additional information.

Texas does not regulate the cancellation process for subscription services, but some legislators have expressed interest in doing so.

During the 2021 regular legislative session, Texas State Representative Guerra filed HB 2259, which would have required subscription service providers to: (i) provide consumers with multiple methods for canceling a subscription; and (ii) allow consumers to cancel a subscription using the same method as the consumer used to enter the subscription. “If a consumer can sign up for a subscription service online, they need to be able to unsubscribe online,” said Representative Guerra during a committee hearing on the bill. “I call this subscription parity.”

HB 2259 was left pending in committee after a hearing and failed to pass. Similar bills were proposed in 2011 and 2009 but also failed to pass.  

Private litigation

It’s not just the FTC and state attorneys general that online merchants have to worry about, but private litigants, too.

Class action lawsuits have been filed against subscription service companies including the Washington Post, Consumer Reports, Weight Watchers, Ipsy Cosmetics, and Billie, to name just a few.

In 2020, a woman in California filed a class action lawsuit against the New York Times, alleging among other things that the newspaper company “makes it exceedingly difficult and unnecessarily confusing for consumers to cancel their NYT Subscriptions.” The New York Times settled the lawsuit for $5.563 million, consisting of $1.65 million in cash and approximately $3.913 million in Automatic Access Codes for a free one-month subscription.

Sellers should consult an attorney to ensure their subscription service policies and practices comply with federal and state law. If you’re a consumer and having trouble cancelling a subscription service, you can file a complaint with the Federal Trade Commission.

[1] Cal. Bus. & Prof. Code §§ 17600-17606

[2] N.Y. Gen. Bus. Law §§ 527-527-a

[3] Va. Code §§ 59.1-207.45-59.1-207.49

[4] Vt. Stat. Ann. tit. 9, § 2454a

[5] Colo. Rev. Stat. § 6-1-732

[6] Del. Code Ann. tit. 6, § 2734

[7] 815 Ill. Comp. Stat. Ann. 601/1-601/20

[8] Or. Rev. Stat. §§ 646A.292-646A.295

[9] D.C. Code § 28A-203

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