The new FTC regulations on Membership terms and Cancellation rules, that we’ve dubbed “Click to Cancel,” will become enforceable April 14, meaning you will get fined for not complying.

The rule applies to every business, regardless of industry, that offers goods and services through automatic renewing payment plans, free or discounted trials, or other “negative option features” (free trials or intro offers that automatically roll into a subscription contract) that indefinitely renew unless affirmatively canceled. If you only offer packages or single sessions, you can tune it. This is not you. 

Even though the focus has been on the cancellation requirements of offering a membership, we’re advising our clients to look at all three parts of the laws: (1) sales and contracting, (2) cancellation, (3) saves, adjustments, recapture. 

I - SALE AND CONTRACTING: 

The new rule adds additional regulations and requirements to the sales and contracting process: (1) the business must have disclosures in their membership contract for the product/service provided on a recurring payment, (2) certain information about the contract needs to be disclosed prior to the client signing, and (3) the client must sign the contract before the business processes their payment method and save their payment information. 

As writing custom, detail-oriented service agreements are our jam, this section is especially important to us, and where we’re going to have you covered:

1. Expanded Disclosures in the Membership Contract: the most important part of this rule (says the attorney) is the requirement for a written membership contract between the business and the client. The contract must—clearly and obviously—disclose that the contract is for a recurring payment, that will be automatically billed on a set cadence, until cancelled by the client. 

(This is your sign to invest in your Membership Contract if you have no yet because now it’s actually the law).

2. Transparency in the Transaction: the business cannot misrepresent (1) the efficacy of the product or service being sold—you cannot guarantee it will cause a result; or (2) key billing terms, like the date someone is going to be billed. Always best to be as clear and obvious as possible in contracts. 

3. Express Consent: the business must obtain unambiguous affirmative consent to the charge before the customer completes the transaction. We usually see this as a ‘check box’ with the phrase, “I agree to the Terms of Service” with the option to read the Terms (usually hyperlinked). 

If you’re new to using contracts online in your scheduler: don’t worry! We provide a complimentary walk through with our clients of their digital back-ends to ensure the contracts are in the right place, they have the proper language up when clients ‘check the box,’ and you’re operationally and systemically set-up for legal compliance!

Last thought on the contract itself—the business must keep records of the contract for three (3) years. This is an easy lift if you use an online scheduler; it will automatically store it in the clients’ user profile. 

Bonus thought on the Contract itself: Cooling Off Period: most states have mandatory language for fitness memberships to allow clients to cancel within 3-10 days of initial contract signing. This time frame is called the “cooling off period,” varies by state (we knew ‘em all by heart), AND if your state does have such a period, there is generally also mandatory language to put in your contract (the more you know).

What About Free Trials and Intro Offers?: while we see free trials more in online services versus brick-and-mortar, I am seeing more Introductory Offers that automatically roll into an auto-renewing membership. 

To keep it simple: you can convert a free trial into an auto-renewing membership so long as (you guessed it) you are explicit in your Terms. You must state the number of days of the trial/offer, the day that billing will begin, and any cancellation terms specific to the trial/offer, specifically terms that would prevent the auto-renewal membership to begin. 

Truly, one to two well-written sentences can save you here and we ensure all of your contracts account for this nuanced detail. 

II - CANCELLATIONS 

The new “click to cancel” rule can be summed up as: the businesses must provide a simple way to cancel a subscription that is as easy as the sign-up process and the business contract must detail how the client can easily cancel. 

The caveats here:

Online option to cancel: you must allow clients an online option to cancel or an option that does not require human interaction (email, phone call, etc). Once the client has sent the cancellation email or left the voicemail requesting cancellation—that is considered their “simple way to cancel” and you as the business owner must take such notice or create extra burdens. 

No more 30-day notice: the requirement that clients give you ‘x’ number of days notice to cancel is no longer valid. Clients may cancel any time prior to their next billing cycle.

Contract length > cancellation: if a client signs up for a 6-month contract (with special pricing, I’m sure), the “renewal” occurs at the end of the 6-months, not each month that you are billing the prorated fee of that contract. 

Initial 3-month contract requirements can also still hold true. If you have minimum number of months a client be a member before terminating their agreement, that trumps the ‘click to cancel’ *out* of the contract. They may cancel during that 3-month term, but their cancellation won’t be in effect until the initial term is over. 

If you’re not sure what this means in your business regarding saving, sales tactics, and contract lengths—this is why we have all clients to book a 1:1 Strategy Session as step one to working together on custom contracts. We strategize every detail of your operations and ensure you’re set up for success with SOPs and sales strategies; and then we support the business with custom legal agreements. 

III - SAVES

Once the "Click to Cancel" rule is in full effect, the FTC is expected to refine regulations on retention offers and annual reminders based on industry feedback and enforcement trends but here’s what we know:

From there you may attempt to “save” the membership with an option to freeze or tier adjust, however, you cannot be unreasonable in your tactics (as determined by the clients perspective, not yours as the owner) AND you must still take the notice of cancellation as their official notice. 
 
Other key nuances:
→ Customers must not be forced to speak with a representative, use live chat, or interact with a chatbot to complete a cancellation.
→ If a customer declines a save offer, businesses must process the cancellation without further resistance. Seriously, don’t be that person.
→ Phone cancellations are allowed, but only if they do not require any more than the client requests to cancel. You may not make the conversation more complicated or time-consuming than an online cancellation process.
→ If a business allows phone cancellations, they must ensure a representative is available during all business hours or honor cancellation requests received during those hours.

FINAL THOUGHTS:

While this rule was enacted to regulate the big-bigs, I recognize that as small business owners, we’re feeling it. But we also want to be compliant and ensure ease of all transactions with clients. 

As enforcement begins (and at a $51k penalty per occurrence, woof), I encourage you to use this opportunity to review and update membership policies, contracts, and cancellation procedures to remain compliant and maintain transparency with clients.

If you need support ensuring your business is operationally compliant and that your contracts meet the new FTC standards—reach out to our team for expert legal guidance on subscription-based business models via email at: Danielle@DSB-legal.com or on our contact page.