FTC Lockdown on Legal Tech and Marketing Companies LockIns With Autorenewals

How many times have you signed up for a free trial, then forgot to cancel and were hit with a huge bill?

Or signed up for a legal tech or marketing service that you didn’t like so you let it run its course, only to have it auto-renew and lock you in for another term? 

Companies Glean Billions in Profits by Locking Customers In 

Turns out, you’re not alone.  According to the Better Business Bureau, the average consumer loss associated with a so-called free trial due to hidden fees and onerous cancellation practices is $186.  And a survey by Creditcards.com found that 35% of consumers reported unwittingly enrolling in some type of auto-renewing subscription that they couldn’t figure out how to escape.  (Source: FTC Proposed Rule). 

The FTC Steps Up to Step Down Autorenewals

These kinds of problems prompted the Federal Trade Commission (FTC) to propose amendments to its Negative Option Rule to better protect consumers from deceptive practices associated with recurring charges for unwanted products or services.  A “negative option” refers to the industry practice of interpreting silence or customer non-action as default acceptance of an offer.  Or as I like to call it, a Hotel California practice where, as the song goes, you can check out but you can never leave.  

Currently, the Negative Option Rule applies only to prenotification plans, such as product-of-the-month clubs, requiring sellers to clearly and conspicuously disclose the material terms of a negative option offer, including the existence of the offer, its total cost, and how to cancel the offer. The amendments expand the scope of the rule to online subscription services and all types of “negative option marketing, including continuity plans, automatic renewals, and free trial marketing.

Under the proposed rule, businesses would be required to:

• obtain unambiguous consent to negative option marketing.
• provide an annual reminder to consumers enrolled in negative option plans involving anything other than physical goods and
• make it easy for participants to unsubscribe
• comply with the FTC rule, or face possible civil penalties and consumer redress

Non-compliance may trigger civil penalties and consumer redress.  You can read the proposed rule in its entirety here.  In addition, keep in mind that many states have enacted laws that apply to subscription services and autorenewals; for a good overview, see Understanding Advancements in Autorenewal Laws at Contract Nerds.

Why the FTC Negative Option Rule Matters to Law Firm Owners

Law firm owners should familiarize themselves with the FTC’s Negative Option Rule and relevant state law. Sadly, companies that serve lawyers are some of the worst offenders.  I recently signed up for a yearlong CRM service that I quickly realized did not suit my needs, but as the year came to a close, the company never notified me of annual renewal.  Because I was tracking the expiration, I reached out to the company myself to cancel – and it auto-renewed me anyway, then claimed that I’d remain liable for additional startup costs (which had been amortized during the yearlong subscription).  A few emails and a cite to the FTC rule did the trick –  but had I not been attentive to the upcoming renewal (and let’s face it, most busy lawyers are not), I’d have been on the hook for several thousand dollars.

Unfortunately, the FTC rule doesn’t eliminate all of the barriers to exit that lawyers face. Companies often make the transfer of data difficult, and some unscrupulous web companies will even register a law firm’s domain name and hold on to it to prevent the firm’s departure.  Lawyers can avoid those issues only by closely reviewing the terms of the plan before signing off.

Still, even with its shortcomings, the FTC’s proposed rule, when adopted, will act as a powerful tool to help you eliminate subscriptions that have been hanging around but have been too much of a pain to get rid of.  And even though the rule isn’t yet final, the FTC can still take enforcement action against companies for deceptive auto-renewal practices on a case-by-case basis.  So it’s not too soon to take a look at all of your subscriptions and decide which ones you want to cut.  And if you experience any difficulty, here’s a form email you can send, courtesy of Chat GPT.