New Subscription Laws Help Put Money Back Into Consumers’ Pockets

Subscription services offer convenience to consumers and steady revenue for companies. However, difficult cancellation processes have led to consumer frustration and unintended expenses. In response, new regulations are being introduced to simplify cancellations, while companies are realizing that easier processes can enhance customer acquisition and retention.

This article explores these legislative changes and the financial benefits for consumers and companies alike.

Subscription Services And The Average Consumer

Subscription services have become a staple of modern consumer life, offering convenience in areas such as entertainment, software, meal kits, and fitness, among others.

Statistics vary on how much the average American spends on subscriptions. One 2022 report from C+R Research put the number at $219 a month, while a CNET survey released in April 2024 estimated $91 per month. On streaming subscriptions alone, the average amount is estimated at $77 each month, according to Bango.

Whatever the actual number, it’s safe to say that some Americans can pay anywhere from around $1,000 to more than $2,000 a year on various subscription services. This amount can represent a significant part of people’s discretionary spending.

However, many companies have historically made it difficult for consumers to cancel these subscriptions, resulting in unintentional renewals and hidden expenses.

Legislative Changes

In response to widespread consumer dissatisfaction with the cumbersome processes, lawmakers have taken significant steps to protect consumer rights and promote transparency.

These new laws and regulations are designed to ensure that canceling a subscription is as simple and straightforward as signing up for one, addressing long-standing grievances about hidden obstacles and time-consuming procedures.

For example, in 2023, the Federal Trade Commission proposed a new rule aimed at simplifying the cancellation process for consumers enrolled in subscription-based services.

The “click-to-cancel” provision would require businesses to make it as easy for consumers to end their subscriptions as it is to sign up. This means that if consumers can enroll in a subscription with a simple online click, they should be able to cancel just as easily.

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Additionally, the FTC is proposing restrictions on offering additional products or services during the cancellation process, prioritizing the consumer’s right to terminate their subscription without pressure or confusion.

As quoted in the release, FTC Chair Lina M. Khan says, “The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties.”

By implementing these changes, the FTC hopes to create a more transparent and consumer-friendly marketplace for subscriptions.

While the click-to-cancel rule is still in the proposal stage, some states have already enacted their own consumer protection laws regarding subscriptions.

For instance, California’s 2022 Automatic Renewal Law requires companies to clearly outline subscription terms and obtain explicit customer approval for automatic renewals.

To prevent surprises, businesses are obligated to provide advance notice before trial periods end and offer simple cancellation methods.

Similarly, in New York, legislative amendments were enacted in 2023 to ensure companies notify consumers 15 to 45 days before automatic renewal of subscriptions and provide clear cancellation instructions. Comparable laws and amendments were also implemented in Colorado, Delaware, and Illinois.

Benefits Of Easier Cancellations

The simplification of subscription cancellations is set to have a notable financial impact on consumers. Easier and more streamlined processes mean that consumers can more effectively manage and terminate subscriptions they no longer need or want, leading to direct savings.

Accidental renewals, a common issue, will be greatly reduced. Consumers will become more mindful of their subscription expenses, allowing them to allocate their money more efficiently.

For instance, if an average consumer manages to cancel just a few unused subscriptions, they could save hundreds of dollars annually. A family paying for multiple streaming services, fitness memberships, and meal kits could potentially save even more.

These savings can then be redirected toward other financial goals, such as paying off debt, building an emergency fund, or investing.

On the side of businesses, easier cancellation methods also provide significant benefits.

According to Guy Marion, CMO of Chargebee, a platform that helps subscription-based businesses manage customers, companies can actually increase subscriptions if they make the cancellation process more transparent. “We’ve seen in the past that 80% of consumers would be more likely to purchase an online service if they can also see that they can cancel online as well,” Marion explains.

He adds that streamlined cancellation methods also provide companies with a way to reach out to customers and offer alternatives, such as discounts, plan changes, payment skips, speaking to a support agent, or simply taking a pause from the service. This then improves client retention.

“We’re reducing 23% of cancellation attempts while actually improving the feedback that customers would provide about the cancellation experience they had,” Marion shares.

Final Thoughts

The shift toward easier subscription cancellations benefits both consumers and businesses. New policies empower consumers to manage their finances better, reducing the frustration and costs of unintended renewals. Customers can save money and make informed decisions through better cancellation methods and proactive subscription management.

For companies, adopting transparent and simple cancellation processes enhances customer acquisition and retention. It also builds trust and loyalty, which ultimately benefits a business’s long-term success.

This evolving landscape promotes a fairer and more efficient subscription economy, creating a win-win scenario for all parties involved. Embracing these changes leads to a financially healthier and more satisfied consumer base, along with stronger, more trusted companies.