CFPB issues guidance on fees tied to subscription services

The Consumer Financial Protection Bureau is warning companies against automatically renewing subscriptions without allowing consumers to cancel. The bureau also weighed in on trial marketing programs that lure consumers with a reduced fee that renews at a higher rate. 

The upshot of the new guidance Thursday from CFPB Director Rohit Chopra is that companies need to clearly and conspicuously disclose the terms of their subscription services and get informed consent from consumers. Companies that make it difficult for consumers to cancel a subscription service face potential violations from the CFPB or the Federal Trade Commission, which issued a similar policy statement about such practices in 2021. 

"Consumers shouldn't have to jump through hoops to cancel subscriptions they don't want, and they shouldn't have to worry about a trial marketing offer turning into an unwanted monthly charge," Chopra said in a press release. "Misleading consumers about products or subscription services they don't want is not only dishonest but also a violation of the law."

Bloomberg News

The CFPB said it has received complaints from consumers about being charged for products and services they did not buy and tried unsuccessfully to cancel. So-called "negative option" marketing practices are common — and are deceptive, the CFPB said. A company that considers a consumer's silence or failure to cancel an agreement as tantamount to a subscription renewal violates the federal prohibition on "unfair, deceptive and abusive acts and practices," the CFPB and FTC have said. 

"Deceptive practices that seek to trap consumers into subscriptions they don't want are a violation of the law," Samual Levine, director of the FTC's bureau of consumer protection, reiterated in the press release.  

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The scrutiny is part of a broad effort by the Biden administration and Chopra to reduce "junk fees."  

The CFPB has filed many enforcement actions against credit card issuers involving optional "add-on" products such as debt protection and identity protection products with recurring fees that only end when a consumer affirmatively cancels the service. Last year, the bureau sued the Chicago-based credit bureau TransUnion for allegedly violating a prior consent order to stop misleading customers about credit reporting and monitoring services and to disclose recurring charges. TransUnion has vowed to fight the lawsuit. The CFPB specifically cited credit repair, consumer reporting and debt relief companies plus payment processors and service providers that faced enforcement actions for harmful marketing practices. 

Both the CFPB and FTC also described the rise of "digital dark patterns," or design features that are used to steer, manipulate and mislead consumers into purchasing a service with recurring charges. The bureau said in the circular that companies violate the law if they fail to "clearly and conspicuously" disclose material terms of subscription offers to consumers, fail to obtain informed consent and mislead or impede consumers' efforts to cancel.