So you’ve built a website and you want to charge people on a recurring basis. Maybe it’s a monthly membership, a free trial that converts to paid, or a magazine-style subscription that renews every year. That’s all totally legal — but there’s a catch that a lot of young entrepreneurs miss, and it’s an expensive one.
The FTC (Federal Trade Commission) has rules around what they call negative option subscriptions. A negative option basically means your silence equals consent — the business charges you unless you actively cancel. Free trials that flip to paid plans, auto-renewing annual subscriptions, that kind of thing. The FTC’s problem isn’t with the model itself. The problem is when businesses hide or obscure the terms.
Here’s what you’re required to do as a website owner:
You have to clearly disclose the charges and cancellation terms *before* the customer completes their purchase. Not buried in a terms-of-service page nobody reads. Not in light gray text under a bright orange button. Clearly. Where people can actually see it.
If you don’t do that, you’re violating the FTC’s Negative Option Rule. And the fines aren’t symbolic — they can reach tens of thousands of dollars per violation. Not per month. Per transaction. If you’ve got a thousand subscribers and you didn’t disclose properly, that math gets scary fast.
The rule also covers how easy it is for someone to cancel. If you make cancellation confusing, hard to find, or require people to jump through a bunch of hoops, that’s also a problem under these rules. The FTC specifically flags situations where a business makes it “difficult or impossible” to cancel as a core violation.
Practically speaking, if you’re building a subscription product, here’s what you should have in place before you launch:
— A clear, visible statement of what the customer will be charged and how often, shown during checkout before they hit the final “pay” button.
— An equally clear explanation of how to cancel, and what happens if they don’t (i.e., they’ll keep getting charged).
— A straightforward cancellation process — the FTC requires a simple cancellation mechanism, so avoid designs that bury the option or force unnecessary steps.
One more thing worth knowing: several states — including California and New York — have their own auto-renewal laws that go beyond what the FTC requires. If you’re doing business with customers in those states, you may have additional obligations. Federal compliance alone isn’t necessarily enough.
This isn’t just about avoiding fines, either. Customers who feel tricked don’t just leave — they dispute charges with their banks, leave bad reviews, and report you. It’s bad business on top of being illegal.
If you’re not sure whether your current checkout flow meets the standard, that’s worth finding out before you have thousands of paying subscribers rather than after.