The "subscription economy" has grown five to eight times faster than traditional businesses over the last decade, according to a report by Zuora, a subscription management platform. With just one click, consumers can enter into subscriptions involving various goods and services, from utilities and beauty products to streaming platforms. Given the model's growth, it is no surprise that the subscription market has never been bigger in Europe, with European households report spending a monthly average of €130 on subscriptions.
However, as subscription options exploded with the market's growth, so did concerns about consumers inadvertently exposing themselves to "subscription traps". Subscription traps include situations where consumers are misled into signing up for a subscription or where they face challenges in exiting a subscription. In all likelihood, many consumers have found it hard to cancel a subscription after the expiration of the trial period or ended up extending the subscription for the same reason.
The German Government committed to tackling these issues, and as of July 1, 2022, businesses that allow German-based customers to sign up for online subscriptions will face new obligations under the new "Fair Consumer Contracts Act" (Gesetz für faire Verbraucherverträge). The Fair Consumer Contracts Act (the "FCCA") amended provisions of the German Civil Code (Bürgerliches Gesetzbuch – "BGB"), and one of the main changes involves simplifying the cancellation of subscriptions to ensure it is as easy to cancel as it is to sign up.
Termination should be just two clicks away
As a first step, all online providers that offer subscriptions to consumers based in Germany are now asked to implement features to facilitate the cancellation of subscriptions. In particular, companies must take steps to ensure they include both a "termination button" and a "confirmation page" on their websites, as follows:
- First, businesses need to place a termination button on their websites with options such as "cancel your contract here" or "cancel your subscription here" or any other appropriate and unambiguous wording to allow for easy termination of subscriptions.
- By clicking on that button, the consumer should be redirected
to a confirmation page where they are identified and can
effectively confirm the request:
- On this page, consumers will be prompted to fill out a cancellation form with predefined questions. These include the user's details (e.g., name, username or contract number), email address (to receive a confirmation of the request), the termination date (i.e., the date at which the termination is intended to take place), the nature of the termination, and, in the case of extraordinary termination, the ground of termination.
- Once completed, the user must submit the form by clicking on another dedicated button clearly marked with wording such as "confirm your cancellation request" or "cancel now".
Both the "termination button" and the "confirmation page" need to be permanently available and accessible to all users, preferably on the website homepage or the subscription page. Likewise, consumers should not be required to be logged in to the website, or be asked to follow repeated offers or "are you sure?" prompts to conclude such cancellation. The entire process should be designed in such a way to enable consumers to terminate contracts in a few clicks, with an intuitive, user-friendly and easy-to-use interface.
What happens after the cancellation request?
Once the consumer has filed out the cancellation or termination form, they should be able to permanently save the termination request submitted, with a record of the date and time of the request, on a durable medium, e.g., via a downloadable PDF form.
Customers must also immediately receive a confirmation of termination by electronic means (e.g., email) with information about the termination, the date and time of receipt of the form, the date at which the subscription will terminate, and any other relevant information. In case of doubt, or if the consumer does not specify a time for cancellation, the termination should take effect at the earliest possible date.
The online cancellation form will be deemed a valid declaration and should not depend on additional confirmation steps, provided the consumer submitted sufficient and accurate data. In other words, once the consumer sends the online form with the correct information, the termination will occur immediately. However, suppose the consumer entered incorrect data (e.g. the number provided is not linked to an active subscription). In that case, the business can request additional information, which can consequently delay the cancellation.
Does it apply to all types of subscriptions?
The new cancellation rules apply to all subscriptions offered to consumers based in Germany, whether or not they were concluded before July 1, 2022. This means that regardless of the subscription date, online businesses must comply with the new rules, which have a retrospective application, and apply to contracts formed before they came into effect.
However, there are a few exceptions. The "two-click cancellation" will not apply to contracts involving financial services or where termination requires a specific form by law. Generally, the latter are tied to high-impact transactions under German law. Also, given that the rules apply to German-based consumers only, consumer-facing businesses that do not operate in Germany will not be asked to comply with such changes.
What action steps should businesses take?
First, businesses must assess whether the new legislation applies to them. If so, they should implement both the termination button and the confirmation page in such a way that complies with all the legal requirements. Businesses should also review their subscription terms and conditions to ensure the relevant documents are in line with the new cancellation rules.
What happens if businesses do not comply with the new rules?
If the business does not comply with the mentioned requirements, consumers can terminate the subscription at any time and without being bound by minimum terms or termination notice periods. Therefore, any cancellation request will operate with immediate effect.
Businesses may also be exposed to claims by consumers, competitors and consumer protection associations and face fines for not following the obligation.
Do the new rules affect other rights?
Under German law, the new rules do not affect the parties' right to an extraordinary termination (termination for a good cause). Likewise, payment provisions, billing processing, and other specific contractual obligations are not affected and remain subject to the relevant contractual and statutory provisions in place. Provided the business complies with the new requirements, notice periods and minimum terms, if applicable, shall remain intact and must be respected.
Originally published 09 June 2022
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
