Germany's Subscription Law

Subscription services and the billing practices that have developed around them are a frequent cause of conflict, confusion, and chargebacks. To protect consumers and keep services that bill on a subscription basis viable, various new laws and regulations have been enacted by governments and industry leaders in recent years.

The latest rule change comes from Germany, where the Fair Consumer Contracts Act that is set to take effect this year will impose new requirements on subscription-based sellers. What do merchants need to know about the new law in Germany, and how will it affect subscription services?

Subscription services have been having a moment lately, but their rise has been ongoing for quite some time now.

Growth in the subscription economy has grown by well over 400% over the past decade or so, and as much as 78% of global adult consumers maintain at least one subscription.

This should come as no surprise when you consider that massively popular streaming services and online gaming platforms are all dependent on subscription-based billing models. Meanwhile, the trend has been bolstered by “subscription box” services and other novel implementations of the subscription model.

Merchants like subscriptions because they generate revenue on a predictable, recurring basis. Consumers like them because they’re convenient and often a better deal than paying for certain products or services on a usage basis. The disputes that come out of subscription billings tend to be related to unanticipated charges, like automatic renewals that the subscriber wasn’t expecting, or issues with the cancellation process.

To mitigate these problems, Germany has adopted a new law, the Fair Consumer Contracts Act (FCCA), which addresses several key points of subscription billing. Subscription merchants who operate in Germany need to know what’s in this law and what they will have to do to comply with it.

What Is the FCCA?

The FCCA is a law enacted by Germany in 2021 to increase consumer protections. It applies to businesses who enter into subscription-based payment arrangements with German consumers, and this is in addition to any EU laws or card network regulations that must be followed.

There are three main components to the law. First, merchants cannot require customers to enter into year-long binding contracts when they renew a subscription. Second, the merchant must provide an easy, straightforward “cancel button” option for terminating a subscription.

Third and finally, merchants can no longer insert clauses into their terms and conditions that prohibit customers from assigning certain claims to third parties. Most merchants will only need to worry about the first two components.

So far, the penalties for non-compliance with the FCCA have not been announced. However, merchants will not be able to enforce contracts that run afoul of the law, and violators may expose themselves to legal action from consumers.

When Does the FCCA Take Effect?

The FCCA went into effect in October 2021, but merchants were given some time to adapt to the requirements of the new law:

• The prohibition on automatic yearlong renewals starts on March 1, 2022.
• The deadline to implement a cancellation button is July 1, 2022.
• The changes to assignment rules go into effect on October 1, 2022. Assignment clauses that are invalid under the FCCA will be void as of that date.

What Does the FCCA Say About Contract Renewals?

As of March, merchants can no longer automatically renew their German customers’ subscriptions for another year after the initial two-year period has passed.

Automatic renewals can be processed if the renewal is for an indefinite period of time and does not lock them into a binding contract. However, the customer has the right to terminate the subscription at any time, and cannot be required to give more than one month’s notice.

What Is the “Cancel Button” Requirement of the FCCA?

The FCCA requires subscription merchants to offer a clearly labeled, permanently accessible cancellation button that takes customers to a page where they can provide the information needed to cancel a subscription and submit it with a single click. This applies to all online subscriptions provided to German customers prior to July 1, 2022—if the subscription was initiated online, the customer has to be able to terminate it online.

The cancellation page can ask customers:

• Their identity and contact information
• What they’re canceling
• Their reason for canceling
• When the cancellation should take effect

As long as the customer submits enough information to confirm their identity and their intent to cancel, the merchant must process the request, even if other requested information is missing. The request cannot be made subject to multi-factor confirmation, such as clicking an additional emailed link.

Per the law, the button to submit must be clearly and simply labeled, and the customer must be able to save a copy of a notice confirming that their subscription was terminated in response to the cancellation request.

If the customer doesn’t provide a specific termination date, the request must take effect at the earliest possible date.

Conclusion

Subscription merchants already have a lot on their plate when it comes to billing challenges and regulatory oversight, but there’s no getting around the fact that maintaining your German customer base under the auspices of the FCCA may require legal consultations and a good deal of contract rewriting.

Merchants who won’t be affected by this law should still keep in mind that it’s always good to see which way the regulatory winds are blowing, try to understand the reasoning behind new consumer protection measures, and be proactive about improving transparency and prioritizing the customer experience.

When subscription charges lead to disputes, it’s often the case that the merchant is in the right—the customer has misunderstood, willfully or otherwise, the terms of their contract and obtained a friendly fraud chargeback. The merchant can fight these chargebacks and win, but some damage has already been done. The customer has had a negative experience and even if the merchant gets their money back, the chargeback is still on their record.

Laws like the FCCA can provide a framework for creating subscription models that give consumers the flexibility and convenience they want, and in doing so, keep them happier and less inclined to get into disputes with the merchant.

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