The Federal Trade Commission’s (FTC) is again experiencing significant pushback to its new “Click to Cancel” rule. As of today, three lawsuits have been filed across different U.S. Circuit Courts by various industry groups and associations. The FTC’s “Click to Cancel” rule has sparked controversy due to its sweeping application across all “negative option” subscription contracts, which automatically renew unless canceled by consumers. The rule mandates new disclosure and consent requirements, aiming to address consumer complaints about difficult cancellation processes.
Recent Legal Challenges
- Fifth Circuit Challenge: Yesterday, the NCTA – The Internet & Television Association, the Interactive Advertising Bureau (IAB), and the Electronic Security Association (ESA) filed a petition in the Fifth Circuit Court of Appeals. These organizations argue that the FTC’s rule is “arbitrary, capricious, and an abuse of discretion” under the Administrative Procedure Act. They claim it imposes onerous regulatory burdens on businesses by requiring them to make subscription cancellations as easy as sign-ups. The case is Electronic Security Association v. FTC, case number 24-60542, in the U.S. Court of Appeals for the Fifth Circuit.
- Eleventh Circuit Challenge: The Chamber of Commerce for the United States and the Georgia Chamber of Commerce also have filed a lawsuit, in the Eleventh Circuit Court of Appeals. This suit echoes similar concerns about the rule’s broad regulatory scope and its impact on consumer contracts across various sectors. The case is Chamber of Comm. of the US v. FTC, 11th Cir., No. 24-13436.
- Sixth Circuit Challenge: The Michigan Press Association and the National Federation of Independent Businesses have taken their challenge to the Sixth Circuit Court of Appeals. This case adds another layer to the growing opposition against the FTC’s rule, emphasizing its perceived overreach and lack of specificity in defining unfair or deceptive practices. The case is Michigan Press Association, et al v. FTC, case number 24-3912, in the U.S. Court of Appeals for the Sixth Circuit.
Dissent
The FTC passed the “Click to Cancel” Rule on a 3-2 vote across political lines, with Commissioners Melissa Holyoak and Andrew N. Ferguson dissenting. Commissioner Melissa Holyoak has articulated a detailed dissenting statement, outlining what a court challenge brought against this Rule may look like. She argues that the rulemaking process did not adhere to Section 18 of the FTC Act because the Final Rule:
- extends beyond the “area of inquiry” proposed by the advance notice of proposed rulemaking;
- lacks specific definitions of acts or practices that are unfair or deceptive; and
- fails to prove that practices related to negative option billing are prevalent.
In addition to suggesting the court challenge strategies, this dissent highlights a potential shift in regulatory approach if there is an administrative change following the upcoming elections.
Effective Dates
As of now, the rule has not yet been published in the Federal Register, a necessary step to initiate the countdown for its effective dates. The disclosure requirements will take effect 60 days following publication, while implementing a simple cancellation method will become required 180 days after publication.
It remains unclear whether the “Click to Cancel” rule will be stayed or overturned before the effective dates by the courts or, possibly, by the newly composed FTC. As such, businesses should prepare for the possibility of the rule becoming effective and consider other laws that already impose similar requirements, such as Restore Online Shoppers Confidence Act (ROSCA), the Telemarketing Sales Rule (TSR), and state autorenewal laws.
Conclusion
These are turbulent times of regulatory uncertainty for subscription-based service providers. Given the Rule’s somewhat vague requirements and a patchwork of other applicable marketing laws, companies need to work with trusted legal advisors to carefully determine compliant practices that are also viable from a business perspective, especially given that changes related to user interfaces, consent tracking, and administrative procedures will require testing and time to implement effectively.
The CommLaw Group Can Help!
Given the myriad of federal and state autorenewal requirements, as well as the increased risk of consumer protection enforcement by the FTC and state attorneys general, and even civil litigation, The CommLaw Group has a team standing by ready to answer your questions and help you navigate your business teams through changes to its operations and practices.
CONTACT US NOW, WE ARE STANDING BY TO GUIDE YOUR COMPANY’S COMPLIANCE EFFORTS
Jonathan S. Marashlian – Tel: 703-714-1313 / E-mail: jsm@CommLawGroup.com
Diana James – Tel: 703-663-6757 / E-mail: daj@CommLawGroup.com
