By Andrea Funez
On October 16, 2024, the Federal Trade Commission (“FTC”) announced its final “Click to Cancel” rule, requiring sellers to make it easier for consumers to cancel their subscriptions.[1] The FTC’s implementation of this rule amends and modernizes its 1973 Negative Option Rule to “combat unfair and deceptive practices related to subscriptions, memberships, and other recurring-payment programs… .”[2] This “Click to Cancel” rule solves the nearly seventy consumer complaints the FTC receives daily from individuals who have fallen victim to misleading subscriptions.[3] Accordingly, the rule will help the FTC reimburse consumers by (1) prohibiting misrepresentations of any material fact while marketing the negative option features; (2) requiring sellers to provide all important information before obtaining customers’ billing information or charging them and to obtain unambiguous, affirmative consent to the negative option feature before charging them; (3) requiring sellers to provide simple cancellation mechanisms to cancel all recurring charges immediately.[4] Additionally, negative option sellers must also ensure that the cancellation mechanism the seller uses is provided through the same medium the consumer used to sign up— whether online on the website, or with a live or virtual representative.[5] The FTC passed the rule by a 3-2 vote, with Commissioner Slaughter and Holyoak voting no and arguing that the rule did not follow rulemaking requirements and did not fall within the Commission’s authority.[6]
In addition to backlash form dissenting Commissioners, trade associations, such as the NCTA, have already filed a Petition for Review.[7] The Electronic Security Association, Interactive Advertising Bureau, and the NCTA- The Internet and Television Association are the petitioners seeking to block this rule, and they represent major cable and internet providers such as Disney Entertainment, Comcast/NBC Universal, Cox Communications, Warner Bros. Discovery, Paramount Global, and Sony Pictures Entertainment.[8] The petitioners argue that the rule will affect over a billion paid subscriptions across the country, and therefore it is overly broad and should be vacated as an abuse of discretion under the Administrative Procedure Act.[9] Specifically, the petitioners state that the “Click to Cancel” rule is designating all negative option contracts as deceptive unless they comply with that they consider to be “onerous new regulatory obligations.”[10] It seems likely that the 5th Circuit will rule in favor of the industry groups, as a previous FTC Non-Compete Rule met the same faith when the court emphasized the Loper Bright Enterprises v. Raimondo[11]decision in its ruling and struck down the rule.[12]
Lawyers at a top firm, Holland & Knight, are suggesting that businesses take a look at their current practices in negative option marketing in order to understand what new systems will be put in place to implement the new rule.[13] If a business violates any section of the new rule’s requirements, the FTC may seek up to $51,744 in civil penalties.[14]
Consumer protection and money are at the center of the FTC’s “Click to Cancel” rule, as the agency cited that the average consumer loses $186 for a free trial scheme.[15] Yet, if this rule does pass the courts, consumer will continue to suffer at the hands of these deceptive negative option practices.
[1] Press Release, F.T.C., Federal Trade Commission Announces Final “Click-to-Cancel” Rule Making it Easier for Consumers to End Recurring Subscriptions and Memberships (Oct. 16, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/10/federal-trade-commission-announces-final-click-cancel-rule-making-it-easier-consumers-end-recurring.
[2] Id.
[3] See id.
[4] 16 C.F.R. § 425.1 (2024).
[5] Timothy A. Butler et al., FTC Announces Final ‘Click-to-Cancel’ Rule for Subscription Services and Other Negative Option Offers, Greenberg Traurig (Oct. 28, 2024), https://www.gtlaw.com/en/insights/2024/10/ftc-announces-final-clicktocancel-rule-for-subscription-services-and-other-negative-option-offers.
[6] See id.
[7] See Jody Godoy, Telecom Group Sued to Block FTC’s ‘Click to Cancel’ Rule, Reuters, Oct. 23, 2024, https://www.reuters.com/business/media-telecom/telecom-group-sues-block-ftcs-click-cancel-rule-2024-10-23/.
[8] Todd Spangler, Cable Industry Trade group Sues FTC, Seeking to Block ‘Click-to-Cancel’ Rule, Variety (Oct. 24, 2024, 8:35 AM), https://variety.com/2024/biz/news/ncta-cable-trade-group-lawsuit-ftc-click-to-cancel-rule-1236189633/.
[9] Elec. Sec. Ass’n et al. v. FTC, No. 24-60542 (5th Cir. filed Oct. 22, 2024).
[10] Id. at 1.
[11] 144 S. Ct. 2244 (2024).
[12] Bryan J. Goodrich et al., The New Cancel Culture: The FTC’s “Click to Cancel” Rule, Holland & Knight (Oct. 30, 2024), https://www.hklaw.com/en/insights/publications/2024/10/the-new-cancel-culture-the-ftcs-click-to-cancel-rule.
[13] See id.
[14] See id.
[15] F.T.C., Proposed Final Amendments to the Regulation Rule Concerning Use of Prenotification Negative Option Plans (Oct. 16, 2024) (to be codified at 16 C.F.R. pt. 425), https://www.ftc.gov/system/files/ftc_gov/pdf/p064202_negative_option_rule.pdf.
