The Federal Trade Commission’s rule to make it easier for consumers to cancel subscriptions is already facing a legal challenge. The final “click-to-cancel” rule was announced last week and industry groups representing companies that rely on subscription revenue filed an appeal on Wednesday, Oct. 23.
Click-to-cancel requires retailers, gyms and other subscription-selling companies to make cancellation “at least as easy” as it is to sign up. The rule will also require companies to document consent from customers for subscriptions, auto-renewals and free trials that turn into paid memberships.
“It was very clear that something needed to be done to protect consumers,” said Teresa Murray, the consumer watchdog director with the U.S. Public Interest Research Group.
“Sometimes you have to call customer service on the phone,” FTC Chair Lina Khan wrote in an op-ed for The Hill published Thursday, Oct. 24. “You spend an hour talking to a robot before you finally get through to a human being. Customer service transfers you to memberships, memberships transfers you to cancellations, then the call drops and you have to do it all over again.”
“It’s like the proverbial Hotel California. You can check out anytime you like, but you can never leave,” Murray added.
“The FTC’s rule will end these tricks and traps, saving Americans time and money. Nobody should be stuck paying for a service they no longer want,” Khan said in a statement, last week.
There were three groups that filed an appeal to the rule on Wednesday. One was the Electronic Security Association, a group that represents companies that install or monitor electronic security and safety devices. Another, the Interactive Advertising Bureau, a group that includes leaders in digital advertising and media in its members list, such as Amazon, TikTok, LinkedIn and Disney. Lastly, the Internet and Television Association (NCTA) helped in filing the appeal.
The NCTA boasts some of the biggest names in cable programming and TV providers as members.
These groups claim in the suit the rule is “arbitrary, capricious, and an abuse of discretion,” and say the FTC is attempting to “regulate consumer contracts for all companies in all industries and across all sectors of the economy.”
“We weren’t surprised, because the FTC had actually said that they fully expected to be sued,” Murray said of the appeal. “I find it disappointing that companies would think that they shouldn’t have to be transparent. Who has a problem with being transparent with your customers?”
Straight Arrow News reached out to the NCTA via email for further comment, but a representative said the 240-page lawsuit “serves as our commentary on the appeal.”
The industry groups’ legal argument is based on two accusations, that violations were made during the rulemaking process and that the ruling is outside the FTC’s scope and constitutional authority.
The FTC ruling was also not unanimous. In a 3-2 vote, dissenting commissioners argued along similar lines as the industry groups.
“Instead of pursuing targeted enforcement efforts or finalizing a rule consistent with the Commission’s authority … the Commission has used its limited resources to promulgate a broader regulation that may not survive legal challenge,” FTC Commissioner Melissa Holyoak said in a dissenting statement. “Why the rush? There is a simple explanation. Less than a month from election day, the Chair is hurrying to finish a rule that follows through on a campaign pledge made by the Chair’s favored presidential candidate.”
Click-to-cancel is part of the Biden administration’s “Time is Money” initiative. If it survives legal challenges, the rule will go into effect 180 days after being published in the Federal Register.
