In announcing the “click-to-cancel” rule, the commission said it receives an average of about 70 complaints per day, up from 42 daily in 2021. Consumers sometimes end up with automatic payments to service providers on their monthly credit card statements that they have forgotten about and may have trouble canceling.

The FTC said it collected 16,000 comments from consumers, trade associations and state and federal agencies, since proposing the rule in March 2023. 

The rule attempts to target recurring subscriber charges that companies may make difficult to end, by requiring a phone call or written letter. The changes to the 1973 marketing rule also allow the FTC to pursue civil penalties. The agency is also making companies track consumers’ consent for such products and bans material misrepresentations when selling a product or service. 

The commission’s revised cancellation mandate is “arbitrary, capricious, and an abuse of discretion within the meaning of the Administrative Procedure Act,” the companies told the Fifth Circuit. The agency’s action also exceeded its authority from Congress and violated the Constitution, they said.

In the rule, the FTC wrote that “far from exceeding Congressional intent, the Rule merely effectuates that intent in a way wholly consistent with the specific requirements set forth in Section 18 of the FTC Act.”

The revision to the FTC’s “negative option” rule deems all such subscriptions “to be deceptive unless they comply with onerous new regulatory obligations regarding disclosures, how those disclosures are communicated, a ‘separate’ consent requirement, regulations of truthful company representative communications with customers, and prescriptive mandates for service cancellation, among others,” the plaintiffs wrote.

The plaintiffs’ request is far less comprehensive than the dissent FTC Commissioner Melissa Holyoak filed on Oct. 16. Holyoak, a former solicitor general for Utah, wrote an extensive 13-page legal brief decrying the rule. 

The rule is overly broad in its reach and fails to define specifically which acts and practices are unfair or deceptive, “improperly generalizing from narrow industry-specific complaints and evidence to the entire American economy,” Holyoak wrote.

“The Rule represents a missed opportunity to devote scarce staff resources to bringing enforcement actions related to negative option features using the clear tools that Congress gave us, rather than conducting an overbroad rulemaking that cost years of staff time to propose and finalize, but will likely not survive legal challenge,” she wrote.

The Electronic Security Association is based in Dallas, which the plaintiffs said makes the circuit a proper venue for the injunction request. One of the plaintiffs’ attorneys, Allyson Ho, a Gibson, Dunn & Crutcher partner in Dallas, is married to a judge on the Fifth Circuit Court, James Ho.

By Justin Bachman on Oct 28, 2024
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