A federal appeals court has prevented a “click-to-cancel” subscription regulation issued by the Federal Trade Commission (FTC) towards the end of the Biden administration from coming into effect.
The FTC’s Rule
This rule, slated to take effect next week, was designed to simplify consumer cancellation processes for unwanted subscriptions and memberships. Businesses would have been required to obtain consent before charging for memberships or auto-renewals. They also would have needed to disclose when free trials or promotional offers end and ensure that canceling a recurring subscription is as straightforward as signing up for one.
Court Ruling Basis
The U.S. Court of Appeals for the Eighth Circuit stated that there was a procedural error in how the FTC established this rule. According to regulations, a preliminary regulatory analysis is needed if such rules could have an annual impact on the U.S. economy exceeding $100 million, and the FTC did not complete one.
Value of Subscription Economy
An estimate suggests that the subscription economy’s value exceeds half a trillion dollars this year. Any significant adjustments to this model would logically affect the economy by at least that amount.
Potential Future Actions
The FTC did not comment on the court’s decision. However, considering the alignment with previous administrations’ regulatory policies and the strong opposition from industry groups, it is unlikely that the FTC will pursue this matter further.
Background of the Rule
The rule was based on the FTC’s Negative Option Rule and aimed to address deceptive recurring billing practices. The FTC has also been enforcing actions under the Restore Online Shoppers’ Confidence Act in 2023, which was used to accuse organizations of obtaining unwarranted payments without subscribers’ consent.
Recent Case Involving Amazon
In 2023, the FTC filed a complaint alleging that Amazon enrolled millions of customers into its Prime service without their consent and made it difficult for users to cancel. The FTC is currently preparing for a trial in this case, which is expected next year.
