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A US court may have killed the Federal Trade Commission’s new rule requiring companies to make it easy to cancel subscription services.
The “click to cancel” rule was originally going to take effect next week on July 14th. But on Tuesday, a US appeals court in St. Louis, Missouri blocked and voided the regulation, declaring that the FTC had “failed to follow procedural requirements” during the rule’s development.
The rule was designed to make it both easy to cancel subscription services and force companies to be upfront about free trial programs that feature automatic renewal, also known as “negative option programs.” Despite the pro-consumer intent of the rule, the judges found the FTC made its procedural error by “declining to conduct a preliminary regulatory analysis during the rulemaking process.”
The preliminary regulatory analysis might’ve opened the door for the FTC to pursue alternative solutions to the rule. “While we certainly do not endorse the use of unfair and deceptive practices in negative option marketing, the procedural deficiencies of the Commission’s rulemaking process are fatal here,” the judges wrote.
The FTC declined to comment, making it unclear if it’ll try to salvage the click to cancel rule, which was originally finalized under the Biden administration.
However, the law firm Kelley Drye & Warren LLP says: “In the longer term, it is unlikely that the FTC under its current leadership will attempt to resurrect the Rule, either by petitioning for review of the panel’s decision or beginning a new rulemaking process.” That’s because President Trump fired the two Democrat Commissioners on the FTC, who originally voted to support the click to cancel rule.
The court ruling hands a win to businesses. In October, cable TV providers, the broadband industry and newspapers were among the groups that sued to stop the click to cancel rule from going into effect, arguing it went too far in regulating subscription services across all businesses.
That said, several US states, including California and New York, have implemented their own click to cancel rules, which are starting to take effect. So consumers can expect some relief.
The FTC originally declined the preliminary regulatory analysis, arguing the click to cancel wouldn’t have caused a $100 million effect on the US economy. However, the appeals court found the analysis should have been conducted, citing an earlier finding from an administrative law judge who determined the click to cancel rule’s “compliance costs would exceed $100 million.”