Click-to-Cancel’s End Won’t Stymie Subscription Renewal Scrutiny

A federal appeals court’s nullification of a Federal Trade Commission rule requiring businesses make automatically renewing subscriptions as easy to cancel as they were to sign up for isn’t the death knell for enforcement actions, attorneys say.

The FTC still has other tools at its disposal to pursue companies for unfair or deceptive subscription practices, and a patchwork of state automatic renewal regulations remain in effect.

Less than a week before the FTC’s July 14 compliance date for its “Click-to-Cancel” rule, the US Court of Appeals for the Eighth Circuit vacated the regulation, saying the agency improperly sidestepped a requirement to perform a preliminary analysis for rules that will affect the national economy by $100 million or more annually.

An administrative law judge had said the proposed rule would likely cross that threshold.

Nadia Aram, of counsel at Womble Bond Dickinson, said it’s important to note that the Eighth Circuit’s decision was focused on how the agency developed the rule rather than what it said.

The court made it clear that it was a procedural ruling and the judges were concerned about the precedent they might set by allowing the FTC to take rulemaking shortcuts, she said.

Without the rule, the FTC no longer has “a fast pass to the courtroom,” said Brian Goodrich, a partner at Holland & Knight LLP.

But the decision “leaves the space very hazy and nebulous instead of there being clear rules of the road that this rule would have put in place,” he said. Businesses could end up with a “much more divergent environment” as they contend with varying state regulations and other federal enforcement tools.

For its part, the FTC will likely fall back on its authority under Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices, Goodrich said.

‘Time Is Money’

The rule was part of a Biden Administration initiative dubbed “Time is Money,” which was aimed at reducing corporate practices of “giving people the run around” and “wasting their precious time and money.”

Industry groups challenged the click-to-cancel rule shortly after it was finalized last year, calling it overbroad and saying it would negatively impact more than a billion commonplace contracts.

The regulation wasn’t a new area of law or issue of first impression for the court, Aram said.

The click-to-cancel rule would have been an update to the FTC’s 1973 Negative Option Rule. The rule prohibited deceptive practices related to subscriptions where the seller shipped merchandise to subscribers and billed them for the products as long as the subscriber didn’t reject the items within a defined time period. The click-to-cancel amendments would have expanded the prohibition to apply to almost all recurring subscription programs in any media.

The federal Restore Online Shoppers’ Confidence Act also regulates recurring subscriptions, and states like California and New York have automatic renewal laws that incorporate requirements similar to those in the click-to-cancel rule, she said.

“All these other things, like truth in advertising, that still applies,” Aram said.

Goodrich added that the FTC was filing enforcement actions over allegedly unfair subscription practices before the rule would have taken effect.

Earlier this year, for instance, the the agency brought an action against ride-share juggernaut Uber Technologies Inc. for making the cancellation processes for its monthly savings membership program convoluted and difficult.

That case takes on added importance for people trying to map out the FTC’s future enforcement strategy with the click-to-cancel rule now out of the picture, Goodrich said.

If the FTC loses, the agency might have to scale back its work on subscription issues, he said. But if the suit moves forward, it’s likely state attorneys general will also take up the mantle and style lawsuits after the Uber case, he said.

Bundling Claims

Paavana Kumar, a partner at Davis + Gilbert LLP, said the Uber case involves allegations about a variety of deceptive practices, including misleading savings promises.

Going forward, the FTC is likely to bring enforcement actions that bundle subscription claims with other deceptive practices, she said.

If the click-to-cancel rule had gone into effect, the scope of enforcement “would likely have been a lot bigger,” and without it “smaller players are more likely to fly under the radar,” Kumar said. But “companies aren’t off the hook.”

The FTC will likely target major players for more than one type of deceptive practice, she said. In addition to its suit against Uber, the FTC has levied a variety of deceptive subscription allegations against Amazon.com Inc.

That means companies still should be aware of and maintain compliance with general rules against deceptive practices as well as ROSCA.

“You want to be clear and transparent with consumers no matter what you’re doing,” Kumar said. Between the federal rules that are in effect and state laws, the requirements aren’t that different from what click-to-cancel would have mandated, Kumar said.

Goodrich recommended creating additional consent features as a compliance measure to help protect companies from private litigation and class actions.

Though the click-to-cancel rule is dead, it can still be a useful as a “roadmap to extra credit” for creating the safest possible auto-renewal feature and putting companies “in the most defensible position,” he said.