Among the dozens of regulations that the new Administration intends to repeal, the amended Federal Trade Commission (FTC) “Click-to-Cancel” rule, which unnecessarily attacks and burdens consumer subscriptions, should move to the top of the list.
Millions of U.S. consumers use online subscriptions for regular, hassle-free, and often discounted deliveries of goods. The FTC characterizes many of these subscriptions as “negative option arrangements” and has for decades subjected them to oversight to ensure that their material terms are conspicuously disclosed and that consumers have access to simple cancellation methods. Statutes like the Restore Online Shoppers’ Confidence Act, the Electronic Fund Transfer Act, and the Unordered Merchandise Statute provide these protections.
Readers of certain generations might remember, with regret, those “music clubs” that a ten-year old could join for a penny – not only did the last of these schemes die in 2015 when Columbia House declared bankruptcy, but those unfair and deceptive marketing ploys couldn’t fly in today’s legal environment. We have the Negative Option Rule, the Telemarketing Sales Rule, and the .com Disclosures Policy to ensure that, to borrow a phrase, we won’t get fooled again. And of course, consumers have grown extremely familiar with the common terms of subscription services, like free trials and automatic billing.
But the FTC of the previous Administration, as part of its effort to jettison consumer welfare in favor of some undefined greater good, decided in March 2023 to reopen and amend the Negative Option Rule on the premise that it “does not reach most modern negative option marketing.” The Notice of Proposed Rulemaking (NPRM) spent pages describing all of the agency’s tools for combatting deceptive subscription practices as well as the dozens of previous submissions that opposed any effort to layer on new regulatory directives. The FTC nonetheless decided that the “existing patchwork of laws and regulations” does not provide enough protection for the internet age.
What is remarkable about that conclusion is the Commission not only expressly conceded that existing law was unclear and ambiguous, but also only a few weeks later sued Amazon on contradictory claims that its online practices violate existing law. What was apparently grossly insufficient for the “modern” marketplace suddenly was enough to seek a permanent injunction, civil penalties, and monetary damages against Amazon Prime, a hugely popular shopping tool that kept the nation’s retail commerce afloat during the pandemic shutdown. We’ll return to that case in a moment.
What was also remarkable about the NPRM was that the draft rules, which some said would cost businesses $2.7 Billion, left out a lot of the evidence and findings that the FTC Act requires the Commission to assemble before embarking on a rulemaking. Commenters, including CCIA, noted that the FTC had not established that the purportedly unreasonable subscriptions were “prevalent”, nor given appropriate attention to the “countervailing benefits” of product subscriptions; these steps are prerequisites that Congress requires via the Act. In fact, an ALJ found in April 2024 that the rulemaking was fatally marred by procedural shortcuts.
Despite these failings, an amended Negative Option Rule was released in October 2024. It was immediately challenged in court by several petitioners, including the Electronic Security Association and the Interactive Advertising Bureau. The appeal is now before the Eighth Circuit, to which it was transferred in December 2024 after an MDL lottery, and briefing will close in April 2025. Electronic Sec. Ass’n v. FTC, No. 24-3442 (8th Cir.).
As the FTC was spackling together the discordant pieces of its rulemaking, the Amazon case progressed onward. In an unnecessary and obviously punitive move, the Khan-led FTC added three Amazon executives as defendants in September 2023. The four defendants immediately moved to dismiss the case on grounds including violation of Due Process. CCIA led a multi-party amicus brief supporting full dismissal, as did the U.S. Chamber of Commerce and a few others. (FTC counsel made an unsuccessful attempt to block all amicus briefs, making the case more remarkable still.) Since October 2023, Amazon and the three named executives have had to participate in far-reaching, costly discovery, and will not get their day in court until—as of now—September 2025.
So many resources spent on so many proceedings, one wonders what are they all for. As stated above, consumers’ own behavior indicates that they love subscription arrangements. In its comments to the FTC, CCIA explained that these arrangements give consumer three key benefits: efficiency, convenience, and pricing stability. Indeed, an empirical study conducted by the CCIA Research Center shows that a majority of U.S. households belong to and stay with multiple subscription programs.
And if it’s the internet that sparked the FTC’s renewed scrutiny, other studies show that online retail curbs the effects of inflation. According to Goolsbee and Klenow in their paper Internet Rising, Prices Falling: Measuring Inflation in a World of E-Commerce, during the 2014-17 period consumers realized “lower inflation online than in the [Consumer Price Index]—1.3 percentage points lower inflation per year.” Online retail is a boon to consumers, and product subscriptions are a key component of that retail chain. Bad actors that deceive and entrap consumers should be dealt with and, as the FTC itself showed in the NPRM, there are several existing legal tools to shut down such practices and return ill-gotten payments. Although the way that the FTC under the Biden administration wielded and interpreted the Negative Option Rule was legally dubious, the Rule itself wasn’t broken and didn’t need to be fixed.
Nor does any executive need to be named personally in a federal lawsuit in order to understand that consumers come first. The connected economy gives potential buyers instant access to dozens of sellers and marketplaces, making consumer satisfaction the guiding star for anyone that runs a retail website. One unhappy experience, including a subscription arrangement gone awry, and the online shopper need not and will not return. Any website whose malfeasance lands them in court can be liable for damages and penalties and must answer for the decisions of its executives. For the FTC to add three individuals to its ongoing case did nothing but reveal an oddly personal animus that a governmental agency should avoid.
The procedural and evidentiary misfires in the Negative Option rulemaking were bound to result in a flawed rule. Regardless of what the Eighth Circuit does with the ESA Petitioners’ several well-reasoned grounds for vacating the Rule, the FTC should refrain from additional anti-subscription campaigns and let consumers enjoy their monthly shipments in peace.
