A federal appeals court just threw out a new government regulation that would have required subscription services to give consumers an easy way to cancel.
The Federal Trade Commission’s click-to-cancel rule was set to take effect next week, and would have required everything from your gym membership to Amazon Prime subscription to let customers cancel their recurring payments as easily as they signed up, and through the same method.
Last fall, industry groups representing companies that benefit from subscription revenue — including cable providers, entertainment studios, advertising companies, and home security firms — sought to block the rule in court, arguing the FTC aimed to “regulate consumer contracts for all companies in all industries and across all sectors of the economy.”
But in a unanimous ruling by a three-judge panel for the Eighth Circuit, the court found that the FTC under former Democratic Chair Lina Khan erred so gravely in its roll-out of the rule that it needs to be thrown out altogether. “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 court wrote. Even though parts of the rule were technically salvageable, the court continued, vacating the entire rule is appropriate “because of the prejudice suffered by Petitioners as a result of the Commission’s procedural error.”
The Eighth Circuit found that the agency skipped steps to issue the rule, including depriving stakeholders of “a notable opportunity to dissuade the FTC from adopting the Rule as proposed.” Even though the court said the FTC’s decision to skip some analysis “was certainly not made in bad faith,” it found that the petitioners “have raised ‘enough uncertainty whether [their] comments would have had some effect if they had been considered,’ especially in the context of a closely divided Commission vote that elicited a lengthy dissenting statement.”
The court referenced those dissents by now-Chair Andrew Ferguson and Commissioner Melissa Holyoak, both Republicans, in its opinion. Holyoak had questioned the “race to cross the finish line,” among the Democratic majority that voted for the rule at the time, and called it “a missed opportunity to make useful amendments to the preexisting negative option rule within the scope of the Commission’s authority.”
Given that the Democrats who ushered the rule across the finish line are no longer at the agency, which currently consists of three Republican members including Ferguson and Holyoak, the future of the rule looks bleak. FTC spokesperson Juliana Gruenwald Henderson declined to comment on the ruling.
Disclosure: Comcast — represented by NCTA – The Internet and Television Association, one of the parties to the case — is an investor in Vox Media, The Verge’s parent company.
