The Federal Trade Commission (FTC) recently issued its Final Rule requiring businesses subject to its authority to establish equivalency between the ease of signing up and canceling subscriptions, memberships, and other recurring charges. The new rule also includes significant disclosure requirements, which will require many businesses using or considering using “negative option” features to revise their disclosures as well as their sign-up and cancellation processes.
The new requirements, which will largely come into effect 180 days from publication in the Federal Register, likely April 2025, may result in increased cancellations and terminations initiated by consumers. While the new rule may be welcomed by consumers frustrated with the difficulties that often accompany canceling subscriptions, for businesses, the new rule will necessitate reviewing and possibly adjusting processes and disclosures to ensure compliance.
The essence of the new rule is four-fold:
As discussed in a prior LawFlash, the rule tracks traditional long-standing federal and state laws prohibiting “unfair or deceptive acts and practices” (UDAP), statutes held by numerous other federal agencies, including the Consumer Financial Protection Bureau (CFPB) and all 56 states and territories. Many of those other enforcement agencies could (and continue to be able to) bring enforcement actions, if not under this rule, but rather by asserting that the conduct prohibited by this rule is also a violation of the relevant UDAP statute. The FTC’s revised rule, however, empowers the FTC to seek civil penalties, consumer redress, and injunctive relief, with a typical resolution with the FTC involving injunctive relief with a 10–20-year duration.
The FTC did accede to two significant changes based on comments it received. First, it abandoned a requirement of an annual reminder to consumers of their cancellation rights, and second, it will permit businesses to inform consumers of benefits associated with their subscription or other offering.
We anticipate that affected businesses may challenge this rule under doctrines recently established by the US Supreme Court in both West Virginia v. EPA and Loper Bright v. Raimondo, noting that the rule was approved by the Commission on a 3-2 party-line vote, with Commissioner Melissa Holyoak among the two “no” votes issuing her own statement expressing concern that the rule may exceed the Commission’s authority.
Law clerk Jesse C. Gonzales contributed to this LawFlash.
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