Joshua Stevens, Partner at Mac Murray & Shuster LLP; ECAC Member Partner
As expected, the FTC’s Negative Option Rule has been met with scrutiny from many industry groups. Now, the Electronic Security Association, Interactive Advertising Bureau, and NCTA – The Internet & Television Association, have filed a petition for review in the U.S. Court of Appeals for the Fifth Circuit seeking to vacate the FTC’s final rule on negative option marketing and sales on the basis that it is “arbitrary, capricious, and an abuse of discretion.”
The revised rule, now known as the Rule Concerning Recurring Subscriptions and Other Negative Option Programs, aims to curb deceptive practices in subscription-based plans by requiring companies to make it as easy for consumers to cancel subscriptions as it is to sign up through features such as “Click to Cancel.” Other notable provisions include additional required disclosures and affirmative consent to the negative option feature. Although a variety of states have similar requirements, the Negative Option Rule would impose requirements nationwide.
The petitioners argue that the FTC is exceeding its statutory authority by imposing these new regulations on all companies that offer negative option programs and deeming any negative option contract to be deceptive if it does not comply with the new requirements. Ultimately, they argue, this will make it harder for businesses to offer automatic renewals and subscriptions.
The petitioners filed their lawsuit soon after the FTC adopted the rule in a close 3-2 vote. The petition follows a similar challenge brought by the Michigan Press Association and the National Federation of Independent Businesses in the Sixth Circuit.
The legal battle over the FTC’s Negative Option Rule underscores the tension between regulatory bodies and industry groups, highlighting the complexities of balancing consumer protection with regulatory burdens on businesses. Unless stayed by the courts, the final rule is set to take effect 180 days after publication in the Federal Register. As these lawsuits progress and the rest of us await clarity on the future of subscription-based marketing and sales practices, businesses offering recurring subscriptions and memberships should closely monitor developments and prepare for compliance with the new requirements or risk facing legal consequences.
Mac Murray & Shuster is a nationally-recognized law firm providing consumer protection and privacy regulatory compliance and defense counsel to heavily-regulated businesses including direct-to-consumer marketing, teleservices, healthcare, automotive, financial services, and charitable contributions. Founded by former state regulators, they help clients nationwide thrive against a complex regulatory landscape through proactive compliance management and representation in litigation, investigations, and enforcement action by state attorneys general and federal agencies including the FCC, FTC, and CFPB.
