Why is the IAB suing to block the FTC rule making it easier to cancel subscriptions?

Last week, the IAB, along with trade groups NCTA and ESA, filed a lawsuit challenging the FTC’s new “Click to Cancel” rule. This rule requires companies to make it easy for consumers to cancel subscriptions. It is the first time the IAB has taken legal action against the government.

Understanding the FTC’s Rule

The FTC ruling mandates that companies provide a simple cancellation mechanism and allow consumers to cancel subscriptions through the same channel used for purchase. For instance, if you signed up online, you should be able to cancel online. You can read the full details of the FTC’s rule here.

Legal Perspective

Monique (Nikki) Bhargava, a partner at Reed Smith, commented on the challenge posed by the FTC’s uniform approach across industries utilizing negative options. The plaintiffs argue that the FTC failed to demonstrate the widespread nature of the cancellation issue necessitating a broad solution.

Bhargava stated, “This allegation questions the FTC’s rationale for applying the rule universally, regardless of industry or service type.”

IAB’s Stance

The IAB’s legal filing deems the FTC rule “arbitrary, capricious, and an abuse of discretion.” The organization’s Executive Vice President for Public Policy, Lartease Tiffith, highlighted concerns about the potential impact on consumer purchasing habits.

Tiffith expressed, “The FTC’s proposed regulation of ‘negative options’ could deter customers from engaging in purchases. While acknowledging instances of abuse, many Americans benefit from free trials, easy enrollments, and auto-renewals, which are integral to our efficient internet economy.”

Factors Influencing the Lawsuit

The decision to file the lawsuit likely stems from recent legal developments, including a Supreme Court ruling that limits agency authority. The choice of venue in the 5th Circuit Court of Appeals also suggests a strategic move to challenge Federal agency actions.

FAQs

Q: What is the main contention of the IAB’s lawsuit against the FTC?

A: The lawsuit challenges the FTC’s “Click to Cancel” rule, arguing against its universal application to all industries.

Q: Why does the FTC require companies to offer a simple cancellation mechanism?

A: The FTC aims to protect consumers by ensuring easy cancellation of subscriptions through the same channel used for sign-up.

Q: How does the IAB view the impact of the FTC’s rule on consumer behavior?

A: The IAB believes that the rule may discourage consumer purchases by restricting features like free trials and auto-renewals.

Q: What recent legal development influenced the IAB’s decision to file the lawsuit?

A: The Supreme Court ruling in Loper Bright Enterprises v. Raimondo curtailed agency authority, prompting the IAB’s legal action.

Q: Why did the IAB choose the 5th Circuit Court of Appeals as the venue for the lawsuit?

A: The 5th Circuit is perceived as a favorable jurisdiction for challenging Federal agency actions due to recent decisions invalidating agency actions.