The 8th Circuit Court Was Right To Kill the FTC's 'Click-to-Cancel' Rule

The Federal Trade Commission ignored mandatory regulatory impact analyses in an attempt to institute its "click-to-cancel" rule.

The U.S. Court of Appeals for the 8th Circuit vacated the Federal Trade Commission's (FTC) highly anticipated "click-to-cancel" rule on Tuesday after the court found that the commission had not followed proper procedures in setting the regulations.

The commission announced its notice of proposed rule making in March 2023 to rescue consumers "from seemingly never-ending struggles to cancel unwanted subscription payment plans for everything from cosmetics to newspapers to gym memberships." For example, the popular Gold's Gym usually requires a 30-day notice of cancellation, according to Rocket Money, an expense-tracking app. The proposed rule would have required businesses offering simple online signups to offer equally straightforward online cancellations. It would have also mandated asking consumers whether they want to hear pitch offers before canceling their subscriptions and annual reminders before renewing subscriptions for all non-physical goods.

The proposal garnered over 16,000 comments from consumers, trade associations, and government agencies, which prompted the FTC to exclude the latter two requirements from the final rule, which the Biden administration-era FTC billed as making "it as easy for consumers to cancel their enrollment as it was to sign up."

Former FTC Chair Lina Khan, who was in charge of the commission when the "click-to-cancel" rule was proposed and finalized, said the court "tossed it out, claiming industry didn't get enough of a say."

While assigning blame to shadowy corporations is politically popular, it misrepresents the 8th Circuit's ruling. The court vacated the FTC's rule because it disobeyed the federal law governing the commission's rule making process. The court's opinion explains that the FTC is statutorily required to conduct preliminary and final regulatory analyses of the benefits, costs, and effectiveness of proposed rules and amendments to rules—the "click-to-cancel" rule would have amended the FTC's 1973 Negative Option Rule that regulated prenotification plans for now defunct book-of-the-month clubs—that would "have an annual effect on the national economy of $100,000,000 or more."

The FTC held informal hearings before an administrative law judge (ALJ)—an employee of the commission itself—in January and February of 2024 to "resolve disputed issues of material fact about costs of the proposed rule." The FTC estimated that the "click-to-cancel" rule would have impacted 106,000 entities. Based on the "estimated average hourly rates for professionals such as lawyers, website developers, and data scientists whose services would be required by many businesses to comply with the new requirements," the ALJ determined that compliance costs alone would exceed $100 million even if professionals charged "at the lowest end of the spectrum of estimated hourly rates."

While the FTC acknowledged the ALJ's determination and published a final regulatory analysis in conjunction with the final rule, the FTC Act states that "in any case in which the Commission publishes notice of a proposed rulemaking, the Commission shall issue a preliminary regulatory analysis" (emphasis added). The court ruled that the FTC Act "does not excuse the [FTC] from having to prepare the analysis in the event that its initial economic estimate is later deemed inaccurate." The FTC violated the law by issuing no such preliminary analysis before issuing its 2023 notice of proposed rule making, rendering it "impossible for interested parties to submit comments 'in response to the preliminary regulatory analysis'" required by federal law.

If the FTC wants to promulgate popular rules to protect consumers, then it must abide by the laws governing how it does so. Industry interests aren't to blame for the vacating of the FTC's "click-to-cancel" rule, its former chair not abiding by the law is.