8th Circuit Judges Press FTC on 'Click-to-Cancel' Analysis
During oral argument Tuesday in federal court regarding consolidated challenges to the FTC's "click-to-cancel" rule, judges pressed the agency about its failure to conduct a preliminary regulatory analysis (PRA). NCTA, the U.S. Chamber of Commerce and others petitioned the 8th U.S. Circuit Court of Appeals regarding the rule (see 2411220029), which is aimed at making it easier to cancel negative option contracts where consumers have to actively opt out of monthly subscriptions. The rule was adopted last year, and the compliance deadline is July 14 (see 2505120004).
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
Congress deliberately limited FTC authority with unique restrictions, said agency rulemaking appeals lawyer Helgi Walker of Gibson Dunn, representing the petitioners. It can't adopt rules unless they're specific and address prevalent practices, she said. The FTC is also subject to a long list of procedural requirements, such as performing a PRA, which would include a cost-benefit analysis of the rule and of alternative approaches, she noted. The negative option rule is incredibly broad in scope, covering "more than a billion contracts across the entire economy" and uses highly generalized terms like "material" and "easy," she said, adding that the FTC "has no plausible excuse for why it skipped" conducting a PRA.
Judge James Loken questioned Walker whether the FTC's failing to do a PRA could be seen as a harmless error. She responded that an error is only harmless if it has no bearing and the outcome was obvious. Judge Jonathan Kobes said it seemed as though the FTC was trying to manipulate the process when it argued that negative option contracts are a massive consumer problem, yet the cost of the click-to-cancel rule is small enough that it didn't trigger the need for a PRA.
FTC lawyer Brad Grossman said the point of the PRA is for the agency to refine its own internal assessment of the cost, benefits and alternatives to the rule. The click-to-cancel NPRM sought comment and data on 12 alternative approaches, he noted.
Loken said the click-to-cancel rule seemed to represent a conflict between the FTC's rulemaking authority under Section 5 of the FTC Act, and its Section 18 rulemaking authority -- a point with which Walker quickly agreed. "The agency can't just dump general standards from Section 5 into a Section 18 rule that requires specificity," she said. Section 18 rules are supposed to be specific, giving regulated entities notice of how they are supposed to comply, she said. The lack of specificity in this case means U.S. businesses "just cannot function," given the risk of immediate penalties, she added.
Judges also pressed Walker on whether there's any case or statutory hook that backs up the petitioners' argument that Congress wanted to limit the FTC rulemaking to one industry. She said there's a long historical precedent of the agency limiting its Section 18 rules to particular sectors, but the click-to-cancel rule has national scope, applying to all negative option contracts across the economy. That's the largest scope ever for a Section 18 rule, she noted.
Walker at one point characterized the rule as using "mushy adjectives," and Judge Ralph Erickson briefly went on a soapbox about negative option practices. "Have you ever tried to cancel one of these things?" he asked. "It's designed to trick people. When you're sitting there at your keyboard trying to cancel one of these things, they ask you 14 questions. But when you sign up, they ask you one."
Walker said the complication comes with bundled services, where canceling one service might affect what a subscriber will continue to pay for others. The FTC already had ample enforcement authority covering many negative option scenarios, she added.