July 9 (UPI) — Just days before federal government was to enforce the so-called click-to-cancel rule, an appeals court struck it down, finding the Federal Trade Commission had failed to follow procedural requirements under the law.
Known colloquially as the click-to cancel rule, the Negative Option Rule was to go into effect July 14, forcing companies to make it as easy for consumers to cancel enrollment in subscriptions and programs as it was for them to enroll.
The rule has received pushback from various industry associations and individual businesses who filed a legal challenge against it in October, arguing it is “arbitrary” and “capricious” under the Administrative Procedure Act due to its scope and the FTC failed to follow procedural requirements under the FTC Act.
In its ruling Tuesday, the U.S. Court of Appeals for the Eighth Circuit generally agreed.
“While we certainly do not endorse the use of unfair and deceptive practices in negative option marketing, the procedural deficiencies of the Commission’s rulemaking process are fatal here,” the court wrote in its 23-page ruling, adding that “vacatur of the entire Rule is appropriate in this case because of the prejudice suffered by petitioners as a result of the commission’s procedural error.”
According to the ruling, the FTC specifically failed to issue a preliminary regulatory analysis of the rule as required due to its annual effect on the U.S. economy being found to be more than $100 million.
The FTC had argued that it was not required to prepare such analysis as its initial estimate of annual economic impact did not surpass that threshold.
Lina Khan, former FTC commissioner during the Biden administration, which was behind the click-to-cancel rule, blamed the Trump administration for dragging its feet on implementing it, as it was first set to go into effect in May, and urged supporters of the rule to contact their local politicians.
“The rule was set to go into effect in May but this @FTC slow-walked it — and now a court has tossed it out, claiming industry didn’t get enough of a say,” she said on X.
“Anyone frustrated by how difficult firms make it to cancel subscriptions can tell the @FTC commissioners to re-issue the rule and urge members of Congress to make it law.”
Mark Meador, the current FTC commissioner, blamed the Biden administration, saying it “cut corners and didn’t follow the law.”
“Process matters,” he said on X.
Meanwhile, America’s Communications Association Connects lauded the ruling, saying the FTC overstepped its authorities, which could have had wider implications for how businesses handle all areas of transactions.
“It sought to impose compliance requirements that made it more difficult for our members to provide the best value and customer experience possible,” ACA Connects, which represents some 500 smaller and medium-sized broadband, video and phone services providers, said in a statement.
“We’re glad the Eighth Circuit recognized this reality today.”