FTC Finalizes Civil Penalty Authority for Subscription Manipulation

The FTC on Wednesday announced finalization of a rule establishing civil penalty authority for the agency to prevent companies from misrepresenting consumers’ subscription cancellation options (see 2303230055). The commission voted 3-2 to publish a final rule modifying the agency’s Negative Option Rule, which regulates industry practices surrounding automatic subscription renewals. Republican Commissioners Melissa Holyoak and Andrew Ferguson dissented. The rule is set to take effect 180 days after publication in the Federal Register. FTC Chair Lina Khan said the rule will help stop companies from making consumers “jump through endless hoops just to cancel a subscription. ... Nobody should be stuck paying for a service they no longer want.” The final rule bans companies from “misrepresenting any material fact” in related marketing. It requires companies “clearly and conspicuously disclose material terms prior to obtaining a consumer’s billing information in connection with a negative option feature.” They must “obtain a consumer’s express informed consent to the negative option feature before charging the consumer” and “provide a simple mechanism to cancel the negative option feature and immediately halt charges.” Holyoak issued a dissenting statement saying the FTC’s rule exceeds its statutory authority and “may not survive legal challenge.” Khan rushed finalization of the rule to follow through on a campaign pledge of Vice President Kamala Harris, Holyoak said. The rule, Holyoak argued, fails to specifically define the acts or practices that are unfair or deceptive, or that these activities are “prevalent,” as required under agency rulemaking procedure. The U.S. Chamber of Commerce called the subscription rule the “latest power grab by the Commission in its pursuit to micromanage business decisions.” Chief Policy Officer Neil Bradley said: “Not only will this rule deter businesses from providing sensible, consumer-friendly subscriptions, but it will leave Americans with fewer options, higher prices, and more headaches.” Sen. Brian Schatz, D-Hawaii, welcomed the new rule but urged that Congress craft legislation. “Free trials should be free, but instead some companies have used that model to lure and trap customers into subscriptions with costly monthly charges they never meant to make." He urged passage of the Unsubscribe Act, which he introduced with Sens. John Thune, R-S.D.; Raphael Warnock, D-Ga.; and John Kennedy, R-La.