Washington DC USA - July 3 2017: Federal Trade Commission seal sign and logo in downtown

FTC Faces Industry Pushback in Negative Option “Click to Cancel” Rule-Making Hearing

Balancing Act: The industry’s strong response reflects growing scrutiny over regulatory approaches to digital commerce and consumer rights.
FTC logo on transparent background
Source: FTC

In a closely watched live-streamed administrative hearing today, the Federal Trade Commission (FTC) met resistance from various industry leaders during discussions on proposed amendments to the negative option rule-making proceeding, number P 064202.

The session, presided by Judge Pollack, along with Ben Russo from the Office of Administrative Law Judge, saw representatives from the Interactive Advertising Bureau (IAB), the National Cable & Telecommunications Association (NCTA), and other industry stakeholders presenting their cases.

The FTC’s proposal, which seeks to address and regulate negative option billing practices, was met with criticism for its potential overreach and lack of procedural fairness. Negative Option billing is a business practice where subscription services continue until the consumer explicitly cancels.

Procedural Concerns Raised by the Bureau of Consumer Protection

Judge Pollack presiding over the FTC Live-Stream Hearing on January 16, 2024.

The hearing started with the Interactive Advertising Bureau (IAB) charge against the FTC’s proposed procedural changes, which they believe could infringe upon their right to cross-examination and fair witness testimony. The Bureau of Consumer Protection countered this stance, indicating that the commission’s recent rule changes aim to streamline the informal hearing process, thus eliminating the need for compulsory witness attendance.

Industry Advocates Voice Opposition

Mr Ortiz, Public Policy Interactive Advertising Bureau (IAB) at the FTC Live-Stream Hearing January 16, 2024

The IAB, represented by Mr. Ortiz, argued that the right to cross-examination and witness testimonies is critical and that the FTC’s refusal to provide a witness undermines this right. He stressed that the IAB was not given fair procedural opportunities to prepare and requested a chance to submit a written response.

Ben, the president of Tech Freedom, provided a historical context for the FTC’s rule-making authority, warning of the dangers of regulatory overreach. He emphasized that Congress imposed special requirements to prevent the FTC from overstepping its bounds, as witnessed in the late 1970s.

A representative from the International Business Association highlighted the adverse impact of the proposed rule on small businesses, particularly franchises, arguing that the rule is unnecessary, not based on substantial evidence of deceptive practices, and lacks a meaningful cost-benefit analysis.

NCTA and Performance Marketing Institute Weigh-In

Michael Powell, President of NCTA at the FTC Live-Stream Hearing January 16, 2024

Michael Powell of the NCTA contended that the proposed rule is too broad, arguing that the FTC has not adequately differentiated between beneficial and deceptive practices. He underscored that the compliance costs associated with the proposed rule could be significantly higher than the FTC’s estimates and could lead to higher consumer prices.

Thomas from the Performance Marketing Institute criticized the FTC’s proposed expansion of the negative option rule. He pointed out that subscription programs often benefit consumers by offering lower prices and convenience. Furthermore, he contended that the FTC’s procedural approach in the rulemaking process was flawed and that the proposed rule was not narrowly tailored to address the unfair and deceptive practices it purportedly targets.

Next Step By Judge Pollack

As the hearing concluded, Judge Pollack stated her intention to issue a written ruling after allowing for additional briefings on key material facts. This move suggests that the judge recognizes the complexity of the issues at hand and the need for a thorough evaluation before reaching a conclusion.

Implications of the FTC’s Proposed Rule

Ben Szóka, President, Tech Freedom at the FTC Live-Stream Hearing January 16, 2024

The FTC’s proposed rule on negative option marketing has stirred considerable debate among stakeholders, signaling the potential for widespread impact across various industries. Central to the arguments presented during the hearing is the tension between consumer protection and the practical realities of business operations.

The proposed changes would require businesses to provide clear and conspicuous disclosures about terms, obtain express informed consent before charging consumers, and offer simple cancellation procedures. While these measures are intended to protect consumers from deceptive practices, critics argue that they could stifle innovation and impose burdensome costs on businesses.

Thomas Hare, Chief Content Officer, Performance Driven Marketing Institute at the FTC Live-Stream Hearing January 16, 2024

The hearing highlighted a broad consensus among industry representatives that the rule, in its current form, is too expansive and lacks specificity. Concerns were raised about the rule’s one-size-fits-all approach, which fails to account for the diverse nature of subscription services and the varying degrees of risk they pose to consumers. The rule’s potential impact on legitimate business models, particularly those that rely on subscription-based services, was a recurring theme.

From an analytical perspective, the hearing underscores the challenge of balancing consumer protection with economic vitality. The FTC’s intentions to safeguard consumer interests are clear, but there is a palpable concern that overregulation could lead to unintended consequences, such as reduced consumer choices and increased costs for services.

INSIDER TAKE:

The hearing serves as a reminder of the importance of transparency and due process in regulatory actions. By allowing for further briefings and delaying a final decision, the FTC is demonstrating a willingness to consider industry feedback and potentially adjust its rulemaking to better align with the practicalities of the marketplace.

The industry’s strong response also reflects growing scrutiny over regulatory approaches to digital commerce and consumer rights. As the digital recurring economy expands, regulatory bodies like the FTC are grappling with how to evolve traditional consumer protection principles to meet the realities of modern business practices. The need for regulations that are both effective and adaptable is evident, as is the importance of regulatory clarity for businesses.

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