Today's podcast brings forth an in-depth discussion with James Kohm, the Associate Director for the Enforcement Division of the Federal Trade Commission's Bureau of Consumer Protection. We delve into the significant "Click-to-Cancel" Rule, which encompasses substantial amendments to the longstanding "Negative Option Rule" and was promulgated by the FTC on October 16, 2024, along party lines with a 3-2 vote.

Understanding the FTC's Negative Option Rule

Before exploring the specifics of the new "Click-to-Cancel" Rule, Mr. Kohm provides a detailed overview of the FTC's Negative Option Rule adopted in 1973. This rule mandated that sellers clearly disclose the terms of any negative option plan for goods sales before consumers subscribed. In such plans, consumers are notified of upcoming merchandise shipments and have a specific period to decline. Sellers interpret a customer's silence or lack of affirmative action as acceptance. The Negative Option Rule initially targeted mail order plans like the "book-of-the-month" club. However, with the growth of online sales, the FTC recognized the need to update this rule to address widespread unfair and deceptive practices related to internet subscription plans, particularly the difficulty consumers faced in canceling subscriptions. 2: The significance of this historical rule lies in its attempt to protect consumers from hidden charges and forced subscriptions. It set a precedent for consumer protection in the e-commerce era and laid the foundation for the more comprehensive "Click-to-Cancel" Rule.

Components of the "Click-to-Cancel" Rule

The "Click-to-Cancel" Rule consists of several key parts. Firstly, it prohibits material misrepresentations not only related to the negative option feature but also any other material aspect of the goods or services transaction. Secondly, there are strict disclosure requirements regarding the cost of goods or services, the fact of periodic charges, the frequency of charges, and the process of canceling subscriptions. The rule also demands that sellers obtain the consumer's express consent to the transaction, which must be maintained in their records for a prescribed period. The centerpiece of the rule is ensuring that it is as easy to cancel a subscription as it is to enter into one. 2: These components work together to provide a more transparent and consumer-friendly framework for online transactions. By clearly defining the rights and obligations of both sellers and consumers, the "Click-to-Cancel" Rule aims to prevent deceptive practices and give consumers more control over their subscriptions.

Monetary Relief and Jurisdiction

Mr. Kohm explains that since the Rule was adopted under the Magnusson Moss Act, the FTC has the authority to recover monetary relief and civil money penalties for violations. This is in contrast to the Supreme Court's ruling that the FTC may not recover such penalties for enforcement actions brought under section 13 of the FTC Act for unfair and deceptive acts or practices. Additionally, sellers are fully covered by the Rule within the FTC's jurisdiction, including both business-to-business and business-to-consumer transactions. However, banks and other depository institutions are excluded from the rule's scope. There is also no private right of action under the Rule. 2: This aspect of the Rule highlights the FTC's commitment to enforcing consumer protection measures and holding sellers accountable for their actions. It provides a legal framework for addressing violations and seeking appropriate remedies.

Petitions and Future Outlook

Mr. Kohm then describes the several petitions filed in four federal circuits courts of appeal to invalidate the Rule. As of now, there have been no substantive rulings in any of the cases. We then inquire about his opinion on whether the composition of the Commission might change due to the presidential election outcome and if that could lead to the Rule's repeal or amendment to address industry concerns. The President has the right to nominate the new Chair, who is likely to be a Republican. With the Commission currently controlled 3-2 by Republicans, there is a possibility that the Rule could be repealed or amended before it takes effect. However, since the rulemaking was initiated when Republican Commissioners held a majority, it was not a certainty that the Commission would vote to repeal or amend the Rule. Given that the Rule does not prohibit the use of negative options subscription contracts and that consumers have struggled with canceling them, it is likely that the Rule will remain largely intact. 2: The future of the "Click-to-Cancel" Rule remains uncertain, but the discussions and potential actions highlight the ongoing importance of consumer protection in the digital marketplace. It showcases the dynamic nature of regulatory processes and the need for continuous evaluation and adaptation.