One week after the Federal Trade Commission announced a final rule making it easier for consumers to cancel recurring subscriptions and memberships, a challenge to that move landed at the U.S. Court of Appeals for the Fifth Circuit — a court that has a history of invalidating such agency actions.
On Oct. 16, the FTC issued its final “click-to-cancel” rule, which requires companies to make it as easy for customers to cancel subscriptions as it was for them to sign up. The rule was implemented to combat what FTC Commission Chair Lina M. Khan called the “endless hoops” consumers have to jump through to cancel subscriptions.
Wednesday, the Electronic Security Association, the Interactive Advertising Bureau and The Internet & Television Association filed a petition for review with the Fifth Circuit arguing the rule is, among other things, “arbitrary, capricious, and an abuse of discretion within the meaning of the Administrative Procedure Act.”
The industry groups argued in their petition that the final rule was an impermissible attempt to regulate “consumer contracts for all companies in all industries and across all sectors of the economy in which the customer purchases a service or subscription that will continue unless the customer exercises the option to cancel.”
“Petitioners respectfully request that this court hold unlawful, vacate, enjoin, and set aside the final rule and provide such additional relief as may be appropriate,” the groups urged.
In announcing its final rule, the FTC said it has seen a roughly 66 percent increase in the number of complaints about recurring subscription practices since 2021 — up to about 70 a day compared to around 42 a day three years ago.
The rule was narrowly finalized in a 3-2 vote, with Commissioner Melissa Holyoak and Commissioner Andrew N. Ferguson voting against the measure.
The Fifth Circuit has shown a willingness to invalidate agency actions that are similar to the FTC rule being challenged here. In recent years, the court has struck down a variety of rules after finding their implementation ran afoul of either the enacting agency’s authority or the federal Administrative Procedure Act. Some of those rulings are:
- Invalidating the SEC’s use of its own administrative law judges in fraud cases in May 2022;
- Invalidating the Deferred Action for Childhood Arrivals, or DACA, program in October 2022;
- Holding the funding structure of the Consumer Financial Protection Bureau unconstitutional in October 2022;
- Invalidating an SEC rule that required certain disclosures from private funds and their managers in June;
- Invalidating the Federal Communications Commission’s universal service tax in July;
- Invalidating certain provisions of the No Surprises Act in August; and
- Invalidating the Department of Labor’s tip credit rule in August.
Earlier this month, on Oct. 18, the FTC appealed to the Fifth Circuit seeking to overturn a ruling from U.S. District Judge Ada Brown that enjoined the agency’s sweeping ban on the use of noncompete agreements.
The industry groups are represented by Helgi C. Walker, Lucas C. Townsend, Michael P. Corcoran, Lael Weinberger, Andrew Ebrahem, Allyson N. Ho, Brad G. Hubbard and Brian A. Richman of Gibson Dunn.
The case is Electronic Security Association et al. v. Federal Trade Commission, case number 24-60542.