Karon Law Blog

Will Courts Click to Cancel?

Posted December 19, 2024

[Editor’s/Founder’s Note: At this time of year, it seems appropriate to reflect on the Supreme Court’s giant gift to big business last June when they overruled long standing precedent and made it easy to challenge federal government regulations as exceeding an agency’s authority. Predictably, corporate interests are now routinely suing when the government tries to enact pro-consumer regulations. In our latest blog post, law clerk Kellen Gannon explains how this came about and discusses some of the potential consequences. JAK]

Will Courts Click to Cancel?

By Kellen Gannon

Possibly. The Federal Trade Commission (FTC) has recently introduced a groundbreaking “click-to-cancel” rule aimed at giving consumers more control over their subscriptions. This rule would allow consumers to cancel subscriptions with just a few clicks. It would be just as easy to cancel as when they signed up in the first place. Under the new regulation, businesses would be required to obtain consent for subscriptions, auto-renewals, and free trials. This would protect consumers in numerous ways. However, the rule has sparked controversy, and a legal battle is now underway.

Currently, cancelling subscriptions can be a very difficult and frustrating process. For example, signing up for a streaming service or a gym membership is typically quick and easy, but cancelling often involves a variety of hurdles, possibly leaving consumers with monthly payments for a service they may not even use. The FTC’s new rule would simplify this process, allowing users to cancel services with minimal effort, often with just a couple of clicks. This shift is widely seen as a positive step for consumers, who often find themselves stuck with unwanted subscriptions due to difficult cancellation procedures. In fact, the FTC has reported receiving around 70 complaints a day about the difficulty of cancelling subscriptions. Many consumers continue to be charged for services they no longer want simply because the cancellation process is too complicated.

While the new rule is a win for consumers, it has faced significant opposition from business groups, particularly within the Telecom industry. A Telecom group has filed a lawsuit against the FTC, claiming that the agency has overstepped its authority with this regulation. The lawsuit was brought before the Fifth Circuit Court of Appeals, a court that is known for hearing challenges to agency actions. The Fifth Circuit is made up of 17 judges, 12 of which were appointed by Republican presidents, with six appointed by Donald Trump. These conservative ideals could influence the court’s perspective on whether the FTC has the legal authority to impose such a rule.

The battle over the FTC’s click-to-cancel rule comes at a time of significant shifts in the U.S. judicial landscape. In June 2024, the U.S. Supreme Court overturned the long-standing Chevron doctrine in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 468 U.S. 837 (1984). Under the Chevron doctrine, courts would defer to an agency’s reasonable interpretation of ambiguous statutes to decide whether an agency has acted within its statutory authority. However, the Supreme Court’s ruling in Looper Bright Enterprises v. Raimondo, 144 S.Ct. 2244 (2024), states that courts shall exercise independent judgment when deciding whether an agency has acted within its statutory authority. This new standard could make it easier for businesses to challenge regulations like the FTC’s click-to-cancel rule. Lawsuits questioning whether agencies have acted within their statutory authority are likely to become more common, as businesses seek to block regulations, they believe are too burdensome. The best place to challenge these regulations under the new ruling is in the Fifth Circuit Court of Appeals where conservative ideals prosper.

The Telecom group claims that the click-to-cancel rule could affect up to one billion paid subscriptions and impose a significant burden on businesses, requiring them to completely fix their cancellation processes. However, this argument raises the question: is it more burdensome for large corporations to streamline their cancellation systems, or is it more of a burden for millions of consumers to struggle with confusing and expensive cancellation procedures? Given the volume of consumer complaints about cancellation difficulties, it seems clear that the current system is tilted in favor of businesses, not consumers. In the grand scheme of things, the inconvenience to big businesses is arguably minimal compared to the widespread financial and emotional effect on consumers.

The case against the FTC’s click-to-cancel rule is just one example of the growing trend of businesses challenging federal regulations in the courts. Other potential regulations that could face similar legal battles include: (1) The Equal Employment Opportunity Commission’s implementation of the Pregnant Workers Fairness Act; (2) The National Labor Relations Board’s joint-employer rule; and (3) The FTC’s rule restricting non-compete agreements. A more recent issue has come to light with the Consumer Financial Protection Bureau (CFPB) finalizing a rule where banks will have to limit overdraft fees with three options: (1) charging a flat overdraft fee of $5, (2) charge a fee that covers their costs and losses, or (3) charge any fee as long as they disclose what the terms of the overdraft loan are. The Consumers Bank Association, American Bankers Association, America’s Credit Unions and Mississippi Bankers Association, along with other banks, are suing the CFPB by claiming they are exceeding their regulatory authority with the new rule. With the recent shift in judicial thinking, we are likely and already starting to see more and more lawsuits questioning the authority of regulatory agencies to impose such rules.

The outcome of this legal challenge remains uncertain. If the case continues through the courts, it could eventually make its way to the Supreme Court. Whether or not the Supreme Court will uphold the FTC’s rule is still to be seen. However, there is hope that the courts will side with consumers, making it easier for people to cancel subscriptions. As this case progresses, it will be fascinating to watch how the courts balance the interests of consumers and businesses, particularly in a post-Chevron era, where agencies’ regulatory power is being more closely scrutinized.