230622 Comments Negative Option Rule FTC
Policy Director, Chamber Technology Engagement Center (C_TEC), U.S. Chamber of Commerce
Vice President, Consumer Policy, U.S. Chamber of Commerce
July 31, 2023
In the booming age of subscription services, we are all familiar with the convenience of automatic renewals—no more re-entering credit card information, no more worrying about missing the latest season of your favorite show, and certainly no more hassle of manual renewals every month. Yet, the very mechanism making this effortless experience possible is in jeopardy as it is the latest effort in the Federal Trade Commission (FTC)’s persistent regulatory onslaught.
Subscription services are widely popular with the American people. Whether it be for a streaming service, retailer, or food delivery service, American consumers are the beneficiaries of a golden age of subscription options. Now though, the Federal Trade Commission is poised to make accessing those options more difficult for consumers.
What is the FTC doing?
The FTC has several rules in its books to regulate recurring subscriptions, auto-renewals, and free trial conversions. Now, the agency is looking to consolidate and dramatically expand its regulation of these sales practices through sweeping rule-making.
If passed, the rule would change how companies can sell automatic renewals and free trial conversions in all media (e.g., telephone, internet, traditional media, and in-person transactions). The rule mandates prescriptive disclosure and consent requirements that would add substantial friction to a consumer’s purchase. The rule would also restrict businesses from making offers to better suit the needs of consumers considering canceling subscriptions and increasing the costs of providing them.
Companies should be transparent about their subscription terms and renewal dates, and make it easy for customers to cancel, but the FTC's rule change would limit the availability of popular subscription services for consumers. Despite being presented as consumer-friendly, the FTC’s proposed changes would significantly impact the everyday products and services used by Americans in far-reaching ways.
Bad news for consumers
Easy renewals are extremely popular among consumers. On average, consumers spend $219 per month on various subscriptions, most of which renew automatically. These subscriptions cover a wide range of products and services, including audio and video streaming, on-demand delivery, news and magazines, software, food and beverage, and consumer products.
In addition to convenience, recurring subscriptions and trial offers allow consumers to discover new online-only products and test new offerings without a long-term commitment. The recurring nature of this approach also saves consumers from the hassle of manually renewing their subscriptions each time. Just imagine the inconvenience of remembering to sign up for your favorite streaming service again every month!
Big impact for small business
These subscription models are not only widely enjoyed by consumers, but they are also used extensively by businesses. This rule change would significantly burden most subscription services and membership sellers, especially small businesses. Small businesses may be wary of taking on increased liability when marketing subscriptions and free trials. Consequently, there would be a decrease in the availability of autorenewal products, resulting in fewer options and higher prices for consumers.
Part of a concerning trend
This rule-making is part of a concerning trend where the FTC pursues rule-making projects based on questionable legal authority.
The FTC is pursuing this rule-making through the "Magnuson-Moss process," but it has failed to meet the process's basic legal requirements since it did not demonstrate a widespread pattern of harmful conduct arising from subscription services.
Additionally, certain aspects of the rule-making raise concerns regarding First Amendment commercial speech, and the rule's broad scope and lack of clear Congressional authorization raise questions under the Major Questions Doctrine.
While the FTC can seek monetary relief when companies violate Magnuson-Moss rules, the proposed rule is ripe for agency abuse. The rule creates a backdoor for the agency to seek monetary relief for missteps that are unrelated to the subscription practices that the rule is intended to govern. This not only sets the FTC up for protracted legal battles over any potential abuses, but it will also have a chilling effect on subscription services as businesses may choose to simply avoid the uncertainty tied to the rule backed by serious monetary penalties.
The U.S. Chamber took decisive action by filing comments to strongly oppose the FTC's overreach this rule. Furthermore, we spearheaded a coalition comment letter which was signed by diverse organizations representing crucial sectors of the American economy. This united effort emphasized our significant concerns regarding the proposed rule.
Business practices like autorenewals, subscriptions, and free trial conversion offers play a fundamental role in delivering the goods and services consumers desire, forming the backbone of various sectors within the U.S. economy. The U.S. Chamber is dedicated to protecting and supporting a consumer driven approach to the subscription economy and will continue to hold the FTC accountable
More on the FTC
230622 Comments Negative Option Rule FTC
About the authors
Nina Frant serves as the Chamber’s Vice President for Consumer Policy. She brings with her over 15 years of legal experience in consumer protection and competition policy, including areas related to privacy, data security, and consumer financial, marketing, and advertising practices.