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‘Big Deal’

FTC Rule Could ‘Significantly’ Affect Telecom, Tech Subscriptions

Tech and communications companies should prepare themselves for an FTC rulemaking that could significantly affect policies for consumer subscription services, legal experts and consumer advocates said in interviews.

The FTC recently announced a proposed rule designed to make it easier for consumers to opt out of subscription services using negative option marketing across all media (see 2303230055). States have been moving forward with laws targeting subscription renewal policies due to the rise in streaming and online services (see 2112200060).

The proposed rule would “very much restrict” a company’s ability to give consumers additional purchasing options when they move to cancel, said BakerHostetler attorney Daniel Kaufman, a former acting FTC Consumer Protection Bureau director. Because internet and communications providers commonly use subscriptions, the rule would have more impact on them than on a company that provides consumer goods, he said. It’s a “big deal” because it grants the FTC authority to pursue civil penalties and consumer redress that “goes far beyond” what has been allowed, he said. He noted part of the strategy could be to recoup some of the agency’s authority lost in the Supreme Court’s AMG Capital Management v. FTC decision (see 2104220068). He said to expect courts to heavily scrutinize the rules much like they did in AMG.

The proposed rule addresses a longstanding priority to allow consumers to exit automatically renewed contracts that trap consumers without their full knowledge or consent, said National Consumers League Executive Director Sally Greenberg. What the FTC is advocating is “exactly right,” she said: Consumers should be able to cancel just as easily as they can sign up. “It’s a truly serious and everyday problem for consumers,” she said.

Greenberg said NCL has experienced the problem. The organization has dealt with internet service outages lasting up to five days. According to Greenberg, the provider said NCL was obligated to pay for the service unless it went out for multiple weeks, based on terms of the automatically renewed contract. The disputed amount was for thousands of dollars, she said. NCL wasn’t able to get out of the contract until it threatened to notify the attorney’s general office in Washington, D.C. The provider agreed to terminate the contract and “to not charge for the amount of time without service,” she said. “But it took that kind of threat.”

The rule figures to affect news media companies that increasingly rely on subscription services. The News/Media Alliance is closely reviewing the agency’s proposal, said Executive Vice President Danielle Coffey, and the association has been working with legislators across the country on numerous state laws and proposals. “The Alliance believes there must be a balance between providing a clear, transparent way for consumers to cancel subscriptions, but also not to hamper our members’ ability to provide critical information to their subscribers with convenient, easy to use and hassle-free options to continue the services they value,” she said.

Companies shouldn’t be surprised by the FTC’s decision due to the trend across the country, said Truth in Advertising Executive Director Bonnie Patten. An FTC rule will result in more uniform regulations for industry and could lead to less prescriptive requirements than those passed in places like California and Washington, D.C., she said.

Sen. Brian Schatz, D-Hawaii, backed the FTC’s proposal. Some companies have used the free trial model to “lure and trap customers into subscriptions with costly monthly charges they never meant to make,” he said. He urged Congress to go a step further than the FTC and enact his Unsubscribe Act, a bipartisan bill he introduced with Sens. John Thune, R-S.D.; Raphael Warnock, D-Ga.; and John Kennedy, R-La. The bill would require companies to be “more transparent about their subscription-based business model and make it easier for consumers to cancel their subscriptions once their free or reduced price trial period has ended.”

Commissioner Christine Wilson, who dissented against Democrats over the proposal, said the rulemaking attempts an “end-run around” the Supreme Court’s AMG decision. Wilson’s statement is overly broad, and agency staff likely provided the necessary rationale to pursue the rule, said Greenberg. The agency is obviously trying to find ways to recoup money for consumers, but the question is whether the proposed rule is within the FTC’s authority, said Kaufman. It’s only a proposal at this point, so companies should seek to engage with the agency in crafting the rule and addressing ambiguous language, he said. CTA said it's gathering member feedback on the proposal. NCTA, CTIA and the Retail Industry Leaders Association declined comment. TechNet didn’t comment.