The Federal Trade Commission on Wednesday announced regulations to make it easier to cancel subscriptions, so-called “click-to-cancel” rules. This article explains not only this rule and why it’s important, but also the quiet and nasty campaign against it. Because obviously a company like Planet Fitness, the infamous gym franchise that scams customers by making it excruciatingly difficult to cancel memberships, can’t do that. There’s a reason they can do it.
Let’s start with the regulation itself, known in the industry as the “negative option rule.” This is actually quite simple, just saying that canceling a subscription should be as easy as signing up for one. Additional regulations include that businesses must tell consumers they’re subscribing to something, they can’t misrepresent important information, and customers must agree to pay before businesses can charge them. There are several elements. Basically, don’t act like Planet Fitness.
Unlike most political and economic laws and rules that affect our lives, the FTC’s Click to Cancel rule received widespread coverage. Because it’s something that I can relate to very much. Both President Biden and Vice President Harris tweeted, as did many politicians. This became front page news in the Wall Street Journal and across the media. The Today Show did a segment on the Today Show where Chandler Bing dug up an old Friends episode where he tries to cancel a gym membership and explains the policy.
Of course, social media has exploded with mocking Adobe, Amazon Prime, Planet Fitness, and other unsavory companies that make it difficult to unsubscribe.
Why is this rule, which is supposed to go into effect within six months, important? Because the “subscription economy” has exploded in recent years, reaching nearly $1 trillion in value. For example, Microsoft, one of the world’s largest companies, now operates a subscription business, with 77 million subscribers to its Office suite and tens of millions to Game Pass. Hollywood, like dozens of industries, has moved to a subscription streaming model. The term “Software as a Service” (SaaS) is often used as a joke.
The reason is simple. Recurring revenue is great, businesses can plan, customers are almost guaranteed, and customers get what they want without thinking. Companies are building subscriptions for everything they can, from streaming services to software, cat litter, pet food, gyms, car washes, printer paper, pet toys, coffee, diapers, and even Taco Bell. Masu. However, everyone understands that subscriptions have obvious drawbacks. Most of us forget about subscriptions and pay money that we wouldn’t normally pay. And sometimes, unethical companies trick customers into making profits they didn’t deserve. And the latter is something the FTC is working on.
While the growing scale of the subscription economy is new, the issue of unethical recurring fees is not. Although Congress has passed a number of laws over the years that directly address this issue, including the Restoring Online Shopper Confidence Act, the Unordered Items Act, and the Electronic Funds Transfer Act, these corrupt practices have It is also prohibited by law. and the deceptive practices the FTC has used regarding subscriptions since the 1970s. And this is the legal tool the FTC is using in creating this particular rule, which is a consumer protection tool, not an antitrust one.
To enact such a rule, the FTC would need to show that deception is common and tailor its rules to that deception. One way we know it’s common is if the FTC has issued cease-and-desist orders related to violations and the FTC actually commits 35 or more fraudulent acts on subscription renewals. . At the moment, scamming people through subscriptions is rampant. In 2019, one study found that 59% of consumers signed up for a “free trial” that was “automatically converted into a recurring payment” against their will, and similar numbers were reported by the Washington Attorney General’s Office. It was also found in some places. The FTC receives tens of thousands of complaints about this each year, as do the Better Business Bureau and marketers in general.
It is very annoying to find out that you are subscribing to something without your permission. It gets even worse if the consumer has dementia or simply isn’t paying much attention. And you can also make a profit. Although there isn’t a large amount of economic literature on trapping people with subscriptions, several economists have conducted an interesting natural experiment that investigated what happens to subscriptions when credit and debit cards are replaced. I discovered it. Subscriptions typically repeat automatically unless the consumer takes note. However, once the card was replaced, everything was automatically canceled, requiring consumers to actively re-enroll in their desired services. These economists found that people forgetting or not being able to cancel subscriptions cost them so much money that they “increase sellers’ revenue by 14% to more than 200%.”
If this rule passes, many large companies will suffer losses. What strategy will they use to stop this other than demanding that Lina Khan be fired from the FTC? What is the Planet Fitness lobby essentially doing?
For most of our history, Washington, D.C. was a remote, podan town and not particularly wealthy, especially compared to financial centers like New York and Chicago.
But today, five of the top 10 wealthiest counties in the United States are located outside Washington, D.C., and billionaires like Jeff Bezos buy Capitol Hill mansions to host parties and locals. They are buying newspaper companies. The reason for their wealth is their proximity to big and slow government. The lawyers manipulating this system are paid handsomely to ensure the continued transfer of vast wealth from you and me to Planet Fitness-style actors. And what do they actually do?
Well, one very common and lucrative activity is to write comments to agencies and courts about why their clients are exempt from regulation, often using overheated and boring rhetoric. And that’s what the “Click to Cancel” rule does. These statements are buried in comment documents, a treasure trove of official documents that most citizens never see.
“The International Franchise Association is troubled by the Commission’s policy-making process, which applies broad-brush regulations that are not based on rigorous data collection or empirical analysis,” one lobbyist wrote in an FTC comment document. Why does IFA have a problem? IFA represents franchisors, and Planet Fitness, which has 18 million members, is a member of IFA. In fact, IFA’s former chairman, David Humphrey, is a Planet Fitness executive who has worked in private equity in the franchising space.
I’ve read a lot of these comments, from the Service Contract Industry Council to the Interactive Advertising Bureau (the lobby shop for Google and Facebook) to the Electronic Transaction Association (the lobby shop for Visa, Amazon, American Express, Google, and more). , Retail Industry Leaders Association, Entertainment Software Association, Digital Media Association, Motion Picture Association, Technet, and more. The “click to cancel” rule was uniformly bad for all of these lobbyists. The ability to easily cancel subscriptions could kill video games by “interfering with gameplay and customer enjoyment,” it could “stifle future innovation” in retail, and it could undermine consumer control in service contracts. This may damage your sense of security.
And I’d like to give you one more example of someone who is making your life even more of a hassle. Take, for example, a man named Tom Power, a lobbyist and lawyer on the verge of retirement and general counsel for a trade association for a major wireless company. C.T.I.A. Mr. Power’s background is pretty standard for DC. He held a variety of government positions in telecommunications during the Clinton and Obama administrations, bouncing between lobbying jobs at telecommunications companies and was one of countless New Democrats who helped build modern communications. . The powers are:
In his CTIA comments, Power explained why the FTC’s rules are bad. He makes some valid points, including that carriers shouldn’t be penalized for telling you to port your phone number to a new number when you cancel your cell phone service. But most of the comments are about how mobile carriers should bother customers who want to cancel their service. If carriers can’t inconvenience their customers, they’ll be missing out on “important consumer education,” he wrote.
However, the essence of these comments is procedural. Is deceptive behavior “pervasive” enough for the FTC to issue a rule? Has the FTC provided sufficient basis for comment? Are the rules specific enough or too broad? The argument is always that the regulator has breached the process. That’s because it’s much easier to troll regulators than to address the content of widespread and needed regulations.
In other words, they are lobbyists. But do they really have power? Can comments like this be ignored? To answer that, we have to look at the FTC’s vote on this rule, and it was actually a close vote. The FTC is actually a five-member commission and requires a majority to pass regulations. In a multi-committee committee, there are usually three members from the current ruling party and two members from the minority party.
In a “click to cancel” vote, three Democrats supported the rule: Lina Khan, Rebecca Kelly-Slaughter, and Alvaro Bedoya. But Republicans Melissa Holyoake and Andrew Ferguson did not. So the ruling, which passed by a wide margin of 3-2, is a signal to conservative judges that they should be skeptical of this rule. Holyoak, who is known for supporting U.S. Chamber of Commerce-style policies, wrote a lengthy dissent explaining his views.
That’s a pretty serious objection. An update to this rule was first proposed in 2019, a policy statement was adopted in 2021, and the proposed rule was invited for comment in 2023. It took a five-year process to finalize the rules. But Holyoak said the rule was hastily enacted in time for the presidential election, calling it a “blatant election campaign” and a “new low for abuse and misuse” of the FTC’s powers. claims. She writes frustratingly that it typically takes five and a half years for FTC rules to be enacted. “Clearly, it was too much time and procedure for the majority,” and she was given only a few weeks to consider the final proposal. “This is the period for which I will consider the rules for this entire economy,” she wrote. It was a matter of a few weeks. ”
Because the first question was asked under the Trump administration, Holyoak could have claimed Republican credit for the popular proposal. But instead, she became fully partisan and anti-populist, adopting the position of the big business-friendly U.S. Chamber of Commerce.
There are also many processed products. Too wide, not wide enough. The FTC did not clearly state what it intended to do early on, so there was not enough time to comment. And so on, mostly repeating what lobbyists for various industry groups have said. The idea is to leave a trail of breadcrumbs in the courtroom. If it went before the right judge, the regulations would be “arbitrary and capricious” in the process, and judges could use this to pass those rules without taking unpopular policy positions. You can break it.
Now, let’s not exaggerate the possibility of this rule being invalid. Although the non-compete rules were struck down by a Texas judge, the powers exercised by the FTC in this case were different and have been under continued attack for years. In this case, no one disputes that the FTC has the authority to promulgate rules regarding unfair and deceptive practices, and it has been doing so for decades, and Congress has not. Explicitly allowed. But I wanted to plan from a Planet Fitness/U.S. Chamber of Commerce type.
The “click to cancel” rule is widespread, legally sound and clear. What the lobbyists in Washington DC are trying to do is destroy the trolls once and for all. As we move increasingly toward a subscription-based economic order, this type of regulation will determine how much freedom we have as Americans. If more policymakers and elected officials thought and acted like Khan, Bedoya, and Slaughter, we would be fine. But if that’s not the case and we continue to be fooled, we at least deserve to know why a powerful country like America can’t even corner Planet Fitness.
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cheers,
matt stoller
