Why is the IAB suing to block the FTC rule making it easier to cancel subscriptions?

Last week, in an unprecedented move, the IAB filed a lawsuit to prevent the FTC from enforcing its new “Click to Cancel” rule requiring companies to make it easy to cancel subscriptions. The suit, filed with trade groups the NCTA (The Internet and Television Association) and the Electronic Security Association (ESA), marks the first time the IAB has sued the government. 

The FTC ruling requires companies to offer a simple cancellation mechanism and let consumers cancel subscriptions through the same channel used to purchase them. So if you sign up online, you can cancel online, for example. Read the details of the FTC’s rule.

“The challenge appears to stem from the FTC’s adoption of a single approach across all industries that may utilize a negative options offering,” said Monique (Nikki) Bhargava, a partner in the Entertainment & Media group at global law firm Reed Smith.

The plaintiffs say the regulator failed to prove the problem is so widespread as to require a solution that applies to all businesses.

“This allegation is challenging the FTC’s determination and basis for its rule that consumers experience the same difficulties in canceling subscriptions/negative options offerings regardless of the industry and type of service,” said Bhargava.

The IAB declined to say anything about the suit beyond the legal filing, which calls the rule “arbitrary, capricious, and an abuse of discretion.” However, IAB Executive Vice President for Public Policy Lartease Tiffith said this in a written statement to the FTC in June of 2023: 

“The FTC’s plans to regulate what it calls ‘negative options,’ or automatic renewals, could dissuade customers from purchasing any products or services at all,” said Tiffith. “There are cases of abuse, but millions of Americans enjoy free trials, easy enrollments, and auto-renewals, saving time and money. These are standard features of our speedy, data-driven internet economy and a net benefit.”

Dig deeper: The ultimate consent strategy for maximizing customer opt-ins

This may be true, but it doesn’t explain why the IAB decided to file its first lawsuit. That is likely related to two things: a recent Supreme Court ruling making it harder for the government to win cases like this; and the ability to find a pro-business venue.

“Agency actions have arguably become more vulnerable after the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo,” said Bhargava. 

That ruling overturned what is known as the “Chevron Deference,” where courts deferred to agency expertise when dealing with statutory ambiguities or gaps, absent a direction to the contrary.

It is likely not a coincidence that the case was filed in the 5th Circuit Court of Appeals in New Orleans — far from any of the plaintiffs’ headquarters.

“There may be a perception that the 5th Circuit is a friendlier jurisdiction in which to challenge Federal agency action,” said Bhargava. “Recent decisions by the 5th Circuit have invalidated agency action where such actions exceeded the agency’s authority or run afoul of the Administrative Procedure Act.”

It will be interesting to see if these changes in the legal landscape will make the IAB more of an activist organization.