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.
The post Why is the IAB suing to block the FTC rule making it easier to cancel subscriptions? appeared first on MarTech.
**IAB Files Lawsuit to Prevent FTC Rule Aimed at Simplifying Subscription Cancellations**
In a move that has sparked significant debate within the digital advertising and consumer protection communities, the Interactive Advertising Bureau (IAB) has filed a lawsuit to block a new Federal Trade Commission (FTC) rule aimed at simplifying the process for consumers to cancel subscriptions. The lawsuit, filed in federal court, challenges the FTC’s proposed regulations, which are designed to make it easier for consumers to opt out of recurring subscriptions and memberships, a practice that has long been a source of frustration for many.
### Background: The FTC’s Proposed Rule
The FTC’s proposed rule is part of a broader initiative to crack down on what it calls “negative option marketing,” a practice where businesses automatically renew subscriptions or memberships unless the consumer actively cancels. The rule, which is an extension of the FTC’s existing “Restore Online Shoppers’ Confidence Act” (ROSCA), would require companies to provide a clear and straightforward way for consumers to cancel subscriptions, including an option to cancel through the same method they used to sign up.
For example, if a consumer subscribes to a service online, the company would be required to offer an online cancellation option, rather than forcing the consumer to call customer service or navigate through multiple layers of a website. The rule also mandates that companies provide clear disclosures about the terms of the subscription, including the frequency of charges and how to cancel.
The FTC has argued that these changes are necessary to protect consumers from deceptive practices that make it difficult to cancel unwanted services, often referred to as “subscription traps.” According to the FTC, many companies intentionally design their cancellation processes to be cumbersome, hoping that consumers will give up before successfully canceling.
### IAB’s Position: Protecting Business Interests
The IAB, a trade association representing the digital advertising industry, has taken a strong stance against the FTC’s proposed rule, arguing that it would place an undue burden on businesses, particularly small and medium-sized enterprises (SMEs). In its lawsuit, the IAB contends that the rule is overly broad and could stifle innovation in the subscription-based economy, which has become a major driver of revenue for many digital platforms.
The IAB’s primary argument is that the rule would impose significant compliance costs on businesses, forcing them to overhaul their systems to accommodate new cancellation procedures. The organization also claims that the rule could lead to an increase in “accidental cancellations,” where consumers unintentionally cancel services they still want, leading to confusion and lost revenue for businesses.
David Cohen, CEO of the IAB, stated in a press release, “While we support consumer protection and transparency, this rule goes too far in dictating how businesses should operate. The subscription model is a key part of the digital economy, and this rule could have unintended consequences that harm both businesses and consumers.”
### Consumer Advocacy Groups: A Win for Transparency
On the other side of the debate, consumer advocacy groups have hailed the FTC’s proposed rule as a long-overdue measure to protect consumers from predatory practices. These groups argue that many companies deliberately make it difficult for consumers to cancel subscriptions, using tactics such as hiding cancellation options, requiring lengthy customer service calls, or imposing unnecessary fees.
Consumer Reports, a nonprofit organization that advocates for consumer rights, has been a vocal supporter of the FTC’s efforts. “For too long, companies have been able to trap consumers in subscriptions they no longer want or need,” said Marta Tellado, President and CEO of Consumer Reports. “This rule would finally give consumers the power to easily cancel services without jumping through hoops.”
According to a 2021 survey conducted by Consumer Reports, nearly 42% of respondents said they had experienced difficulty canceling a subscription or membership at some point. Many reported feeling frustrated by the lack of transparency and the time-consuming process of trying to cancel services.
### Legal and Economic Implications
The lawsuit filed by the IAB raises important questions about the balance between consumer protection and business interests in the digital economy. Legal experts suggest that the case could set a precedent for how far the government can go in regulating subscription-based business models, which have become increasingly popular in recent years.
Subscription services now span a wide range of industries, from streaming platforms like Netflix and Spotify to meal delivery services, software-as-a-service (SaaS) products, and even retail memberships like Amazon Prime. The subscription economy has grown rapidly, with some estimates suggesting that it could reach $1.5 trillion by 2025. As more businesses adopt this model, the stakes for both consumers and companies are higher than ever.
If the IAB’s lawsuit is successful, it could delay or even prevent the implementation of the FTC’s rule, allowing businesses to continue operating under the current regulatory framework. However, if the FTC prevails, companies may be forced to make significant changes to their subscription practices, potentially leading to a more consumer-friendly marketplace.
### The Path Forward
As the legal
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