Schatz, Kennedy introduce legislation to stop deceptive subscription practices after court blocks FTC’s ‘click-to-cancel’ rule

Following a federal appeals court ruling that blocked the Federal Trade Commission’s “click-to-cancel” rule, which was set to take effect Monday, US Sens. Brian Schatz, D-Hawai‘i, and John Kennedy, R-La., introduced the Unsubscribe Act.

The bipartisan bill would require companies to be more transparent about their subscription-based business models and make it easier for consumers to cancel their subscriptions once their free or reduced-price trial period has ended.

“The subscription-based business model is exploding, and it’s largely because of the deceptive practices that some companies use to lure and trap in customers,” Schatz said on Thursday. “When people sign up for a free trial, they shouldn’t have to jump through hoops just to cancel their subscription before being charged.”

Kennedy echoed Schatz’ statement in a news release, and called the bill “common sense.”

Companion legislation is set to be introduced in the House by US Rep. Mark Takano, D-Calif., who said, “If a business has to trick people into staying, it does not deserve their money.”

The FTC’s now-blocked “click-to-cancel” rule was part of the Biden administration’s “Time is Money” initiative.

According to the AP, an administrative law judge in the US Court of Appeals for the 8th Circuit blocked the rule on procedural grounds just before it went into effect on Monday.

Though the FTC had claimed it did not have to produce a preliminary regulatory analysis — because it initially determined the rule’s impact on the national economy would be less than $100 million — the judge decided the economic impact would be more than the $100 million threshold.

The court decided to vacate the rule as a result.

“While we certainly do not endorse the use of unfair and deceptive practices in negative option marketing, the procedural deficiencies of the Commission’s rulemaking process are fatal here,” the court wrote.

Lisa Gilbert, co-president of Public Citizen, a consumer advocacy group that often supports left-leaning policy, criticized the court’s decision, alleging that “conservative big business interests” swayed its ruling against the FTC’s “click-to-cancel” rule.

She said the alleged Big Business outcome makes passing Schatz’ bill “even more critical.”

The Unsubscribe Act would:

• Require sellers to provide customers with a clear understanding of all the terms of the contract and obtain the customer’s express and informed consent;
• Require sellers to provide a simple means of canceling the subscription, which the customer can complete in the same way in which the original contract was entered into;
• Require sellers to provide a clear notice to consumers when their free or reduced-cost trial is complete and before charging for the full-cost subscription;
• Disallow automatic transfer to a contract beyond the preliminary period; and
• Require sellers to periodically notify the customer of the terms of the contract and the cancelation mechanism.

The Schatz-Kennedy legislation, in a addition to Public Citizen, is supported by Consumer Action, Truth in Advertising, the National Consumer League and Consumer Federation of America.

“We applaud this sensible measure to protect the public and hope it swiftly becomes law,” Gilbert said.

The full text of the bill is available here.