Photo: Michael Nagle/Bloomberg via Getty Images
Remember MoviePass? Ten bucks a month for an unlimited number of movies in the theater: What a wild idea. It was one of Silicon Valley’s most naïve business plans, and, predictably, it turned into a complete disaster. But the idea behind MoviePass wasn’t totally implausible at the time. If enough people signed on and never showed up to the theater, the thinking went, maybe it could work. The company’s popularity briefly made it a Wall Street darling despite its who cares? attitude toward making actual money. And one of those reasons investors loved it so much was that, despite its obscenely cheap monthly price, it was notoriously difficult to cancel.
Last week, the Federal Trade Commission announced a new rule that would have snuffed out even that brief flicker of hope for MoviePass and its ilk. The rule, years in the works, will make it as easy to cancel a subscription as it was to sign up in the first place — no more showing up to a store in person or sending a certified letter to nix a recurring charge. It is an enormously popular triumph over the gyms, news outlets, and apps you don’t use or forgot you downloaded while quietly draining money out of your checking account, perhaps for years. After the rule first passed, shares of Planet Fitness, whose gym membership is difficult to cancel , dropped by about 5 percent.
But the rule came with an asterisk. Two of the FTC’s five commissioners, both Republicans, dissented. “Less than a month from election day, the Chair is hurrying to finish a rule that follows through on a campaign pledge made by the Chair’s favored presidential candidate,” commissioner Melissa Holyoak wrote. (The other dissenter, Andrew Ferguson, hasn’t yet published his reasoning.) Holyoak’s dissent barely made it into all the positive coverage of the rule’s approval. But the reality is that the brief also laid out a rationale for the U.S. court system — which has been increasingly emboldened to neuter agencies like the FTC — to block click-to-cancel, and thus clearing the way for one of the economy’s most annoying scourges to keep thriving.
Holyoak is right that the rule came at a key moment in regulatory history. But less important than the election is a rash of recent Supreme Court decisions that have overturned four decades of precedent allowing the federal government to oversee how corporations operate. One of those decisions, Loper Bright Industries v. Raimondo, stopped regulators from reining in legal election betting and made investigating fraud harder. Generally, these decisions also emboldened judges — particularly in the conservative Fifth Circuit Court — to restrain government agencies from doing anything not explicitly allowed by Congress, a way to dismantle the powers of the government’s executive branch.
Holyoak’s dissent makes two main arguments. The first is that the FTC cut corners in the process for creating rules around canceling subscriptions, which it calls a “negative option.” Holyoak argues that, after Lina Khan was appointed as FTC chair, she tweaked the proposed rule to include a provision against lying in marketing. That made it different enough from the earlier versions that the whole process should have started over from the beginning. And the change broadened the new rule to encompass “any deception about the product, even if it was unrelated to the ‘negative option’ part of how it was sold,” says Maureen Ohlhausen, a former FTC commissioner appointed by Barack Obama and then appointed acting chair by Donald Trump in 2017. “That’s really the big expansion.”
This leads to another of Holyoak’s arguments, which is simply that the courts are likely to strike this rule down. She doesn’t contend that the FTC is regulating something that Congress hasn’t specifically asked it to do — the FTC is about 110 years old and has a history of making rules about canceling subscriptions. Instead, Holyoak is making a strange case for a Republican: that the FTC is not being bureaucratic enough. Holyoak argues that, by moving too quickly, it effectively bypassed its authority under Congress and failed to follow a mandated, highly choreographed series of disclosures. This is part of the weird history of the FTC. In the 1970s, Congress briefly defunded the commission after it tried to ban all advertising for children, which it considered “immoral, unscrupulous, and unethical.” In response, Congress passed a law that effectively slowed down the rule-making process with a slew of new requirements that made it harder for the FTC to pass similar consumer-oriented rules.
Erin Witte, the director of consumer protection at nonprofit watchdog Consumer Federation of America, doesn’t agree with the premise of Holyoak’s arguments and says that the procedural changes to the rule were routine. (An aide to Khan pointed out to me that, not only did the FTC start working on this rule under the Trump administration, but the first workshops were held on it back in 2007.) “It’s ironic, because one of the criticisms of federal government agencies is that things take a long time,” says Witte. One of the commissioners who voted for the rule, Rebecca Kelly Slaughter, noted in her opinion that the changes to rules are “common.”
What happens to click-to-cancel from here on out is anyone’s guess. Lobbying groups like the U.S. Chamber of Commerce have attacked it as unfair for businesses and are likely to challenge it in Louisiana, Mississippi, and Texas, whose federal courts feed into the conservative Fifth Circuit Court of Appeals. From there, the Supreme Court could decide to rule on it, perhaps as a way to clarify the FTC’s rule-making procedures. Shares of Planet Fitness have since rebounded a bit, a sign that Wall Street is hedging its bets on how much it will affect its share price. “Any rule the Federal Trade Commission puts out right now is vulnerable to attack, because firms that challenge rules have gotten a lot of success in the Fifth Circuit,” says Witte. “So, it’s not going to be surprising to me at all if they file a lawsuit challenging it. Now, what the Fifth Circuit does with that and how likely it is to succeed? You know, I really don’t know.”
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