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May 2024 Update on FTC Negative Option Rulemaking

Posted by Marc Roth | May 06, 2024 | 0 Comments

Many have been asking about the status of the amended FTC Negative Option Rule and when it is likely to go into effect. 
TL;DR.   Still don't know for sure, though not any time soon given a recent decision by the ALJ overseeing the three informal hearings conducted earlier this year on the FTC rule-making process, resulting in a setback for the FTC and greater scrutiny of the impact conclusions it made in the proposed rule.  Best guesstimate at this point...late Q3, possibly Q4, but in any event, likely before any possible administration change.
The Full Tea:  While the Vegas over/under has for some time been a late spring/early summer 2024 effective date, the Informal Hearings on the rule-making process conducted earlier this year (Jan 16, Jan 31, and Feb 14) appears to have pushed that out a bit, the latest development being a "Recommended Decision" issued by the ALJ on April 12 (but not made public until April 25) finding that (i) the new rule will impact the US economy by more than $100 MM, and (ii) the record does not establish what the record-keeping and disclosure costs associated with the proposed rule will be.
Why is this important?  Because under the relatively obscure federal Congressional Review Act of 1996 (come get geeky with me!), all federal agencies are required to submit final rules to the Government Accountability Office (GAO) before they go into effect, but rules that meet the $100 MM impact threshold are considered a "major rule," in which case GAO must prepare a report to Congress "on whether an agency, in promulgating a major rule, has complied with the regulatory process."  Since the FTC summarily concluded (with literally no evidence) that the proposed rule did not meet that threshold, the ALJ decision that it would, based on testimony offered by various industry trade groups during the hearings, was effectively a body blow to the FTC.  I have heard from various sources that following the ALJ Recommended Decision (is that oxymoron?), the FTC has been reaching out to several companies and others seeking data on their estimated costs for complying with the proposed rule and financial impact on them and consumers.  So...Recommended Decision = Rulemaking Speedbump.
In addition to requiring GAO to issue a report to Congress, it also allows Congress to reject or rescind a final "major" rule.  And whereas a non "major" rule may take effect as it ordinarily would following posting in the Federal Register (FR), a "major" rule may take effect no earlier than 60 calendar days after Congress receives the GAO report or is published in the FR, whichever is later.
So...back to timing...the CRA requires the GAO to issue its report to each house of Congress no later than 15 calendar days after a rule is submitted to GAO or published in the FR.  Since the ALJ deemed the rule to be "major," it can not, as noted above, go into effect until at least 60 days after the GAO report is sent to Congress, which means we could be looking at an effective date up to 75 days after the rule is published in the FR, and that's assuming Congress doesn't challenge or reject it.
We are tracking the FR to see when the final rule is published, which will then start the clock on the GAO report and when Congress must review the rule.  Stay tuned!

About the Author

Marc Roth

Marc advises clients on all things advertising, marketing, promotions and privacy, having practiced in these areas for decades, in various capacities. A former Federal Trade Commission attorney, he understands regulatory priorities and concerns, which enables him to provide informed and practical advice to clients and prepare for the possibility of challenge. Having served as Chief Marketing Counsel for a Time Warner subsidiary, he knows the type of advice his clients need to do their job – prompt and practical answers, not lengthy and indecisive memos. He knows that “no” is not an option for in-house lawyers serving their business teams and works tirelessly with clients to develop viable and effective solutions acceptable to all stakeholders.


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