1 00:00:02,759 --> 00:00:07,000 Speaker 1: This is Bloomberg Law with June Grossel from Bloomberg Radio. 2 00:00:08,600 --> 00:00:11,760 Speaker 2: I ordered the end to all of the lawless diversity 3 00:00:11,800 --> 00:00:17,279 Speaker 2: equity and inclusion nonsense policies across the government and all 4 00:00:17,320 --> 00:00:19,639 Speaker 2: across the private sector and the military. 5 00:00:20,200 --> 00:00:24,800 Speaker 1: President Donald Trump has tried to wipe out diversity, equity 6 00:00:24,800 --> 00:00:29,040 Speaker 1: and inclusion programs in the public and private sectors, and 7 00:00:29,200 --> 00:00:33,160 Speaker 1: early this year, the National Institutes of Health began terminating 8 00:00:33,280 --> 00:00:36,800 Speaker 1: thousands of medical research grants that don't align with the 9 00:00:36,840 --> 00:00:42,360 Speaker 1: president's policies. More than a dozen states researchers and research 10 00:00:42,560 --> 00:00:46,960 Speaker 1: organizations filed a suit against the administration, saying the cuts 11 00:00:46,960 --> 00:00:51,520 Speaker 1: would set back crucial research by years, if not decades. 12 00:00:51,880 --> 00:00:54,200 Speaker 1: They won at the district court level and at the 13 00:00:54,200 --> 00:00:57,760 Speaker 1: appellate level, but the Supreme Court, in a five to 14 00:00:57,840 --> 00:01:01,880 Speaker 1: four decision, sided with the Trumpet administration, clearing a way 15 00:01:01,880 --> 00:01:04,560 Speaker 1: for it to cut nearly eight hundred million dollars in 16 00:01:04,720 --> 00:01:08,320 Speaker 1: grants while legal battles over the funding play out in 17 00:01:08,360 --> 00:01:12,039 Speaker 1: the lower courts. Joining me is constitutional law professor David 18 00:01:12,120 --> 00:01:17,800 Speaker 1: super of Georgetown Law. David what kinds of grants were cut? Here? 19 00:01:18,720 --> 00:01:26,880 Speaker 3: The administration canceled thousands of grants the NIH had provided 20 00:01:27,040 --> 00:01:32,760 Speaker 3: for research on a wide range of topics. Ostensibly, these 21 00:01:32,920 --> 00:01:38,480 Speaker 3: grants were cut off because they related to diversity, equity, 22 00:01:39,000 --> 00:01:44,840 Speaker 3: and inclusion, or because they related to gender or gender 23 00:01:44,920 --> 00:01:49,520 Speaker 3: identity as understood by the administration. In fact, it took 24 00:01:49,640 --> 00:01:54,040 Speaker 3: little more than having the word diversity or equity in 25 00:01:54,080 --> 00:01:57,960 Speaker 3: the name of the project to get it cut off. 26 00:01:58,360 --> 00:02:02,840 Speaker 3: Some projects that had nothing to do with race or 27 00:02:03,000 --> 00:02:07,800 Speaker 3: racial equity or racial inclusion were cut off, but the 28 00:02:07,840 --> 00:02:12,800 Speaker 3: district court found that disproportionately research into health problems that 29 00:02:12,880 --> 00:02:16,240 Speaker 3: affect people of color were target of this cutoff. 30 00:02:17,000 --> 00:02:21,280 Speaker 1: Federal Judge William Young, a Reagan appointee, said, following a 31 00:02:21,320 --> 00:02:26,440 Speaker 1: bench trial, this represents racial discrimination and discrimination against America's 32 00:02:26,600 --> 00:02:30,400 Speaker 1: LGBTQ community. I would be blind not to call it out. 33 00:02:31,280 --> 00:02:36,680 Speaker 3: Yes. He also found that the cutoffs showed remarkable and 34 00:02:36,800 --> 00:02:40,160 Speaker 3: sensitivity to the health problems affecting women. 35 00:02:40,639 --> 00:02:45,440 Speaker 1: In the past, have administrations cut off grants for you know, 36 00:02:45,720 --> 00:02:50,320 Speaker 1: arbitrary reasons or because they don't comply with the administration's objectives. 37 00:02:51,160 --> 00:02:54,840 Speaker 3: This is almost unheard of. Sure, if someone is taking 38 00:02:54,840 --> 00:02:57,080 Speaker 3: a grant and they're not doing the work, they get 39 00:02:57,080 --> 00:03:01,880 Speaker 3: cut off. But the notion we would have given this grant, 40 00:03:01,960 --> 00:03:05,480 Speaker 3: so we're simply going to cut it off is extraordinarily 41 00:03:05,560 --> 00:03:09,000 Speaker 3: wasteful in administrations at both parties in the past have 42 00:03:09,080 --> 00:03:10,160 Speaker 3: refrained from doing it. 43 00:03:10,600 --> 00:03:13,720 Speaker 1: Explain the Supreme Court's ruling, which was five to four. 44 00:03:14,360 --> 00:03:18,200 Speaker 3: The question came to the Supreme Court whether to stay 45 00:03:18,400 --> 00:03:23,919 Speaker 3: whether to suspend the order that the District Court judge 46 00:03:23,960 --> 00:03:26,840 Speaker 3: had issued. And the District Court judge did two things. 47 00:03:27,440 --> 00:03:32,799 Speaker 3: He struck down the policy guidance the administration based its 48 00:03:32,919 --> 00:03:36,800 Speaker 3: terminations on, and it struck down the terminations. It fell 49 00:03:37,280 --> 00:03:41,920 Speaker 3: four justices, the three Liberals and the Chief Justice voted 50 00:03:41,960 --> 00:03:46,880 Speaker 3: to deny any interference with the District Court's order to 51 00:03:46,960 --> 00:03:51,680 Speaker 3: let the court order take effect. Four justices voted to 52 00:03:51,960 --> 00:03:55,680 Speaker 3: stay the entirety of the court order, and the fighting 53 00:03:55,800 --> 00:04:00,920 Speaker 3: vote was cast by Justice Barrett, who said that she 54 00:04:01,520 --> 00:04:06,680 Speaker 3: wanted to stay the resumption of funding, but would not 55 00:04:07,240 --> 00:04:12,440 Speaker 3: interfere with the finding that the policy guidance was illegal. 56 00:04:13,080 --> 00:04:17,680 Speaker 1: And what was the reasoning of the majority in allowing 57 00:04:17,720 --> 00:04:20,040 Speaker 1: the government to withhold the grant money. 58 00:04:20,200 --> 00:04:25,600 Speaker 3: Their reasoning was that anyone who'd had their grant cutoff 59 00:04:25,680 --> 00:04:28,800 Speaker 3: should have gone to the Court of Federal Claims, not 60 00:04:29,000 --> 00:04:32,919 Speaker 3: Federal district court, and that's the place that it is 61 00:04:33,000 --> 00:04:36,560 Speaker 3: proper to pursue deaths from the federal government. 62 00:04:37,040 --> 00:04:40,520 Speaker 1: Can you explain what the difference is between that part 63 00:04:40,520 --> 00:04:43,280 Speaker 1: of the decision and the part of the decision that 64 00:04:43,560 --> 00:04:45,800 Speaker 1: allowed the policy to go forward. 65 00:04:46,279 --> 00:04:53,040 Speaker 3: Yes. Justice Barrett held that the federal courts, federal district 66 00:04:53,080 --> 00:04:58,640 Speaker 3: courts are completely proper places to challenge the legality of 67 00:04:58,839 --> 00:05:03,320 Speaker 3: guidance that is issued by the administration. So if the 68 00:05:03,480 --> 00:05:08,400 Speaker 3: challenge is that this guidance is without solid legal basis, 69 00:05:08,480 --> 00:05:11,839 Speaker 3: that it's contrary to the federal government's legal obligations, that 70 00:05:11,960 --> 00:05:15,680 Speaker 3: a violate civil rights laws, those are proper claims to 71 00:05:15,760 --> 00:05:19,200 Speaker 3: bring in federal district court into get an injunction, she said. 72 00:05:19,440 --> 00:05:23,039 Speaker 3: But she said that if you actually want money, that 73 00:05:23,240 --> 00:05:25,120 Speaker 3: has to come from the Court of Federal Claims. 74 00:05:25,600 --> 00:05:28,000 Speaker 1: So that means that the challenges here would have to 75 00:05:28,000 --> 00:05:31,320 Speaker 1: go to two separate courts and bring two separate actions. 76 00:05:32,000 --> 00:05:36,799 Speaker 3: Yes, she said, there's precedent for that, and she asserted 77 00:05:36,839 --> 00:05:41,640 Speaker 3: that that was the result of Congress's passing the jurisdictional 78 00:05:41,680 --> 00:05:45,680 Speaker 3: statues they have and the Supreme Court's prior interpretations. 79 00:05:45,960 --> 00:05:48,760 Speaker 1: And do you think that's a correct interpretation. 80 00:05:49,080 --> 00:05:53,159 Speaker 3: No, I don't. The Court of Federal Claims is there 81 00:05:53,360 --> 00:05:58,560 Speaker 3: to handle a lot of routine matters where there's a 82 00:05:58,680 --> 00:06:02,279 Speaker 3: question about the quality of the paint job that was 83 00:06:02,320 --> 00:06:05,160 Speaker 3: done on a federal office building and the federal government's 84 00:06:05,200 --> 00:06:09,159 Speaker 3: refusing to pay, and the painting contractor wants to be paid. 85 00:06:09,640 --> 00:06:12,520 Speaker 3: There's a need for that. That's useful sort of thing, 86 00:06:12,680 --> 00:06:18,520 Speaker 3: But that's very different from a systematic violation of thousands 87 00:06:18,520 --> 00:06:23,400 Speaker 3: of contracts asserting a power that has never previously been recognized. 88 00:06:23,440 --> 00:06:29,080 Speaker 3: Those are the kinds of statutory and constitutional issues that 89 00:06:29,360 --> 00:06:33,800 Speaker 3: have long been the province of the general federal court system, 90 00:06:33,880 --> 00:06:36,080 Speaker 3: the district courts, and the circuit courts of appeal. 91 00:06:36,800 --> 00:06:39,839 Speaker 1: So can the groups here now that they have this 92 00:06:40,160 --> 00:06:44,760 Speaker 1: judgment from the Supreme Court about the policies, can they 93 00:06:44,839 --> 00:06:47,680 Speaker 1: now go to the Court of Federal Claims and ask 94 00:06:47,760 --> 00:06:48,320 Speaker 1: for the money? 95 00:06:49,120 --> 00:06:52,160 Speaker 3: If only it were that simple. This was not a 96 00:06:52,200 --> 00:06:56,360 Speaker 3: decision on the merits of those policies. It was simply 97 00:06:56,440 --> 00:07:01,839 Speaker 3: about how the litigation should proceed. And Justice Bart, joining 98 00:07:01,880 --> 00:07:05,480 Speaker 3: with the Chief Justice and the three Liberals, held that 99 00:07:05,880 --> 00:07:11,280 Speaker 3: the litigation can continue in the first Circuit Court of 100 00:07:11,360 --> 00:07:17,200 Speaker 3: Appeals about whether or not those policy documents are legal, 101 00:07:17,720 --> 00:07:23,240 Speaker 3: and if they are struck down again in that court, 102 00:07:23,320 --> 00:07:26,520 Speaker 3: the Trump administration could appeal back to the Supreme Court 103 00:07:26,600 --> 00:07:30,000 Speaker 3: on the merits. She indicated that there were some open 104 00:07:30,080 --> 00:07:33,200 Speaker 3: questions in her mind that would need to be resolved 105 00:07:33,600 --> 00:07:38,240 Speaker 3: before a final decision could be made about the legitimacy 106 00:07:38,280 --> 00:07:41,760 Speaker 3: of those policy documents, so she was only keeping the 107 00:07:41,840 --> 00:07:45,720 Speaker 3: litigation alive. She wasn't resolving it in the favor of 108 00:07:45,760 --> 00:07:46,480 Speaker 3: the challengers. 109 00:07:47,080 --> 00:07:50,800 Speaker 1: And the majority found that the government would be irreparably 110 00:07:50,880 --> 00:07:53,400 Speaker 1: harmed if it had to pay out this money. 111 00:07:53,880 --> 00:07:58,280 Speaker 3: How so, yes, that's a particularly disturbing part of it. 112 00:07:58,360 --> 00:08:02,880 Speaker 3: They said that because because the recipients wouldn't be able 113 00:08:02,960 --> 00:08:06,520 Speaker 3: to repay the government if it was ultimately found that 114 00:08:06,600 --> 00:08:09,920 Speaker 3: the money was not owing, that the federal government shouldn't 115 00:08:09,960 --> 00:08:13,640 Speaker 3: have to pay out the money until after a final 116 00:08:13,760 --> 00:08:17,040 Speaker 3: judgment is issued, which, once appeals are accounted for, it 117 00:08:17,080 --> 00:08:20,880 Speaker 3: could take several years. This is treating the entire matter 118 00:08:21,160 --> 00:08:25,480 Speaker 3: as a debt collection issue rather than an issue of 119 00:08:25,560 --> 00:08:29,120 Speaker 3: democratic governance. It could be that at the end of 120 00:08:29,160 --> 00:08:33,360 Speaker 3: the day, the parties entitled to money will get some money, 121 00:08:33,960 --> 00:08:38,240 Speaker 3: but the research will long since it's been abandon the 122 00:08:38,320 --> 00:08:41,280 Speaker 3: employees long since it's been laid off. Many of the 123 00:08:41,400 --> 00:08:47,000 Speaker 3: nonprofits will have been bankrupted by the long delay. And 124 00:08:47,120 --> 00:08:51,160 Speaker 3: this is essentially saying that the federal government is too 125 00:08:51,200 --> 00:08:54,200 Speaker 3: big to comply rather than too big to fail. Too 126 00:08:54,240 --> 00:08:57,360 Speaker 3: big to comply because the size of the grants it 127 00:08:57,440 --> 00:09:00,320 Speaker 3: gives out and the importance of the grants it gives 128 00:09:00,360 --> 00:09:03,720 Speaker 3: out are such that the recipients don't have the money 129 00:09:03,760 --> 00:09:04,559 Speaker 3: to pay it back. 130 00:09:05,240 --> 00:09:07,760 Speaker 1: In April, the Supreme Court allowed the Trump administration to 131 00:09:07,760 --> 00:09:13,200 Speaker 1: cancel sixty five million dollars in teaching related grants, and 132 00:09:13,559 --> 00:09:17,800 Speaker 1: in this case, Justice Neil Gorsich accused the trial judge 133 00:09:17,920 --> 00:09:21,880 Speaker 1: of defying the Supreme Court by not following that when 134 00:09:21,920 --> 00:09:25,760 Speaker 1: this court issues a decision, it constitutes a precedent that 135 00:09:25,920 --> 00:09:30,640 Speaker 1: commands respect in lower courts. He also said recent federal 136 00:09:30,679 --> 00:09:35,320 Speaker 1: judges rulings on immigration and removal of leaders of independent 137 00:09:35,400 --> 00:09:41,880 Speaker 1: agencies were also instances of what he said was judicial defiance. 138 00:09:42,440 --> 00:09:46,520 Speaker 1: But the Supreme Court rulings he's referring to are rulings 139 00:09:46,559 --> 00:09:50,360 Speaker 1: on the shadow docket, where there isn't full briefing or 140 00:09:50,600 --> 00:09:52,880 Speaker 1: oral arguments or decisions. 141 00:09:52,960 --> 00:09:58,160 Speaker 3: Sometimes, well, it's a very curious position. They're taking Most 142 00:09:58,520 --> 00:10:01,160 Speaker 3: of the history of the Supreme Court. Court has been 143 00:10:01,360 --> 00:10:07,600 Speaker 3: through formal consideration of cases, oral arguments, briefs, and thorough 144 00:10:07,640 --> 00:10:14,640 Speaker 3: opinions from the justices. Increasingly under the first Trump administration, 145 00:10:14,760 --> 00:10:18,960 Speaker 3: the bud administration, and now the Supreme Court is not 146 00:10:19,200 --> 00:10:23,520 Speaker 3: accepting full briefs, not listening to oral argument, not writing 147 00:10:23,559 --> 00:10:26,840 Speaker 3: full opinion, sometimes not writing any opinions at all. And 148 00:10:26,880 --> 00:10:30,680 Speaker 3: what Justice Coursa you're saying is, even when the Supreme 149 00:10:30,679 --> 00:10:34,520 Speaker 3: Court is issuing an emergency order, and even when it's 150 00:10:34,559 --> 00:10:37,440 Speaker 3: not at all clear what the basis for that order is, 151 00:10:37,679 --> 00:10:41,040 Speaker 3: the lower court somehow must read the Supreme Court's mind. 152 00:10:41,760 --> 00:10:44,839 Speaker 3: If the Supreme Court wants lower courts to follow it, 153 00:10:44,920 --> 00:10:46,600 Speaker 3: it needs to tell them what it's doing. 154 00:10:47,160 --> 00:10:51,600 Speaker 1: Chief Justice Roberts joined the liberals in the case involving 155 00:10:51,640 --> 00:10:55,320 Speaker 1: the teaching related grants. And in this case, is that 156 00:10:55,440 --> 00:10:57,000 Speaker 1: surprising in any respect? 157 00:10:57,440 --> 00:10:57,680 Speaker 4: No. 158 00:10:57,920 --> 00:11:02,080 Speaker 3: Chief Justice Roberts has been very concerned about business client 159 00:11:02,360 --> 00:11:06,840 Speaker 3: and allowing businesses to function freely. And the federal government 160 00:11:06,840 --> 00:11:09,880 Speaker 3: that isn't bound to comply with its contract is very 161 00:11:09,920 --> 00:11:14,200 Speaker 3: bad for business. If I were a private business person, 162 00:11:14,320 --> 00:11:17,440 Speaker 3: I would be doing anything I could to avoid having 163 00:11:17,480 --> 00:11:20,280 Speaker 3: the contract with the federal government because the effect of 164 00:11:20,320 --> 00:11:22,920 Speaker 3: these decisions is that the contract isn't worth anything. 165 00:11:23,000 --> 00:11:27,839 Speaker 1: So, as we've discussed before, the Trump administration has prevailed 166 00:11:28,080 --> 00:11:33,560 Speaker 1: in a majority of its about twenty emergency applications to 167 00:11:33,679 --> 00:11:38,559 Speaker 1: the Supreme Court. Often you have the liberal justices dissenting, 168 00:11:38,800 --> 00:11:43,200 Speaker 1: and in this case, Justice Katanji Brown Jackson wrote a 169 00:11:43,400 --> 00:11:48,439 Speaker 1: solo blistering dissent where she repeated what she said before 170 00:11:48,559 --> 00:11:52,560 Speaker 1: about the Supreme Court favoring the Trump administration, and she 171 00:11:52,640 --> 00:11:56,319 Speaker 1: referred to the comic strip Calvin and Hobbes, which features 172 00:11:56,360 --> 00:11:59,760 Speaker 1: a game of Calvin Ball, and she wrote, quote, Calvin 173 00:11:59,800 --> 00:12:03,679 Speaker 1: ball has only one rule. There are no fixed rules. 174 00:12:04,120 --> 00:12:08,280 Speaker 1: We seem to have two that one, and this administration 175 00:12:08,600 --> 00:12:13,960 Speaker 1: always wins. So no fixed rules and the administration always wins. 176 00:12:14,440 --> 00:12:17,120 Speaker 1: You can really sense the frustration in some of these 177 00:12:17,280 --> 00:12:22,280 Speaker 1: descents by the liberal justices, and Justice Jackson seems to 178 00:12:22,280 --> 00:12:25,800 Speaker 1: be getting more sort of brazen in her descents. 179 00:12:26,440 --> 00:12:30,320 Speaker 3: Well. She has, and it's not hard to understand why. 180 00:12:30,679 --> 00:12:36,240 Speaker 3: Throughout the country's history, contract has been a central part 181 00:12:36,280 --> 00:12:39,840 Speaker 3: of its law and the notion that the government above 182 00:12:39,920 --> 00:12:43,320 Speaker 3: all complies with its contracts. It's been central. We have 183 00:12:43,400 --> 00:12:46,880 Speaker 3: a new administration that doesn't want to, and rather than 184 00:12:46,920 --> 00:12:50,439 Speaker 3: bringing it to heal, this court has beending over backwards 185 00:12:50,440 --> 00:12:54,000 Speaker 3: to accommodate it. That certainly does look like favoritism. 186 00:12:54,280 --> 00:12:58,680 Speaker 1: Is there any other avenue that the organizations and the 187 00:12:58,720 --> 00:13:02,080 Speaker 1: states here can pursue if it would take too long 188 00:13:02,160 --> 00:13:04,440 Speaker 1: to go to the Court of Claims? Or is this 189 00:13:04,600 --> 00:13:06,160 Speaker 1: sort of the end of the grants? 190 00:13:06,600 --> 00:13:09,320 Speaker 3: They can go to the Court of Federal Claims. There 191 00:13:09,360 --> 00:13:15,040 Speaker 3: are significant obstacles to getting relief from that court. It's 192 00:13:15,480 --> 00:13:18,599 Speaker 3: a real court. People do win real judgments there. I 193 00:13:18,640 --> 00:13:21,280 Speaker 3: don't mean to disparage it in that way, but it's 194 00:13:21,320 --> 00:13:24,520 Speaker 3: going to be a very difficult way to proceed. Lots 195 00:13:24,559 --> 00:13:27,559 Speaker 3: of money that is owed probably will never be ordered 196 00:13:27,600 --> 00:13:31,640 Speaker 3: to be paid out of that court. And the result 197 00:13:31,760 --> 00:13:35,240 Speaker 3: of all of this is likely to be that many 198 00:13:35,720 --> 00:13:38,400 Speaker 3: of these programs are indeed disbanded. 199 00:13:39,000 --> 00:13:41,319 Speaker 1: What stands out to you in this decision. 200 00:13:41,280 --> 00:13:44,000 Speaker 3: This isn't really a liberal conservative thing. This is just 201 00:13:44,040 --> 00:13:47,600 Speaker 3: a rule of law thing. And if the government doesn't 202 00:13:47,640 --> 00:13:50,520 Speaker 3: have to keep its contracts, no one should do business 203 00:13:50,520 --> 00:13:50,880 Speaker 3: with it. 204 00:13:51,240 --> 00:13:54,480 Speaker 1: Always a pleasure, David, Thanks so much. That's Professor David 205 00:13:54,520 --> 00:13:59,720 Speaker 1: super of Georgetown Law. The Federal Trade Commission is suing 206 00:13:59,720 --> 00:14:03,880 Speaker 1: the operators of La Fitness over allegations that they make 207 00:14:04,000 --> 00:14:08,680 Speaker 1: it exceedingly difficult for customers to cancel gym memberships and 208 00:14:08,840 --> 00:14:13,760 Speaker 1: other related services offered in their clubs nationwide. The FTC 209 00:14:13,840 --> 00:14:19,440 Speaker 1: accuses Fitness International and its subsidiary of illegally charging consumers 210 00:14:19,760 --> 00:14:24,080 Speaker 1: hundreds of millions of dollars in unwanted recurring fees as 211 00:14:24,080 --> 00:14:28,720 Speaker 1: a result of the cumbersome cancelation process. The director of 212 00:14:28,760 --> 00:14:32,520 Speaker 1: the agency's Bureau of Consumer Protection said in a statement, 213 00:14:33,040 --> 00:14:37,520 Speaker 1: the FTC's complaint describes a scenario that too many Americans 214 00:14:37,560 --> 00:14:42,240 Speaker 1: have experienced a gym membership that seems impossible to cancel. 215 00:14:42,840 --> 00:14:47,080 Speaker 1: Jill Hill, the president of club operations at Fitness International, 216 00:14:47,400 --> 00:14:51,240 Speaker 1: said the FTC's allegations were without merit and that the 217 00:14:51,280 --> 00:14:54,640 Speaker 1: company was confident it would prevail in court, joining me 218 00:14:54,680 --> 00:14:58,400 Speaker 1: as Sean Collins, a partner at Straddling Sean, did this 219 00:14:58,440 --> 00:14:59,400 Speaker 1: suit surprise you? 220 00:15:00,200 --> 00:15:04,520 Speaker 4: I'm surprised that the FTC is bringing this lawsuit. And 221 00:15:04,560 --> 00:15:08,360 Speaker 4: the reason why I say that is so California back 222 00:15:08,400 --> 00:15:12,120 Speaker 4: in twenty eleven twenty twelve basically was the first state 223 00:15:12,160 --> 00:15:14,840 Speaker 4: to kind of recognize that you know what, if you 224 00:15:15,120 --> 00:15:19,320 Speaker 4: automatically start charging somebody's credit card every month, you should 225 00:15:19,320 --> 00:15:22,600 Speaker 4: probably make it easy for them to cancel, as opposed 226 00:15:22,640 --> 00:15:25,000 Speaker 4: to putting up a bunch of impediments than being able 227 00:15:25,000 --> 00:15:27,680 Speaker 4: to cancel. Ie, call somebody and then wait on the 228 00:15:27,680 --> 00:15:29,320 Speaker 4: phone for thirty minutes until you get a hold of 229 00:15:29,360 --> 00:15:32,840 Speaker 4: a customer service representative, or fill out ten pieces of paperwork, 230 00:15:33,320 --> 00:15:36,680 Speaker 4: Because what the data suggests is that when a person 231 00:15:36,720 --> 00:15:38,360 Speaker 4: has to stay on the phone for thirty minutes to 232 00:15:38,360 --> 00:15:40,760 Speaker 4: cancel their membership or fill out ten pieces of paper 233 00:15:41,040 --> 00:15:43,000 Speaker 4: they just say, forget it. I don't have time to 234 00:15:43,080 --> 00:15:44,480 Speaker 4: do that. I got to go pick up my kid, 235 00:15:44,560 --> 00:15:46,560 Speaker 4: They got to get to work, and then they end 236 00:15:46,680 --> 00:15:50,479 Speaker 4: up being charged hundreds and hundreds of more dollars, unknowingly, 237 00:15:50,720 --> 00:15:53,480 Speaker 4: just because it was so difficult for them to cancel. 238 00:15:53,680 --> 00:15:57,240 Speaker 4: So California back in twenty eleven amended their auto renew 239 00:15:57,280 --> 00:16:03,400 Speaker 4: statute to say, if person signs up online, you have 240 00:16:03,520 --> 00:16:06,520 Speaker 4: to offer them the same mechanism for cancelation that they 241 00:16:06,640 --> 00:16:10,640 Speaker 4: signed up for. Now, why was that important? That means 242 00:16:10,680 --> 00:16:12,960 Speaker 4: that if I clicked the button on my iPhone, if 243 00:16:13,000 --> 00:16:15,320 Speaker 4: I click the button on my computer to sign up, 244 00:16:16,040 --> 00:16:17,600 Speaker 4: then I need to be able to click a button 245 00:16:17,640 --> 00:16:19,680 Speaker 4: on my iPhone, to click a button on my computer 246 00:16:20,120 --> 00:16:23,160 Speaker 4: to cancel just as easily as I signed up. Now. 247 00:16:23,240 --> 00:16:25,040 Speaker 4: The reason why I'm saying that is is I was 248 00:16:25,080 --> 00:16:28,840 Speaker 4: really shocked that the FTC brought this lawsuit because the 249 00:16:28,880 --> 00:16:32,400 Speaker 4: federal law, so section five of the FTC Act and 250 00:16:32,640 --> 00:16:37,320 Speaker 4: ROSCA do not really have that same exacting level of 251 00:16:37,400 --> 00:16:42,400 Speaker 4: specificity that California and New York, Florida. Oregon DC even 252 00:16:42,480 --> 00:16:45,800 Speaker 4: has a similar mechanism now, and there's other states organ 253 00:16:46,240 --> 00:16:50,440 Speaker 4: as well, whereby you have to offer the consumer the 254 00:16:50,480 --> 00:16:53,480 Speaker 4: same ease of cancelation that it was for them to 255 00:16:53,480 --> 00:16:57,400 Speaker 4: sign up. And so that's probably one of the reasons 256 00:16:57,400 --> 00:17:00,080 Speaker 4: why I think it's one of the reasons why the 257 00:17:00,280 --> 00:17:04,160 Speaker 4: LA Fitness is fighting it, amongst other reasons. But if 258 00:17:04,200 --> 00:17:07,719 Speaker 4: you read the complaint, the complaint is kind of weird 259 00:17:07,800 --> 00:17:09,840 Speaker 4: because they're saying, well, you made it really difficult for 260 00:17:09,880 --> 00:17:12,919 Speaker 4: them to cancel. But then when you read the statutes 261 00:17:12,960 --> 00:17:16,680 Speaker 4: that they're seeking relief under, they're basically saying section five 262 00:17:16,760 --> 00:17:19,520 Speaker 4: of the FTC Act, and then count two is ROSCA, 263 00:17:20,000 --> 00:17:23,200 Speaker 4: and then count three they're saying you fail to provide 264 00:17:23,359 --> 00:17:27,359 Speaker 4: simple cancelation mechanism. Federal law is not really specific on 265 00:17:27,400 --> 00:17:31,400 Speaker 4: what simple cancelation mechanism mean. So like I say, in California, 266 00:17:31,520 --> 00:17:34,760 Speaker 4: we say simple cancelation mechanism means that if I click 267 00:17:34,840 --> 00:17:36,200 Speaker 4: the button to sign up, I should be able to 268 00:17:36,240 --> 00:17:39,280 Speaker 4: click a button to cancel. There is no same standard, 269 00:17:39,440 --> 00:17:44,159 Speaker 4: at least that's been articulated under federal law. So I 270 00:17:44,280 --> 00:17:47,080 Speaker 4: suspect that what LA Fitness is doing is saying, well, 271 00:17:47,119 --> 00:17:51,200 Speaker 4: we didn't violate federal law by requiring people to come 272 00:17:51,200 --> 00:17:53,760 Speaker 4: in and cancel. Because the other thing about gym memberships 273 00:17:53,880 --> 00:17:55,840 Speaker 4: is is most people sign up for the gym membership 274 00:17:55,840 --> 00:17:58,240 Speaker 4: by walking into the gym and filling a piece of 275 00:17:58,240 --> 00:18:01,280 Speaker 4: paper out. You don't do it on your iPhone, not 276 00:18:01,400 --> 00:18:03,520 Speaker 4: most people. Now, a lot of people may be doing 277 00:18:03,520 --> 00:18:07,040 Speaker 4: that nowadays. But for La Fitness, if I'm signing up 278 00:18:07,080 --> 00:18:09,120 Speaker 4: for a gym membership, I usually have to walk into 279 00:18:09,160 --> 00:18:11,119 Speaker 4: the gym, look at the gym, see if I like 280 00:18:11,200 --> 00:18:14,400 Speaker 4: the gym, and then sit down with somebody to sign up. Now, 281 00:18:14,480 --> 00:18:17,040 Speaker 4: I haven't seen the actual agreement for the sign up, 282 00:18:17,400 --> 00:18:20,000 Speaker 4: but there may be disclosures in that agreement that say, 283 00:18:20,480 --> 00:18:22,359 Speaker 4: if you want to cancel your membership. These are the 284 00:18:22,400 --> 00:18:23,480 Speaker 4: things that you need to do. 285 00:18:24,119 --> 00:18:26,239 Speaker 1: So then do you think this lawsuit came as a 286 00:18:26,280 --> 00:18:27,800 Speaker 1: surprise to La Fitness. 287 00:18:28,359 --> 00:18:32,040 Speaker 4: These lawsuits just don't happen overnight. The FTC didn't blindside 288 00:18:32,119 --> 00:18:34,879 Speaker 4: La Fitness, and you know La Fitness woke up one 289 00:18:34,880 --> 00:18:38,120 Speaker 4: morning they were big sued. Typically what happens is probably 290 00:18:38,160 --> 00:18:41,480 Speaker 4: two years ago the FTC was probably getting a lot 291 00:18:41,480 --> 00:18:44,680 Speaker 4: of complaints via the Better Business Bureau about people complaining 292 00:18:44,680 --> 00:18:48,359 Speaker 4: about having a hard time canceling their La Fitness memberships, 293 00:18:49,119 --> 00:18:51,840 Speaker 4: and then they opened up an investigation. So they sent 294 00:18:51,880 --> 00:18:55,879 Speaker 4: to a CID, which is a federal civil investigative demand 295 00:18:55,920 --> 00:18:58,720 Speaker 4: to La Fitness saying, hey, everybody's complaining about having a 296 00:18:58,720 --> 00:19:00,960 Speaker 4: hard time canceling your membership. What do you have to 297 00:19:01,000 --> 00:19:03,160 Speaker 4: say about this? And send us a bunch of documents 298 00:19:03,200 --> 00:19:05,600 Speaker 4: so we can evaluate whether or not these are valid claims. 299 00:19:05,720 --> 00:19:08,080 Speaker 4: Over the course of two years, they probably did this 300 00:19:08,200 --> 00:19:11,560 Speaker 4: investigation and then their findings where yeah, you guys are 301 00:19:11,560 --> 00:19:14,960 Speaker 4: making it really difficult for people to cancel their memberships, 302 00:19:15,440 --> 00:19:17,800 Speaker 4: and we want you to pay them back. La Fitness 303 00:19:17,800 --> 00:19:19,800 Speaker 4: probably said, well, no, we're not going to fan back 304 00:19:19,800 --> 00:19:22,200 Speaker 4: because we didn't do anything wrong. We didn't violate the law, 305 00:19:22,520 --> 00:19:25,920 Speaker 4: so they effectively challenged the FTC's findings, at which point, 306 00:19:25,920 --> 00:19:29,440 Speaker 4: if you challenge the FTC's findings, the FTC reserves the 307 00:19:29,520 --> 00:19:31,640 Speaker 4: right to file a lawsuit it gives you, which. 308 00:19:31,440 --> 00:19:33,880 Speaker 1: They certainly did. Here tell us what the suit of ledges. 309 00:19:34,680 --> 00:19:38,320 Speaker 4: So their core complaint is they're saying that La Fitness 310 00:19:38,440 --> 00:19:41,880 Speaker 4: is intentionally making it hard for people to cancel their 311 00:19:41,920 --> 00:19:45,360 Speaker 4: memberships to basically have the ability to continue charging them 312 00:19:45,400 --> 00:19:48,040 Speaker 4: every month. And if you look at ROSCA, the third 313 00:19:48,280 --> 00:19:50,760 Speaker 4: element of a ROSCA claim is is you have to 314 00:19:50,760 --> 00:19:54,800 Speaker 4: give somebody a simple mechanism of cancelation. The problem is 315 00:19:54,800 --> 00:19:57,919 Speaker 4: is there's never been any clear cut definition of what 316 00:19:58,080 --> 00:20:01,880 Speaker 4: simple mechanism of cancelation. So La Fitness can say, well, 317 00:20:01,880 --> 00:20:04,760 Speaker 4: a simple mechanism of cancelation is exactly what I put 318 00:20:04,800 --> 00:20:06,679 Speaker 4: in their contract. You have to walk into the La 319 00:20:06,720 --> 00:20:08,960 Speaker 4: Fitness gym with you're a member and tell people you 320 00:20:09,040 --> 00:20:09,600 Speaker 4: want to cancel. 321 00:20:10,520 --> 00:20:16,040 Speaker 1: And ROSCA is the Restore Online Shoppers Confidence Act, which 322 00:20:16,160 --> 00:20:20,000 Speaker 1: was enacted almost fifteen years ago, so the complaint is 323 00:20:20,080 --> 00:20:24,240 Speaker 1: specifically targeting this cancelation policy. You have to go to 324 00:20:24,280 --> 00:20:28,160 Speaker 1: the gym's website and print out a form and either 325 00:20:28,240 --> 00:20:32,879 Speaker 1: mail the form using registered or certified mail, or submitted 326 00:20:32,920 --> 00:20:37,440 Speaker 1: in person to a specific manager with authorization to process it. 327 00:20:37,800 --> 00:20:40,879 Speaker 1: And sometimes it's hard to find that manager, so it 328 00:20:40,920 --> 00:20:44,240 Speaker 1: seems like it's more than just coming in person to cancel. 329 00:20:44,920 --> 00:20:49,640 Speaker 4: Correct. So that's certainly the allegation. But here's the fpc's challenge. 330 00:20:49,880 --> 00:20:53,680 Speaker 4: So that could be four or five people that had 331 00:20:53,720 --> 00:20:56,679 Speaker 4: that issue. But if that's not a universal thing, if 332 00:20:56,720 --> 00:20:59,040 Speaker 4: that's just a problem there four or five people in 333 00:20:59,080 --> 00:21:02,359 Speaker 4: southern California had at their particular gym, you're going to 334 00:21:02,400 --> 00:21:05,200 Speaker 4: have a hard time proving that that was an institutional 335 00:21:05,280 --> 00:21:07,800 Speaker 4: policy across all of the United States. 336 00:21:07,920 --> 00:21:10,280 Speaker 1: And one of the things LA Fitness comes back with 337 00:21:10,640 --> 00:21:14,560 Speaker 1: is that the FTC is relying on Roscoe and that 338 00:21:14,720 --> 00:21:20,000 Speaker 1: was designed to address only online retail transactions. Is that 339 00:21:20,080 --> 00:21:20,840 Speaker 1: a good defense. 340 00:21:22,200 --> 00:21:25,280 Speaker 4: It is a good defense because to your point, yeah, 341 00:21:25,280 --> 00:21:29,399 Speaker 4: the Restore Online Shoppers Confidence Act is exactly that. It 342 00:21:29,520 --> 00:21:32,960 Speaker 4: is a statute that was passed to protect online shoppers, 343 00:21:32,960 --> 00:21:37,160 Speaker 4: people who are shopping. It's really an e commerce statue. Now, 344 00:21:37,320 --> 00:21:40,280 Speaker 4: like I say, the reality of the situation with gyms 345 00:21:40,440 --> 00:21:43,480 Speaker 4: is is even in this day and age, the majority 346 00:21:43,520 --> 00:21:46,119 Speaker 4: of people sign up for their gym membership in person. 347 00:21:47,200 --> 00:21:50,399 Speaker 4: So yes, there may be a certain subset of people 348 00:21:50,400 --> 00:21:53,840 Speaker 4: who signed up for their gym membership online. And I 349 00:21:53,880 --> 00:21:56,280 Speaker 4: don't know what LA Fitness, I don't know how their 350 00:21:56,400 --> 00:21:58,439 Speaker 4: their gym membership works. I'm not a member at one 351 00:21:58,480 --> 00:22:01,359 Speaker 4: of their gyms, but I suspect that they have two 352 00:22:01,400 --> 00:22:04,879 Speaker 4: paths for joining the gym. You can either sign up 353 00:22:04,920 --> 00:22:08,399 Speaker 4: online or you can sign up in person. If you 354 00:22:08,440 --> 00:22:11,000 Speaker 4: sign up in person, they probably have a different set 355 00:22:11,119 --> 00:22:13,800 Speaker 4: of requirements for cancelation than they do for the person 356 00:22:13,840 --> 00:22:16,720 Speaker 4: that signs up online. So if you sign up online, 357 00:22:16,720 --> 00:22:20,040 Speaker 4: they probably offer you the ability to cancel your membership online. 358 00:22:20,080 --> 00:22:22,520 Speaker 4: If you sign up in person, they probably have this 359 00:22:22,640 --> 00:22:24,479 Speaker 4: requirement that you have to come into the gym and 360 00:22:24,520 --> 00:22:27,760 Speaker 4: cancel in person. And the reason why that probably exists 361 00:22:27,840 --> 00:22:31,000 Speaker 4: is if the person signs up in person, they probably 362 00:22:31,119 --> 00:22:34,199 Speaker 4: never created log in credentials, so the only way they 363 00:22:34,240 --> 00:22:36,640 Speaker 4: would be able to cancel is if they walked into 364 00:22:36,680 --> 00:22:40,080 Speaker 4: the gym to cancel, Whereas the person who signed up 365 00:22:40,119 --> 00:22:43,439 Speaker 4: online probably had to create a user ID and a 366 00:22:43,520 --> 00:22:46,679 Speaker 4: password to create their account, and so they now have 367 00:22:46,800 --> 00:22:49,840 Speaker 4: the ability to log in online and cancel. So that's 368 00:22:49,880 --> 00:22:53,359 Speaker 4: why at least based on my initial read of this lawsuit, 369 00:22:53,840 --> 00:22:57,720 Speaker 4: I don't know that Rosta with fits for the business 370 00:22:57,760 --> 00:23:00,520 Speaker 4: model of La Fitness, So that's going to be challenge 371 00:23:00,560 --> 00:23:01,320 Speaker 4: for the FTC. 372 00:23:01,760 --> 00:23:04,280 Speaker 1: Coming up next on the Bloomberg launch, I'll continue this 373 00:23:04,359 --> 00:23:08,320 Speaker 1: conversation with Sean Collins, a partner at Straddling. This is 374 00:23:08,359 --> 00:23:12,359 Speaker 1: actually the second suit brought by the Trump administration focused 375 00:23:12,359 --> 00:23:18,320 Speaker 1: on overly onerous cancelation policies. The last suit was against Uber. 376 00:23:18,560 --> 00:23:23,560 Speaker 1: I'm June Grosso. When you're listening to Bloomberg, the Federal 377 00:23:23,600 --> 00:23:27,359 Speaker 1: Trade Commission is suing the operators of La Fitness over 378 00:23:27,480 --> 00:23:31,679 Speaker 1: allegations that they make it exceedingly difficult for customers to 379 00:23:31,800 --> 00:23:35,639 Speaker 1: cancel gym memberships. I've been talking to Sean Collins, a 380 00:23:35,680 --> 00:23:38,840 Speaker 1: partner at Straddling, So, Sean, you discussed some of the 381 00:23:38,920 --> 00:23:42,480 Speaker 1: problems the FTC may have to overcome in this suit. 382 00:23:42,800 --> 00:23:44,040 Speaker 1: Why do you think they brought it? 383 00:23:44,840 --> 00:23:47,280 Speaker 4: Well, they brought it because they probably have a critical, 384 00:23:47,320 --> 00:23:49,760 Speaker 4: massive complaint, and I suspect that when they were doing 385 00:23:49,760 --> 00:23:53,680 Speaker 4: their investigation, they noticed that this was pretty prevalent. People 386 00:23:53,720 --> 00:23:57,720 Speaker 4: were having a hard time canceling their memberships, and so 387 00:23:57,800 --> 00:24:01,960 Speaker 4: they're trying to advocate on behalf of consumers that hey, 388 00:24:02,040 --> 00:24:05,520 Speaker 4: you need to offer them a more simple mechanism of cancelation. 389 00:24:06,000 --> 00:24:08,359 Speaker 4: Like I say, their problem is is that there is 390 00:24:08,359 --> 00:24:13,240 Speaker 4: not a federal statute that I think specifically speaks to 391 00:24:13,320 --> 00:24:16,600 Speaker 4: the conduct that they are trying to address. You know, 392 00:24:16,640 --> 00:24:20,040 Speaker 4: what's surprising is is you would think that California or 393 00:24:20,080 --> 00:24:23,320 Speaker 4: New York, or DC or Florida would be bringing this 394 00:24:23,440 --> 00:24:26,800 Speaker 4: case because, like I say, their specific state statutes, their 395 00:24:26,840 --> 00:24:31,239 Speaker 4: autover new law statutes, speaks specifically to this conduct that 396 00:24:31,280 --> 00:24:34,400 Speaker 4: they are referencing in this complaint. Now, I'm not trying 397 00:24:34,440 --> 00:24:36,800 Speaker 4: to encourage these states, and I'm sure these states have 398 00:24:36,840 --> 00:24:40,840 Speaker 4: already looked into this on their own, and I suspect 399 00:24:40,920 --> 00:24:45,160 Speaker 4: that LA Fitness probably has created their business model whereby 400 00:24:45,200 --> 00:24:48,240 Speaker 4: they're ensuring that they're compliant with each one of these states. 401 00:24:49,680 --> 00:24:51,919 Speaker 4: But I mean the reality of the situation is is 402 00:24:51,960 --> 00:24:55,080 Speaker 4: the federal law is not that great or not that developed, 403 00:24:55,720 --> 00:24:58,280 Speaker 4: and I don't know if it's going to encompass the 404 00:24:58,320 --> 00:25:00,880 Speaker 4: conduct that they are trying to pursue again La Fitness here, 405 00:25:01,600 --> 00:25:03,359 Speaker 4: which is one of the reasons why LA Fitness is 406 00:25:03,359 --> 00:25:03,960 Speaker 4: fighting the CAD. 407 00:25:04,720 --> 00:25:09,399 Speaker 1: So I mean in April, the FGC sued Uber for 408 00:25:09,600 --> 00:25:14,680 Speaker 1: making it too difficult for customers to cancel the subscription product. 409 00:25:14,880 --> 00:25:17,080 Speaker 1: Uber one is that different from this. 410 00:25:18,480 --> 00:25:21,000 Speaker 4: So it is different from the standpoint of Again, so 411 00:25:21,640 --> 00:25:24,119 Speaker 4: we've always knew the only way I can have an 412 00:25:24,200 --> 00:25:26,600 Speaker 4: Uber account is if I download the app on my phone. 413 00:25:27,520 --> 00:25:30,399 Speaker 4: So I can't just go out into the street and 414 00:25:30,440 --> 00:25:32,760 Speaker 4: flag down an Uber driver and say, hey, can you 415 00:25:32,800 --> 00:25:35,119 Speaker 4: hand me a receipt and I'll pay you later, Like, 416 00:25:35,160 --> 00:25:38,000 Speaker 4: I have to have an Uber app. So that is 417 00:25:38,040 --> 00:25:41,720 Speaker 4: the type of business model that Roscoe was specifically designed for. 418 00:25:42,480 --> 00:25:44,000 Speaker 4: So that case is going to be a lot more 419 00:25:44,040 --> 00:25:46,840 Speaker 4: simple because again, I can't catch an Uber without the app. 420 00:25:46,960 --> 00:25:48,720 Speaker 4: So I have to have a used IDA, I have 421 00:25:48,800 --> 00:25:50,119 Speaker 4: to have a log in, I have to have a 422 00:25:50,160 --> 00:25:53,359 Speaker 4: credit card attached to my account. And so in that 423 00:25:53,440 --> 00:25:57,360 Speaker 4: particular case, and I haven't read that complaint, I don't 424 00:25:57,400 --> 00:26:01,120 Speaker 4: know the facts and circumstances of that complaint. But if 425 00:26:01,240 --> 00:26:04,480 Speaker 4: Uber is not allowing me the ability to cancel my 426 00:26:04,720 --> 00:26:09,040 Speaker 4: app in a very simple manner, yeah, I mean I 427 00:26:09,080 --> 00:26:12,479 Speaker 4: could potentially see that case from an FTC standpoint, Like 428 00:26:12,480 --> 00:26:16,520 Speaker 4: I say, this one is just unique because there is 429 00:26:16,600 --> 00:26:19,359 Speaker 4: still a critical mass of people who sign up for 430 00:26:19,440 --> 00:26:22,040 Speaker 4: their gym memberships in person. They do not do it 431 00:26:22,160 --> 00:26:23,639 Speaker 4: via their phone or their computer. 432 00:26:24,560 --> 00:26:27,080 Speaker 1: I mean, I think everybody who's tried to cancel any 433 00:26:27,200 --> 00:26:31,760 Speaker 1: kind of subscription can relate to this. Especially trying to 434 00:26:31,800 --> 00:26:36,959 Speaker 1: cancel it online can be a mystifying process. And the 435 00:26:37,000 --> 00:26:43,040 Speaker 1: Biden administration sued both Amazon and Adobe for allegedly making 436 00:26:43,040 --> 00:26:46,600 Speaker 1: it too difficult to cancel subscriptions. Did anything happen with 437 00:26:46,680 --> 00:26:47,560 Speaker 1: those lawsuits? 438 00:26:48,920 --> 00:26:52,359 Speaker 4: So those lawsuits are still pending, I believe. But here's 439 00:26:52,400 --> 00:26:55,720 Speaker 4: the problem that the federal government has. You know, you 440 00:26:55,800 --> 00:26:59,679 Speaker 4: have the executive branch i e. The President, the FTC, 441 00:27:00,119 --> 00:27:05,000 Speaker 4: the enforcement bodies in DC that want to pursue these laws. 442 00:27:05,359 --> 00:27:08,320 Speaker 4: The problem is is the legislature is about three years 443 00:27:08,359 --> 00:27:12,359 Speaker 4: behind them. So these laws need to be updated to 444 00:27:12,560 --> 00:27:16,520 Speaker 4: capture the behavior effectively. These laws need to be updated 445 00:27:16,520 --> 00:27:20,400 Speaker 4: to mirror New York and California's autover new Law Statute. 446 00:27:21,240 --> 00:27:24,680 Speaker 4: Now that's challenge because obviously, in order to get federal legislation, 447 00:27:24,800 --> 00:27:26,800 Speaker 4: you have to get fifty states, all fifty states to 448 00:27:26,800 --> 00:27:28,879 Speaker 4: buy in. That's one of the reasons why you have 449 00:27:28,960 --> 00:27:32,400 Speaker 4: not seen that update yet. And so to answer your 450 00:27:32,480 --> 00:27:36,160 Speaker 4: question directly, is even though the Biden administration and other 451 00:27:36,200 --> 00:27:40,359 Speaker 4: administrations have been pursuing these cases, their challenge is is 452 00:27:40,680 --> 00:27:44,040 Speaker 4: their intentions do not match the current state of the 453 00:27:44,080 --> 00:27:44,760 Speaker 4: federal law. 454 00:27:45,800 --> 00:27:49,359 Speaker 1: And under the Biden administration, the FDC adopted a click 455 00:27:49,480 --> 00:27:53,000 Speaker 1: to Cancel rule which would have made it easier for 456 00:27:53,119 --> 00:27:58,240 Speaker 1: consumers to cancel subscriptions, but a federal appeals court blocked 457 00:27:58,240 --> 00:28:01,639 Speaker 1: the proposed changes before before the rule was scheduled to 458 00:28:01,680 --> 00:28:03,840 Speaker 1: go into effect last month. 459 00:28:04,720 --> 00:28:07,040 Speaker 4: So I suspect what happened there, And again I haven't 460 00:28:07,119 --> 00:28:09,760 Speaker 4: read that actual opinion, but one of the reasons why 461 00:28:09,800 --> 00:28:12,960 Speaker 4: the federal court probably blocked it is because that's they're 462 00:28:13,040 --> 00:28:16,919 Speaker 4: basically usurping the power of the legislature. So the executive 463 00:28:16,920 --> 00:28:18,920 Speaker 4: branch doesn't have the ability to do that. 464 00:28:19,880 --> 00:28:22,639 Speaker 1: I mean, the FTC in twenty twenty four said it 465 00:28:22,680 --> 00:28:28,359 Speaker 1: receives about almost seventy complaints a day about recurring charges 466 00:28:28,560 --> 00:28:31,560 Speaker 1: across you know, a range of businesses. I mean, is 467 00:28:31,600 --> 00:28:33,040 Speaker 1: there any way to solve this? 468 00:28:34,840 --> 00:28:38,320 Speaker 4: So the way to solve it is for the federal 469 00:28:38,440 --> 00:28:43,080 Speaker 4: legislation to basically mirror either New York or California. So 470 00:28:43,280 --> 00:28:45,560 Speaker 4: New York and California and other states have been able 471 00:28:45,560 --> 00:28:48,160 Speaker 4: to address this problem because it's like, all right, all 472 00:28:48,160 --> 00:28:49,640 Speaker 4: we got to do is go to our own state 473 00:28:49,760 --> 00:28:52,800 Speaker 4: legislature and pass this law on behalf of the consumers 474 00:28:52,840 --> 00:28:57,320 Speaker 4: in our states. And so if the federal government wants 475 00:28:57,360 --> 00:29:00,920 Speaker 4: to address this gray area, because that's exactly what it is, 476 00:29:01,360 --> 00:29:05,400 Speaker 4: and businesses recognize it, is all right. The federal statute 477 00:29:05,440 --> 00:29:09,320 Speaker 4: is about five years behind all of the other states individually. 478 00:29:10,080 --> 00:29:12,280 Speaker 4: And so to the extent that they're going to try 479 00:29:12,320 --> 00:29:15,840 Speaker 4: to enforce these federal laws, I either STC Act, Section 480 00:29:15,920 --> 00:29:18,760 Speaker 4: five of the FTC Act or ROSCA Restore Online Shoppers 481 00:29:18,800 --> 00:29:21,320 Speaker 4: Confidence Act, if they're going to try to enforce it 482 00:29:21,360 --> 00:29:25,560 Speaker 4: against us, it does not have the same bite or 483 00:29:25,600 --> 00:29:28,480 Speaker 4: effect that the California and New York or the other 484 00:29:28,640 --> 00:29:32,360 Speaker 4: various state laws have. Now, you made a point earlier 485 00:29:32,360 --> 00:29:36,120 Speaker 4: that I think is worth addressing. So you were saying that, oh, 486 00:29:36,160 --> 00:29:40,960 Speaker 4: you know, it's always sometimes very challenging to counsel the membership. 487 00:29:41,360 --> 00:29:45,120 Speaker 4: Now that is a topic that has been ripe for debate. 488 00:29:45,200 --> 00:29:46,840 Speaker 4: It's also one of the things that has been an 489 00:29:46,840 --> 00:29:53,320 Speaker 4: impediment to passing a comprehensive federal statute. So the auto 490 00:29:53,360 --> 00:29:57,240 Speaker 4: over new process is ripe for fraud. And what I 491 00:29:57,360 --> 00:30:02,080 Speaker 4: mean by that is sometimes when consumers offer you the 492 00:30:02,120 --> 00:30:06,480 Speaker 4: auto renew option, there are customers who get discounts when 493 00:30:06,480 --> 00:30:08,880 Speaker 4: they sign up for the auto renew option. So basically, 494 00:30:08,880 --> 00:30:11,320 Speaker 4: a customer will say, you know, if you sign up 495 00:30:11,320 --> 00:30:13,280 Speaker 4: for our auto renew option, we'll give you a ten 496 00:30:13,320 --> 00:30:17,160 Speaker 4: percent discount on your first purchase. Now, typically what happens, 497 00:30:17,200 --> 00:30:19,680 Speaker 4: and I've seen the data for a lot of my clients, 498 00:30:20,320 --> 00:30:22,920 Speaker 4: twenty to thirty percent of the people take that ten 499 00:30:22,960 --> 00:30:27,240 Speaker 4: percent discount and then right after they order canceled. So 500 00:30:27,360 --> 00:30:29,280 Speaker 4: if you think about that from a business standpoint, the 501 00:30:29,280 --> 00:30:31,880 Speaker 4: business is losing money because they're offering you a ten 502 00:30:31,920 --> 00:30:35,240 Speaker 4: percent sometimes twenty percent discount on your first order for 503 00:30:35,360 --> 00:30:37,400 Speaker 4: you to sign up for the auto renew subscription, and 504 00:30:37,400 --> 00:30:40,560 Speaker 4: then you cancel your subscription immediately. So if I have 505 00:30:40,720 --> 00:30:43,600 Speaker 4: a ten dollars product and I give you a twenty 506 00:30:43,640 --> 00:30:48,000 Speaker 4: percent discount, I'm losing two dollars on every transaction. So 507 00:30:48,600 --> 00:30:51,760 Speaker 4: the compromise has always been and this was because I 508 00:30:52,080 --> 00:30:55,280 Speaker 4: basically have tracked the California legislation all the way through 509 00:30:55,320 --> 00:30:58,240 Speaker 4: the California state legislature dating back again to the early 510 00:30:58,240 --> 00:31:02,040 Speaker 4: two thousands when they first started thinking about this, California 511 00:31:02,080 --> 00:31:05,200 Speaker 4: basically said, all right, we recognize that businesses are kind 512 00:31:05,240 --> 00:31:09,000 Speaker 4: of left exposed to potential fraud by customers. So what 513 00:31:09,040 --> 00:31:11,120 Speaker 4: we're going to allow you to do is we're going 514 00:31:11,200 --> 00:31:13,400 Speaker 4: to give you some grace to be able to save 515 00:31:13,520 --> 00:31:16,160 Speaker 4: a consumer. Now what does it mean to save the consumer? 516 00:31:16,480 --> 00:31:19,240 Speaker 4: That means that before you cancel, even if I'm offering 517 00:31:19,280 --> 00:31:21,600 Speaker 4: you the online mechanism to cancel, so you can cancel 518 00:31:21,640 --> 00:31:23,480 Speaker 4: on your phone just by clicking the button, or you 519 00:31:23,520 --> 00:31:26,560 Speaker 4: can cancel on your computer by clicking the button, I'm 520 00:31:26,600 --> 00:31:29,600 Speaker 4: going to give the business an opportunity to save this consumer. 521 00:31:29,760 --> 00:31:33,320 Speaker 4: Meaning before you click cansel, I can ask you why 522 00:31:33,320 --> 00:31:36,840 Speaker 4: are you canceling? And the price was too expensive? I 523 00:31:36,880 --> 00:31:40,080 Speaker 4: didn't really like the product all that much, or you 524 00:31:40,120 --> 00:31:42,560 Speaker 4: know what, I only needed this one time. I don't 525 00:31:42,560 --> 00:31:45,400 Speaker 4: need it every month going into the future. And then 526 00:31:45,440 --> 00:31:49,040 Speaker 4: you can basically have like three to four sometimes six 527 00:31:49,120 --> 00:31:53,200 Speaker 4: slides where you're asking the consumer for data so that 528 00:31:53,360 --> 00:31:55,840 Speaker 4: a you have the opportunity to upsell them because you 529 00:31:55,840 --> 00:31:57,960 Speaker 4: can say, all right, well how about this If I 530 00:31:57,960 --> 00:32:00,719 Speaker 4: give you another twenty percent discount for the next three months, 531 00:32:00,880 --> 00:32:03,320 Speaker 4: will that keep you interested in the product, or maybe 532 00:32:03,360 --> 00:32:05,520 Speaker 4: I'll give you these two other products for free with 533 00:32:05,640 --> 00:32:09,360 Speaker 4: your next order. You're basically giving me the opportunity to 534 00:32:09,600 --> 00:32:12,640 Speaker 4: upsell the consumer and save them and keep them on 535 00:32:12,680 --> 00:32:15,760 Speaker 4: the subscription platform. Now, if they go through those five 536 00:32:15,800 --> 00:32:19,120 Speaker 4: slides and they say, you know what, I appreciate the offers, 537 00:32:19,120 --> 00:32:23,080 Speaker 4: still not interested in the product, quick cancel. That is 538 00:32:23,120 --> 00:32:28,240 Speaker 4: completely legitimate. That's legitimate in California, New York, d c, Oregon, Florida, 539 00:32:28,680 --> 00:32:32,080 Speaker 4: and at the federal level as well. And so I'm 540 00:32:32,120 --> 00:32:34,200 Speaker 4: telling you that for contacts to say I know for 541 00:32:34,280 --> 00:32:37,320 Speaker 4: a fact, Look, I'm not an LA Fitness member, but 542 00:32:37,440 --> 00:32:40,360 Speaker 4: it is a standard operating procedure for any business that 543 00:32:40,400 --> 00:32:44,200 Speaker 4: wants to be successful. Before somebody cancels, you want to 544 00:32:44,240 --> 00:32:47,320 Speaker 4: ask them why are you canceling? So that's probably why 545 00:32:47,480 --> 00:32:49,840 Speaker 4: LA Fitness set they're modeled up to say, Hey, you 546 00:32:49,920 --> 00:32:51,800 Speaker 4: got to come in and talk to one of our managers, 547 00:32:52,120 --> 00:32:54,720 Speaker 4: because that manager needs to know where did we sell 548 00:32:54,800 --> 00:32:57,520 Speaker 4: as a business? Did you not like the equipment in 549 00:32:57,520 --> 00:33:00,320 Speaker 4: our gyms? Did you not like how clean the gym's were, 550 00:33:01,000 --> 00:33:04,080 Speaker 4: whether or not enough squad racks, whether or not enough barbells, 551 00:33:04,120 --> 00:33:06,880 Speaker 4: whether or not enough dumbbells. Did you not like the 552 00:33:07,040 --> 00:33:09,760 Speaker 4: hours that we offered you because that allows me to 553 00:33:09,800 --> 00:33:12,840 Speaker 4: improve my business going forward. If I know why you're 554 00:33:12,920 --> 00:33:14,640 Speaker 4: leaving me or was it. 555 00:33:14,840 --> 00:33:18,960 Speaker 1: Just too hard to get yourself into the gym? Always 556 00:33:19,000 --> 00:33:22,760 Speaker 1: my problem? Thanks so much, Sean. That's Sean Collins, a 557 00:33:22,840 --> 00:33:25,520 Speaker 1: partner at Straddling And that's it for this edition of 558 00:33:25,520 --> 00:33:28,200 Speaker 1: The Bloomberg Law Show. Remember you can always get the 559 00:33:28,240 --> 00:33:31,480 Speaker 1: latest legal news on our Bloomberg Law Podcast. You can 560 00:33:31,520 --> 00:33:35,760 Speaker 1: find them on Apple Podcasts, Spotify, and at www dot 561 00:33:35,760 --> 00:33:39,960 Speaker 1: bloomberg dot com slash podcast slash Law, and remember to 562 00:33:39,960 --> 00:33:43,040 Speaker 1: tune into The Bloomberg Law Show every weeknight at ten 563 00:33:43,080 --> 00:33:46,840 Speaker 1: pm Wall Street Time. I'm June Grosso and you're listening 564 00:33:46,960 --> 00:33:47,640 Speaker 1: to Bloomberg