Just days before the “Click to Cancel” negative option rule was to go into effect, the Eight Circuit Court of Appeals vacated the rule in its entirety. As explained in our previous alert, the rule, which would have gone into effect on July 14th, would have required businesses to avoid (1) misrepresenting material terms of an auto-renewing offer, (2) provide clear and conspicuous disclosure of all material terms for such offers, (3) obtain express informed consent for the auto-renewal feature, and (4) provide a simple mechanism for consumers to cancel any auto-renewing feature.
The Eighth Circuit granted a petition to vacate the rule finding that the Federal Trade Commission (FTC) failed to follow procedural requirements for rulemaking under the FTC Act: “[w]hile 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 found that the FTC failed to produce any preliminary regulatory analysis, which is required by the Act for rules with an annual effect on the national economy in excess of $100 million.
While the FTC argued that it did not need to produce the analysis because its initial estimate placed the impact of the rule below $100 million, an Administrative Law Judge concluded in early 2024 that the FTC’s initial estimate was unrealistically low and the rule’s compliance costs would exceed $100 million. The FTC acknowledged that finding but still failed to conduct a preliminary regulatory analysis, giving the Eighth Circuit grounds to set aside the rule in its entirety.
While the FTC would need to reinitiate the rulemaking in order to proceed with “Click to Cancel,” sellers are reminded that existing FTC rules and state rules, including California’s version of “Click to Cancel,” should still be considered for auto-renewing subscriptions.
