On July 8, the U.S. Court of Appeals for the Eighth Circuit blocked the “click-to-cancel” rule, which would have required companies to make it as easy to cancel subscriptions as it was to sign up, including obtaining consent for auto-renewals and free trials resulting in paid memberships. The court concluded that the FTC erred by failing to make a preliminary regulatory analysis of the costs and benefits of the rule, an analysis that is required for any rule that impacts the U.S. economy by more than $100 million.
The Biden-era FTC passed the rule under former Democratic Chair Lina Khan as part of an initiative to crack down on consumer hassles, “bait-and-switch” tactics, hidden costs, and “junk fees.” When unveiling the now-abandoned rule, Khan said that too many “businesses make people jump through endless hoops just to cancel a subscription. The FTC’s rule will end these tricks and traps, saving Americans time and money. Nobody should be stuck paying for a service they no longer want.” At the time, the FTC took the position that the potential economic impact of the rule did not meet the $100 million threshold, so an economic assessment was unnecessary. The rule was set to take effect on July 14.
The U.S. Chamber of Commerce, as well as industry groups and subscription-heavy businesses like cable and internet providers, sued the FTC in four federal circuit court cases, which were eventually consolidated and heard by the Eighth Circuit. In striking down the rule last week, the Eighth Circuit ruled in favor of the business groups and held that the FTC overstepped its authority, commenting that “an initially unrealistically low estimate of the economic impacts of a proposed rule would avail the Commission of a procedural shortcut that limits the need for additional public engagement and more substantive analysis of the potential effects of the rule on the front end.”
The FTC can still petition the Supreme Court to review the decision through Oct. 6, so companies that have already taken steps to comply with the rule should not necessarily abandon automatic renewal or subscription offering adjustments to their business. Additionally, companies offering services with negative option features remain subject to the FTC’s unfair trade practices laws and various state laws, which, in many cases, mandate more stringent disclosure, consent, and cancellation requirements than did the rule.
