The U.S. Court of Appeals for the Eighth Circuit vacated the Federal Trade Commission’s Rule Concerning Subscriptions and Other Negative Option Plans (often referred to as the “Click-to-Cancel” rule) on July 8, just days before the FTC was set to begin enforcement of the rule.
The decision resolved various consolidated petitions challenging the rule on grounds that it exceeded the scope of the FTC’s authority, was not promulgated in accordance with necessary rulemaking procedures, and was overly broad. The winning argument, though, was that the FTC skipped the critical step of issuing a preliminary analysis of the benefits and effects of the proposed rule and any reasonable alternatives, because it initially failed to treat the rule as “economically significant” to the national economy.
As explained by the court, the FTC initially estimated that compliance with the rule (as proposed in April 2023) would cost businesses less than $100 million annually—the threshold requiring the preliminary analysis under the FTC’s rulemaking authority. Because the agency preliminarily concluded the rule’s amendments would not have such impacts on the national economy, the FTC deemed the preliminary analysis to be unnecessary. Even after an administrative law judge determined in April 2024 that the proposed rule would have an annual effect on the national economy surpassing that figure, the FTC declined to provide the required preliminary regulatory analysis.
When the rule was finalized in November 2024, now-chairman Andrew Ferguson and commissioner Melissa Holyoak dissented from issuing the rule, describing it as a “race to cross the finish line” and as improperly imposing a set of generalized requirements on the “entire American economy.” In vacating the rule on procedural grounds, the court did not address the challenges to the rule’s substantive requirements. Now, barring any appeal by the Ferguson-led FTC to the Supreme Court, the FTC will need to start over if it would like to implement new rules on subscriptions.
While the court’s decision provides sellers with some breathing room on nationwide compliance for some of the rule’s technical requirements that are not mirrored in state laws, the FTC still has tools to enforce insufficient disclosure, consent, and cancellation processes in e-commerce under the Restore Online Shoppers’ Confidence Act (ROSCA) and under the Telemarketing Sales Rule (TSR) for telephone sales.
In the past, the FTC has taken the position that ROSCA currently imposes many of the same requirements that were introduced in the updated Negative Option Rule, and the FTC is continuing to vigorously enforce ROSCA in challenging negative option programs. In addition, states continue to enact or supplement their automatic renewal laws, with new updates in California, New York, and several other states driving many compliance efforts.
Ferguson has said the FTC should spend its energy enforcing the laws already on the books rather than promulgating new regulations. We will have to see if that holds true here. Regardless, businesses should resist the urge to celebrate too much or too soon.
