On June 10, 2025, Judges Loken, Erickson, and Kobes of the U.S. Court of Appeals for the Eighth Circuit heard oral argument on consolidated challenges filed by a security services company and a number of trade associations (petitioners) to the Federal Trade Commission’s Negative Option Rule (the Rule), also known as the “click-to-cancel” rule, in Custom Communications, Inc. v. Federal Trade Commission, No. 24-3137 (lead case) (8th Cir.).
As we have discussed in a prior update, the Rule imposes enrollment and cancellation requirements on businesses offering automatically renewing subscriptions. While there had been questions about whether the FTC would defend the Rule in light of then-Commissioner Andrew Ferguson’s vote against the Rule’s adoption in November 2024, along with the strong dissent of his fellow Republican Commissioner Melissa Holyoak, the FTC under now-Chairman Ferguson’s leadership vigorously defended the Rule in a brief filed in March, and continued to do so at argument.
Below is a summary of the principal issues discussed at argument.
Absence of a preliminary regulatory analysis. The issue that received the most attention was whether the FTC had acted improperly by not issuing a preliminary regulatory analysis (PRA), and, if so, whether the petitioners had been prejudiced. Under Section 22(b)(1) of the FTC Act, any proposed amendment to a trade regulation rule (that is, a rule promulgated under Section 18 of the FTC Act) expected to have an annual economic impact of at least $100 million requires a PRA, which must outline the need for the proposed rule, its objectives, any reasonable alternatives, and a preliminary cost-benefit analysis. See 15 U.S.C. § 57b-3(b)(1). The FTC initially estimated the proposed rule’s impact to be below $100 million and therefore did not issue a PRA. But the presiding officer later found the Rule’s annual impact would exceed $100 million, and the Commission accepted this finding. The petitioners argued that by failing to pause the proceedings and issue a PRA once the higher economic impact estimate was accepted, the Commission violated the FTC Act.
When pressed on how the absence of a PRA had injured them, the petitioners argued that, first, the issuance of a PRA is an explicit statutory requirement, and its violation needs no showing of harm. The petitioners also argued they had been deprived of the opportunity to comment on the economic estimate and on alternatives to the Commission’s proposals that the FTC was mandated to issue with the PRA. They further contended that this was not remedied by the Commission’s issuance of a final regulatory assessment accompanying the final rule, because at that point there was no opportunity to comment. Finally, the petitioners argued that if the FTC’s position were allowed to stand, the FTC would have carte blanche to issue lowball estimates of the economic impact of its proposed rules.
The FTC, in response, pushed back on questions from the bench as to whether principles of fair notice required the Commission to issue a PRA so that stakeholders would have an opportunity to be heard on the economic estimate and alternatives to the proposed rule. The FTC argued the FTC Act did not require the Commission to issue a PRA under the circumstances here and that even if it had, there was no prejudice. The FTC reasoned that the Commission’s final regulatory analysis, including its estimate of the Rule’s economic impact, responded to comments by stakeholders and was unchallenged by the petitioners. The FTC also argued that the Commission had sought comment in its notice of proposed rulemaking on alternatives to its proposal, and a number of trade associations had, in fact, commented on a variety of alternatives.
Prohibition on any material misrepresentations. There was limited discussion of the substantive requirements of the Rule. Nonetheless, there were questions from the bench as to whether the Rule’s prohibition on material misrepresentations is overbroad and requires separate congressional authorization, beyond Section 18 of the FTC Act, 15 U.S.C. § 57a. The FTC disputed this suggestion, asserting that the prohibition on misrepresentation is limited to negative option contracts and is based on record evidence demonstrating a widespread problem of deception related to automatically recurring subscriptions.
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Both sides were actively questioned by the bench, and it is not clear how the case will ultimately be resolved. But the FTC has said that it will “begin enforcing” the Rule on July 14, 2025, when its deferral of a compliance date for most of the Rule’s prohibitions is set to expire (the Rule’s prohibition on misrepresentations has been in effect since January). In addition, the FTC can continue to address deceptive and unfair subscription practices through other tools, such as Section 5 of the FTC Act and the Restore Online Shoppers’ Confidence Act.
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