On July 8, 2025, less than a week before the “click-to-cancel” rule would have gone into effect, the United States Court of Appeals for the Eighth Circuit struck down the proposed rule (Custom Communications, Inc. v. Federal Trade Commission, No. 24-3137 (8th Cir. July 8, 2025)).
The Federal Trade Commission (FTC) originally announced a “click-to-cancel” rule that would require U.S. businesses to make it “as easy for consumers to cancel their enrollment [in memberships] as it was to sign up” (16 C.F.R. § 425). The proposed “click-to-cancel” rule would have impacted companies offering subscription or recurring billing programs across a variety of industries, including e-commerce, streaming services, premium memberships, and health and fitness subscriptions. Since the announcement, businesses of all sizes have been analyzing and modifying their cancellation policies to comply with the proposed rule, which was set to go into effect on July 14, 2025.
The proposed “click-to-cancel” rule was a revision of the FTC’s original Negative Option Rule, which was promulgated in 1973 (see Regulations Pertaining to the Use of Negative Option Plans, 38 Fed. Reg. 4896 (Feb. 22, 1973)). The Negative Option Rule governed marketing practices where a seller interprets a customer’s silence or failure to take action as agreement to be charged for goods or services. The once popular book-of-the-month clubs are examples of option plans governed under the FTC’s original Negative Option Rule.
Background of Rule and its Underlying Statutory Authority
Under the proposed “click-to-cancel” rule, businesses would have been mandated to provide “a simple mechanism” for cancellation that allows customers to immediately stop all recurring charges and that was “at least as easy to use as the mechanism the customer used to consent” to the subscription initially (16 C.F.R. § 425.6(a)-(b)). The proposed “click-to-cancel” rule further barred sellers from misrepresenting material facts about the underlying good or service (Id. at § 425.3). The proposed rule also required “clear and conspicuous disclosure” of the cancellation mechanism or process, which had to be “immediately adjacent” to the means of recording the consumer’s consent to the recurring subscription (Id. § at 425.4(a)).
Section 5 of the FTC Act empowers the FTC to “prevent … unfair or deceptive acts or practices in or affecting commerce.” Section 18 of the FTC Act authorizes the FTC to adopt “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce” (15 U.S.C. § 57(a)(1)(B)). Section 18 of the FTC Act further provides that the FTC can issue proposed rules “only where it has reason to believe that the unfair or deceptive acts or practices which are the subject of proposed rulemaking are prevalent” (Id. at § 57(a)(B)(3)).
In addition to the specificity and prevalence requirements, Section 18 of the FTC Act requires a number of procedural steps which must be followed for a proposed rule to be promulgated. Among these requirements is that the FTC must conduct a preliminary regulatory analysis, and reviewing courts “may set aside such rule if the Commission has failed entirely to prepare a regulatory analysis” (15 U.S.C. § 57b-3(c)(1)). Regulatory analysis is required when amendments to a rule are sought that would have a net economic effect of over $100 million (Id. § 57b-3(c)(1)). Here, the FTC did not prepare a regulatory analysis in implementing the proposed “click-to-cancel” rule because the FTC initially determined the rule’s economic impact would not exceed the $100 million threshold. However, an administrative law judge later found that the proposed rule’s annual effect on the national economy would exceed $100 million.
Litigation to Stop Enforcement of Rule
In October 2024, industry organizations and businesses including cable providers, entertainment studios, advertising companies, and home security firms, sued to challenge the proposed “click-to-cancel” rule in four federal circuit courts on the grounds that the FTC exceeded the scope of its statutory authority in promulgating the rule. The Judicial Panel on Multidistrict Litigation consolidated the petitions for review in the United States Court of Appeals for the Eighth Circuit.
Specifically, petitioners challenged the proposed “click-to-cancel” rule on three grounds: (1) the proposed rule exceeded the scope of the FTC’s statutory authority; (2) the proposed rule was arbitrary and capricious under the Administrative Procedures Act; and (3) the FTC failed to issue the required regulatory analysis. In a per curiam opinion, the Eighth Circuit ruled that the plain text of the FTC mandated the regulatory analysis, and because it was not conducted, the proposed “click-to-cancel” rule was entirely vacated (Custom Communications, Inc. v. Federal Trade Commission, No. 24-3137 (8th Cir. July 8, 2025)). The Court noted the procedural error was not harmless because it deprived interested parties of the chance to engage with the FTC’s cost-benefit analysis at the proper time in the rulemaking process (Id).
Impact of Ruling
The “click-to-cancel” rule is entirely vacated and will not take effect on July 14, 2025. Given the administration change that occurred in the interim between the initial announcement of the rule and the 8th Circuit’s ruling, it appears unlikely the FTC will take steps to reintroduce the proposed rule (the proposed rule was passed by a vote of 3-2, and the two Democrat-appointed commissioners who voted in favor of the rule were fired by President Trump). The current FTC has not signaled that it will engage in efforts to reinvigorate the rule. Despite the apparent death of the click-to-cancel rule, companies may still wish to remain vigilant. Many states have enacted their own versions of such requirements, making it prudent for businesses to simplify cancellation processes for automatic subscriptions.
Attorneys at UB Greensfelder are continuing to track developments in this area of the law.
