The Federal Trade Commission (“FTC”) set out to modernize the Negative Option Rule promulgated in 1973, now referred to as the “Click to Cancel” rule (the “Rule”), to make it easier for consumers to cancel recurring subscriptions and memberships.[1] We previously provided an in-depth discussion of the Rule in an earlier blog post, which is available here. The Rule was scheduled to take effect on July 14, 2025 after the original compliance date of May 14, 2025 was extended.[2] However, on July 8, 2025, the Eighth Circuit vacated the Rule on the grounds of procedural deficiencies.[3]
Under §22 of the Federal Trade Commission Act, the FTC is required to complete a preliminary regulatory analysis and a final regulatory analysis before finalizing a rule.[4] These two analyses are also required for amendments to rules only if the FTC finds that such amendments would “have an annual effect on the national economy of $100,000,000 or more.”[5]
After issuing an advanced notice of proposed rulemaking in 2019 and a notice of proposed rulemaking in 2023, the FTC determined that the proposed amendments to the Rule would not have the requisite $100 million effect and, consequently, a preliminary regulatory analysis and a final regulatory analysis were not deemed to be necessary.[6] However, at the beginning of 2024, the FTC held informal hearing sessions before an Administrative Law Judge (ALJ) to resolve disputes around such calculation.[7] The ALJ found that the compliance costs for the Rule would, in fact, exceed $100 million.[8] After such finding, the FTC issued a final regulatory analysis for the Rule.[9] The Eighth Circuit vacated the Rule on procedural grounds, stating the FTC should have first issued a preliminary regulatory analysis prior to the final regulatory analysis.[10] Note, the Eighth Circuit did not comment on the other substantive issues raised, including the claims that the Rule exceeded the scope of the FTC’s statutory authority and that the Rule is arbitrary and capricious.[11]
The Eighth Circuit’s decision removes the immediate obligation for companies to comply with the Rule, which, among other things, would require companies to (1) implement a simple method of cancellation that is as easy as the sign up and offered through the same method (e.g., if consumers were able to sign up online, companies cannot require consumers to talk to a representative to cancel), (2) not mislead consumers about any important aspect of the offer (e.g., amount and frequency of billing and when free trials or promotional offers end), and (3) demonstrate customers consented to what they were signing up for before they were charged (e.g., checking a box or providing a signature).[12] However, although this Rule has been vacated, companies with online subscription-based monetization models must still ensure compliance with other similar federal and state laws. For example, on a federal level, companies should be aware of The Restore Online Shoppers’ Confidence Act. Passed in 2010, it prohibits companies from charging or attempting to charge consumers for goods or services online through recurring charges or negative option features unless the company meets certain requirements regarding cancellation policies, disclosures to consumers, and consent (i.e., the same matters we saw addressed in the Rule).[13] Additionally, more than half of US states have enacted automatic renewal laws.[14] Though each state imposes different requirements, these automatic renewal laws most commonly address cancellation policies, disclosures to consumers, and consent (i.e., again, the same matters we saw addressed in the Rule).[15]
For guidance in navigating the complex landscape of subscription-based compliance, contact our team at Sheppard Mullin. We partner closely with clients to help them proactively address evolving requirements and implement effective compliance strategies suited to their business models.
Special thanks to former intern, Andrew Welch for his contributions to this article.
FOOTNOTES
[1] https://www.ftc.gov/news-events/news/press-releases/2023/03/federal-trade-commission-proposes-rule-provision-making-it-easier-consumers-click-cancel-recurring
[2] https://ecf.ca8.uscourts.gov/opndir/25/07/243137P.pdf
[3] Id.
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Click to Cancel: The FTC’s amended Negative Option Rule and what it means for your business | Federal Trade Commission
[13] Automatic Renewal State Laws | Practical Law
[14] Id.
[15] Id.