8th Circuit Vacates FTC's Negative Option Rule—But Compliance Traps Remain

As previously reported, the Federal Trade Commission's updated rule addressing recurring subscription programs (a/k/a the Negative Option or Click-to-Cancel Rule) (the Rule) was scheduled to take full effect on July14th. However, the U.S. Court of Appeals for the Eighth Circuit has decided otherwise. Yesterday, in Custom Communications, Inc. v. Federal Trade Commission, No. 24-3137, the Court vacated the updated Rule finding that the FTC's rulemaking process contained "fatal" procedural deficiencies (without directly addressing the Rule's substance). The decision resolved consolidated petitions by various industry groups that had challenged the Rule. While it remains to be seen how the FTC will react to this decision, our initial observations follow.

• The FTC has other enforcement tools in its arsenal: The FTC recently signaled that enforcement against unfair or deceptive automatic renewal practices is still a priority, including by defending the Rule in Custom Communications and emphasizing that it would begin enforcing the Rule "[s]tarting July 14, 2025." In the meantime, the FTC has continued to use other enforcement tools in its arsenal—which include the FTC Act, the Telemarketing Sales Rule (TSR), and the Restore Online Shoppers' Confidence Act (ROSCA)—to stop allegedly unfair and deceptive recurring subscription practices. For example, the FTC recently announced that 40,000+ people will receive refunds (totaling over $5 million) from its settlement with Cerebral, Inc., an online mental health service provider that allegedly billed consumers despite their subscription cancellation requests. In that case, the FTC alleged that Cerebral violated ROSCA by (1) failing to clearly disclose all material cancellation terms, (2) requiring customers to navigate a complex subscription cancellation process, and (3) falsely promising that consumers could "cancel anytime." And online cash advance company Cleo AI agreed in March to pay $17 million to settle FTC allegations that it violated the FTC Act and ROSCA, in part by making it hard for consumers to cancel their subscriptions (see our coverage here).
• State laws still apply: The patchwork of state recurring subscription laws still applies, and many state requirements are stricter than the now-vacated Rule, including requirements related to disclosures, cancellation mechanisms, prior notice of material changes to subscription programs, pre-renewal reminders, disclosures and reminder notices related to free and promotional trials, and more. Relatedly, the FTC is not the only sheriff in town when it comes to enforcing against subscription-related practices. For example, the New York Attorney General recently announced a settlement with Equinox Group, LLC for allegedly failing to clearly disclose recurring subscription terms and not offering an easy-to-use online cancellation mechanism for fitness-related offerings. Equinox Group is required to pay $600,000 in penalties and change its subscription practices. And class actions alleging deceptive automatic renewal practices are common too.

So, while the recent updates to the Negative Option Rule have been vacated, the FTC Act, ROSCA, the TSR, and various and evolving state subscription laws still apply. Remember the saying "an ounce of prevention is worth a pound of cure"? That certainly applies to subscription compliance as brands work to avoid state and federal regulator enforcement and class action lawsuits.