On July 8, 2025, the U.S. Court of Appeals for the Eighth Circuit blocked the Federal Trade Commission's ("FTC") amendments to the Negative Option Rule, commonly known as the "Click to Cancel" Rule.
As we previously reported in October 2024 and January 2025, the Click to Cancel Rule required on businesses offering automatically renewing subscriptions, continuity plans, and other "negative option" features to make key disclosures at the point of purchase and make subscription cancellations as easy as signing up. While the FTC intended the rule to take full effect in May 2025, co, implementation was delayed in anticipation of the Court's ruling. following legal challenges led by
What Did the Court Decide?
The Eighth Circuit vacated the FTC's "Click to Cancel" rule on procedural grounds, concluding that the agency failed to follow statutory rule making requirements under Section 18 of the FTC Act and the Magnuson-Moss Warranty Act. Petitioners—industry groups and business coalitions—raised three principal challenges: (1) that the FTC lacked statutory authority to issue the rule; (2) that the agency failed to conduct a proper cost-benefit analysis; and (3) that the rule exceeded the permissible scope of substantive rule making.
While the court did not reach the broader constitutional or statutory authority issues, it agreed with petitioners that the FTC violated procedural obligations by omitting a required preliminary regulatory analysis. Specifically, under federal law, the FTC must conduct a preliminary cost-benefit analysis when a proposed rule is expected to result in an annual economic effect of $100 million or more. Although the FTC asserted in its Notice of Proposed Rulemaking (NPRM) that the Click to Cancel rule fell below this threshold, an administrative law judge later concluded otherwise, noting that compliance costs would exceed $100 million unless every business used fewer than 23 hours of professional services at the lowest end of estimated hourly rates scenario the court found implausible. Despite this red flag, the FTC declined to conduct a preliminary analysis and instead issued only a final regulatory analysis alongside the final rule. The court determined that this omission violated the procedural mandates of the Magnuson-Moss Act and accordingly vacated the rule without addressing its substantive merits.
Although the Eighth Circuit vacated the Click to Cancel rule, businesses are still obligated to comply with the requirements of the Negative Option Rule that was enacted in 1973.
The FTC's Negative Option Rule prohibits unfair or deceptive practices in the marketing of pre-notification negative option plans, such as book or record clubs, and requires clear and conspicuous disclosures about how to decline offers and avoid charges, specifically it requires:
- Clear disclosure of all material terms before billing,
- Express informed consent before charging,
- Simple cancellation mechanisms,
- Penalties are up to $51,744 per violation.
In addition, businesses are required to comply with the Restore Online Shopping Confidence Act ("ROSCA"). This law, like the Click to Cancel Rule, requires disclosure of all material terms, express informed consent and simple cancellation methods.
- Companies also must comply with state-level auto-renewal and cancellation laws in California, Virginia, Illinois, and Utah, which all require conspicuous disclosure of material terms, consent, and renewal notices. Virginia aand Illinois also require a conspicuous online cancellation process.
How Should Your Company Respond?
If your company uses subscription billing, continuity plans, or free-to-paid conversions, it is critical to review your sign-up and cancellation mechanisms now. Key action items include:
- Auditing practices against ROSCA and applicable state laws,
- Ensuring cancellation is as easy as sign-up,
- Strengthening consent mechanisms and record-keeping,
- Making all terms prominent and clear.
The CommLaw Group can help you assess exposure, remediate risk, and build a defensible compliance record
Our firm has been closely tracking the evolution of the FTC's negative option enforcement regime since the original NPRM. We have advised clients across the telecommunications, digital media, software, and e-commerce sectors on best practices, litigation strategy, and regulatory implementation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
