Appeals Court Blocks FTC’s ‘Click to Cancel’ Rule Meant to Simplify Subscription Cancellations

The court found that the FTC skipped a legally required economic analysis before imposing rules on subscription cancellations.

The Federal Trade Commission in Washington on Aug. 6, 2024. Madalina Vasiliu/The Epoch Times

A federal appeals court has thrown out the “click to cancel” rule of the Federal Trade Commission (FTC), concluding that the agency violated procedural requirements when crafting regulations aimed at making it easier for consumers to cancel subscription services.

In a ruling issued on July 8, the U.S. Court of Appeals for the Eighth Circuit vacated the FTC’s Negative Option Rule, which was designed to combat “negative option” marketing, the practice of treating a consumer’s silence or failure to cancel as an agreement to continue—and be charged for—products or services.

While the judges acknowledged that they “certainly do not endorse the use of unfair and deceptive practices in negative option marketing,“ they found that ”the procedural deficiencies of the commission’s rulemaking process are fatal.”

The FTC’s rule required businesses to secure consumers’ express, informed consent before charging for memberships, subscriptions that automatically renew, or services offered through free trials. Companies were also obligated to clearly disclose when free trials or promotional offers would end and to ensure that canceling a subscription was as simple as signing up—meaning, for example, that a company couldn’t force customers to speak with a live representative unless that was how the customer originally subscribed. Businesses failing to comply could have faced civil penalties of up to $53,088 per violation.

Originally unveiled in October 2024, the rule went into effect on Jan. 19, 2025, although enforcement was deferred multiple times because of concerns from industry groups over the complexity and costs of compliance. Most recently, the FTC, under a Republican majority, voted unanimously in May to postpone enforcement until July 14, citing the significant burden that compliance would impose on businesses.

Even though the FTC had postponed enforcement, the Eighth Circuit found the agency’s rulemaking fatally flawed because it failed to produce a preliminary regulatory analysis—a step required by law for rules expected to have an annual economic impact exceeding $100 million. Although the FTC initially concluded that its rule would fall below that threshold, an administrative law judge later determined that the costs would surpass it.

“The statutory language, ’shall issue,‘ mandates a separate preliminary analysis for public review and comment ’in any case' where the commission issues a notice of proposed rulemaking and the $100 million threshold is surpassed,” the court wrote in its opinion.

The FTC argued that any error was harmless, noting that it held informal hearings and ultimately prepared a final regulatory analysis. But the court rejected that argument, stating that neither the hearings nor the final analysis substituted for the earlier, mandatory process that would have allowed businesses and other stakeholders to weigh in on alternatives and costs before the rule was finalized.

“Neither the informal hearing nor the final regulatory analysis made up for the lack of discussion of alternatives and petitioners’ inability to engage with the commission’s cost-benefit estimates at an earlier stage of rulemaking,” the judges concluded.

While consumer advocacy groups had praised the rule, it sparked significant legal opposition from trade associations representing advertisers, media outlets, cable providers, home security companies, and other sectors. Industry petitioners argued that the FTC overreached with a one-size-fits-all regulation that could conflict with existing laws and make legitimate business practices, such as verifying customer identity before canceling security services, unnecessarily burdensome.

The rule, introduced under former FTC Chair Lina Khan as part of former President Joe Biden’s broader campaign against so-called “junk fees,” was approved by the commission in a 3–2 vote split along party lines. Now, under Republican leadership following President Donald Trump’s firing of the two Democratic commissioners in March, the FTC’s future stance on the rule remains uncertain.

In its May statement, the FTC said it would monitor the rule’s implementation and that it “is open to amending the rule to address any such problems,” although it’s unclear whether the agency will defend, revise, or abandon the rule entirely.

The FTC did not respond to a request for comment on the ruling.