Appeals Court Blocks FTC Click-to-Cancel Rule

On Wednesday, July 9, the U.S. Court of Appeals for the Eighth Circuit struck down the Federal Trade Commission’s (FTC) Negative Option (or Click-to-Cancel) Rule prior to its effective date of July 14. The rule’s purpose was to make it easier for consumers to end recurring subscriptions and memberships while placing consumer consent requirements on sellers before finalizing transactions. According to an article from Kelley Drye:

“On the metaphorical eve of the July 14 effective date for the FTC’s Negative Option Rule, the Eighth Circuit released an opinion Tuesday vacating the Rule in its entirety. The economy-wide notice, consent, cancellation, and other requirements in the Rule have been nullified by the Eighth Circuit’s decision.

The court’s decision is based on procedural grounds: the FTC erroneously determined that the national economic effect of the proposed rule would be under $100 million, and on this basis declined to conduct a preliminary regulatory analysis that would have identified alternative approaches, along with estimates of their costs and benefits. The court held that this failure deprived businesses and other interested parties of the opportunity for informed participation in the rulemaking process. The court determined that the relevant provisions of the FTC Act required the court to set aside the entire Rule.

So, what’s next for federal enforcement? In the short term, barring any emergency relief that the FTC could seek as part of an appeal of the panel’s decision, the Negative Option Rule will not become enforceable on July 14. In the longer term, it is unlikely that the FTC under its current leadership will attempt to resurrect the Rule, either by petitioning for review of the panel’s decision or beginning a new rulemaking process. Chairman Ferguson and Commissioner Holyoak dissented from the FTC’s decision to adopt the Rule, citing not only a flawed rulemaking process but also its unnecessarily broad and prescriptive requirements. However, the FTC can and does bring enforcement actions against specific companies to stop automatic renewal practices that are unfair or deceptive under Section 5 of the FTC Act, or that violate ROSCA or the Telemarketing Sales Rule. The FTC may obtain civil penalties under ROSCA and TSR (but not under Section 5).”

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