BREAKING: FTC’s Negative Option Rule (Click-to-Cancel) VACATED by Eighth Circuit

The Eighth Circuit Court of Appeals has vacated the FTC’s amended Negative Option Rule, also known as the Click-to-Cancel Rule. Originally adopted in October 2024, the rule was set to take full effect on May 14, 2025, but enforcement was postponed to July 14, 2025. With the amended Rule now vacated, the prior version of the Rule remains in effect. Currently, only prenotification plans are covered under the existing Rule.

Industry associations challenged the Rule, arguing that the FTC exceeded its authority, acted arbitrarily, and failed to conduct a required preliminary regulatory analysis under the FTC Act, as the Rule’s economic impact exceeded $100 million. The court ultimately agreed with the last argument, vacating the entire Rule due to the seriousness of the procedural error, the Rule’s broad scope, and the impracticality of a narrower remedy.

Under the FTC Act, the Commission may issue rules defining unfair or deceptive practices, but it must first demonstrate that such practices are “prevalent,” define them “with specificity,” and follow a series of procedural steps. These include issuing an Advance Notice of Proposed Rulemaking and a Notice of Proposed Rulemaking. If the rule is expected to have an annual economic impact exceeding $100 million, both preliminary and final regulatory analyses are required.

Although the FTC initially estimated the Rule’s impact would fall below the $100 million threshold, an Administrative Law Judge later determined it would exceed that amount, thereby triggering the requirement for a preliminary regulatory analysis. The FTC, however, declined to issue one, arguing that the FTC Act did not require a preliminary analysis at that stage in the rulemaking process. It did issue a final regulatory analysis.

The court disagreed, finding that the FTC failed to comply with the procedural requirements of the FTC Act. It emphasized that agencies often issue supplemental NPRMs when a rule’s scope changes or to ensure statutory compliance, and suggested the FTC could have reissued the NPRM with the required preliminary analysis.

The FTC argued that its omission was harmless because it later issued a final analysis and considered public comments. However, the court rejected that argument, deeming the procedural error prejudicial because it deprived petitioners of a meaningful opportunity to influence the Rule, particularly regarding less burdensome alternatives.

This decision may have broader implications for future FTC rulemaking, especially for rules with significant economic impact. While an appeal by the FTC appears unlikely, businesses should remain attentive to the evolving landscape of state-level automatic renewal laws. Many states have recently enacted or amended legislation governing such subscriptions. When designing or reviewing consent and opt-out mechanisms for automatically renewing products or services, it is essential to stay current with these diverse and frequently changing state requirements.