A highly anticipated federal rule designed to make canceling unwanted subscriptions as easy as signing up has been blocked by a federal appeals court. The Federal Trade Commission’s (FTC) “click-to-cancel” rule, which was set to take effect on July 14, aimed to eliminate deceptive “dark patterns” and complicated processes used by businesses to trap consumers in recurring charges. However, the U.S. Court of Appeals for the Eighth Circuit ruled against the FTC, preventing the rule from being enforced. This decision marks a significant moment for consumer protection efforts and industry practices regarding automatic renewals.
What Was the ftc’s “Click-to-Cancel” Rule?
The FTC’s “click-to-cancel” rule was a significant update to the agency’s 1973 Negative Option Rule. Its primary goal was simple: ensure that companies offering subscriptions with automatic billing make the cancellation process just as straightforward as the sign-up process. This meant if you could subscribe online with a few clicks, you should be able to cancel online with a similar level of ease.
The rule included several key requirements for businesses. First, companies would be prohibited from misrepresenting any essential facts about the subscription service. Second, before obtaining a consumer’s billing information and charging them, sellers would have to clearly and conspicuously disclose all material terms. This included details about the recurring nature of the charge, billing frequency, and the cancellation policy.
Furthermore, the rule mandated that businesses obtain a consumer’s express informed consent before billing them for any recurring subscription feature. No more hidden opt-outs or pre-checked boxes. Crucially, it required sellers to provide a simple mechanism for consumers to cancel the recurring feature and immediately stop charges. This was specifically designed to combat intentionally difficult or drawn-out cancellation flows often described as “dark patterns,” where companies might use multiple pages, numerous clicks, or irrelevant options to dissuade users from canceling.
Why Did the FTC Propose This Rule?
The Federal Trade Commission developed the “click-to-cancel” rule in response to a growing wave of consumer complaints. Many Americans reported finding themselves unwittingly enrolled in subscription plans they didn’t fully understand or authorize. Once enrolled, they often faced significant challenges in trying to stop the recurring charges. This struggle to cancel not only cost consumers money but also wasted their time and caused frustration.
The FTC aimed to tackle practices it viewed as unfair or deceptive. These included making sign-up incredibly easy but cancellation frustratingly hard, burying cancellation options deep within websites or menus, or requiring customers to call during limited hours when they signed up online. The agency believed these tactics were designed to trick consumers into paying for services they no longer wanted or needed.
The FTC noted a steady increase in complaints related to negative option marketing over recent years. Data showed the Commission received nearly 70 such complaints per day on average in 2024, a notable rise from figures in previous years. The “click-to-cancel” rule was intended as a comprehensive regulatory tool to curb these practices across various industries, from streaming services to online memberships and other recurring-payment programs.
The Legal Challenge That Blocked the Rule
The FTC’s “click-to-cancel” rule did not go unopposed. Industry groups and numerous businesses quickly raised objections, arguing that the FTC had overstepped its authority and failed to follow required legal procedures in creating the rule. These challenges were consolidated and heard by the U.S. Court of Appeals for the Eighth Circuit.
The core of the legal argument that proved successful centered on procedural deficiencies in the FTC’s rulemaking process, not the merits of whether deceptive subscription practices are bad. Specifically, the petitioners argued that the FTC failed to conduct a mandatory preliminary regulatory analysis. U.S. law requires this analysis for rules with an estimated annual economic effect of $100 million or more. This analysis assesses the rule’s likely effectiveness, potential costs, and available alternatives, providing an opportunity for public review and comment.
The FTC had initially estimated in its Notice of Proposed Rulemaking (NPRM) that the “click-to-cancel” rule’s economic impact would be below this $100 million threshold. However, internal assessments reportedly found that compliance costs alone would likely exceed this amount. Despite this, the FTC proceeded to issue only a final regulatory analysis alongside the final rule, skipping the separate preliminary analysis required before finalizing the rule when the threshold is met.
Why Did the Court Rule Against the FTC?
A unanimous three-judge panel on the Eighth Circuit Court of Appeals found the FTC’s procedural misstep to be “fatal” to the “click-to-cancel” rule. The court rejected the FTC’s arguments that the preliminary analysis wasn’t required at that stage or that any error was harmless because alternatives and costs were discussed elsewhere. The judges pointed to the clear statutory language requiring a separate preliminary analysis for public review when the $100 million threshold is surpassed after an NPRM is issued.
The court determined that the lack of a preliminary analysis prejudiced the petitioning industry groups and businesses. It denied them the opportunity to adequately assess and contest the FTC’s cost-benefit analysis of alternatives, which is a required element of the preliminary analysis. The court found the FTC’s discussion of alternatives in its final analysis to be “perfunctory.”
Crucially, the court’s decision was based strictly on these procedural grounds. The judges explicitly stated, “we certainly do not endorse the use of unfair and deceptive practices in negative option marketing.” However, they concluded that the procedural deficiencies were severe enough to warrant vacating the entire rule. The judges also expressed concern that allowing the FTC’s approach could set a negative precedent, potentially enabling agencies to manipulate the rulemaking process by initially underestimating economic impacts to avoid statutory requirements for public engagement.
What Does This Court Ruling Mean Now?
The immediate consequence of the Eighth Circuit’s decision is that the FTC’s “click-to-cancel” rule is nullified. This means the rule’s requirements – making cancellation as easy as sign-up, mandatory clear disclosures before billing, and requiring express consent – will not take effect on July 14 as planned. Businesses are not currently bound by the specific obligations outlined in this vacated rule.
For consumers, this means that intentionally difficult or confusing subscription cancellation processes may continue unimpeded by this particular regulation for the time being. While the court did not endorse deceptive practices, its ruling based solely on procedural errors effectively allows the status quo regarding subscription cancellations to persist unless other regulations or enforcement actions apply.
However, this does not mean the FTC is powerless against deceptive subscription practices. The agency still has its existing 1973 Negative Option Rule, though its scope was more limited than the proposed update. The FTC also retains its authority under Section 5 of the FTC Act to pursue enforcement actions against unfair or deceptive acts or practices. The agency has recently continued to scrutinize companies in this area, citing lawsuits against firms like Amazon (regarding Prime cancellation) and Uber (for alleged difficult-to-cancel subscriptions) as examples of ongoing efforts. While the future of this specific “click-to-cancel” initiative is uncertain, the FTC’s focus on preventing consumers from being trapped in unwanted subscriptions is likely to continue through other avenues.
Frequently Asked Questions
What exactly was the FTC’s “Click-to-Cancel” rule designed to do?
The FTC’s “Click-to-Cancel” rule aimed to make canceling recurring subscriptions and memberships as easy for consumers as signing up. It would have required companies to provide simple online cancellation mechanisms if they offered online sign-ups, give clear disclosures before billing, obtain express informed consent for recurring charges, and immediately stop billing upon cancellation. The rule was intended to combat “dark patterns” and unnecessarily difficult processes that businesses use to make canceling subscriptions hard.
Why did the court strike down the FTC’s “Click-to-Cancel” rule?
A federal appeals court struck down the rule due to procedural errors by the FTC during the rulemaking process. The court found that the FTC failed to conduct a mandatory preliminary regulatory analysis required for rules with an estimated economic impact of $100 million or more. By skipping this analysis, the FTC denied businesses the opportunity to adequately review and challenge the rule’s costs and alternatives. The court’s decision was based solely on these procedural deficiencies, not on whether deceptive cancellation practices are harmful.
Does this mean companies can still make canceling subscriptions difficult?
Yes, with the FTC’s “Click-to-Cancel” rule blocked, companies are not immediately required to adhere to its provisions making cancellation easy. However, this does not give businesses free rein for deceptive practices. The FTC can still take action against unfair or deceptive subscription practices under its existing authorities, including the original 1973 Negative Option Rule and Section 5 of the FTC Act. While consumers may still encounter difficult cancellation processes, the FTC remains active in this area through enforcement actions.
Implications for Consumers and Businesses
For consumers, the ruling means vigilance remains key. When signing up for free trials or recurring services, carefully read the terms, understand the billing cycle, and note the cancellation process before providing payment information. Be prepared that canceling might still require more effort than signing up. Keep records of your sign-ups and billing dates to help track unwanted charges.
For businesses, while the immediate regulatory threat of the “click-to-cancel” rule is gone, relying on confusing cancellation processes is still risky. The FTC’s focus on deceptive subscription practices hasn’t disappeared. Companies face potential enforcement actions under existing laws if their practices are deemed unfair or deceptive. Proactively reviewing and simplifying subscription sign-up, disclosure, consent, and cancellation processes aligns with growing consumer expectations and can help build trust, reduce complaints, and mitigate future legal risks, especially if the FTC attempts to implement similar rules in the future through different procedural paths.
