By SSN Staff
A federal appeals court has blocked the Federal Trade Commission’s highly anticipated “click-to-cancel” rule less than a week before its scheduled enforcement, dealing a significant blow to consumer protection efforts that would have made it easier to cancel unwanted subscriptions and memberships.
The U.S. Court of Appeals for the Eighth Circuit vacated the rule July 8, finding that the FTC committed a procedural error by failing to conduct a preliminary regulatory analysis for a rule that would impact the annual economy by more than $100 million. The decision forces the agency back to the drawing board on regulations that business groups had fiercely opposed while consumer advocates welcomed as essential protections.
Rule Development and Requirements
The click-to-cancel provision emerged from a multi-year rulemaking process that began in 2019, reflecting growing consumer frustration with the difficulties of canceling subscriptions. The FTC first proposed the provision in March 2023, requiring sellers to make it as easy for consumers to cancel their enrollment as it was to sign up.
The commission finalized the rule in October 2024 as part of comprehensive revisions to the Negative Option Rule, incorporating feedback from thousands of public comments from consumers, industry, law enforcement partners and others. The regulations would have required businesses to obtain explicit customer consent before charging for memberships, auto-renewals and free trial programs, while mandating clear disclosure of terms and providing streamlined cancellation processes.
For network marketers and other businesses operating subscription-based compensation plans or recurring product delivery programs, the rule would have imposed substantial compliance obligations. Such companies would have been required to maintain consent records for three years and ensure cancellation mechanisms matched the simplicity of enrollment processes.
Procedural Failure Proves Fatal
The appeals court found that the FTC failed to satisfy a critical procedural requirement by declining to conduct a preliminary regulatory analysis setting out alternatives to the proposed rule as well as projected benefits and adverse economic effects. Federal law requires such analysis for proposed rules where annual economic impact exceeds $100 million.
The FTC initially estimated costs would fall below the threshold but failed to issue a preliminary analysis after an administrative law judge determined the impact would exceed the limit. The court wrote that “excusing the Commission’s noncompliance could open the door to future manipulation of the rulemaking process.”
The rule was set to take effect July 14 as part of former President Joe Biden’s “Time is Money” initiative, a governmentwide effort announced last year to crack down on consumer-related hassles. The FTC had already delayed enforcement twice, most recently pushing the compliance deadline from May 14 to July 14.
Industry Opposition and Consumer Support
Business groups mounted fierce opposition to the click-to-cancel rule, arguing it overstepped the FTC’s mandate and would burden companies with unfair costs. The Interactive Advertising Bureau, International Franchise Association and other trade organizations requested formal hearings during the rulemaking process, with the FTC holding a virtual hearing in January 2024 to address industry concerns.
Consumer rights groups welcomed the rule as essential protection against companies trapping customers in unwanted subscriptions. In 2024, the FTC said it received an average of 70 complaints daily about subscription cancellation difficulties. Former Chair Lina Khan said the rule would “end these tricks and traps, saving Americans time and money.”
What’s Next for the Rule
Legal experts say the court’s decision means the FTC must essentially start over if it decides to reissue the click-to-cancel rule. Dotan Hammer, a partner at Pearl Cohen law firm who specializes in data and cyber regulation, told The Washington Post the agency would have to “go back and repeat most of the rulemaking process.”
“It’s difficult to speculate a timeline for this, but it’s hard to imagine that it can be completed in any less than 4-6 months. Certainly, the court’s decision vacating the rule means a delay in the rule’s reissuance and enforcement at least into 2026,” Hammer said.
The FTC declined to comment on the court’s decision. The agency continues preparing for a trial involving Amazon’s Prime program, which stems from an FTC lawsuit accusing Amazon of enrolling consumers without consent and making cancellation difficult.
Broader Regulatory Implications
The click-to-cancel setback occurs as the FTC operates with a three-member Republican commission following President Donald Trump’s March dismissal of Democratic Commissioners Alvaro Bedoya and Rebecca Kelly Slaughter. The removals challenge the 1935 Supreme Court precedent in Humphrey’s Executor v. United States, which established that FTC commissioners can only be removed for cause rather than at the president’s discretion.
The agency continues functioning with Chair Andrew Ferguson, Commissioner Melissa Holyoak and Commissioner Mark Meador, who was confirmed in April. The Justice Department has signaled it will no longer defend the constitutionality of commissioner removal protections, setting up potential Supreme Court review of agency independence.
Continued scrutiny of subscription-based business models is expected across multiple sectors as state-level automatic renewal laws in California, New York and other jurisdictions provide alternative regulatory frameworks. These state requirements often emphasize easy cancellation and clear consent mechanisms similar to the blocked federal rule.
