The Federal Trade Commission's (FTC) "click-to-cancel" rule was mere days before its implementation, but the U.S. Federal Appeals Court formally struck it down.
The Eighth Circuit Court of Appeals determined that the FTC did not adhere to the correct rulemaking processes, essentially bringing to a halt a regulation aimed at making it easier for consumers to cancel subscriptions.
FTC Click-to-Cancel Rule Cancelled
Introduced in October 2024, the click-to-cancel policy was intended to provide consumers with an easy cancellation method for membership or subscription as easily as they enroll.
The rule was one of the radical reformulations of the FTC's Negative Option Rule, targeting deceptive recurring billing tactics, including friction-laden opt-out processes, stealthy cancellation policies, and automatically renewing subscriptions without explicit consent.
The rule arrived when streaming behemoths such as Netflix, Disney+, and Warner Bros. Discovery were searching for ways to decrease churn by keeping new subscribers for a longer time. This often employs obtuse cancellation flows.
Why the Appeals Court Did Not Approve it
According to The Guardian, the Eighth Circuit found that the FTC had disregarded statutory mandates in its rulemaking. In particular, the agency did not offer a preliminary regulatory impact analysis, a legal requirement for rules that are anticipated to have more than a $100 million annual economic impact.
Although the FTC first predicted the rule would be below that threshold, the presiding officer subsequently found the economic effect to surpass it. Petitioners objected to the rule on this basis, and the court concurred, writing:
"While we certainly do not endorse the use of unfair and deceptive practices in negative option marketing, the procedural deficiencies of the Commission's rulemaking process are fatal here."
The court added that the "vacatur of the entire Rule is appropriate in this case because of the prejudice suffered by Petitioners as a result of the Commission's procedural error".
The court's decision sets aside the regulation in its entirety, barring it from taking effect. The FTC has refused to speak about whether it will re-propose and reissue the rule through normal procedures.
Implications for Subscription Services and Consumers
The cancellation of the rule is a blow to champions who contend that numerous firms consciously design it to be difficult to cancel services. This will now lock consumers into subscriptions they no longer need.
Without the rule, companies have no added requirement to simplify their cancellation procedures, and consumers must endure cumbersome, multi-step exit paths.
This choice also indicates possible fettering of future FTC rulemaking, particularly when proposed rules are directed toward high-impact sectors such as digital media, e-commerce, and tech platforms.
FTC Could Revise the Rule
The FTC can either revise the rule and begin anew on the regulatory process by publishing a new preliminary impact analysis. This would push any actual changes months, if not more, away.
In the meantime, consumer protection groups could demand congressional action or pursue other legal avenues to stem exploitative subscription methods in the online economy.
In 2024, three industry groups filed a lawsuit against the FTC's click-to-cancel. According to the plaintiffs, the FTC's new regulation is "arbitrary, capricious, and an abuse of discretion."
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