Click-to-Cancelled! Eighth Circuit Vacates Federal Trade Commission’s Revised Negative Option Rule

Introduction

On July 8, 2025, the Eighth Circuit issued its decision in Custom Communications, Inc. v. Federal Trade Commission, vacating on procedural grounds the FTC’s planned “Click-to-Cancel” rule (the “Rule”), which was set to go into effect nationwide just days later. The Rule would have materially amended the original 1973 “negative option” rule, bringing it more in line with the comprehensive automatic-renewal regulation of states like California and New York.

State laws, as well as the original FTC rule and related regulations, including the Restore Online Shoppers’ Confidence Act (ROSCA), remain on the books, requiring businesses to make certain disclosures and obtain consent prior to completing a transaction containing an automatic-renewal program. But the heightened requirements that were key parts of the Rule—most notably a requirement for a “standalone” consent that is not typically part of state automatic-renewal laws—will no longer be implemented across the country, and it is uncertain whether they will reappear in any manner under the current administration.

Statutory Background & FTC Rulemaking

The FTC’s rulemaking authority is derived from the Federal Trade Commission Act (the “Act”). Section 5 of the Act broadly empowers the FTC to “prevent . . . unfair or deceptive acts or practices in or affecting commerce” by initiating administrative proceedings. By contrast, Section 18 of the Act provides the FTC’s formal rulemaking authority, by which the FTC may promulgate rules that can then be enforced directly in court through civil penalties, injunctive relief, or monetary damages.

Section 18 stipulates specific procedural requirements that the FTC must meet when promulgating a rule, including an Advance Notice of Proposed Rulemaking (“ANPRM”), and then a Notice of Proposed Rulemaking (“NPRM”) that includes the text of the proposed rule, followed by a period during which interested parties have the opportunity to participate in an informal hearing. The NPRM typically must be accompanied with a preliminary regulatory analysis that describes (1) reasonable alternatives to the proposed rule, (2) the anticipated effectiveness of both the proposed rule and each alternative, and (3) the projected benefits and adverse economic effects of the rule and its alternatives. However, if the FTC is amending an existing rule, it is not required to conduct a preliminary analysis unless it estimates that the annual effect on the national economy will be $100 million or more.

Only after the ANPRM and NPRM requirements have been met can the FTC issue its final rule, which must include a final analysis of the rule’s costs and benefits, alternatives considered, and any significant issues raised in the preliminary analyses.

The FTC’s Proposed Rule

The FTC began the process of amending the original “negative option” rule in 2019 when it issued an ANPRM that identified three new types of negative option plans not covered by the existing rule, and sought public comment on how to improve the relevant legal framework for consistency across different media and types of plans.

More than three years later, in April 2023, the FTC issued an NPRM stating its conclusion that deceptive negative option marketing programs had become prevalent in the marketplace. Accordingly, the NPRM proposed broadening the scope of the 1973 rule and introducing new requirements for disclosures, advance consumer consent, and cancellation mechanisms. The FTC declined to provide a preliminary regulatory analysis because it had “preliminarily determined” that the economic impact of compliance would not exceed $100 million. However, during the informal hearing period, the administrative judge observed that the FTC’s estimate was “clearly unrealistically low,” and found that the cost of the proposed rule would in fact exceed $100 million. But instead of issuing a preliminary analysis and completing the NPRM process, the FTC issued its final rule—notably, in which it acknowledged the judge’s determination.

When the final rule passed 3-2, current FTC Chair Andrew Ferguson (then a commissioner) voted against it, as did Commissioner Melissa Holyoak, who issued a dissenting statement that was echoed both in the business challenges to the Rule and in the Eighth Circuit’s decision.

Custom Communications, Inc. v. Federal Trade Commission

Numerous businesses and industry groups challenged the rule in multiple federal appeals courts, arguing that the FTC had (1) exceeded its statutory authority; (2) failed to meet procedural rulemaking requirements by declining to conduct a preliminary analysis; and (3) acted arbitrarily and capriciously by issuing a rule of such broad scope. The challenges were consolidated before the Eighth Circuit. Addressing only the second argument, the Eighth Circuit held that the Act mandates a separate preliminary analysis in any case where the FTC issues an NPRM that surpasses the $100 million threshold. The plain language of the Act does not require the NPRM and preliminary analysis to be issued contemporaneously, nor does it excuse the FTC from completing the analysis if its initial estimate is later found to be inaccurate. This conclusion, the Court emphasized, is necessary in order for interested parties to submit comments “in response to the preliminary analysis,” as provided by the Act.

Furthermore, the Court rejected the FTC’s argument that any procedural error was harmless. Noting that “an utter failure to comply with notice and comment cannot be considered harmless if there is any uncertainty at all as to the effect of that failure,” the Court emphasized that interested parties lost a critical opportunity to engage with the FTC regarding regulatory alternatives and accompanying cost-benefit estimates. The Court observed that the relatively minimal discussion of cost-benefit analysis and alternatives in the NPRM, the informal hearing, and the final regulatory analysis did not make up for the lack of a robust preliminary regulatory analysis to which interested parties could respond earlier in the process. Accordingly, the Court found that there was sufficient uncertainty as to whether the interested parties could have changed the outcome of the final rule, which required the rule to be vacated.

Takeaways: What Now?

The FTC could seek review of the decision by the entire Eighth Circuit en banc, petition the Supreme Court, or restart the rulemaking process, but all seem unlikely given Chair Ferguson and Commissioner Holyoak’s original opposition.

That said, businesses should not take FTC inaction on the revised rule as an indicator that it is abandoning automatic renewal enforcement entirely. In recent months, the FTC has continued to file complaints and announce settlements related to businesses’ subscription, automatic renewal, and cancellation practices, primarily under ROSCA and Section 5.

Moreover, the patchwork of state automatic-renewal laws—which, broadly speaking, require disclosures, consent, and often confirmations, annual reminders, and notices of material changes—remains both in place and ever-changing. California’s law was amended effective July 1 of this year, requiring businesses to obtain consent to the automatic-renewal terms themselves, rather than to the agreement containing those terms. The law also more tightly regulates cancellation procedures, with specific steps required for “save” attempts. And Massachusetts, a relatively new entrant onto the automatic-renewal field, passed regulations that will go into effect on September 2, 2025.

Finally, the rule’s vacatur means that its requirement that consent to the automatic-renewal feature be obtained “separately from any other portion of the transaction” will not go into effect. This provision largely does not appear in state automatic-renewal laws and was causing significant concern among businesses trying to interpret and comply with the rule. Affirmative consent is still required, but not in the “separate” or standalone manner stated in the rule.

Please contact the authors or any of your Mayer Brown team if you have questions about this update, automatic-renewal compliance, and/or litigation concerns.