A federal appeals court on Tuesday invalidated the Federal Trade Commission’s (FTC) much-anticipated “click-to-cancel” rule, which aimed to make it easier for Americans to cancel subscriptions.
The rule, which was scheduled to take effect on July 14, was struck down unanimously by a three-judge panel of the US Court of Appeals for the 8th Circuit.
The ruling marks a major setback for the Biden-era FTC under former Chair Lina Khan, who championed the regulation to curb deceptive subscription practices. The judges said the FTC failed to follow critical rulemaking procedures required under US law — specifically, its omission of a preliminary regulatory analysis despite clear indications the rule would have a significant economic impact.
“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 judges wrote.
The Rule and Its Intent
The rule was intended to strengthen the FTC’s 1973 Negative Option Rule by requiring that companies make cancelling subscriptions as simple as signing up. It also barred companies from misleading consumers and demanded clearer disclosure of recurring charges and terms. The FTC cited the widespread problem of consumers unknowingly enrolled in auto-renewing subscriptions — from gym memberships to cable TV to streaming services — which they later found difficult to cancel.
Former FTC Chair Lina Khan argued the rule would have eliminated “tricks and traps” used by companies to keep consumers paying for services they no longer wanted.
“Nobody should be stuck paying for a service they no longer want,” Khan said at the time.
Judges Say FTC Skipped Key Step
However, the court found that the FTC sidestepped a crucial procedural requirement by failing to conduct a preliminary regulatory analysis — a step required when a rule is projected to cost more than $100 million annually.
Initially, the FTC had claimed in its Notice of Proposed Rulemaking (NPRM) that the rule wouldn’t meet that threshold. But an administrative law judge later determined that compliance costs would indeed exceed $100 million — unless every business involved spent less than 23 hours on professional services to meet the rule’s requirements.
Despite this, the FTC went ahead without revising its estimate or conducting the required preliminary analysis. Instead, it only issued a final regulatory analysis — too late, the judges said, for businesses and industry groups to challenge or comment meaningfully on the rule’s economic implications.
“By the time the final regulatory analysis was issued, Petitioners still did not have the opportunity to assess the Commission’s cost-benefit analysis of alternatives,” the court said, noting that the FTC’s discussion of alternatives was “perfunctory.”
The now-vacated rule faced pushback from industry groups — including cable and streaming companies — which filed lawsuits across four federal circuit courts. The cases were consolidated at the 8th Circuit, where the panel comprised Judges James Loken (appointed by George H.W. Bush), Ralph Erickson, and Jonathan Kobes (both Trump appointees).
The court warned that the FTC’s actions — if left unchallenged — could set a dangerous precedent for future rulemakings.
“Furnishing an initially unrealistically low estimate of the economic impacts of a proposed rule would avail the Commission of a procedural shortcut that limits the need for additional public engagement,” the judges said.
The 2024 rule passed narrowly in a 3-2 vote, with Republican Commissioners Melissa Holyoak and Andrew Ferguson (now the FTC chairman) opposing it. Holyoak had predicted legal trouble ahead, accusing Khan’s FTC of rushing the rule through ahead of the 2024 election.
“[It] is nothing more than a back-door effort at obtaining civil penalties in any industry where negative option is a method to secure payment,” Holyoak argued.
Consumer Impact
Though the court acknowledged the real harm to consumers from hard-to-cancel services, the decision is believed to have left consumers at the mercy of service providers.
The FTC may choose to revise and reintroduce the rule under the current Republican-led leadership, though it is unclear whether any such effort will reflect the consumer-first orientation of Khan’s tenure.
For now, businesses employing negative option marketing — where subscriptions automatically renew unless cancelled — won’t be federally required to implement one-click cancellation mechanisms. That leaves consumers facing the same cancellation hurdles the FTC had sought to remove, at least until new rulemaking or legislative efforts take shape.