Do you offer a continuity program, free trial, or other negative option program? If so, you’ve probably been following the Federal Trade Commission’s (FTC) journey to overhaul its longstanding Negative Option Rule into the “Click to Cancel” Rule. On July 8, that journey came to at least a temporary end when the Eighth Circuit vacated the Rule on procedural grounds, just days before the July 14 compliance date. 

Finalized in October 2024, the revisions purported to consolidate the patchwork of regulations governing negative option programs and provide businesses with clear rules of the road. At the time, Republican Commissioner Melissa Holyoak dissented, arguing, among other things, that the agency did not follow the FTC Act’s procedural requirements for rulemaking. Predictably, several industry associations and individual businesses sought review of the Rule in four circuit courts shortly thereafter, in part following the roadmap laid out in the dissent. 

Ruling on the consolidated petitions for review, the Eighth Circuit vacated the Rule, holding that the FTC failed to conduct a preliminary regulatory analysis required for rules with an annual effect on the national economy of over $100 million. This procedural error, according to the Court, deprived the petitioners of “a notable opportunity to dissuade the FTC from adopting the Rule as proposed.”

The Court wrapped up by emphasizing it did “not endorse the use of unfair and deceptive practices in negative option marketing,” and was ruling solely based on the procedural deficiencies in the rulemaking process.

So, now we wait. The FTC may appeal the judgment. After all, the Trump/Vance FTC has defended the Rule up until this point and previously issued a statement that it planned to enforce it effective July 14 (though noting their openness to take another look if problems arose during enforcement). However, it’s equally possible the agency either goes back to the drawing board and reboots the rulemaking process or abandons the effort entirely in light of the administration’s lack of rulemaking appetite. But, regardless of what happens, businesses utilizing negative option features in contracts aren’t off the hook. They must still comply with all other applicable laws, including the Restore Online Shoppers’ Confidence Act (ROSCA), the Telemarketing Sales Rule (TSR), and state automatic renewal laws, which often have similar disclosure and consent requirements. 

In the background, we’re also watching to see what happens with other pending rulemakings. In particular, in January, the FTC announced three proposed rulemakings designed to “strengthen the agency’s tools to curb deceptive earnings claims in industries where reports indicate they are pervasive: money-making opportunities and multi-level marketing (MLM) programs.” While combatting deceptive earnings claims seems to be a priority for the current FTC, it will be interesting to see whether the agency follows through with these rulemakings or takes the Eighth Circuit ruling as a sign it’s time for a break.

Reed Smith will continue to monitor the FTC’s response to the ruling and potential impacts on other rules, as well as developments in state and federal automatic renewal laws.