In October 2024, the Federal Trade Commission (FTC) finalized significant updates to the Negative Option Rule, which are slated to take effect on May 14, 2025. A negative option is a contract term under which a buyer agrees that its silence or inaction will be interpreted as consent – often to renew a subscription or incur recurring charges. The new rule requires, among other things, that canceling an automatically renewing subscription online must be as easy as subscribing in the first place. For more details on the new requirements, see FTC finalizes "click-to-cancel" rule: Top points.
Litigation updates
The new rule was challenged by several petitioners for being arbitrary, capricious, overly burdensome, and an abuse of discretion under the Administrative Procedure Act. All challenges were consolidated into Custom Communications, Inc. v. FTC in the Eighth Circuit. Petitioners seek to vacate the final rule.
On October 22, 2024, Custom Communications, Inc. filed a petition for review in the Eighth Circuit Court of Appeals and sought a stay of the rule pending the outcome of the litigation. So far, the litigation has not been successful. The petitioners seek review on the following grounds:
(1) The rule is arbitrary, capricious, and an abuse of discretion
(2) The rule is unsupported by substantial evidence and fails to consider critical factual disputes, and
(3) The FTC exceeded its statutory authority in violation of the US Constitution.
The FTC makes the following arguments in support of the rule:
(1) The FTC has broad statutory authority to issue rules defining unfair and deceptive conduct
(2) Unfair and deceptive practices related to negative option programs are prevalent, and
(3) The FTC complied with all procedural requirements.
On January 17, 2025, the court denied petitioners’ motion to stay the final rule pending judicial review, so the rule is expected to take effect without delay. However, this ruling is not a final adjudication on the merits, and the litigation will continue.
Regulatory freeze
On January 20, 2025, President Trump issued an Executive Order (EO) directing all executive departments and agencies to consider postponing the effective dates for any rules that were published in the Federal Register but had not taken effect. As an independent agency, the FTC arguably falls outside the ambit of that EO. The FTC has not yet indicated that it intends to delay the implementation of the rule. On the contrary, the FTC’s vigorous defense of the rule in the Eighth Circuit may suggest that it continues to support implementation.
Businesses are encouraged to carefully evaluate whether their current practices comply with the click-to-cancel rule. Failure to comply with the rule may subject companies to civil penalties of more than $50,000 per violation.
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