Federal Appeals Court Vacates Ftc Click To Cancel Rule Pending Review
Critics contend that the rule exceeds the FTC’s authority and that its imposition skirted procedural rules. In the 8th Circuit’s decision, a three-judge panel concluded that the FTC failed to follow procedural requirements under the Federal Trade Commission Act. Tuesday's decision temporarily blocks enforcement of the rule, which was scheduled to take effect July 14.
As XBIZ reported last year, at issue are the FTC’s updates to the Negative Option Rule, originally adopted in the 1970s to protect consumers from being automatically enrolled in subscription plans without their consent. Under the updates, the rule would apply to almost all negative option programs, meaning any that “contain a term or condition that allows a seller to interpret a customer’s silence, or failure to take an affirmative action, as acceptance of an offer,” including automatic renewal and free-to-pay offers.
The FTC announced its proposed changes in March 2023. In response, the commission received more than 16,000 comments from consumers, government agencies, consumer groups and trade associations.
At the time, industry attorney Corey D. Silverstein cautioned website operators that while the proposed amendments would make it much easier for consumers to cancel unwanted subscriptions and would help protect them from deceptive practices, it could also potentially cause “major headaches for website operators” due to requiring substantial changes to sign-up and cancellation practices.
Silverstein provided a detailed breakdown of the rule for XBIZ readers earlier this year.
The case consolidated petitions for review brought by an array of businesses and trade associations in four federal circuit courts.
Although the court’s decision means that the rule’s provisions will not take effect pending further review, many operators that sell subscriptions already abide by similar rules, especially since both Visa and Mastercard regulations specify disclosure and consent requirements for negative options. There are also other existing relevant federal and state regulations. The Restore Online Shoppers Confidence Act, enacted by Congress in 2010, has been enforced against adult businesses, and in September 2024, California enacted a law significantly tightening rules regarding automatic renewal of paid website subscriptions.
