US Appeals Court Blocks FTC’s “Click-to-Cancel” Subscriptions Rule: What Your Business Must Know

This article has been updated to reflect a significant recent development in Custom Communications, Inc. v. Federal Trade Commission, No. 24-3137 (8th Cir. 2025).

On July 8, 2025, the U.S. Court of Appeals for the Eighth Circuit vacated the Federal Trade Commission’s (FTC) “Click-to-Cancel” rule, just days before its scheduled effective date of July 14, 2025. The court ruled that the FTC’s rule was “arbitrary, capricious, and an abuse of discretion” under the Administrative Procedure Act, finding that the agency failed to provide sufficient evidence to justify the rule’s broad scope and underestimated its compliance burden on businesses. The decision halts the rule’s implementation pending further review, meaning businesses are not currently required to comply with its provisions. However, the FTC may appeal the ruling or propose revised regulations, and businesses should remain vigilant for future developments. The original article content follows, with additional information indicating where the vacated rule impacts prior guidance.

Subscriptions fuel revenue and customer loyalty, but the FTC’s “Click-to-Cancel” rule, finalized in October 2024, aimed to redefine how businesses handle subscription cancellations—until it was struck down by the Eighth Circuit. The rule was a significant update to the Negative Option Rule, designed to make canceling subscriptions as straightforward as signing up. This article outlines the original rule’s requirements, its implications, and what the Custom Communications ruling means for businesses moving forward.

Background of the Rule

The FTC’s “Click-to-Cancel” rule was introduced to address consumer complaints about deceptive practices and cumbersome cancellation processes for subscriptions and memberships, including auto-renewal plans, continuity programs, free-to-pay conversions, and prenotification plans. It applied across all media — online, telephone, print, and in-person transactions — and covered both business-to-consumer (B2C) and business-to-business (B2B) transactions. The rule’s core principle was to ensure that canceling a subscription is as easy as initiating one, responding to growing consumer frustration with complex or obstructive cancellation processes.

UPDATE (July 14, 2025): The Eighth Circuit’s decision in Custom Communications, Inc. v. FTC vacates the rule, rendering it unenforceable. The court’s ruling stemmed from a challenge by industry groups, who argued that the FTC overstepped its authority and imposed undue burdens on businesses without adequate justification. The court agreed, citing insufficient data to support the rule’s necessity and concerns about its impact on legitimate business practices. Businesses are no longer obligated to comply, but the FTC’s focus on consumer protection suggests potential future regulatory action.

Key Provisions of the Original Rule [No Longer Enforceable as of July 14, 2025]

The “Click-to-Cancel” rule, as originally finalized, included several key requirements aimed at protecting consumers and ensuring transparency:

1. Transparent Disclosures: Businesses were required to clearly disclose all material terms of a subscription before obtaining consumer consent. This included the subscription’s cost, renewal terms, and cancellation process, ensuring no hidden fees or conditions.
2. Express Informed Consent: Companies had to obtain explicit consumer consent for subscriptions involving negative option features (e.g., auto-renewals) before charging. Consent needed to be documented and separate from other terms to avoid deceptive practices.
3. Simple Cancellation Mechanisms: Businesses needed to provide a cancellation process as easy as the sign-up process. For example, if a subscription could be initiated online with a single click, cancellation had to be equally straightforward, without requiring consumers to navigate complex processes or endure retention tactics such as long call center wait times.
4. Prohibition on Misrepresentations: Businesses were prohibited from misrepresenting material facts about subscriptions, such as claiming a service is “free” when it transitions to a paid plan without clear disclosure.

UPDATE (July 14, 2025): Due to the Eighth Circuit’s ruling in Custom Communications, Inc. v. FTC, these provisions are no longer legally binding. Businesses that had begun preparing for compliance (e.g., updating cancellation processes or disclosures) are not currently obligated to implement these changes. However, the FTC and other regulatory bodies may pursue similar regulations in the future, and businesses should consider maintaining consumer-friendly practices to align with market expectations and avoid potential future liability.

Implications for Businesses 

The original rule was expected to have a profound impact on subscription-based businesses, including industries like streaming services, fitness memberships, meal delivery, and software-as-a-service (SaaS). Companies would have needed to audit and overhaul their cancellation processes, update terms of service, and train staff to ensure compliance. Non-compliance could have resulted in FTC enforcement actions, including fines, penalties, or injunctive relief.

The rule’s requirements were seen by some industry groups as overly prescriptive, potentially stifling innovation and imposing significant compliance costs. Organizations like the Electronic Security Association, Interactive Advertising Bureau (IAB), and the National Cable & Telecommunications Association (NCTA) challenged the rule, arguing it placed undue regulatory burdens on businesses. These concerns culminated in multiple lawsuits, with the Eighth Circuit’s decision in Electronic Security Association et al. v. FTC vacating the rule on July 8, 2025.

UPDATE (July 14, 2025): The Eighth Circuit’s ruling alleviates the immediate compliance burden for businesses. Companies that had begun revising their subscription processes in anticipation of the rule’s July 14, 2025, effective date can pause those efforts. However, businesses should remain proactive in monitoring legal developments, as the FTC may appeal the ruling or propose revised regulations. Additionally, consumer expectations for easy cancellations, shaped by the publicity surrounding the rule, may continue to influence market practices. Adopting transparent and user-friendly cancellation processes can enhance customer trust and retention, even in the absence of a legal mandate.

Industry Reactions and Legal Challenges

The “Click-to-Cancel” rule faced significant pushback from industry groups. The Electronic Security Association, IAB, and NCTA filed a petition in the Fifth Circuit, which was consolidated with challenges in other circuits, leading to the Eighth Circuit’s review. In Electronic Security Association et al. v. FTC, the court vacated the rule, citing the Supreme Court’s Loper Bright Enterprises v. Raimondo decision, which limits agency rulemaking authority without clear congressional authorization. The court found that the FTC failed to demonstrate that the rule’s requirements were proportionate to the identified consumer harms and criticized the agency for not adequately considering less burdensome alternatives.

UPDATE (July 14, 2025): The Eighth Circuit’s ruling is a significant victory for industry groups opposing the rule. However, the legal landscape remains uncertain. The FTC may seek to appeal the decision to the Supreme Court or issue new guidance, and other circuits may weigh in on related challenges. Businesses should stay informed through legal counsel and industry associations to navigate potential future developments.

Practical Steps for Businesses in Light of the Ruling

While the “Click-to-Cancel” rule is currently vacated, businesses should consider the following steps to prepare for potential future regulations and maintain consumer trust:

1. Audit Existing Practices: Review current subscription and cancellation processes to identify areas that may frustrate consumers, such as complex cancellation steps or unclear disclosures. While not legally required, aligning with consumer-friendly practices can reduce complaints and enhance brand reputation.
2. Monitor Legal Developments: Stay updated on the status of the “Click-to-Cancel” rule through trusted legal sources. The FTC’s actions in response to the Eighth Circuit’s ruling in Custom Communications v. FTC, including potential appeals or new rulemaking, could reinstate similar requirements.
3. Enhance Transparency: Even without the rule, providing clear, upfront disclosures about subscription terms and cancellation processes can build consumer trust and reduce the risk of complaints or regulatory scrutiny.
4. Streamline User Experience: Simplifying cancellation processes, such as offering one-click online cancellations, can improve customer satisfaction and loyalty, aligning with market trends driven by consumer expectations.

UPDATE (July 14, 2025): The vacatur of the rule in Custom Communications, Inc. v. FTC removes the immediate need to implement these changes. However, businesses that proactively adopt consumer-friendly practices may gain a competitive edge and be better positioned for compliance if similar regulations are reinstated.

Conclusion

The FTC’s “Click-to-Cancel” rule was poised to transform how subscription-based businesses operate by prioritizing consumer ease and transparency—until its vacatur by the Eighth Circuit in Custom Communications, Inc. v. Federal Trade Commission on July 8, 2025. While businesses are not currently required to comply with the rule, the FTC’s focus on consumer protection and the public’s awareness of cancellation issues suggest that similar regulations may emerge in the future. By proactively reviewing practices and staying informed about legal developments, businesses can mitigate risks, enhance customer trust, and prepare for an evolving regulatory landscape.

For more information on the original rule, see the FTC’s official announcement: FTC Click-to-Cancel Rule.