Overview
On July 8, 2025, the US Court of Appeals for the Eighth Circuit struck down the Federal Trade Commission's (FTC) amended Negative Option Rule. When the final Rule was issued in October 2024, we explained that it contained four core requirements for businesses offering goods or services on a recurring basis:
- Misrepresentations - a broad prohibition on misrepresentations about "any material fact" regarding the goods or services being offered, not just the negative option component of the product or service;
- Disclosures - a requirement to clearly and conspicuously disclose all material terms of sale before capturing consumers’ billing information;
- Consent - a requirement to obtain consumers' express informed consent (g., non-pre-selected checkbox, e-signature, or similar) to the negative option or subscription feature separately from the rest of the transaction; and
- Cancellation - a requirement to provide consumers with a "simple mechanism" to cancel the negative option feature and stop recurring charges.
The Rule's misrepresentation requirement had been in effect since January 19, 2025. Its disclosure, consent, and cancellation provisions were set to become effective on July 14, 2025, after the Commission gave industry a 60-day reprieve from those provisions’ original May 14, 2025 effective date. All such provisions are now annulled, as the Eighth Circuit vacated the Rule in its entirety.
Subscription sellers, chambers of commerce, and trade associations lodged multiple legal challenges to the Rule, attacking both the process by which the previous FTC administration had promulgated the Rule and the breadth and ambiguity of the Rule itself, noting that it would regulate over a billion recurring subscription agreements across all sectors of the US economy. Those challenges were consolidated before the Eighth Circuit, which refused to stay implementation of the Rule in January 2025 and allowed the litigation to proceed through merits briefing and oral argument.
The court's opinion did not address the Rule’s merits. The court instead focused on the Commission’s failure to issue a preliminary regulatory analysis of the proposed Rule, which Congress requires the FTC to do when the latter proposes to amend a rule that will have an annual effect on the national economy of at least $100 million (the FTC's own Administrative Law Judge found that amending the Negative Option Rule would satisfy this threshold). "While we certainly do not endorse the use of unfair and deceptive practices in negative option marketing," explained the Eighth Circuit, "the procedural deficiencies of the Commission's rulemaking process are fatal here."
What Happens Next?
While the FTC could appeal the Eighth Circuit's opinion by filing a petition for rehearing within 45 days, we do not expect the Commission under the current administration to attempt to salvage the Rule. The Final Rule was promulgated last year by a Democratic-majority FTC on a 3-2 party line vote, with Republican Commissioners Andrew Ferguson and Melissa Holyoak voting against the Rule (and Holyoak drafting a lengthy and spirited dissenting statement).
Since then, Ferguson has become the FTC's Chairman and, with the addition of Mark Meador to the Commission and President Trump's removal of Democratic Commissioners Alvaro Bedoya and Rebecca Slaughter, the FTC now has three Republicans and no Democrats at the helm. Chairman Ferguson has made clear that his tenure at the FTC will be characterized by regulatory humility, and we do not anticipate further FTC rulemaking activity in the absence of clear Congressional instruction to do so. Among other things, given the White House's "Regulatory Freeze" executive order issued at the start of the current administration, it is unlikely that the currently-constituted FTC will push the Negative Option Rule again.
That said, the death of the amended Negative Option Rule does not mean that subscription sellers will operate free from regulatory scrutiny. Businesses selling goods or services online through a negative option feature must still comply with the Restore Online Shoppers' Confidence Act (ROSCA), which contains similar (but less prescriptive) disclosure, consent, and cancellation requirements. FTC enforcement of ROSCA does not appear to be abating, as evidenced by the Commission's recent lawsuit against Uber and ongoing litigation against other major subscription offerors. Businesses selling goods or services on an autorenewal basis – especially online – should still carefully disclose the existence of the autorenewal feature and its key terms, and should not subject customers to Rube Goldberg-esque cancellation processes: the FTC remains vigilant against those practices.
Businesses must also remain mindful of state autorenewal laws. With the FTC's Rule now vacated, some companies may consider California's recently amended autorenewal law to be the de facto national standard. Unlike the FTC's Rule, California's law exempts business-to-business autorenewal contracts. But for covered transactions, California's law is in some ways more onerous than the FTC's Rule would have been, due to notice requirements that were not contained in the FTC's final Rule and because of cancellation rules that are more stringent than the FTC's "click-to-cancel" requirement.
California is not alone: a growing number of states have enacted or introduced legislation (or amendments to existing legislation) regulating autorenewal sales that will subject businesses to a patchwork of similar, but not uniform, disclosure, cancellation, and notice requirements. As examples, Massachusetts, New York, and Connecticut will have autorenewal laws taking effect later this year or – for Connecticut – on July 1, 2026.
Our team is continuing to track these developments.
