The FTC’s Final “Click-to-Cancel” Rule Faces Legal and Political Hurdles

The fate of the FTC’s long-awaited final “Click-to-Cancel” rule has become tangled in uncertainty as it faces numerous lawsuits and the new incoming presidential administration.

In October, the FTC published its Final Rule requiring sellers to make it as easy to cancel a recurring subscription as it was to sign up (read our client alert breaking down the key requirements of the Final Rule). The Final Rule was passed against an ever-growing patchwork of state laws governing subscriptions, which has posed significant compliance challenges for companies offering automatic renewal contracts in the U.S. While sellers are expected comply with the majority of the Final Rule’s requirements by May 14, 2025,[1] legal challenges to the Final Rule may delay this compliance date, and political challenges may defeat the Final Rule altogether.

Legal Challenges

Four separate petitions were filed against the FTC, challenging the Final Rule’s enforcement in the Fifth, Sixth, Eighth, and Eleventh Circuits. The petitions were filed by not only industry groups, trade groups, and private companies, but also the Chamber of Commerce. Following a petition to the judicial panel on multidistrict litigation (JPML), the petitions have been consolidated in the Court of Appeals for the Eighth Circuit. Petitioners argue that the FTC lacks the authority to issue the rule and violated procedural requirements when doing so, as well as that the rule is arbitrary and capricious and violates the First Amendment. Some of the challenges related to regulatory overreach echo the concerns in the Final Rule’s dissenting opinion by FTC Commissioner Melissa Holyoak. Petitioners have also filed a motion to stay the Final Rule while the legal challenges are resolved.

Agency actions such as issuance of the Final Rule have experienced increased scrutiny since the June 2024 Supreme Court decision in Loper Bright Enterprises v. Raimondo, which overturned the 1984 Chevron decision granting agencies expansive latitude in interpreting statutes and in developing and implementing complex regulatory programs. Recent challenges on similar grounds against the FTC have found success; in August 2024, the FTC’s Non-Compete Rule was set aside and ruled unenforceable nationwide. That decision is currently on appeal at the Fifth Circuit.

Political Challenges

Changes in FTC leadership expected to be implemented by the incoming Trump administration could also impact the Final Rule. Elon Musk, who has been appointed to co-lead the new Department of Government Efficiency, stated that current FTC chair Lina Khan “will be fired soon” on social media platform X. The Trump administration has also recently announced that current FTC commissioner Andrew Ferguson will replace Khan as the next chair of the FTC. Commissioner Ferguson voted against the adoption of the Final Rule.

Many speculate that, going forward under the new administration, the FTC may operate with a lighter touch when it comes to consumer protection issues. If incoming Commissioner Ferguson embraces de-regulation, there may be a reassessment of the FTC’s ongoing investigations. As the FTC chair holds executive authority over FTC operations, the chair may open and close investigations without a vote of commissioners. The Final Rule could also be rescinded or reduced in scope under the normal notice-and-comment APA rulemaking process. While it may take some time for such actions to take place, it is also possible that the new Trump administration will not enforce the Final Rule once President Trump takes office.

Alternatively, the next Congress could pass a joint resolution of disapproval invalidating the Final Rule under the Congressional Review Act (CRA). Under the CRA, Congress has a window of 60 legislative days to disapprove a rule through a joint resolution. The window begins when the rule has been published in the Federal Register and received by Congress. Because the Final Rule was published to the federal registrar on November 15, 2024, the Final Rule will be subject to the CRA’s lookback provision, which will give the 119th Congress the chance to introduce a joint resolution to overturn the Final Rule.

Takeaways

While the future of the FTC’s consumer protection efforts is in flux, even if the Final Rule is stayed or rescinded through the methods discussed above, there remains a complex patchwork of state automatic renewal laws with which companies must still comply. Currently, 20 states and Washington, D.C. have their own automatic renewal laws applying to business-to-consumer and/or business-to-business contracts. These state laws impose similar and sometimes more burdensome requirements than the Final Rule. Businesses should still evaluate whether their current practices align with the new requirements in the Final Rule while we await updates on the Eighth Circuit litigation and/or news from incoming officials.

[1] Sellers are required to comply with § 425.3 (prohibiting misrepresentations in connection with a negative option feature) by January 14, 2025.