Eighth Circuit Vacates Negative Option Rule on Procedural Groups
On July 8, 2025, the U.S. Court of Appeals for the Eighth Circuit vacated the Negative Option Rule on procedural grounds in the case of Custom Communications, Inc. v. Federal Trade Commission (FTC). The Negative Option Rule, frequently referred to as the “Click to Cancel Rule,” had imposed new disclosure and consent obligations related to subscription-based products marketed over the Internet; it was set to go into effect on July 14, 2025. The Court held that the FTC had failed to conduct a preliminary regulatory analysis that was required by Section 22 of the FTC Act because the proposed rule would impose over $100 million in annual regulatory costs. Based on that procedural failure, the Court set aside the rule under the Administrative Procedures Act Section 706(2). It remains to be seen whether the FTC will challenge this decision or attempt to reissue the rule with additional procedural steps.
While the “new” Negative Option Rule is now gone, companies offering subscription-based products over the Internet must still adhere to the obligations in the Restore Online Shoppers’ Confidence Act (ROSCA), as well as relevant aspects the 1973 version of the Negative Option Rule and various state laws on this subject. For example, California still requires consent to automatic renewals for all negative option programs, prohibits confirmation of billing information prior to providing certain disclosures, and imposes cancellation requirements. New York recently included similar automatic renewal provisions in Part W of its annual budget bill that include requirements that companies disclose material terms of negative option offers prior to requesting billing information and permit cancellation in the same medium as the consumer consented to the subscription.
Companies that had already implemented changes to comply with the Negative Option Rule should consider these existing federal and state law requirements when contemplating any changes to onboarding new subscription customers, while companies that had delayed making onboarding changes should analyze whether they are in compliance with ongoing state law obligations. Contact Chris Napier and Shelby Schwartz to discuss these issues or other regulatory matters in the fintech space.
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About The Authors
Chris Napier is a Partner at Mitchell Sandler. His practice focuses on providing regulatory counseling, strategic advice and representation during government enforcement matters, including matters involving commercial, consumer and alternative credit products; money transmission and payments; deposit issues; and partnerships between fintech companies, depository institutions, and lenders.
Shelby Schwartz is Counsel at Mitchell Sandler. Her practice focuses on financial regulatory and compliance matters, with a concentration on deposit accounts, financial data privacy, and state lending laws. She advises a wide variety of financial services providers, from banks to financial technology companies. Shelby has successfully assisted clients in responding to regulatory inquiries and enforcement matters, including those brought by the Consumer Financial Protection Bureau, the Department of Justice, and various state regulators. She regularly assists clients in assessing their deposit account fee structures and deposit account agreements, analyzing data breach obligations, developing privacy policies, and developing financial products and services within appropriate regulatory models.
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