Eighth Circuit Vacates the FTC’s Recently Amended Negative Option Rule

On July 8, 2025, the United States Court of Appeals for the Eighth Circuit vacated the entirety of the recently adopted Negative Option Rule (the Rule) by the Federal Trade Commission (FTC). See Custom Commc’ns, Inc. v. Federal Trade Commission, ---F.4th----, 2025 WL 1873489 (8th Cir. July 8, 2025). The amended Rule, which was scheduled to become fully effective on July 14, contained onerous new requirements for all businesses using “negative options” (including, most prominently, automatic renewal features).

The Rule would have required, among other things, disclosure of all material terms of a transaction prior to a consumer’s entering into the transaction, receipt of a consumer’s unambiguous affirmative consent separately from any other portion of the transaction and employment of a simple and easy to use cancellation mechanism (colloquially known as “click-to-cancel”).

Multiple industry groups and businesses sought review of the Rule in four federal circuit courts on procedural and substantive grounds. Particularly, for purposes of the Eighth Circuit’s Opinion, the Petitioners argued that the FTC failed to follow its heightened procedural requirements for the promulgations of new and amended rules. The petitions for review were consolidated for the Eighth Circuit to decide. In a per curium decision, the panel concluded that the FTC failed to follow procedural requirements and granted the petitions for review and vacated the Rule. Custom Commc’ns, 2025 WL 1873489, at *1, 9.      

A Key Procedural Mistake Proves Fatal

The panel focused on the FTC’s failure to conduct required preliminary regulatory analysis. Under 15 U.S.C. §§ 41–58 (the FTC Act), when the FTC publishes a notice of proposed rulemaking , as it did here, it also must issue a preliminary regulatory analysis that (1) describes reasonable alternatives to the proposed rule, (2) analyzes projected benefits and adverse effects of the proposed rule and each alternative and (3) analyzes the effectiveness of the proposed rule and each alternative in meeting the proposed rule’s objectives. Custom Commc’ns, 2025 WL 1873489 at *2 (citing 15 U.S.C. § 57b-3(b)(1)(B)–(C)).

The panel’s reasoning was straightforward and decisive: “While we certainly do not endorse the use of unfair and deceptive practices in negative option marketing, the procedural deficiencies of the Commission’s rulemaking process are fatal here.” Id. at *9.

The FTC’s $100 Million Miscalculation

The Eighth Circuit determined the FTC correctly argued that the preliminary regulatory analysis requirement and the related final regulatory analysis requirement do not apply to an amendment “unless the FTC estimates that the amendment ‘will have an annual effect on the national economy of $100,000,000 or more.’” Id. at *2 (quoting 15 U.S.C. § 57b-3(a)(1)(A). The court, however, continued in its opinion that the FTC incorrectly argued it was not required to prepare a preliminary regulatory analysis because its initial estimate of the Rule’s impact fell short of the $100 million threshold. Id. at *6.

In early 2024, an FTC administrative law judge determined that the impact of the Rule would exceed $100 million and that the FTC’s cost estimate was “clearly unrealistically low” when considering the several then-proposed requirements, the number of entities estimated to be offering negative option features and compliance costs. Id. at *4. Despite this finding, the FTC promulgated the final Rule without conducting what the Eighth Circuit determined to be the required analysis. 

The Eighth Circuit concluded the FTC’s failure to follow proper procedure deprived interested parties of the opportunity for informed participation in the rulemaking process and that the petitioners “suffered prejudice because the [FTC] never provided th[e preliminary regulatory] analysis of alternatives to the Rule or addressed comments explaining how less burdensome alternatives could provide comparable benefits.” Id. at *7.

What the Future Holds

The court’s narrow focus on procedural deficiencies leaves the door open for the FTC to restart the rulemaking process. However, such a restart appears unlikely, given the amount of time it would take to work through the rulemaking process a second time with the additional procedures the FTC missed the first time. Notably, although FTC Chairman Andrew Ferguson (an FTC Commissioner at the time) and FTC Commissioner Melissa Holyoak dissented from the Commission’s issuance of the final Rule for a number of reasons, including because it was procedurally rushed, the current FTC has been vigilantly enforcing Restore Online Shoppers’ Confidence Act (ROSCA) (a similar but far more limited automatic renewal law) and argued that the Rule was valid in court.

The FTC could also seek rehearing of the decision through a petition for panel rehearing, a petition for rehearing en banc or both. In civil cases, petitions must be filed within 45 days after entry of judgment if one of the parties is the United States or one of its agencies. Fed. R. App. P. 40(d)(1). Ultimately, it is hard to predict whether the FTC will seek review and whether the Eighth Circuit would grant it, as well as the timing of any petition and later decision. A petition could delay final resolution by many months.      

While the Custom Communications decision prevents certain federal regulatory requirements from taking effect next week, it does not create a regulatory vacuum. In addition to ROSCA and the prior (far more limited) Negative Option Rule, state laws governing automatic renewal and negative option practices remain robust and in full effect. California recently amended its automatic renewal law, California Business & Professions Code §§ 17600 et seq., to adopt several of the now-vacated FTC requirements, and many states—including (but not limited to) New York, Colorado and Massachusetts—are following suit. The Negative Option Rule may be gone, but businesses should stay alert to the rapidly evolving regulatory landscape surrounding automatic renewals.

The FTC’s trade regulation “Rule Concerning Use of Prenotification Negative Option Plans,” retitled the “Rule Concerning Recurring Subscriptions and Other Negative Option Programs,” is more commonly known as the “Negative Option Rule.”