On November 15, 2024, the Federal Trade Commission (FTC) published its final “Rule Concerning Recurring Subscriptions and Other Negative Option Programs” (the “Rule”), part of which includes what the FTC refers to as the “Click to Cancel” rule. This far-reaching rule applies to most automatically renewable contracts and thus is poised to have a significant impact on millions of businesses in almost every imaginable industry—unless the incoming Trump administration rescinds it or rolls back enforcement before it even gets underway.

The term “negative option” as used in the Rule refers to any contract term or condition whereby the consumer’s failure to cancel or take some other affirmative action is treated as an acceptance of the seller’s offer or a continuation of the contract. Examples include:

1. Automatic renewal of the contract.
2. A continuity plan, where the consumer has agreed to accept and pay for periodic delivery of goods or services (e.g., bottled water delivery).
3. A free-to-pay or fee-to-pay conversion, i.e., a free or reduced-cost trial period which will convert to a paid subscription unless the consumer affirmatively cancels.
4. A pre-notification negative option plan, which refers to programs (such as book-of-the-month clubs) wherein the seller will send periodic notices offering goods or services to participating consumers and will automatically send, and charge the consumer for, the goods or services unless the consumer affirmatively declines the offer. This type of program is currently the only negative option regulated under the old rule. The new final Rule adds the other three types above.

Importantly, even though the Rule talks about selling goods and services to “consumers,” the FTC has made clear that it intends to enforce the Rule with respect to sales to “business consumers” as well as individual consumers. Thus, the Rule will govern both B2B and B2C contracts alike. Furthermore, unlike some existing statutes and rules that are specific to online or telephone sales or other particular sales channels (e.g., the Restore Online Shoppers’ Confidence Act (ROSCA) and the Telemarketing Sales Rule (TSR)), the new Rule is media-agnostic and will apply regardless of whether an agreement is entered into online, on paper, in person, or in any other format or sales environment.

The Rule has four major components:

• Prohibition on making any material misrepresentation, expressly or by implication, concerning any good or service with a negative option feature. Note this does not just prohibit misrepresentations about the negative option. Rather, as long as the good or service contains a negative option feature and is thus covered by the Rule, this clause establishes a violation for any misrepresentation of any material fact regarding the good or service, including relating to its cost, purpose or efficacy, health or safety, or any other material fact.
• Disclosure requirements regarding the negative option, including a notice of the upcoming charge, the amount to be charged, the deadline by which the consumer must act to avoid being charged, and the mechanism by which the consumer may cancel.
• Requirement to obtain the consumer’s informed consent.
• “Click to Cancel” rule, obligating sellers to establish a simple cancelation mechanism which is at least as simple and as easy to use as the method the consumer used to consent to the negative option feature in the first place.

Under the Rule, failure to comply with the above requirements constitutes an unfair or deceptive act or practice in violation of the FTC Act, exposing the offending business to civil penalties.

The Rule becomes effective January 14, 2025. For most of the new requirements of the Rule, business will have until May 14, 2025 to comply. Compliance with respect to the prohibitions on misrepresentations is set to begin earlier, on March 14, 2025.

In a public comment submitted to the FTC last year (while this Rule was in the proposal stage), the Electronic Transactions Association (ETA) raised concerns on behalf of members of the payments industry, in light of the broad language covering anyone “charging for . . . goods or services with a negative option feature.” To ensure that this would not be interpreted to include not only the seller but also intermediaries such as payment processors, the ETA requested an express exemption for payment processors and other intermediaries. As the ETA noted, such payment intermediaries typically do not control the terms of the negative option feature and do not control the interface with the consumer buyer. Unfortunately, the FTC rejected this approach and declined to adopt a categorical exemption for payment intermediaries. However, the FTC did note that it agrees with the ETA that a proper reading of the Rule would not include intermediaries who merely effect the transfer of funds from the consumer buyer to the merchant seller. The FTC indicated that it intends to continue its practice from other contexts (namely, ROSCA) not to enforce such rules against payment intermediaries solely for their conduct in effecting funds transfers.

All that said, there is a good chance that the incoming Trump (47) administration, which takes control of the Executive Branch on January 20, 2025 (less than a week after the Rule in question goes into effect), may rescind the entire regulation. Administration officials and surrogates have expressed a skeptical view of executive rulemaking authority and the administration is expected to act aggressively when it comes to removing regulations that it considers overly broad or restrictive to business interests. This regulation in particular has been criticized as an example of agency overreach, which renders it especially vulnerable.

Firstly, last year, when this Rule was still in the Proposed Rule stage, two FTC commissioners strongly dissented from pursuing such rulemaking, in large part because of concerns that the FTC “has demonstrated a zeal and willingness to push beyond the boundaries of out authority.” The dissent further argued that the Rule’s bans on general misrepresentations unrelated to the negative option feature exceed the scope of permissible rulemaking and therefore the FTC lacks authority under the FTC Act to seek civil penalties and other consumer redress.

Public comments raised further questions as to the propriety of the new Rule. For example, in the public comment from the ETA cited above, the ETA also questioned whether the FTC has authority to address B2B transactions at all. Among other things, the ETA argued that the regulatory influence interposed by the FTC in B2B contractual arrangements is outside the scope of the agency’s statutory authority.

Vivek Ramaswamy, tapped by President-Elect Donald Trump to co-lead the newly formed Department of Government Efficiency (DOGE), which was created to rein in the administrative state,[1] tweeted on X that one of DOGE’s primary tools for deregulation will be to identify and declare void any regulations that do not pass muster under the “Major Questions” doctrine, as explained and ruled on by the Supreme Court in the landmark decision, West Virginia v. EPA (2022), which held that agencies cannot decide major questions of economic or political significance without “clear congressional authorization.” There is a strong likelihood that this new FTC Rule would fail under this test.

Furthermore, the Congressional Review Act grants Congress the ability, by simple-majority vote, to void any rules that have been promulgated by executive agencies within the past 60 legislative days. Congress employed the CRA sixteen times during the first Trump administration to nullify existing regulations, and a GOP-led Congress is likely to use it again to remove Biden-era rules that fall within the allowable window. As this Rule does fall within such time period, it is a prime candidate to be the subject of a congressional resolution of disapproval pursuant to the CRA.

We will continue to monitor any developments and are available to assist in analyzing the impact of such developments on your business operations and contractual relationships. Please contact us if you have any questions or if you need any assistance in this matter.

[1] Note that notwithstanding its designation as a “Department,” DOGE is expected to remain an unofficial committee not part of the federal government.