Overview

On July 8, 2025, the United States Court of Appeals for the Eighth Circuit in a per curiam opinion, the Federal Trade Commission’s (FTC) final Negative Option Rule, which sought to modernize and expand regulations on recurring subscription and negative option marketing practices. The court’s decision centered on the FTC’s failure to follow required procedural steps, specifically the omission of a preliminary regulatory analysis after it became clear the rule would have a significant economic impact per the FTC's own internal Administrative Law Judge (ALJ). This ruling underscores the importance of strict adherence to statutory rulemaking procedures and has immediate implications for businesses offering subscription-based products and services. This case consolidated four separate challenges to the Rule.

The court wrote in concluding the opinion:

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. The Rule does contain a severability provision which keeps the remaining provisions in effect if any provisions are stayed or determined to be invalid. 16 C.F.R. § 425.9. But vacatur of the entire Rule is appropriate in this case because of the prejudice suffered by Petitioners as a result of the Commission’s procedural error. Given the breadth of the Rule’s coverage, the party-specific vacatur requested by the Commission is not feasible. Accordingly, we grant the petitions for review and vacate the Rule.

Background: The Negative Option Rule and Its Expansion

Negative option marketing refers to arrangements where a consumer’s silence or inaction is interpreted as consent to be charged for goods or services on a recurring basis. The FTC’s original 1973 rule addressed only a narrow subset of these practices. In response to the proliferation of negative option plans across industries, the FTC initiated a rulemaking process in 2019 to broaden the rule’s scope to cover all forms of negative option marketing in all media.

The final rule, adopted in November 2024, imposed new requirements on sellers, including:

• Prohibiting misrepresentation of material facts.

• Mandating clear and conspicuous disclosure of all material terms adjacent to the point of consent.

• Requiring unambiguous, affirmative consumer consent, separate from other transaction terms.

• Establishing a simple cancellation mechanism, at least as easy as the method used to enroll.

Industry groups and businesses challenged the rule, arguing that the FTC exceeded its statutory authority, failed to follow required procedures, and imposed unworkable standards. Then FTC Commissioner and now FTC Chairman Andrew Ferguson and Commissioner Melissa Holyoak dissented from the publication of the Rule expressing their concerns with the scope of the Rule and the FTC’s failure to follow specific procedural requirements.

Procedural Deficiency: The Missing Preliminary Regulatory Analysis

A central issue in the court’s decision was the FTC’s failure to issue a preliminary regulatory analysis after an ALJ determined that the rule’s annual economic impact would exceed $100 million—a threshold that triggers additional procedural requirements under the FTC Act when amending an existing rule.

The court found that:

• The FTC Act requires a preliminary regulatory analysis whenever a proposed rule is expected to have a significant economic impact.

• The FTC initially underestimated the rule’s impact, but after the ALJ’s finding, it was obligated to issue the analysis and allow for public comment.

• The FTC instead proceeded directly to a final regulatory analysis, depriving stakeholders of the opportunity to comment on alternatives and cost-benefit considerations at a critical stage.

The court concluded that this procedural error was not harmless, as it denied businesses and other interested parties a meaningful opportunity to influence the Rule’s development.

Implications for Businesses

The vacatur of the Negative Option Rule means that the expanded requirements for negative option marketing will not take effect next week as planned. Businesses engaged in subscription-based sales or recurring billing arrangements are not subject to the new federal requirements for disclosures, consent, and cancellation mechanisms that the rule would have imposed.

However, the decision highlights several important considerations for businesses:

• Regulatory Compliance: While the new rule is vacated, existing federal and state laws governing unfair or deceptive practices remain in effect such as the Restore Online Shopper's Confidence Act (ROSCA). Businesses should continue to ensure that their negative option marketing practices are transparent and compliant with applicable regulations.

• Rulemaking Scrutiny: The court’s decision signals that agencies must strictly adhere to statutory rulemaking procedures, especially when rules have significant economic impacts. Businesses should monitor future FTC rulemaking efforts for compliance with these requirements.

• Industry Engagement: The ruling underscores the value of active participation in the rulemaking process. Timely and substantive engagement can influence regulatory outcomes, particularly when procedural missteps occur.

What’s Next?

The FTC may revisit its rulemaking process to address the procedural deficiencies identified by the court. In the meantime, businesses should remain vigilant regarding developments in negative option marketing regulation and continue to prioritize clear disclosures and easy cancellation processes to mitigate legal and reputational risks.

Conclusion

The Eighth Circuit’s decision to vacate the FTC’s Negative Option Rule is a good sign that the judicial guardrails remain firm in checking the regulatory agencies to ensure they are not permitted to run fast and loose with their rulemakings. This is the second major loss on the procedural front for the FTC as the non-compete rule was struck own last year. Simply because a government agency issues guidance, statements, or even formal rules doesn’t automatically mean it has the legal authority to do so. Industries would be wise to stay alert and protect their interests, rather than blindly chasing every twist and turn of bureaucratic overreach.

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