Federal appeals court blocks rule to make getting out of subscriptions easier

Canceling a subscription or membership service is often harder than signing up for one, with customers sometimes being forced to follow a maze of prompts, make a phone call, or even visit an office in person before they’re able to stop paying for something they don’t want.

Through a policy finalized last October, the Federal Trade Commission sought to address that problem with a so-called “click to cancel” rule that required companies to make canceling a subscription as simple as signing up, among other provisions meant to tackle things like auto-renewals that don’t first receive a customer’s informed consent. But that rule, which was set to go into effect July 14, was blocked by a federal appeals court this week over a procedural error, frustrating consumer advocates.

“Now we’re back to calling during business hours, endless hold music, or clicking through promo offers and other sludge to get to the cancellation page,” Neale Mahoney, an economist and professor at Stanford University who served in the Biden administration, wrote in a post on the social media website X. “The result will be higher switching costs, less competition, and ultimately higher prices and lower quality. That’s bad for markets and bad for consumers.”

A three-judge panel with the US Court of Appeals for the Eighth Circuit said in its ruling that the FTC had missed a procedural step in the federal rule-making process: a preliminary regulatory analysis.

Though the FTC doesn’t have to issue such an analysis when the rule’s estimated annual impact on the US economy is less than $100 million — a threshold the FTC initially estimated the rule would not meet, according to the court’s ruling — an administrative judge had ruled it would. The FTC then proceeded to finalize the rule without a preliminary analysis, though it did conduct a final regulatory analysis, the court said.

“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 judges wrote.

Writing on X, FTC Commissioner Mark Meador said that the “click-to-cancel” rule “isn’t going into effect for one reason: the Biden FTC cut corners and didn’t follow the law. Process matters.”

But Lina Khan, the FTC chair under the Biden administration, countered that the Trump administration’s FTC had “slow-walked it—and now a court has tossed it out, claiming industry didn’t get enough of a say.”

“Anyone frustrated by how difficult firms make it to cancel subscriptions can tell the @FTC commissioners to re-issue the rule and urge members of Congress to make it law,” Khan wrote on X.

The Groundwork Collaborative, a progressive economic justice advocacy group, also argued that lawmakers should now work to make the rule a reality.

“Congress should step up and ban these predatory subscription models that cheat consumers to restore fair pricing in America,” Executive Director Lindsay Owens said in a statement.

Emma Ockerman is a Senior Reporter for Yahoo Finance covering economic and labor issues in personal finance.

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