A federal appeals court struck down at the last minute a new FTC rule that would require SVODs and other subscription, membership and recurring-payment program operators to make it easier for customers to cancel their services.
First proposed in March 2023 and formally finalized last October, the so-called “Click-to-Cancel” rule was supposed to go into effect starting July 14. But the U.S. Court of Appeals for the 8th Circuit ruled this week that the Federal Trade Commission must scuttle the provision citing flawed procedural errors made during the rulemaking process. That includes the lack of a preliminary cost-benefit analysis of the rule.
“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,” reads the appeal court’s published unanimous opinion.
"The court ruled that federal agencies must follow the rulemaking process, including conducting a thorough analysis of how much proposed regulations will cost consumers and businesses," the U.S. Chamber of Commerce said in a statement. "The decision provides a safeguard against rushed rulemaking and reinforces the importance of agencies addressing public concerns.”
The provision was gestated under the watch of former trustbusting FTC Chair Lina Khan, a Biden appointee who was replaced by the incoming Trump Administration earlier this year, despite widespread bipartisan support.
“Too often, businesses make people jump through endless hoops just to cancel a subscription,” Khan said in a statement last October, outlining the rule change. “The FTC’s rule will end these tricks and traps, saving Americans time and money. Nobody should be stuck paying for a service they no longer want.”
The FTC said it receives thousands of complaints about negative option and reoccurring subscription practices each year, with the number steadily increasing over the past five years. In 2024 the Commission received nearly 70 consumer complaints per day on average, up from 42 per day in 2021.
With that in mind the rule would have required retailers, gyms and other subscription providers to offer cancellation methods that are “at least as easy to use” as the sign up process. So if a customer purchases a subscription or membership online, the rule would have required companies to provide an easy way to cancel in the same manner.
Following notice of the proposed rulemaking in 2023, the FTC recorded more than 16,000 comments from consumers, federal and state government agencies, consumer groups and trade associations.
TVREV analyst Alan Wolk told StreamTV Insider in March 2023 when the rulemaking was first proposed that the FTC mandate seemed aimed at a “small subset” of other direct-to-consumer services, beyond streaming, that intentionally made it difficult to end customer billing, like the need to get on a phone, where it’s sometimes lengthy to reach a real person. On the other hand SVODs, he said, already make it pretty easy to cancel.
However, the FTC provision was created after the agency sued Amazon in 2023 for allegedly making cancellation of its Prime service “tricky.” Quitting Prime, which includes Amazon Prime Video, required users to successfully navigate four pages, six clicks and 15 decisions, the FTC said.
It’s also worth nothing that industry trade groups representing cable operators, media companies and advertising stakeholders were among those suing to block the rule. Namely, that includes NCTA, which represents Charter, Comcast, and Cox, as well as Disney and Warner Bros. Discovery, alongside the IAB, which counts Meta, Google, Amazon and Netflix among members, and the Electronic Security Association.
And while it’s certainly easier to cancel than traditional linear pay TV, checking out of the most popular streaming service, Netflix, might prove challenging to some that are less tech-savvy as they navigate through the app. A user first needs to locate the “account” menu item in the upper right hand corner of the UX.
Upon doing that, the user is greeted with 10 clickable menu items — including “manage membership,” “change plan” and “manage profiles.” None of these items say “cancel service.” The correct choice is “manage membership,” which brings up a page with a big red “cancel member” button at the bottom – so it does still allow users to cancel with a click once they navigate to the right page.