We believe the Federal Trade Commission (FTC) under the Trump administration is set to propose a rule targeting subscription services that use negative option practices, where customer inaction is treated as consent to be charged. This will expose subscription-reliant companies to increased compliance costs, litigation risk, and customer churn. However, risk exposure will vary by sales medium, billing model, and geographic footprint.
- Consumer complaints about negative option billing rose 173% from 2020 to 2025. This prompted the Biden FTC to pass a broad cancellation rule in 2024. However, a federal appeals court struck it down on a technicality in July 2025, and in March 2026, the Trump FTC opened a fresh comment process on how to move forward.
- Despite Trump’s deregulatory agenda, the FTC will propose a rule covering all forms of negative option practices. Republican commissioners who opposed the earlier rule had objected to narrow procedural issues rather than the underlying case for regulation.
- Subscription-reliant sellers already operating under strict state laws are better insulated. Sellers most exposed include those that rely on teaser rates that quietly increase, bundle subscriptions into broader purchases without consent, or require customers to speak with an agent to cancel a subscription that required no such interaction to sign up. As investors recalibrate around regulatory risk, distinguishing between insulated and exposed subscription-based businesses will be essential.
The Existing Federal Regulatory Framework for Negative Options is Viewed as Inadequate
Across sectors, businesses have embraced subscription models to generate recurring revenue. Unfortunately, this has led to a rise in consumer complaints about the negative option billing plans commonly associated with these subscriptions. While the FTC estimates that 106,000 firms sell negative option plans, it reported that daily complaints on such plans grew from 33/day in 2020 to 90/day in 2025. The FTC stated that this “suggest[s] there is prevalent, unabated consumer harm in the market.” More broadly, this has prompted discussion about the need for stronger regulation.
No single law or rule governs all types of negative options (prenotification plans, continuity plans, automatic renewals, and free-to-pay conversions) across all transaction mediums (online, phone, and in-person). Medium-specific regulations create a patchwork of coverage and often lack explicit requirements (e.g., exactly how or when sellers must notify customers or receive consent).
For example, gym membership is not covered by the FTC’s current negative option rule, which applies only to rarely used prenotification plans (estimated at 25 sellers in 2024). If the sign-up is in-person, it is not covered by the FTC’s Restore Online Shoppers’ Confidence Act (ROSCA), which applies to online transactions. So, the FTC must regulate the subscription under Section 5 of the FTC Act, which broadly prohibits unfair and deceptive acts or practices and lacks targeted requirements for negative option plans. Even if the sign-up was online, ROSCA requirements lack specificity (e.g., require “simple mechanisms” to cancel, without defining “simple” in practice).
While the FTC is prioritizing enforcement against large-scale and egregious violations, this system functionally restricts it from pursuing market-wide crackdowns. This is because the regulations’ lack of specific bright-line violations increases both the burden on the FTC in proving violations on a case-by-case basis, as well as the likelihood that sellers can successfully defend their practices. Also, while first-time ROSCA violations can carry major penalties ($51,744 maximum per subscriber), first-time Section 5 FTC Act violations typically do not allow for civil penalties.
The Trump FTC’s Appetite for Negative Option Rulemaking Should Not Be Dismissed
The Vacated 2024 Negative Option Rulemaking
In October 2024, the Biden FTC promulgated the “Click-to-Cancel” negative option rule to address the perceived regulatory gaps. The rule expanded coverage to all negative option types across all media, and added numerous specific requirements (e.g., required separate consent to a negative option feature itself). It also prohibited misrepresentation of material facts while marketing negative option plans, both for the negative option and the underlying product itself. Industry coalitions challenged the rule, and, in July 2025, the US Court of Appeals for the Eighth Circuit vacated the rule on procedural grounds. Specifically, the court found that the FTC did not issue the preliminary regulatory analysis required if a rule’s annual economic impact exceeds $100 million.
Why a New Rule is Closer Than it Appears
In March 2026, the Trump FTC published an ANPRM seeking comment on negative option regulation, including how the FTC should proceed. It identifies a menu of options, including: (1) retaining the current rule; (2) pursuing rulemaking to adopt provisions of the vacated 2024 or other provisions; or (3) using non-regulatory alternatives (e.g., educating sellers and consumers).
Despite publication of the ANPRM, there is skepticism that the Trump FTC will pursue a new rule. Key arguments include the partisanship and vacatur of the 2024 negative option rule, as well as the deregulatory posture of the Trump administration and FTC Commissioner Andrew Ferguson.
Capstone disagrees. We believe the Trump FTC will proceed with rulemaking following the ANPRM. While skeptics’ arguments hold merit, they are not dispositive. Instead, closer analysis reveals nuances the market is missing, including key reasons that raise the likelihood of a rulemaking.
Exhibit #1: Indicators of Whether the Trump FTC Will Pursue Negative Option Rulemaking
| Reason for Skepticism | Nuance That Increases Likelihood |
| 1. Votes approving the 2024 final rule (and NPRM) were party-line with full Republican dissent. | The dissents did not oppose the merits of a rule. Rather, they objected to two narrow issues (procedural defects, misrepresentation clause covering underlying product). |
| 2. A new rulemaking would not be durable and survive legal scrutiny. | The 2024 rule was vacated on procedural grounds, not substantive grounds (the court did not address these). |
| 3. The Trump administration broadly has taken a deregulatory posture. | The Trump administration has articulated a focus on affordability and taken various actions to support this. |
| 4. FTC Chairman Ferguson has framed the FTC’s role as a “cop on the beat” rather than a legislator. | A narrow, procedurally sound rule would lower the FTC’s evidentiary burden in future enforcement and would be consistent with a “cop on the beat” approach. |
Potential Content of a New Rule
A key question is what provisions may be included if the Trump FTC pursues rulemaking, though the ANPRM language and past statements from FTC commissioners offer clues. For example:
- Expected to be Included: Expansion of scope to include all types of negative option plans.
- Expected to be Excluded: Controversial prohibition of misrepresentation of underlying product.
- Inclusion Uncertain: Provisions that: (1) require specific disclosures before collection of billing information; (2) require separate consent for a negative option itself; (3) require sellers to offer cancellation in the same medium as sign-up; and (4) exempt specific industries from the rule.
Subscription Businesses Face Growing Regulatory Pressure on Additional Fronts
While FTC rulemaking would be most consequential, sellers also face active FTC enforcement, potential federal legislation, and expanding state and local activity. Across all fronts, the direction of travel is clear — more requirements and scrutiny covering broader scope of plans and practices.
FTC Enforcement
The Trump FTC is prioritizing enforcement despite the hurdles previously stated. The 2026 ANPRM highlights that since January 2025, the FTC has initiated five cases and approved *six settlements alleging negative option misconduct (seven after the May 2026 $35 million Shutterstock settlement). Settlements are often large because penalties apply per subscriber (e.g., the $2.5 billion Amazon Inc. (AMZN) settlement in 2025 for alleged use of deceptive sign-up and cancellation methods related to Amazon Prime).
Federal Legislation
Legislators have introduced numerous bills in the current session of Congress that target negative option plans. For example, the Click to Cancel Consumer Protection Act takes a broad approach and would codify the FTC’s vacated 2024 negative option rule into law. Conversely, the Consumer Online Payment Transparency and Integrity Act would more narrowly address automatic renewals, free-trial conversions, and dark patterns rather than negative option marketing across the board.
State and Local Regulation and Enforcement
Sellers must also navigate an evolving patchwork of state and local regulation (half of all states have passed negative option laws). State regulator enforcement for violations is also increasing. At the forefront is California, which passed its original California Automatic Renewal Law (CARL) in 2009. The state passed a law, effective July 2025, to expand CARL’s scope (adding free-to-paid conversions, a controversial misrepresentation clause, etc.). Also, sellers face the risk of customer litigation since CARL provides a private right of action (unlike the related federal regulations).
Not all Subscription Businesses Are Equally Exposed
This growing regulatory pressure will impact subscription-based businesses differently. Understanding how evolving regulations intersect with company-specific practices, geographic exposures, customer bases, and billing models will be essential for determining which sellers are more insulated – and which face rising compliance costs, customer churn, and enforcement and litigation exposure.
Exhibit #2: Sample Factors That Impact Company-Specific Regulatory Exposure
| Description of Key Factor |
| 1. Geographic Exposure: Companies that already comply with strict state-level regulations may be less impacted by future FTC rulemaking that raises federal standards to similar levels. |
| 2. Teaser Pricing: Companies that use low introductory rates that increase after an initial term may be more impacted by new regulations that add disclosure requirements for fee changes. |
| 3. Passive Renewal Dependence: Companies with large sets of inactive customers may be more impacted by new regulations that add ongoing notice requirements and increase churn. |
| 4. Save-Provisions: Companies that utilize retention tactics and offers may be more impacted by new regulations that prohibit using such practices to create cancellation inertia. |
| 5. Bundled Sales: Companies that bundle subscriptions with sales of other goods may be more affected by future FTC rulemaking requiring separate consent for negative option plans. |
| 6. Medium of Cancellation: Companies that allow online sign-up but require difficult in-person cancellation may be more impacted by a rule that requires same-medium cancellation. |
| 7. Medium of Sale: Companies that sell over the internet (and are regulated by ROSCA) may be mildly less impacted by a future FTC rulemaking that broadens scope to cover all mediums. |
| 8. Exemptions: Companies may be less impacted by new regulations if the regulations carve out specific industries or customers (e.g., CARL exempts various industries and B2B sales). |
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