A federal consumer protection rule, known as the Federal Trade Commission’s (FTC) “Negative Option” rule—commonly referred to as “Click to Cancel”—was set to go into effect in mid-July. This rule would have impacted franchisors, their New York franchisees, and their clientele and subscribers.
Though the rule was struck down before its scheduled July 14 enactment date, there is always a chance it (or its features) could be reintroduced. Furthermore, its announcement raised questions among our readers about how it might intersect with a similar New York state law affecting gym memberships. Let’s explore what the Click to Cancel rule was and what its fate means for the franchising sector.
Background on ‘Click’
Click to Cancel would have required that canceling a business or service’s subscription be as easy as signing up—particularly for online transactions. While gym memberships were a prominent example, the rule was broadly applicable to many nationwide subscription-based businesses and services, such as streaming platforms, subscription boxes, and software memberships.
The FTC had planned for the rule to take effect on July 14. But one week prior, the U.S. Court of Appeals for the Eighth Circuit vacated the rule. The court found that the FTC had failed to conduct a necessary preliminary cost-benefit analysis—a required procedural step—leading to the rule’s invalidation.
As of this writing, the FTC has not indicated whether it will appeal the decision or restart the rulemaking process. For now, no federal mandate is in effect.
Support from the Franchising Industry
Although the Click to Cancel rule aimed to provide added legal protection and convenience for consumers, professional groups like the International Franchise Association (IFA) praised the Eighth Circuit’s decision. The IFA had long opposed the rule, viewing it as a regulatory burden that could harm small businesses—particularly those in the health, fitness, and wellness space that rely heavily on recurring revenue from subscriptions.
“The FTC hastily imposed this regulation that will hurt many franchises’ business models, make it more burdensome for their customers, and raise costs for all,” said IFA General Counsel Sarah Davies. “This unnecessary rule not only disrupted a process that worked for the benefit of both consumers and small business owners, but also added another layer of regulatory complexity that small businesses can’t afford to navigate.”
Does the FTC Decision Affect the NY Gym Cancellation Law?
Short answer: No.
The Eight Circuit’s decision affects only the FTC’s authority to enforce subscription cancellation practices at the national level. It would not impact New York’s state law governing gym membership cancellations.
However, the attention surrounding Click to Cancel should serve as a timely reminder: New York franchisors, franchisees and multi-unit operators managing fitness, health club, or gym concepts in New York must still comply with the state’s cancellation law (N.Y. Gen. Bus. Law § 624).
As previously discussed, the law requires gyms and fitness centers—including franchise locations—to:
– Accept cancellation of a membership in certain circumstances, and
– Offer online cancellation options to members who signed up online
Similar legislation was passed in New Jersey. N.J.S.A. 56:8-42 streamlines the cancellation process for gym members by allowing consumers to avoid in-person requirements and easily terminate automatic renewals.
These state laws are enforceable notwithstanding that the federal rule has been struck down. States retain broad authority to pass consumer protection laws unless preempted by federal law—which is not the case here, especially now that the FTC rule has been struck down.
Franchisors and franchisees should consult with a qualified New York franchise attorney to ensure they remain compliant with current state regulations and prepared for potential federal developments.
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