FTC's Regulatory Blow to 'Click-to-Cancel' Rule: Navigating Risks and Opportunities in Subscription Economy

The U.S. Court of Appeals for the Eighth Circuit's July 2025 decision to strike down the FTC's “click-to-cancel” rule has sent shockwaves through subscription-based industries, upending expectations and creating a regulatory Wild West for consumer-facing businesses. While the ruling is a near-term win for companies like Equinox and SiriusXM, which faced stricter cancellation requirements, it also exposes long-term risks for firms relying on opaque subscription practices. For investors, the decision marks a critical inflection point to reevaluate sector risks, state-level regulatory divergence, and opportunities in companies prioritizing consumer trust.

Regulatory Risk: FTC's Authority Undermined, but Consumer Backlash Looms

The court's ruling hinged on procedural flaws in the FTC's rulemaking process, specifically its failure to conduct a required preliminary economic impact analysis. This procedural misstep not only voided the rule's implementation but also cast doubt on the FTC's ability to enforce modern consumer protections. For companies like SiriusXM, which faced penalties for requiring live-agent cancellations despite online sign-ups, the ruling temporarily relieves compliance pressure. However, the FTC retains its authority to penalize deceptive practices under existing laws like the FTC Act, and state attorneys general—such as New York's Letitia James—are stepping in to fill the void.

Investors should note that while the federal rule's collapse may boost short-term profits for subscription-heavy firms, it risks long-term consumer trust. A 2024 FTC report revealed a 67% rise in subscription-related complaints since 2021, signaling growing public frustration. Companies that continue using “dark patterns” to retain subscribers—like hidden auto-renewals or complex cancellation processes—could face sustained reputational damage and class-action lawsuits, even without federal mandates.

Equinox, which settled a New York AG lawsuit over cancellation practices, has underperformed Peloton, which has emphasized transparency in its subscription model.

Sector-Specific Impacts: Winners and Losers Across Industries

The ruling's effects vary widely by industry:

1. Streaming and Media:
   Companies like Netflix (NFLX) and Disney+ (DIS) may breathe easier without federal cancellation rules, but state-level regulations—particularly in California—already impose strict requirements. Investors should favor firms with proactive compliance, such as those offering “one-click” cancellations, over laggards.

2. Fitness and Subscription Retail:
   The fitness sector, exemplified by Equinox and SoulCycle, has faced scrutiny for aggressive retention tactics. Short sellers might target firms with high customer complaint rates or histories of litigation, while long positions could focus on competitors like Peloton, which has streamlined its cancellation process.

3. Telecom and Satellite TV:
   SiriusXM (SIRI) and AT&T's (T) DirecTV face immediate relief but must contend with state-level enforcement and the risk of renewed FTC action. A

   shows how regulatory uncertainty has already hit SiriusXM's valuation.

State-Level Divergence: A New Regulatory Landscape

With federal action stalled, states are stepping in. California's AB 2863, for example, already mandates “click-to-cancel” requirements, while Pennsylvania and New York are drafting similar laws. This creates a fragmented regulatory environment, favoring companies with robust compliance systems and multistate operations. Investors should analyze geographic exposure: firms with heavy California or Northeast presences may need to invest in compliance even as federal rules lag.

Investment Strategies: Playing Both Sides of the Regulatory Divide

1. Long Positions:
2. Consumer Trust Leaders: Companies with clear cancellation policies, such as Amazon (AMZN), which offers instant cancellations, or IAC's (IAC) Ask.com, which has minimized subscription traps.

3. State-Compliant Firms: Look for businesses operating in states with strict rules, such as California-based health subscription services like Ritual (a private company with strong compliance).

4. Short Positions:

5. Regulatory Laggards: Firms with high complaint rates or pending lawsuits, such as Equinox (EQX) or SiriusXM (SIRI), which may face sustained pressure from state regulators.

6. Opaque Subscription Models: Companies relying on recurring revenue without transparency, such as lesser-known fitness or streaming startups.

7. Sector ETFs with a Compliance Lens:
   Consider the iShares U.S. Consumer Services ETF (IYK), but screen holdings for compliance strength. Avoid broad bets on subscription-heavy sectors like the S&P 500 Consumer Discretionary Index without due diligence.

Conclusion: A Moment for Pragmatic Consumer Alpha

The FTC's misstep has created a paradox: short-term relief for subscription businesses, but heightened long-term risks as states and consumers push back. Investors should prioritize firms that proactively align with emerging standards, even without federal mandates. The “click-to-cancel” ruling isn't the end of the story—it's the start of a battle over consumer trust. Those who bet on transparency will likely outperform in this new era of regulatory fragmentation.

Consumer stocks have historically underperformed during FTC crackdowns, signaling the importance of regulatory foresight.