Automatic renewal provisions in contracts have been under increased scrutiny. On a national level, The Federal Trade Commission (FTC) has been regulating this for decades using Section 5 of the Federal Trade Commission Act. More recently, The Consumer Financial Protection Bureau has gotten more involved – filing suits with regards to companies taking advantage of Consumer’s “dark patterns”.
In the past decade, States have enacted “automatic renewal laws” that businesses must adhere to in order to protect consumers in the state. As of December 1, 2022 – 31 states have automatic renewal laws in effect. No two states automatic renewal laws cover the same types automatically renewing contracts, but there are a few commonalities. This post will give you a high level overview of autorenewal laws.
Covered Transactions
State automatic renewal laws vary in terms of applicability. For examples sake, California takes a broad approach that covers “any plans or arrangements in which a paid subscription or purchasing contract is automatically renewed at the end of a defined term for a subsequent term.” Certain states also limit by the length of a contract (years vs. months).
Commonalities in Autorenewal Laws
- Offer Details – Contracts should include specific information related to any free gift or trial period component of an offer. This means that Consumers must be clearly notified of the term, the costs, any free trial involved, and any other obligation.
- Presentation of Terms –Consumers must have easy and clear (conspicuous) understanding of the automatic renewal terms before the purchasing agreement is fulfilled. There are state specific caveats as to how this should be delivered.
- Affirmative Consent of Automatic Renewal Terms – Businesses must be able to demonstrate that they have received affirmative consent from Consumers regarding their enrollment into an automatic renewal contract. Having a process in place to capture this consent – whether in a signed contract or an electronic form – is generally required.
- Acknowledgement Sent to Consumer – Businesses should provide the Consumer with an acknowledgement of their order that the Consumer can retain (such as email). This should include the terms of the order, the cancellation policy, and a description of how to cancel.
- Adopted Cancellation Policy – A cancellation policy should be drafted and readily available for review. There should not be difficulties in accessing the policy.
- Cancellation Method – Convoluted and inconspicuous cancellation methods are under increased scrutiny. Streamlined processes are preferred. For example, several states now require contracts entered online, must be cancellable online as well – so no hiding behind mountains of paywalls. Additional methods of cancellation should include dialing a toll free number, emailing a specific address, or going to a certain portion of an online offering with a clear “cancel” button.
- Renewal Notice – Consumers should be notified of an upcoming automatic renewal, well before the notice period. For example, in California, if a cancellation requires 30 day notice – Consumers should be notified at least 3 days, and at most 21 days, before the automatic renewal occurs. This timeline varies state by state and should be reviewed accordingly.
- Notice of Material Changes – As businesses often update and change their billing and plans, State laws have also trended towards requiring clear and conspicuous notices of any changes to the renewal terms.
- Enforcement – Restitution with regards to violation of automatic renewal laws vary, but they have generally entered a significant fine, returned amounts collected, and requirements to fix what is lacking in their contracts. Examples include The New York Times settling at $5.5m in a class action suit, the Washington Post settling at $6.7 million, and the online weight loss program Noom settling at $62 million total.
- State Specific Nature – This is a high level overview of guidelines related to automatic renewals in contracts. The laws vary state by state, and it is important you speak with your counsel regarding what requirements are applicable to you. Washington DC, for example, has different laws around automatic renewal than California – and it may be best practice to go with the most stringent set of rules as the rest of the states catch up.
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This is by no means a comprehensive overview of autorenewal terms. If you need further assistance, feel free to reach out.
This post is not legal advice, and does not establish any attorney client privilege between Law Office of K.S. Kader, PLLC and you, the reader.