Automatic renewals refer to the business practice of subscribing a customer to receive a product or service and billing customers periodically for products and services without needing to obtain their express consent before each charge. Federal and state regulators aggressively police automatic renewal marketing models because they are often misused by online marketers that may not always provide consumers with adequate disclosures or provide an easy mechanism to cancel their subscriptions before being charged again.
State Automatic Renewal Laws
As consumer class actions are being filed by the plaintiffs’ bar with increasing regularity, a nationwide patchwork of automatic renewal laws (ARLs) have resulted in conflicting requirements and conditions.
At the state level, approximately two-dozen states have implemented some form of an ARL. For example and without limitation, California, Vermont, Virginia, Washington, D.C. and North Dakota have recently adopted and/or bolstered their ARL laws.
California’s ARL law has recently been bolstered. In general and without limitation, it requires disclosures to customers for automatic renewals, free gifts and trials, as well as the provision of a mechanism to cancel subscriptions online.
In Vermont, customers must take an affirmative action to opt-into automatic renewal terms, in addition to accepting the contract. The two should not just be bundled. Vermont is the first state to require a double opt-in with respect to automatic renewal provisions. Vermont’s ARL applies to “consumer” contracts with an initial term of at least one year and that renew automatically for a subsequent term longer than one month. The law applies to B2C and B2B contracts. It requires that consumers be provided with written or electronic notice of the automatic renewal to customers 30 to 60 days prior to the automatic renewal or subscription termination date. Disclosures must be in plain and unambiguous language, clear and conspicuous and in bold-face type. *Vermont passed data broker legislation in May 2018.
In Washington, D.C., the general approach to ARLs is more or less consistent with federal and other state laws, there are some noteworthy requirements. For example, in the case of a contract with an initial term of 12 months or more and automatic renewal for subsequent periods of at least one month, the merchant must provide the consumer with written notice of the upcoming renewal and certain other terms 30 to 60 days before the renewal is triggered. The notice must state the material terms, including the cost for the renewal term, the deadline to cancel, and how to obtain details regarding the renewal and cancellation options. In the case of a free-trial period lasting “one month or more,” the merchant must notify the consumer “between one and 7 days before the expiration of the free trial period” and obtain the consumer’s affirmative consent to be charged for the renewal before imposing any charge for the renewal.
North Dakota and Virginia’s ARLs provide for private causes of action.
New York’s Automatic Renewal Law
New York’s ARL applies to commercial and consumer contracts, and only to contracts “for service, maintenance, or repair to or for any real or personal property” in which the renewal period is longer than one month. It requires, in part, that businesses send a renewal reminder between 30 and 15 days before a term expires. Reminders must be in writing, be served personally or by certified mail, and call the recipient’s attention to the existence of the contract’s automatic renewal provision.
New York’s New ARL
New York’s new ARL takes effective in February 2021 and it is expansive. It applies to any automatically renewing “subscription” or “purchasing agreement.” However, it applies only to contracts with “consumers.”
“Affirmative consent” is required prior to renewing an automatic renewal.
Importantly, New York’s new ARL possesses an advance notice obligation. For example, it requires disclosures of “automatic renewal terms, cancellation policy, recurring charges, length of the renewal term, etc. It also requires clear, conspicuous and prominent disclosures. Consumers must be provided an acknowledgment containing material terms and the ability to cancel via a web-based option. There are also provisions that speak to material changes to renewal terms.
The new ARL is similar to California’s in a number of respects.
A few of final points worth noting.
New York’s new ARL gives the New York attorney general the power to seek an injunction, and permits courts to impose civil penalties of $100 per violation (or up to $500 per single “knowing” violation, or up to $1000 for multiple violations resulting from a single act or incident). There is no private right of action and there is a good faith defense for businesses that can demonstrate by a preponderance of evidence that violations were not intentional and resulted from a bona fide mistake.
Lastly, the original New York ARL has not been and will not be repealed. Both will need to be complied with, as applicable.
ROSCA
At the federal level, Internet-based automatic renewals are regulated by the Federal Trade Commission pursuant to the Restore Online Shoppers’ Confidence Act. ROSCA requires clear disclosures of material terms, informed consent before obtaining financial information to process a purchase, and a simple mechanism to cancel the charges. Violations of ROSCA are categorized as unfair or deceptive acts or practices under the Federal Trade Commission Act, and actively enforced by FTC attorneys.
Marketers should proactively evaluate automatic renewal programs to ensure compliance with federal and state legal regulations, including various consent requirements.
Richard B. Newman is an FTC attorney at Hinch Newman LLP.
Informational purposes only. Not legal advice. May be considered attorney advertising.
