Internet Marketing Compliance With Automatic Renewal Laws
The Federal Trade Commission aggressively enforces the Restore Online Shoppers’ Confidence Act (“ROSCA”) against online marketers that offer Internet-based automatic renewals and subscriptions. Basically, ROSCA requires the clear and conspicuous disclosure of material terms, affirmative consent to certain cancellation requirements in online transactions.
The FTC has the ability to seek monetary relief, in addition to injunctive relief, for ROSCA violations. A violation of ROSCA is considered an unfair deceptive act or practice which subjects sellers to civil monetary penalties. State attorneys general may also have a cause of action.
What are the Bascis of a ROSCA Violation?
Some rather obvious components of a ROSCA violation include, but not are not limited to, a misleading “risk-free” trial offer, an undisclosed charge if consumers do not quickly cancel the “risk-free” trial, an undisclosed automatic shipment program that sends consumers unordered merchandise, difficult to follow upsells that add another layer of confusion, unlawful charges to consumers’ credit or debit cards, difficult cancellation procedures, straw owners that conceal operators’ activities and/or conceal operations from payment processing entities and banks.
Do Individual States Have Their own Automatic Renewal Laws?
Automatic renewal and subscription laws (ARLs) are in place in a number of states. Many have even recently amended and bolstered their ARLs. Failure to comply can result in private plaintiff actions, class action lawsuits and regulatory action.
At the state level, approximately two-dozen states have implemented ARL legislation. Some states impose additional consent and disclosure requirements if the subscription begins with a free trial.
For example and without limitation, California, Illinois, Vermont, Virginia, Washington, D.C., Colorado, Delaware, New York, Idaho, North Dakota and Tennessee recently adopted and/or bolstered their ARL laws. Numerous state ARLs provide for a private right of action.
The following is intended to briefly address various nuances of a mere handful of state ARLs. Be sure to consult with an experienced FTC attorney to discuss states that possess ARLs and how they may apply to your business.
California’s Stringent Automatic Renewal Law
California’s ARL law has recently been strengthened.
It focuses upon free trial requirements, promotional periods and annual programs. In general and without limitation, it requires prominent disclosures to consumers for automatic renewals, free gifts and trials, as well as the provision of an easy mechanism to cancel subscriptions immediately. If a consumer accepts an automatic renewal offer or signed up online, he/she must be permitted to terminate exclusively online, not just by phone or mail.
Materials terms must be “clearly and conspicuously” disclosed to consumers prior to a consumer subscribing to an automatic renewal or continuous services program, and affirmative consent to such terms must be obtained before a consumer is charged.
California’s ARL law also requires companies to provide a confirmation acknowledgement to consumers that includes the automatic renewal or continuous service offer terms, a description of the cancellation policy, information about how to cancel and an explanation that consumers may cancel before being charged if they were enrolled in a free trial.
If the offer includes a free gift or trial, businesses must clearly and conspicuously disclose the price that will be charged after the promotional period ends, and permit consumers to cancel, prior to payment.
Consumers must also be notified about any material changes to the automatic renewal terms or continuous service offer terms and provide information on how to cancel before such changes take effect.
Recent amendments to California’s ARL went into effect on July 1, 2022. The amendments strengthen procedural requirements related to the cancellation of subscription-based products that are offered to consumers in California.
For example, companies are now also required to send a reminder notice that the trial will become a paid subscription unless cancelled, between three (3) and twenty-one (21) days prior to the expiration of a free trial or promotional price offer that lasts thirty-one (31) days or more. For free trials or promotional price offers that last one (1) year or more, businesses are required to send a reminder notice between fifteen (15) and forty-five (45) days prior to the expiration thereof.
The reminder notices must provide contact information for the business, and clearly and conspicuously inform consumers about the renewal, and disclose that the automatic renewal or continuous service will automatically renew unless the consumer cancels. The length of any additional terms of the renewal period must also be disclosed.
The reminder notices must also prominently set forth the methods by which consumers may cancel. If the notice is sent electronically, consumers must be provided a link that directs them to the cancellation process or another reasonably accessible electronic cancellation method.
The new amendments to the California ARL require businesses to permit consumers to cancel their subscription “without engaging any further steps that obstruct or delay the consumer’s ability to terminate the automatic renewal or continuous service.” The method of termination must be a “prominently located direct link or button,” or an “immediately accessible termination email” that consumers may forward to the company without having to provide any further information.
California, Colorado and Delaware ARLs now all impose renewal reminders for autorenewal programs with an initial term of one year or more.
Although the California ARL does not permit a private right of action, private plaintiffs often seek to use an ARL violation as the basis for an unfair competition claim under California Business & Professions Code section 17200. California city and district attorneys have also formed the “California Automatic Renewal Task Force” a coalition that heads ARL regulatory investigation and enforcement.
Illinois’ Bolstered ARL
Illinois already had a law on the books related to automatic renewals but recently made some modifications. It now applies to all automatic renewal programs. Not just annual programs.
Also, much like other states and without limitation, businesses that permit consumers to sign-up online, must permit them to also cancel online. Similar to the current laws in California, New York, Vermont, Delaware and Colorado, the new Illinois law provides that online cancelation “may include a termination email formatted and provided by the business that a consumer can send to the business without additional information.” Any cancellation method must be cost-effective, timely and easy to use.
The Illinois ARL also requires, in part, affirmative consent, the clear and conspicuous disclosure of automatic renewal and cancellation procedure terms, the provision of an easy cancellation method and the provision of a renewal notice within a prescribed time period before the renewal deadline (that clearly and conspicuously discloses that the contract will renew unless the consumer cancels and informs the consumer how to obtain details about the renewal provision and cancellation procedure).
Businesses may be able to avoid liability for violations of the law if, as part of its routine practice, it has established and implemented written procedures to comply with the law and enforces compliance with the procedures. Robust compliance measures are critical.
A company must also be able to establish that any failure to comply with the law is the result of an error, and, that a consumer is provided a full refund or credit for the amount paid from the date of renewal until the date of the termination or the date of the subsequent notice of renewal, whichever occurs first.
Vermont’s Double Opt-In Requirement
Vermont’s ARL is particularly noteworthy.
It applies to in-state and national companies that do business in Vermont or with Vermont consumers. It requires that consumers accept the contract itself, and then separately take an affirmative action with respect to the automatic renewal terms. Notably, it also requires a double opt-in consent with respect to automatic renewal provisions.
With limited exception, it applies to contracts with an initial term of at least one (1) year and that automatically renew for a subsequent term of at least one (1) month. In addition to requiring clear and conspicuous language in “bold-face type” that unambiguously sets forth the automatic renewal terms, Vermont’s ARL requires that consumers be provided with a written or electronic notice of the automatic renewal no less than thirty (30) days and no more than sixty (60) days before the contract renews or terminates.
Severe Consequences for Violating Virginia’s ARL
Virginia’s ARL legislation relates to automatic renewal or continuous service offers to consumers.
Suppliers of automatic renewals or continuous service offers through an online website must make a conspicuous online option available for canceling a recurring purchase of a good or service. Failing to make available such option to cancel is prohibited.
In Virginia, consumers must first provide affirmative consent to the automatic renewal terms prior to being charged.
There is a severe remedial structure.
Businesses in violation of Virginia’s ARL statute may be subject to both civil penalties have up to $5,000 per violation and damages under a private, consumer right of action. Thus, businesses in violation are potentially subject to penalties via enforcement, as well as potential damages in a punitive class action matter.
The District of Columbia ARL affects companies that sell goods or services pursuant to a contract that automatically renews at the end of a definite term. It is similar to other states’ laws in some ways. However, in others, it imposes much harsher requirements.
Like other states, D.C.’s statute requires advertisers that sell goods or services on an automatic renewal basis to clearly and conspicuously disclose the automatic renewal terms and cancellation procedures in the contract.
If a company sells an automatic renewal offer with an initial term of twelve (12) months or more that automatically renews for a term of one (1) month or more, D.C. ARL also mandates that the company send notifications to consumers at the end of the first year and annually thereafter, which must be sent via mail, email, text message or mobile phone app (if lawful consent has first been obtained to sending mobile messages).
The notification must clearly and conspicuously disclose that the contract will automatically and continuously renew unless/until the consumer cancels, the cost of the goods or services for the automatic renewal term, the deadline by which the consumer must cancel to prevent automatic renewal, and how the consumer is able to obtain details of autorenewal terms and cancellation procedures. Also, if the notice is provided by email, the email must include a hyperlink allowing the customer to cancel the automatic renewal.
In D.C., consumers must opt-in to subscriptions following the conclusion of a free trial period. More specifically, if a company offers free trials to consumers that convert to a paid subscription with a renewal term of one (1) month or more, the company must notify consumers between one (1) and seven (7) days before the trial period ends that the contract will automatically renew, and obtain express, affirmative consent to the automatic renewal prior to charging the consumer. Note, this consent must be obtained even if the company already obtained the affirmative consent to the free trial.
There is a potential safe harbor defense for good faith violations of the D.C. statute. It is only available if a business has first implemented written compliance procedures, violations are due to a mistake (mistaken violations of the statute must come with credits or refunds to consumers).
Numerous state ARLs have a good faith exception of one kind, or another.
Colorado’s New ARL Statute
Colorado’s new ARL became effective effect January 1, 2022.
Colorado already had a statute governing such clauses in health club membership agreements, but now – with limited exceptions – has robust disclosure, notice, cancellation and written acknowledgment form containing material terms requirements for all automatic renewal contracts offered to Colorado residents.
Another requirement includes ensuring that the automatic renewal offer terms are displayed in a clear and conspicuous manner prior to the automatic renewal contract being executed. Clear and conspicuous is defined as more conspicuous than the surrounding text, or set off by a symbol that calls attention to the language.
A business cannot simply include an online link that redirects to detailed information about the automatic renewal contract unless the online link is available before the consumer elects to purchase any good or service subject to the automatic renewal contract, the link appears directly adjacent to any online link used by the consumer to purchase a good or service subject to the automatic renewal, and the link is labeled with or is directly adjacent to a clear and conspicuous disclosure that states that by purchasing the good or service the consumer agrees to enroll in an automatic renewal contract.
Businesses must also provide a written acknowledgement notice that includes the automatic renewal offer terms, the cancellation policy and information regarding how to cancel in a manner that is capable of being retained by the consumer. If the automatic renewal offer includes a trial period offer, a company must also disclose in the written acknowledgement how the consumer may cancel the automatic renewal, and the company shall allow the consumer to cancel before being required to pay for the goods or services.
The business must provide a simple, cost-effective, timely and easy-to-use mechanism for cancelling an automatic renewal. A one-step cancellation link located on a company’s website may be sufficient.
If there is a material change to the automatic renewal plan that the consumer has accepted, then a company must provide the consumer with a clear and conspicuous notice of the material change and information regarding how to cancel.
A business that offers a contract that will automatically renew must notify the consumer that the contract will automatically and continuous renew unless the consumer cancels. Such notice must be provided at least twenty-five (25) days and not more than forty-five (45) days prior to the cancellation deadline for each automatic renewal period.
The Colorado ARL establishes certain requirements regarding the execution and enforcement of dating service contracts. A consumer has a right to cancel a dating service contract until midnight of the third business day after the day on which the consumer executes the contract. A company must include specific language to notify the buyer of applicable cancellation rights.
Delaware ARL Provides a Private Right of Action
Delaware’s ARL became effective on January 1, 2022 and applies to the sale, lease or offer for sale or lease of any merchandise to a consumer. It defines the term “clearly and conspicuously” similarly to the California ARL.
The Delaware ARL also defines an automatic renewal provision as one “under which a contract is renewed for a specified period of more than one (1) month if the renewal causes the contract to be in effect more than twelve (12) months after the day of the initiation of the contract” and the renewal is effective absent notice of termination from the consumer. Stated another way, programs with an initial term of twelve (12) months or longer with a renewal period of at least one (1) month.
The law requires the clear and conspicuous disclosure of material ARL terms at the time the contract is entered into. There is also a renewal reminder notice for subscriptions with a renewal period of more than one (1) month if the renewal causes the contract to be in effect more than twelve (12) months from the day it was initiated. The renewal reminder must be provided thirty (30) to sixty (60) days prior to the cancellation deadline and inform consumers that the contract will automatically and continuously renew unless the consumer cancels, the date by which cancellation must be received, cancellation procedures and how to obtain information of the automatic renewal terms.
There must be a cost-effective, timely and easy to use cancellation mechanism. Similar to California’s ARL, it also requires that consumers who enter into an online contract be allowed to cancel online. A cost-effective, timely and simple mechanism for cancellation must be provided.
Delaware ARL permits a private right of action by the consumer, but the consumer must first provide the company with notice of a violation of and a request to cancel. If the company cures the alleged violation within thirty (30) days and provides confirmation to statutorily designated parties, the company may have a safe harbor from private legal action.
New York’s Updated ARL
New York has new ARL that is similar to California’s. New York’s law covers both automatic renewals and continuous services (both specifically defined under the statute).
Before New York’s strengthened its automatic renewal law, the state’s more limited B2B statute only applied to service, maintenance or repair contracts for any real or personal property with automatic renewal periods of more than one (1) month. While still effective, this more limited ARL requires service providers to give notice of the existence of an automatic renewal clause in the contract before the term is renewed in order for such clause to be enforceable. However, it does not possess upfront disclosure requirements, easy cancellation mechanisms and other terms seen in other states’ ARLs.
New York’s bolstered ARL applies to consumer contracts. A key requirement under the new ARL include that a company must present the offer terms in a clear and conspicuous manner prior to the subscription or purchasing contract being fulfilled and in close visual or temporal proximity to the offer acceptance request.
Material offer terms must disclose, clearly and conspicuously, that the subscription or purchasing contract will continue until the consumer cancels, a description of the cancellation policy, the recurring amount that will be charged, and that the amount of the charge may change, if applicable, and the amount to which the charge may change it that is known. The disclosure must also include the length of the automatic renewal or continuity term, (unless the term is chosen by the consumer), as well as any minimum purchase obligations.
Companies are also required to obtain affirmative consent to material offer terms prior to charging consumers, and must provide consumers with an acknowledgment in a manner that can be easily retained by consumers. The acknowledgment must include material offer terms, the cancellation policy details and information on how consumers can cancel. Note, however, that for free trial offers, the acknowledgment must not only include information on how to cancel, it must also permit consumers to cancel prior to paying for any goods or services.
The New York ARL also requires companies to provide consumers with a toll-free telephone number, an email address, a postal address (if consumers are directly billed), or another cost-effective, timely and easy-to-use cancellation method.
Notice of any material change to the offer terms must be provided to consumers. Consumers must be provided information on how to cancel in a manner that is capable of being retained, before any material changes are implemented.
Similar to California, if a company provides goods or products to a consumer pursuant to an automatic renewal or continuous service agreement without obtaining consumer consent first, such goods or products will be deemed unconditional gifts.
New York’s attorney general can seek an injunction for a violation of the statute, and the court can impose civil penalties of up to $100 for a single violation (and not more than $500 for multiple violations resulting from a single act or incident) or up to $500 for a knowing violation (and not more than $1,000 for multiple violations resulting from a single act or incident). A safe harbor may exist for companies that can establish, without limitation, that a violation was not intentional and resulted from a bona fide error.
Businesses offering subscription plans or renewal services should carefully examine the order and checkout processes, as well as the terms, acknowledgement notice and cancellation procedures.
Idaho’s ARL for Online Sales
In March 2022, Idaho passed ARL legislation that will become effective January 1, 2023. It will apply to automatic subscription renewal agreements entered into via the internet to provide goods or services to an Idaho consumer. It is narrower in scope than a number of ARLs, such as Tennessee’s, that apply to goods and services purchased both online and offline.
Idaho’s ARL requirements include the clear and conspicuous disclosure of renewal terms and cancellation methods. Free cancellation methods must also be offered, and must include a free online cancellation and cancellation in the same manner used to subscribe. A reminder thirty (30 to sixty (60) days in advance of any renewal for a term of twelve (12) months or more, is also required.
Violations of the ARL will be considered violations of Idaho’s consumer protection laws. Consumer will have a private right to sue and enforcement authority is vested with the state attorney general.
North Dakota ARL Limits Autorenewal Periods
The North Dakota ARL applies to contracts for the sale of merchandise entered into after July 31, 2019. Those that conduct business in North Dakota or with North Dakota residents must comply.
It requires that sellers of merchandise under agreements containing automatic renewal provisions present the terms of such renewal in a clear and conspicuous manner along with information in a cost-effective, timely and simple mechanism for cancellation prior to a subscription or purchasing agreement being completed.
When the renewal period is longer than six (6) months, companies must provide a clear and conspicuous written notice to the consumer, by first-class mail, email or other easily accessible form of communication (that includes the procedure for canceling the contract at least thirty (30) days, but no more than sixty (60) days, prior to the contract renewal or termination.
A unique aspect of the North Dakota ARL is that the automatic renewal period under an agreement for the sale of merchandise may not exceed twelve (12) months. It also exempts contracts for the sale of insurance and public utilities and does not apply to banks, bank holding companies, credit unions or other financial institutions.
Tennessee’s Broad ARL
In April 2022, Tennessee passed ARL legislation that will become effective January 1, 2023. It will apply to any automatic renewal or continuous service offer for consumer goods and services and borrows numerous features from other state ARLs.
Tennessee’s ARL will require companies to provide clear and conspicuous disclosures of the renewal terms in proximity to a request for the consumer’s consent to the agreement.
Consumers, including those that enroll in free trial offers, are required to be provided an acknowledgment notice containing the material terms and cancellation information. Consumer must also be notified of any material change in terms.
The ARL law also requires a cost-effective, timely, and easy-to-use cancellation method, as well as an online cancellation option for agreements entered into online.
A violation of the Tennessee ARL will constitute an unfair or deceptive act or practice under Tennessee’s consumer protection laws, which grants consumers a right to sue and provides regulatory enforcement authority to the Tennessee attorney general.
Subscription-based business models and automatic renewal programs attract significant attention from regulators and plaintiff’s attorneys. Marketers must stay up-to-date with current state and federal ARL requirements when planning subscription-based offerings and implementing compliance programs.
Approximately thirty (30) states, plus DC, have one version or another of an ARL. This has created an inconsistent patchwork of state ARLs. However, there are certain components that are generally consistent regardless of the state, including, but not limited to, clear and conspicuous disclosure of material terms and cancellation instructions prior to the purchase being completed, obtaining express and informed consumer consent, providing consumers with a formal written acknowledgment with material terms and cancellation instructions following purchase, and sending renewal reminders and information about renewal along with cancellation details.
Many state ARLs can be broken down into a few separate categories.
Roughly nine (9) states have extremely stringent ARL compliance requirements, including, but not limited to, clear and conspicuous disclosure or material terms, affirmative consent and confirmation. Some of these states have modeled their ARLs on California with various nuances.
Another category of ARLs tend to require either the clear and conspicuously disclosure of automatic renewal terms and additional compliance items, or proper disclosure of automatic renewal terms alone.
A third category of state ARL laws is comprised of relatively limited requirements, such as the application to a narrow class of contracts. Subscription model marketers should consult with experienced FTC attorneys to assess new card brand rules (i.e., prominent trial period disclosures; post-enrollment confirmation notices that include material terms, cancellation instructions, the provision of an electronic receipt after each recurring charge; additional renewal reminders for merchants offering negative option programs of six months or more; the provision of an online or electronic cancellation method, etc.), and the implementation of practical ARL compliance measures that account for different federal and state ARL regulation variations, including, but not limited to, consent requirements, renewal notices and determining where a where a consumer resides.
Websites and mobile app review alongside qualified advertising compliance counsel is also of paramount importance.
Richard B. Newman is an advertising compliance attorney at Hinch Newman LLP.
Informational purposes only. Not legal advice. May be considered attorney advertising.
About This Blog and Hinch Newman’s Advertising + Marketing Practice
Hinch Newman LLP’s advertising and marketing practice includes successfully resolving some of the highest-profile Federal Trade Commission (FTC) and state attorneys general digital advertising and telemarketing investigations and enforcement actions. The firm possesses superior knowledge and deep legal experience in the areas of advertising, marketing, lead generation, promotions, e-commerce, privacy and intellectual property law. Through these advertising and marketing law updates, Hinch Newman provides commentary, news and analysis on issues and trends concerning developments of interest to digital marketers, including FTC and state attorneys general advertising compliance, civil investigative demands (CIDs), and administrative/judicial process. This blog is sponsored by Hinch Newman LLP.