Automatically renewing consumer contracts have been around for a long time. Indeed, such contracts are seemingly everywhere from auto-renewing gym memberships, entertainment channel subscriptions, meal delivery plans and clothes and accessory monthly deliveries. If consumers do not understand the automatic renewal features, such contracts can be financially devastating. Generally, the payment is recurring and, along with the auto-renewal, the payment will be automatic too. If sufficient funds or available balances — on credit cards, for example — are not present, then the consumer ends up being hit with NSF, overdraft and other fees. Many consumer advocates see these sorts of auto-renewal contracts as a form of predatory business practice.
Both the federal and state governments have enacted legislation to regulate these types of consumer contracts. Note that no laws prohibit such contracts. Rather, the statutes require that consumers be given certain protections to ensure that consumers understand what they are agreeing to.
California is one such state. California has enacted the California Automatic Renewal Law (“ARL”) and recently made amendments to the law. The ARL is similar to the federal Restore Online Shoppers Confidence Act (“ROSCA”) which requires “clear and conspicuous” disclosure of the auto-renewal features, informed prior consent and an “easy” mechanism for consumers to terminate the recurring charges. But, the ARL goes further. In particular, if a business is offering a consumer contract with an auto-renewal feature or is a “continuous service” contract, the business must:
- Present the offer — including the auto-renewal feature — in a “clear and conspicuous” manner — this means large fonts, clearly identified links, present on the page without having to “scroll down,” etc.
- Obtain the consumer’s “affirmative consent” before asking for billing information
- Present clear and conspicuous information on how to cancel the auto-renewal and recurring charge feature
- Provide an “easy” mechanism for opting out of the auto-renewal feature
As noted, these are the standard features that are included in the ROSCA and in many other state-level consumer protection statutes. However, the California ARL also requires:
- After the initial “sign up,” the business must provide an acknowledgment of the contract that conspicuously identifies the auto-renewal offer terms
- For cancellation purposes, the business must have and disclose a toll-free phone number, an email address or postal address
- If the contract/service is accepted by a consumer online, then the cancellation method must be “exclusively online” and must be “at will, and without engaging any further steps that obstruct or delay the consumer’s ability to terminate the automatic renewal or continuous service immediately”
- If the business makes a “material change” to the auto-renewal terms, notice must be given to consumers that clearly and conspicuously describes the “material change” AND provides cancellation information
The California ARL also now specifies that reminder notices must be given before the auto-renewal date. Depending on the length of time between renewals and the nature of the contract, the reminder notices must be sent between three and 45 days prior to renewal. Notices must specify that the contract/service will renew unless the consumer takes action and must be sent electronically or via paper. These reminders must conform to many of the same rules as the initial offer. For example, the renewal features must be identified in a clear and conspicuous manner, the length of the renewal period, the methods for cancellation, etc.
Contact the Auto-Renewal Contract Attorneys at Revision Legal