Renewing Compliance With Automatic Renewal Laws

Client Alert

As the use of automatic renewal subscriptions continues to increase, four states have recently contributed to the regulatory landscape. Below is what marketers need to know about the changes in California, Colorado, Delaware and Illinois.

  • California. In 2010, the state enacted the California Automatic Renewal Law, which requires companies to clearly disclose the material terms before a consumer subscribes to an automatic renewal program and to obtain affirmative consent to the terms before charging a consumer. The law requires companies to provide a confirmation to the consumer that includes the 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. Companies must also provide an easy method for cancellation.

    In 2017, the state amended the law to provide additional protections to consumers. Among other changes, if the consumer accepted an automatic renewal offer or signed up online, the company must allow the consumer to terminate online, not just by phone or mail.
     
    The legislature tweaked the law again with Assembly Bill 390, which was signed by Governor Gavin Newsom on October 4, 2021, and is set to take effect on July 1, 2022.
     
    Pursuant to the latest updates, companies are required to provide reminders about the renewal—15 to 45 days before it occurs—to customers who had agreed to an initial contract term lasting at least one year. Companies that offer free or discounted trials that last more than 31 days are also required to provide a renewal reminder three to 21 days before the trial period ends.
     
    This renewal notice must inform consumers that renewal will occur and provide information about the length of the renewal term and how to cancel, such as a link that directs the consumer to the cancellation process or another reasonably accessible electronic method that directs consumers to the cancellation process (if no link exists).
     
    California’s mandate that consumers be provided with an online cancellation option also received some changes. Companies must now allow consumers to terminate the automatic renewal at will and “without engaging any further steps that obstruct or delay” the consumer’s ability to terminate instantly. In addition, the updated law requires that the method of termination be a “prominently located direct link or button,” or an “immediately accessible termination email” that a consumer can send to the company without further information.
  • Colorado. Colorado enacted House Bill 1239, its first automatic renewal law, this year.  It will take effect on January 1, 2022, as Colorado Revised Statute Section 6-1-732.

    The law will apply to any contract in which a paid subscription or purchasing agreement is automatically renewed at the end of a definite term either for a subsequent definite term or on a continuous or recurring basis.

    Companies must provide a mechanism for cancellation that is “simple, cost-effective, timely, easy-to-use, and readily accessible.” A one-step online cancellation link that is located on the website or provided in an electronic communication to the consumer will be considered compliant so long as it is available to the consumer immediately or after a reasonable authentication protocol.

    Similar to the Delaware law, the Colorado law requires clear and conspicuous disclosure of the terms of the automatic renewal provision before the automatic renewal contract is executed, including a statement that the contract will automatically renew, the length of the automatic renewal term, the cancellation policy and a description of any associated charges. If the initial offer includes a trial period, it must provide an explanation of the full price that will charged and any other purchase obligations that will be imposed after the trial period ends.

    Companies must also provide notice of renewal 25 to 40 days before each automatic renewal date. The notice must provide clear and accurate information about the identity of the sender, must inform the consumer that the contract will automatically renew unless the consumer cancels the contract, and must provide the cancellation procedures. Notice may be sent by physical mail, email or another form of communication including text messaging if the consumer specifically authorizes the use of text messages for notice.
  • Delaware. New to the world of automatic renewal laws, Delaware enacted Senate Bill 93 this year, which will take effect on January 1, 2022, as Section 2734 of Delaware Code, title 6 – Commerce and Trade.

    Applicable to the sale, lease, or offer for sale or lease of any merchandise to a consumer, the new law defines an automatic renewal provision as one “under which a contract is renewed for a specified period of more than one month if the renewal causes the contract to be in effect more than 12 months after the day of the initiation of the contract” and the renewal is effective absent notice of termination from the consumer.
     
    Companies must provide a “cost-effective, timely, and easy to use mechanism for cancellation.” Similar to the requirement in California, consumers who enter into an online contract must be permitted to cancel online.
     
    The law further requires clear and conspicuous disclosure of the terms of the automatic renewal provision at the time the contract is entered into, as well as notice of renewal 30 to 60 days before the cancellation deadline. The notice must inform the consumer that the contract will automatically renew unless the consumer cancels the contract, the date by which to cancel, the procedures for cancellation and how to obtain details of the automatic renewal provision.
     
    Importantly, consumers have a private right of action under the Delaware law. To exercise that right, however, a consumer must first provide the company with a notice of a violation of and a request to cancel the extension of the contract. If the company cures the violation within 30 days—and sends a copy of a statement to that effect to the consumer and the director of consumer protection—no lawsuit can be initiated.
  • Illinois. Like California, Illinois already had an automatic renewal law in place and elected to update its Automatic Contract Renewal Act this year. House Bill 3955 added a few new requirements for companies, beginning with the need to disclose the automatic renewal clause clearly and conspicuously in the contract, including the procedure for cancellation.

    Companies are required to provide written notice of the renewal to the consumer 30 to 60 days before the cancellation deadline. The notice must clearly and conspicuously disclose that the contract will renew unless the consumer cancels and inform the consumer how to obtain details about the renewal provision and cancellation procedure.
     
    Any cancellation method must be cost-effective, timely and easy to use, and consumers who enter into online contracts or accept automatic renewal offers online must be provided with an option to terminate the contract online.
     
    A company can avoid liability for violations of the law if, as part of its routine business practice, it has established and implemented written procedures to comply with the law and enforces compliance with the procedures; if it can show that any failure to comply with the law is the result of an error; and if, when an error does occur, it provides a full refund or credit to the consumer 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.

     The amended law takes effect on January 1, 2022.

To read AB 390, click here.

To read HB 1239, click here.

To read SB 93, click here.

To read HB 3955, click here.

Why it matters: Companies need to be aware of the patchwork of state laws on automatic renewal contracts across the country. In addition to California, Colorado, Delaware and Illinois, states including New York, North Dakota and Vermont, as well as Washington, D.C., have enacted automatic renewal laws in recent years.

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