Client Alert

Forgot to Cancel? Pay Attention to Recent Auto-Renewal Law Changes

13 Jan 2022

As subscription models have gained exponential traction, legislatures are clamoring to ensure that their auto-renewal laws keep up with novel consumer protection issues. Several states have introduced or revised their auto-renewal laws, and the Federal Trade Commission has affirmed its commitment to enforce against unlawful offers. Perhaps most notably, California—already a leader in state auto-renewal laws—has significantly amended its law, with the amendments taking effect on July 1, 2022. Other new state requirements took effect on January 1, 2022.

Key Takeaways

  • The FTC remains committed to bringing enforcement actions against allegedly unfair or deceptive auto-renewal offers, including those that employ so-called “dark patterns.”
  • The many existing requirements of the California law continue to apply to a company that offers subscriptions to consumers. Effective July 1, 2022, a company that offers either (1) a subscription with a term of one year or longer or (2) a free trial period of more than 31 days must send the customer a reminder notice before the renewal. In addition, a company may need to offer a simpler method for consumers to cancel online.
  • While there are many similarities across state auto-renewal laws, some impose requirements that are in addition to or different from those imposed by other states.

Background

Over the past decade, subscription models have become ubiquitous. The term “subscription” has more than tripled in frequency on Google Trends since 2011. Now, consumers take advantage of subscriptions daily: music streaming, “cutting the cord,” cloud storage, home security, fitness, dating, gaming, cooking, and a variety of surprise boxes. In a recent poll of 2,500 individuals, the average consumer indicated that they spend nearly $300 per month on subscriptions. But almost every person underestimated how much they spent on subscriptions—a majority of the time by $100–$300 per month.

Many states, the U.S. federal government, and the EU have enacted laws governing auto-renewal offerings in an attempt to reduce this misjudgment. Late last year, the FTC warned in an enforcement policy letter and press release that it would increase its enforcement activity against illegal dark patterns (i.e., deceptive auto-renewal offerings). Auto-renewal laws generally compel companies to clearly and conspicuously notify consumers about what they are signing up for, obtain consumers’ affirmative consent to subscribe, provide an order acknowledgment, send a reminder notice (in some cases), and facilitate easy cancellation. The amendments to the California law are consistent with these trends.

Revisions to the California Law

The California law already requires, for example, “clear and conspicuous” (a defined term) notice of all terms of the subscription offer, a consumer’s affirmative consent to those terms, and a simple means of cancellation. The amended law introduces the following new requirements, which mirror those of certain other states’ laws, and take effect on July 1, 2022.

a. Reminder Notices

If a consumer agreed to a free trial period longer than 31 days, a company must generally send the consumer a reminder notice between three and 21 days before the end of the trial period.

If a consumer agreed to a subscription with an initial term of one year or longer, the company must send the consumer a reminder notice between 15 and 45 days before the end of the initial term.

In each case, the reminder notice must clearly and conspicuously state the following:

  • That the subscription will automatically renew unless the consumer cancels;
  • The length and any additional terms of the renewal period;
  • One or more methods by which a consumer can cancel;
  • If the notice is sent electronically, a link that directs the consumer to cancel or another reasonably accessible electronic method that directs the consumer to the cancellation process; and
  • The company’s contact information.

b. Online Termination

The California law already requires that, if a consumer accepts a subscription offer online, they must be able to terminate it exclusively online. The amendments mandate that the online method must allow for cancellation at will and without engaging in any further steps that obstruct or delay the consumer’s ability to terminate immediately. While the amendments do not define this phrase, the amended law requires at least one of the following: (1) a prominent direct link or button, which may be located within a customer account or profile or within device or user settings, or (2) a formatted and immediately accessible termination email that a consumer can send to the company without having to add information. A company may require a consumer to enter account information or otherwise authenticate prior to cancellation, if the consumer has an account with the company. A consumer who is unwilling or unable to enter account information or otherwise authenticate may use one of the other methods of cancellation permitted by the law (e.g., a toll-free number, mail).

Other Noteworthy State Developments

Colorado

A new auto-renewal law is applicable to contracts executed on or after January 1, 2022. Like the laws of other states, the Colorado law requires, for example, “clear and conspicuous” (a defined term) notice of the offer terms and written acknowledgment of an order that includes details on, among other things, how to cancel. The method of cancellation must be simple, cost-effective, timely, and easy to use. A company complies with this requirement if it offers a one-step online cancellation link, for instance, on its website or in an electronic communication to the customer—as long as the link is available immediately or following a reasonable authentication process.

Like other states, Colorado requires a company to send a customer a reminder, between 25 and 40 days prior to each renewal period, that the product or service will auto-renew unless the customer cancels, including instructions on how to cancel. If, however, a renewal period is for a term under 12 months, the reminder must be sent between 25 and 40 days before a renewal period “that would extend the contract beyond a continuous 12-month period.” While this provision of the law is not entirely clear, it appears to require a reminder notice 25–40 days before any renewal period that would extend the subscription beyond the customer’s one-year anniversary of sign-up.

Delaware

An amended law took effect on January 1, 2022. Closely mirroring other states’ requirements, the Delaware law now defines the term “clearly and conspicuously” (same as under California law); requires a cost-effective, timely, and easy-to-use mechanism for cancellation; and requires that a consumer be able to cancel online if they accepted the offer online. The amended law also imposes a reminder notice obligation for subscriptions with a renewal period of more than one month, if the renewal causes the contract to be in effect more than 12 months from the day it was initiated.

Illinois

Illinois amended its auto-renewal law to require, like other states, a company to permit a customer who signed up online to also cancel online.

Auto-renewing offers have long been an enforcement priority for both private plaintiffs and regulators, and the recent flurry of legislative developments suggests that they will remain a priority. Any company that offers a product or service through a subscription model should evaluate its practices for compliance with applicable laws, including with obligations imposed by new or amended state laws.

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