Automatic Renewal And Subscription Program Developments In The US: January 2023

• Published date: 31 January 2023
• Subject Matter: Consumer Protection, Compliance, Consumer Law, Dodd-Frank, Consumer Protection Act
• Law Firm: Mayer Brown
• Author: Mr Michael Jaeger and Christopher B. Leach

Businesses seeking to maintain compliance with the patchwork of laws and regulations governing subscription and automatic renewal programs do not have an easy time of it. State legislatures across the country are frequently passing new laws and amending existing ones, courts regularly render decisions interpreting those laws, and federal agencies are increasing enforcement activity in the space. Recent months have brought a number of developments in these areas that businesses offering automatic renewal and subscription programs would do well to keep an eye on.

KEY LEGISLATIVE CHANGES

California

California, often seen as the state leader in automatic renewal legislation, recently amended its comprehensive regulatory regime,¹ with the changes effective as of July 1, 2022. In addition to the existing requirements regarding pre-transaction disclosures, affirmative consent, and post-transaction acknowledgment, California now has obligations involving the sending of a renewal notice and the manner in which a consumer must be allowed to cancel.

Specifically, if the initial term of the subscription or automatic renewal program was a year or longer, the business must send a renewal notice to the consumer containing certain required information between 15 and 45 days before the renewal. If the program involved a free gift or trial or promotional discount that lasted more than 31 days, a notice must be sent between 3 and 21 days before the trial period ends.

As to cancellation, a consumer who signed up online not only must be permitted to cancel online (a requirement that is becoming fairly common across states and for the Federal Trade Commission (FTC) in its interpretation of the federal analogue, the Restore Online Shoppers' Confidence Act (ROSCA)), but also must be able to do so "at will, and without engaging any further steps that obstruct or delay the consumer's ability to terminate" the service immediately. To facilitate the cancellation, the business must offer one or both of (a) a prominently located direct link or button in the customer's account, profile, or settings; or (b) an immediately accessible pre-written cancellation email that the consumer can send without any additional information.

Since the change in the law, there has been considerable discussion in the business community as to how to implement these requirements, particularly when a business has "step-down" options that a consumer might prefer to outright cancellation. (An example would be a fitness provider that has a less-expensive, online-only option in lieu of in-person classes that had become too difficult for a customer to attend.) The use of the terms "obstruct" and "delay" in the statute is significant in this analysis since they suggest a process that is onerous, lengthy, or otherwise difficult for the consumer, as distinguished from an additional question or two offering "step-down" options that a consumer might want to be made aware of before cancelling. These additional questions also allow the business and consumer to actually confirm the cancellation, ensuring that it was not done inadvertently (something that, in itself, would cause consumer injury). California courts have yet to opine on these issues.

Idaho

On January 1, 2023, a new automatic renewal statute went into effect in Idaho.² The law requires a business offering an automatic renewal or subscription program online to make certain disclosures at the time the consumer signs up for the program and to allow the consumer to cancel online (and in the same manner in which the consumer signed up, if not online). If the length of the automatic renewal term is 12 months or more, the business must also send a notice to the consumer containing certain required information between 30 and 60 days before the renewal.

Tennessee

Tennessee's law also went into effect on January 1 of this year.³ It largely mirrors California's original automatic renewal regime, requiring pre-transaction disclosures...