What Are Auto Renewal Laws?
Auto renewal laws are designed to protect consumers from inadvertently and automatically agreeing to a contract renewal. While the specific requirements for auto renewal disclosures and contract renewals may vary from state to state , the following table provides a general overview of the disclosure requirements for companies that want to take advantage of these laws. Some jurisdictions do not have specific disclosure requirements for auto renewal and cancellation clauses. Other notable requirements include that contracts must be clear and conspicuous in its disclosure of the auto renewal, and that contracts should contain a description of the renewal terms and whether the renewal will be at a different price.
Major Components of Auto Renewal Contracts
The typical auto renewal program outlines the terms of the renewal agreement, including the length of time the contract will remain in place, how the consumer can cancel the renewal contract, and how much the consumer will be charged if the terms of the agreement are not followed.
Typically, some common elements of the auto renewal agreement are: Duration – The duration of the contract is usually between six months to one year, but might be longer, depending on the service purchased. If the contract will automatically renew in full, the consumer is entitled to be notified of the details of the new contract. Termination Rights – Notice required to terminate the contract. Depending on the service, the consumer may have only a few days to terminate the contract. Notice – The notice must be clear and conspicuous, containing all of the elements of the renewal agreement; close proximity to the request to renew the agreement; and made sufficiently specific by explicitly stating the full terms of the offer. The notification should include the date upon which the automatic renewal will occur if immediate action is not taken by the consumer.
State Laws Governing Auto Renewals
While general auto renewal regulations exist at the federal level, these laws vary widely at the state level and have different requirements. For example, California and Nevada require sellers to obtain affirmative consent twice from a consumer before any kind of automatic renewal may occur. These consent requirements apply to many different types of contracts. Meanwhile, New York has fewer requirements concerning auto renewals than many other states, such as California and Nevada. In a significant number of states, consumers have the affirmative right to cancel an automatically renewing contract at any time for any reason. These states include Florida, Hawaii, Kentucky, Massachusetts, New Hampshire, North Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wyoming, and the District of Columbia. Other states that have specific notification requirements in their respective auto renewal statutes are Michigan, Minnesota, and New Jersey. It is easy to see from this list just how quickly and decisively this area of the law can vary based on where you live and work.
Federal Law Regarding Automatic Renewals
Federal guidelines on auto renewals are set by several agencies, including the Federal Trade Commission and the Federal Communications Commission. These agencies aim to establish a baseline of requirements that auto renewal programs must meet. These federal guidelines are just one more way that these agencies are trying to standardize the industry.
The FTC regulates the practices of all industries for the sale of goods and services. One of their main line items is auto renewals. The FTC’s "Auto-Renewal Compliance Guide for Business" details the requirements for companies looking to implement an auto renewal program. For a company to avoid liability, they must clearly disclose all material terms and provide customers with a simple means to cancel.
The FCC regulates the practices of companies engaging in commerce on interstate phone calls and texts. On December 15, 2012, the FCC implemented new rules to safeguard consumers against unwanted text messages and phone calls (known as "robocalls" or "prerecorded telephone calls"). As part of these rules, the FCC implemented an opt-in requirement for auto renewing contracts. So, if you are a company making robocalls to consumers, be wary of the messaging you use during those calls.
Considerations for Business Auto Renewals
Particularly in the context of a negotiable contract, it is in the parties’ best interests to clearly disclose the terms of the provision, including the duration of renewal. As such, businesses should think carefully about the placement, clarity and content of auto renewal provisions, particularly in the context of a longer term agreement. To that end, it is generally considered a best practice to entitle the auto renewal provision so that it is easily identifiable (for example, auto renewal, auto renewal of services, renewal of parts not including software) and expressly states the duration of the initial term of the contract, either in the header or body of the provision . The contractual language could then go on to describe the manner in which the contract would be renewed. A best practice is to disclose the duration that the contract will continue to renew automatically in the contract and via a reminder to prevent a lapse in service.
The amount of notice to alert the customer of the impending renewal period also requires careful consideration. While the formats for providing notice may differ depending on the nature of the contract, general best practices suggest customers should receive a notice of the contract at least 30 days prior to the start of the renewal term. The warning should provide ample time for consumers to voice any questions or concerns they may have.
What Auto Renewal Rights and Protections Do Consumers Have?
Consumers have various rights and protections under auto renewal laws, including the right to cancel an auto renewal and obtain a refund for any charges that were incurred under the auto renewal terms of service. While the specific terms of these consumer rights and protections vary from state to state, generally the right to cancel a subscription and receive a refund exists in most jurisdictions.
If consumers cannot cancel an auto renewal or get a refund from a business’s customer service department, regulators in multiple states have taken measures to facilitate informal and formal dispute resolution. State Attorneys General in various states have provided contact information for consumers who wish to file a consumer complaint about an auto renewal transaction and the Better Business Bureau provides a mechanism for online dispute resolution for consumers who wish to file a consumer complaint regarding an auto renewal transaction.
Recent Developments and Trends in State and Federal Auto Renewal Laws
With the move toward consumer protection, there have been some recent changes that consumers should look out for. Maryland and Connecticut have both recently passed laws regulating auto-renewal subscriptions. These laws address the language a service provider must provide to their customers before an auto-renewal takes effect. Specifically, Maryland requires that auto-renewal terms be presented to the consumer at least one month prior to the renewal date. Moreover, the terms must be clear and conspicuous and must "clearly notify" the customer of her right to cancel. The Connecticut law has a similar notice provision. Additionally, Connecticut’s law contains more substantive rules. For instance, the Connecticut law requires a cancellation button on the webpage that allows customers to cancel their auto-renewal subscriptions. The law also subjects an auto-renewal business to breach of contract liability when there is an automatic renewal. This development is relevant to many service providers as, beyond just software subscription services, any entity that advertises "free trials" can easily fall into the auto-renewal category.
Tips for Consumers with Auto Renewals
One of the best tools consumers have at their disposal in managing their subscriptions is the calendar. Setting reminders for yourself in your phone calendar, or placing a post-it note on your desk calendar, can help you track upcoming auto renewals. Apps and calendar syncing with your other devices can be set to send an alert when it’s time to make a decision about renewing a subscription; many email programs also allow you to set an alert.
If you do not have a calendar program that allows you to do this, there are several companies that offer similar services through apps or downloadable software. Such services will warn you when your credit card is about to be charged for a renewal . Some financial institutions and credit monitoring services will notify you if a subscription was charged to your card that month, which can both alert you to a renewal as it happens and protect you against fraud.
Once you receive notice that a renewal is due or has been made, you have options. Depending on how important the subscription is to you or how valuable you consider it to be, you can decide whether to use the service for another period or cancel it. You should also note when the renewal will happen again so that you can take the same steps next time and either avoid being charged all together or at least avoid forgetting to cancel.