More States Eye Laws on Automatic Subscription Renewals

Subscription-based companies should watch a growing field of state automatic renewal laws, said business lawyers in interviews. Colorado and Delaware laws take effect Jan. 1, joining states including California and New York. With a recent explosion of streaming and other online subscription services, consumer groups support rules and enforcement for more transparency on renewal policies.

Such laws are typically driven by complaints from consumers who, due perhaps to disclosures being buried in fine print, were surprised to be charged to renew automatically at the end of a trial or after what they thought was a one-time payment, said Kelley Drye's Gonzalo Mon: Some respond to complaints that cancellation is too difficult. The FTC enforces the federal Restore Online Shoppers’ Confidence Act (ROSCA), and states are adding more specific rules, he said. About 10 existing laws, including new Colorado and Delaware policies, are written broadly enough to possibly apply to telecom and technology providers, he said.

Most state laws require companies to clearly disclose that a subscription will continue without cancellation, said Mon. That may include disclosing possible charges and term length, he said: “Some states go a little bit further and actually talk about how it must be disclosed.” Some states allow private lawsuits, he said. California has one of the oldest and most stringent rules, and periodically tightens them, the lawyer said: Alabama, Kentucky, Indiana, Massachusetts and West Virginia have recent bills.

State interest doesn’t “split along party lines,” emailed Faegre Drinker's Michael Daly. “California and New York have one but so does Florida, and Texas doesn’t have one but neither does New Jersey. But we do expect that states without such laws will soon be in a distinct minority.” States enacted many “in the last few years, and, based on the number of bills that have been introduced recently, we can reasonably expect that many more laws are on the way.” Daly said not to expect Congress to pass another bill soon, especially with current divisions.

“We're seeing this new crop of automatic renewal laws really geared towards e-commerce and consumer transactions” online, said Ellen Berge of Venable. The FTC lately has applied ROSCA more broadly and aggressively, she said: Expect more states to pass automatic renewal laws or update existing laws to broaden their scope or add more detailed requirements.

Compliance has “not been as big a burden” as it has been with state privacy laws, which led some businesses to seek a preemptive federal law, said Mon: Most companies have been able to “pick the most restrictive” state renewal law and follow that one.

"We could see a patchwork of state laws here, too,” said Berge. But automatic renewal issues aren't as “deep or complex" as privacy bills that cover data collection and sharing, she said. “The rules here are much more straightforward: It's disclosures. It's consent. It's cancellation.” It hasn't gotten to the point where anyone is asking Congress to preempt states, said Berge: "We haven't even gotten very far with privacy preemption" and the automatic renewals issue is probably less of a priority. Associations and chambers of commerce "have been pretty aggressive at trying to get state laws at least tailored appropriately" to avoid overreach and prevent undue burden to businesses, she said.

Consumers are hurt “by this patchwork of laws in the form of increased prices” from higher operating and legal costs and by less competition “because other businesses may not be willing and able to incur those costs,” Daly said: Laws may “curb the conduct of a few bad actors,” but “most businesses want to -- and work to -- comply with the law.” Due to variations in the law, many businesses “adopt a highest-common-denominator approach to nationwide compliance rather than a state-by-state approach,” he said.

Several laws exempt “certain highly regulated industries,” noted Daly. California’s law exempts businesses that are regulated by various agencies, including the FCC and California Public Utilities Commission. “The scope of some statutes is also tied to the length of the original or renewal terms, which might make certain services beyond their reach.”

New Colorado and Delaware laws look like previous state bills structurally, Berge said. The attorney has paid particular attention to California's law because it's more detailed than ROSCA and because it led to class-action lawsuits and cases pursued by the state's local district attorneys, she said. An update to California's law taking effect in July will require a simpler and more straightforward online cancellation mechanism, she said: “A lot of businesses were providing the online cancellation mechanism, but it was buried in the site.”

The California law “has been a significant source of regulatory scrutiny and class action litigation for several years now,” said Daly. “Those cases have targeted a broad range of industries, including retailers, technology companies, and entertainment enterprises. And they tend to invoke statutory provisions that are ambiguous and have yet to be interpreted by an appellate court.

”It's not just industry lawyers paying close attention. Consumer advocates are, too. "Auto-renewal policies not only need to be clear, they must not be unfair or deceptive,” emailed U.S. PIRG Senior Director-Federal Consumer Programs Ed Mierzwinski. “Many of the problems are occurring despite or since passage of ROSCA. States, the FTC and Congress are taking action against subscription auto-renewal because companies are making it easier to sign up online yet much harder to cancel.”

The Consumer Federation of America supports FTC guidelines. The commission “needs to be much more rigorous" in enforcement, emailed CEO Jack Gillis. “As a result of growing consumer complaints, some states, such as Colorado and Delaware are implementing their own requirements. In the meantime it’s consumer beware when signing up for free or low-cost initial offers.”

“With the rise of the subscription economy, deceptive negative-option offers abound and consumers are often surprised to find that they have been charged for long-forgotten subscriptions, or that they are unable to cancel a trial before being charged,” emailed a Truth in Advertising spokesperson: The nonprofit pushes complaints to the FTC and supports bills in Congress to “fill the gaps in current law to provide consumers with clearer disclosures, easier cancelation, and additional notice before being charged.”