Auto-Renewal Enrollments Face Enhanced Restrictions

Ecommerce marketers are increasingly relying on continuity-based subscription enrollments as opposed to single-purchase transactions.  Concerned about consumers engaging in ongoing transactions without necessarily appreciating their future obligations, states are enacting increasingly complex and unique restrictions in the auto-renewal context.  We highlight below some of these jurisdictions.

Federal

While there are a number of federal laws that may be triggered, the key federal auto renewal legislation is the Restore Online Shoppers Confidence Act, known as ROSCA.  In part, ROSCA prohibits any person from charging any consumer for goods or services sold in an Internet-based transaction through a negative-option feature unless the person provides text that clearly and conspicuously discloses all material terms of the transaction and obtains consent to such terms before obtaining the consumer’s billing information.  The marketer must also provide a simple mechanism for a consumer to stop recurring charges, but does not state how the cancellation process must be offered.

California

California has one of the most specific auto-renewal laws on the books.  California requires that prior to enrolling in an auto-renewal arrangement, a consumer must affirmatively agree to a “clear and conspicuous” disclosure that provides that the subscription or purchasing agreement will continue until the consumer cancels the arrangement, clearly outlines the cancellation process, the auto-renewal charges and timing, the length of the relevant term, and any minimum purchase obligations.  In addition, the law specifies that a consumer must receive an order acknowledgment “clearly and conspicuously” confirming these above mentioned terms. Significantly, “clear and conspicuous” is a defined term and is more akin to “more conspicuous” than the surrounding text.  California also requires that online enrollees be allowed to cancel through an online method of cancellation.

North Dakota

North Dakota requires that sellers of merchandise under agreements containing auto renewal provisions present the terms of such renewal in a clear and conspicuous manner along with information on a cost-effective, timely and simple procedure for cancellation before a subscription or purchasing agreement is fulfilled.  When the renewal period is longer than six months, sellers must provide a clear and conspicuous written notice to the buyer—by first-class mail, e-mail or other easily accessible form of communication—that includes the procedure for canceling the contract at least 30 days, but no more than 60 days, before the contract renews or terminates.  A unique requirement of the new law is that the auto renewal period under an agreement for the sale of merchandise may not exceed 12 months.

Vermont

Vermont’s auto-renewal law has unique provisions relating to consumer contracts with a minimum initial term of one year that renews for a subsequent term that is longer than one month.  Vermont requires clear and conspicuous language in bold-face type regarding the renewal terms to be separately agreed to by the consumer.  The marketer must also provide the consumer with written or electronic notice of the auto renewal no less than 30 days, and no more than 60 days, before the contract renews or terminates.  Additionally, Vermont will soon require that online cancellations be offered to purchasers who enrolled online.

Take Away

While continuity enrollments are increasingly popular, it is even more imperative to have a compliant enrollment confirmation path and cancellation process.  The applicable laws are being increasingly enforced by regulators and private plaintiffs, making the failure to comply with even a technical violation may be costly.  Any assessment of an enrollment path should consider the appropriate disclosures, assent, confirmation and renewal notification.  In addition, for certain jurisdictions, the time frame of the renewal may be an issue.

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