Autorenewal programs are a recurring issue under state and federal law, and the past few months have been no exception. The Federal Trade Commission, state attorneys general, and private plaintiffs have been hard at work enforcing these laws, and state legislatures have also taken steps to strengthen the protections available to consumers under these statutes.
At the federal level, the Restore Online Shoppers' Confidence Act (ROSCA) requires companies that automatically charge customers for products or services on a recurring basis to clearly and conspicuously disclose the material terms of the offer, obtain consumers' consent to the offer terms, and provide customers with a simple cancellation mechanism. Although state laws vary in their technical requirements, they generally require companies to provide pre-purchase disclosures and post-purchase and ongoing renewal notifications; obtain consumers' consent to be charged on an ongoing basis; and provide simple cancellation mechanisms.
The Federal Trade Commission (FTC) remains active in this area. Earlier this month it settled a case with Age of Learning, the seller of a membership-based online learning service for children, for alleged violations of ROSCA. According to the complaint, the company offered consumers a 30-day free trial membership that converted into a paid subscription service for 6 or 12 months. The Commission alleged that the company failed to adequately disclose that members would be charged automatically when the initial trial period ended. The FTC also asserted that the company failed to provide customers with a simple mechanism to stop the automatically renewing charges, and customers who attempted to cancel were unable to do so, instead being directed through a lengthy and difficult process that prevented them from effecting their cancellation. The settlement requires the company to pay $10 million as equitable monetary relief. It also imposes disclosure and notification requirements, and it prohibits the company from making any misrepresentations related to negative options, including that a good or service is offered on a "free," "trial," "sample," "no obligation," or similar phrases, when a consumer must take action to avoid future charges.
In addition to the settlement with Age of Learning, the FTC recently filed a lawsuit in federal court against MyLife, a website that sells individual reputation profiles, alleging violations of ROSCA (among other laws). In the suit, the Commission alleged that the company violated ROSCA because it did not clearly and conspicuously disclose all material terms of the transaction before obtaining the subscriber's billing information. For example, the FTC alleged that, for a subscriber buying a 12-month subscription for $6.95/month, the terms did not make clear whether the subscriber would be charged the monthly rate of $6.95/month or the total lump sum amount for all 12 months. The FTC further alleged that the company did not provide a simple cancellation mechanism and subscribers who wished to cancel their subscriptions were required to call MyLife's customer service line, and many who called could not even reach a customer service agent to cancel. Other subscribers who did reach an agent and tried to cancel were met with a sales pitch to renew rather than assistance in cancelling.
At the state level, the California Autorenewal Task Force recently reached a settlement with Care.com. In that case, the Task Force alleged that home care worker referral website Care.com did not adequately disclose that its paid memberships were sold on an automatically renewing basis, did not obtain customers' affirmative consent to the automatic renewal terms, and did not provide a simple mechanism for customers to stop the recurring charges. Under the settlement, Care.com agreed to pay $1 million in civil penalties and restitution, in addition to injunctive provisions requiring Care.com to comply with California's automatic renewal law.
Private lawsuits also continue. The maker of the Bumble dating app entered a $22.5 million settlement to resolve allegations that it violated New York and California consumer protection laws by autorenewing customers' subscriptions without their consent. Another putative class action lawsuit alleges that Ancestry.com failed to adequately disclose its automatically renewing membership fees and offer terms, did not obtain consent to the charges, and did not provide the required post-order confirmation. In addition to injunctive relief, the lawsuit requests $250 million in restitution. Other lawsuits continue to be filed, including lawsuits against Noom, Consumer Reports, and Time Inc.
Finally, legislators have quietly sought to strengthen their existing laws. For example, the District of Columbia passed an amendment to its automatic renewal law, which requires a business offering a free trial that automatically renews to notify the consumer of the price she or he will be charged at the conclusion of the free trial period. Businesses offering free trials with a term of one month or more, which automatically renew at the end of the trial period, must notify consumers of the renewal between 15 and 30 days before the expiration of the free trial (instead of between 1 and 7 days before renewal). And the Vermont legislature amended its law to require companies subject to its law to provide consumers the ability to cancel their memberships online if they enrolled online (i.e., provide a cancellation mechanism that "mirrors" the signup mechanism).
Not to be outdone, the California legislature has proposed an amendment to its exiting autorenewal law, AB-2811, that would require companies that offer free or discounted trial periods to provide a notice to consumers explaining how to cancel their membership, at least 3 days and at most 7 days before the expiration of the trial period. If the notice is sent electronically, the bill would require the notice to include a link that directs the consumer to the cancellation process.
The evolving legal requirements for automatic renewal programs continue to provide fertile ground for lawsuits and enforcement actions. Companies selling products and services on a recurring basis should conduct regular checkups to confirm that they are compliant with the most up-to-date laws and regulator expectations. To learn more about the requirements and other updates that apply to automatic renewal offers, contact the authors of this article.