Autorenewal Risk in the Beauty Industry

Claudia Lewis: 00:11

You're building a beauty or wellness brand in a fast moving, highly competitive market.

Kristen Ruisi: 00:16

Standing out isn't just about developing quality products and creative campaigns. It's about navigating regulations, protecting your brand, and managing risk.

Claudia Lewis: 00:25

From FDA oversight and product claims to data privacy and consumer expectations, the legal and regulatory landscape is becoming more complex.

Kristen Ruisi: 00:34

Social media, influencer marketing and global expansion are only accelerating that complexity.

Claudia Lewis: 00:40

I'm Claudia Lewis.

Kristen Ruisi: 00:41

And I'm Kristen Ruisi. We're partners in Venable's Beauty and Wellness team.

Claudia Lewis: 00:46

On this podcast, we talk with our Venable colleagues and industry insiders about the legal and regulatory issues shaping the beauty and personal care market.

Kristen Ruisi: 00:55

And focus on practical guidance brands can use to stay compliant and competitive.

Claudia Lewis: 01:00

Welcome to the Beauty Law Glow-Up. This week we're talking about how beauty brands can structure auto renewal programs. Hi. I'm Claudia Lewis, co chair of Venable's FDA group. As subscription and auto renewal programs become a bigger part of the beauty and wellness business model, brands are facing a rapidly evolving mix of regulatory scrutiny, class action risk and enforcement from state attorneys general.

Claudia Lewis: 01:32

What may seem like a simple customer convenience can quickly become a legal minefield if disclosures are unclear, cancellation is difficult or out of the box technology fails to meet increasingly technical requirements. In this episode, we explore how beauty brands can structure auto renewal programs more thoughtfully, reduce litigation exposure, and stay ahead of a fast moving compliance landscape. To help us do that, we're talking to Shahin Rothermel, cochair of Venable's advertising and marketing group, who co leads the firm's auto renewal solutions team. Shahin, you and I have worked together for a very long time. I'm happy to call you partner and friend.

Claudia Lewis: 02:15

We work closely together across a wide range of matters, at the intersection of FDA, advertising, private litigation, NAD challenges. Can you start by telling me a bit about your practice and how you approach helping clients navigate these overlapping regulatory risks?

Shahin Rothermel: 02:32

Of course, Claudia, and thank you for having me. I am super excited to be here and talk to you about this. I have worked with auto renewal clients and companies for almost my entire career. What I do for them, I advise clients on the front end of how to comply with auto renewal laws and regulations and the current requirements as set by courts and regulators. And then when it goes wrong, for example, a Federal Trade Commission action, a state AG action, private litigation class action, or a case brought by California's Auto Renewal Task Force, I'll defend companies when those, things go sideways.

Shahin Rothermel: 03:10

Sometimes we litigate. Most often, we negotiate and we settle. And, in some instances, those are also brought by the National Advertising Division, who is getting more and more into the morass of auto renewal law.

Claudia Lewis: 03:23

So it sounds like there's lots of players in this space, Shaheen, and subscription models are everywhere right now. What are you seeing brands get wrong most of the time?

Shahin Rothermel: 03:34

It's very difficult to comply with automatic renewal laws, and I will start today with the premise that almost everybody who's doing auto renewal programs thinks that they're getting it right. And almost everybody who's doing auto renewal offers is probably getting it wrong, at least as the law and regulations are interpreted by class action plaintiffs, regulators, and challengers. And, the big things that you need to do when you're doing an auto renewal offer is on the front end, making sure that you're telling people the material terms of the offer and you're getting their agreement to those. And on the back end, letting people cancel. Don't make somebody chew their leg off to get out of the subscription offer.

Shahin Rothermel: 04:16

I've said this so many different times. Now those seem very basic, and I can't tell you how many times I've had companies say, well, I'm telling people the auto renewal terms there, right there, and I'm letting people out of it, they can easily cancel. And the devil's in the detail when it comes to subscription programs because when you say it's right there, the question of the law becomes what is it? Are you telling people the most basic thing that they're going to be enrolled in something that charges them on a recurring basis? What are they getting?

Shahin Rothermel: 04:45

How much are they paying? How frequently are they paying? Is that going to change? And when I say when are they going to be charged, I don't mean in about seven weeks. I mean, is it in seven weeks, or is it on x y z date?

Shahin Rothermel: 04:58

And how do you cancel? Being very detailed about how you cancel. And otherwise, you can get caught up in, really the helter skelter of the litigation out there.

Claudia Lewis: 05:09

Sounds very complicated. So what typically... You mentioned lots of things in terms of front end, back end, doubling the details. What triggers an investigation typically?

Shahin Rothermel: 05:19

What triggers an investigation can be one of a number of things. Most often, from the regulatory side, the Federal Trade Commissioner, state attorney general investigation is going to be consumer complaints. You have the FTC that has the Consumer Sentinel database. You have the Better Business Bureau where people will go with their gripes. And what happens is regulators and even class action plaintiffs' attorneys will look online and say, hey.

Shahin Rothermel: 05:42

There's all these complaints out there where somebody said they didn't know they were going to be enrolled in the subscription, and they started getting shipped this lotion that kept coming to their house once a month, and they couldn't get out of it. And now they're in too deep. They've spent $250, and they're just trying to get their money back. And what a regulator and a challenger will say is that that is evidence that you are not doing it right. Because if people feel like they don't know what's going on, that they're getting charged, they can't get out of it, then that's evidence that something has gone wrong.

Shahin Rothermel: 06:12

The other way I see challenges, especially recently in the past six months, and I don't foresee this stopping, is class action plaintiffs' attorneys, particularly in California, have glommed on to very specific technical requirements. And what they're doing is they're now advertising on social media for class action plaintiffs, And you see this all the time in the FDA world, and I know there's overlap, and I really hope we get to talk... We're going to talk about that. I know.

Claudia Lewis: 06:37

We definitely are.

Shahin Rothermel: 06:38

But what's happening then is that they're they're they're soliciting plaintiffs. They're out there. They're being very wily in their advertising. They're being very crafty, and what they're doing is they're getting class action plaintiffs. And they're filing lawsuits, and companies can either fight their way out of it and litigate, or they can pay their way out of it and settle.

Claudia Lewis: 06:57

So litigation is a big thing. Investigations. What could a beauty and wellness brand do? What three things would you suggest that they think about as they're starting up a subscription?

Shahin Rothermel: 07:08

I think a couple of things. I think the first thing that a company should think about, a beauty brand in particular, is be very clear with what the offer is and what they're getting. When you're a beauty brand in particular, people have regimens. And if you're selling something that is a bundle, making clear, okay. This bundle is going to be shipped once a month.

Shahin Rothermel: 07:31

Maybe certain products in that bundle are going to ship at different frequencies, so that makes it a little bit more difficult. So telling people, you're going to get this product on this date, and you're going to be charged this much on that date to get that product. That's really the first thing. I think the second thing is making cancellation easy because a lot of times people will want to skip. In the beauty sense, they'll say, okay.

Shahin Rothermel: 07:55

Well, I've been using this moisturizer, but I want to rotate. So I want to skip or I want to pause, allowing people to do that in a meaningful way. And I see a lot of companies not let people do that, or they say you're going to be able to pause or skip, and then they keep sending. And I think the other piece of all of this is, this is your area really, Claudia, is making sure that the claims are appropriate, substantiated, they fall under the right regulatory bucket from the FDA and state laws, and getting that buttoned up because regulators like the FTC and class action plaintiffs are now putting those into a bucket and challenging both the technical issues of the subscription and then saying that, well, you're misrepresenting the material terms of the offer because you're lying about what your shampoo can do. You're saying that shampoo can take somebody who's bald and now they've all of a sudden got Rapunzel hair, and that's a material term of the offer.

Claudia Lewis: 08:48

Exactly. What does a compliant cancellation experience actually look like? And I'm sure it's not just one variance. But if you do, like, a typical one, what would that look like?

Shahin Rothermel: 09:01

Absolutely. The general rule nowadays is that the cancellation mechanism is supposed to mirror the enrollment mechanism. If somebody goes online and purchases a product, they can't be required to call a 1-800 phone number and wait on hold to cancel. Even state laws are saying that if somebody can go through a web funnel and purchase a product, they can't be required to email cancellation in, which ten years ago we would have said was fine. But even it's going further is if you do offer an online cancellation in the account, somebody logs on, goes to my subscription, clicks my account, clicks cancel, you can't require somebody to go through a 20 step funnel to cancel.

Shahin Rothermel: 09:42

Do you want to cancel? Yes. Are you sure you want cancel? Yes. Sure You you don't Want pause?

Shahin Rothermel: 09:46

No. Do you want do this? No. And then you just go through this Hansel and Gretel experience through the forest. And then what happens sometimes is I see somebody accidentally clicks yes when they meant to click no, and then they go back to go.

Shahin Rothermel: 10:00

They don't collect $200. They start all over again. And regulators are just saying you can't do that, and we're really seeing that become a big area of the cases. And I can't tell you how many times clients will say, oh, well, we let them cancel online. And it's like, yeah.

Shahin Rothermel: 10:13

Well, a tree fell in the forest over there, but I don't know about it because I couldn't find it. And one thing actually that I want to add to, and this goes into the technical requirements, is the law requires in many states, including California and under the Electronic Funds Transfer Act if you're charging a debit card, companies have to send a written acknowledgment essentially with the material terms of the offer and some mechanism to cancel in a form that can be retained, which typically courts will say is like an email if somebody purchased online. Sometimes it's in the mail. But we've seen companies get in trouble, including a very large company for a very simple error. And that is the law says that you have to tell people how they're able to cancel, And what the company did was they said, to modify your subscription, click here.

Shahin Rothermel: 11:00

And the court said, mm-mm. It's not modify. You have to explicitly say to cancel. And they lost out on a motion to dismiss, and then they had to litigate it. And it's really wild to me how these what some people would characterize as a foot fault.

Shahin Rothermel: 11:14

And courts are not... They're not interpreting it the same way. I think that the more these cases get litigated, we'll start seeing more guidance surrounding it. But right now, the law is very much all over the place. And this goes back to what I said earlier about I don't think anybody is necessarily doing it perfectly.

Shahin Rothermel: 11:30

So whenever a client says, well, can you tell me who's doing it perfectly? Well, I can't tell you who's doing it perfectly, but I can tell you who's getting an a versus who's getting a c minus.

Narrator: 11:39

Advertising law regulations are getting tougher and harder to navigate. On Venable's Ad Law Tool Kit Show, hosts Len Gordon, Shahin Rothermel and their colleagues break down the latest risks and trends from FTC investigations and privacy rules to influencer marketing, green claims, and state AG actions. Each episode gives brands practical insights to spot issues early and move forward with confidence. Search for the Ad Law Tool Kit Show wherever you listen.

Claudia Lewis: 12:14

And so let's talk about that a a little bit because I think we've focused on the C- . What three parts get you to an a or B+?

Shahin Rothermel: 12:23

The first part to get to that good grade would be giving the disclosures early enough. Meaning, if you have a free trial and you're advertising that free trial on a social media ad, having some sort of disclosure there. Right? So somebody doesn't think that they're getting something for nothing. They just put their information in and then something, you know, mascara is just gonna show up at my door. If that's not the case, if you have to get something else, eyelash enhancing serum in order to get the mascara, then that should be disclosed on the front end ad. And that's... I don't know that I agree.

Shahin Rothermel: 13:03

I want to caveat all this to say, I don't know that I agree with it. I think consumers are a lot more savvy than courts and regulators give them credit for. But that is something we see a lot of, and that's what a lot of times the FTC will call a deceptive door opener or a dark pattern. That you've told people something, they click on it, and then they have to click through four screens, and only then do they know that they're going to be enrolled in auto renewal that can charge this much or whatever it is.

Shahin Rothermel: 13:29

And the FTC says by that time, you're in too deep. Right? You've already... You've committed. The other thing to get really that that a is repeating the disclosures throughout even if they're not all of the elements of the disclosure so that you're sort of reinforcing this idea that this is what you're getting.

Shahin Rothermel: 13:48

You're signing up for a subscription. If you want to sell people a subscription to a beauty product, lean into that. If you're not telling people that on every page, then it begs the question, why are you not telling people? If you really believe in your product, which you should because there are so many good beauty products out there. You know this.

Shahin Rothermel: 14:04

You've been... There's a reason we're doing this series. Right?

Claudia Lewis: 14:06

Right. Exactly.

Shahin Rothermel: 14:07

There's so many incredible products these days. Lean into it. Right? Like, I run out... I can't tell you now I'm gonna go home and reorder.

Shahin Rothermel: 14:13

I don't have anything on subscription, but I should. I have to go reorder. I'm making the list in my head right now of all the things that I've run out of.

Claudia Lewis: 14:19

I have a lot of subscriptions, and I do appreciate them because they're time savers.

Shahin Rothermel: 14:22

Absolutely. I think convenience is something that is very underrated nowadays. Like, we... Time at the end of the day is all we have. So...

Shahin Rothermel: 14:30

Yeah. And I I really rambled on the question, but the second thing that people should look at is putting all of the material disclosures in one place at the time where people are most attuned, meaning the checkout page, and getting all of the elements. The fact that it's going to be auto renewed, you're going to be charged on a recurring basis. Get those trigger words in there. You're going to be charged beginning on what day?

Shahin Rothermel: 14:52

One month from today. You're going to be charged what amount? $25. You'll continue to be charged that amount until when? You cancel.

Shahin Rothermel: 14:59

How do you cancel? By going online and clicking on your account. If there's a timeline in advance, like a week, because it takes a while to process these physical products, then say that. You have to cancel a week before your next renewal date. And this sounds like a lot, but there's really ways to do this in a truncated manner when somebody is most attuned, which is what the regulators will say is the payment card. When you have your credit card out is when you're most attuned to these things. And then the last again is just letting people cancel easily. You can always do win back campaigns. You can do things like reactivations.

Shahin Rothermel: 15:32

But if somebody wants out, give them the chance to get out, especially because sometimes, like, we stockpile. As I said earlier, we stockpile makeup. I rotate between some of my serums just because that's what the dermatologist tells me to do. Exactly. Let me do that.

Shahin Rothermel: 15:45

I'll come back.

Claudia Lewis: 15:47

So it sounds like simple campaigns and just a constant reminder, a slow drumbeat of this is what you're signing up for. This is what it looks like. This is what it's going to cost.

Shahin Rothermel: 15:59

And I like the way you say it is that drumbeat. And a lot of times companies will say, well, why do I have to keep beating that drum? Why do I have to keep beating that drum?

Shahin Rothermel: 16:06

Is because if you don't, then what they'll say is that you're beating a different drum, that you're not telling people, that you're hiding the ball. And at the end of the day, you do that at your own peril. And one thing that I think a lot of companies now are are not mindful of, and what we are seeing so much class action on is this is something that, Claudia, you and I have talked about is that companies are using out of the box white label solutions, including Shopify. I don't mean to call anybody on the mat, but that's what it is. And they are getting hit by...

Shahin Rothermel: 16:38

I think there have been between 60 and a 100 class actions challenging companies using that platform because if you just use the out of the box solution without tailoring it appropriately, then class action plaintiffs have a lot of really good arguments that you're missing the elements, that you're missing the requirement that it's clear and conspicuous. So when I talk about how to disclose, clear and conspicuous means that it needs to be set apart unavoidable. People shouldn't be required to scroll down just because you can point to somewhere on the page or in your long form terms and conditions hyperlink. Hey. This is where all the terms are.

Shahin Rothermel: 17:12

Regulators would say, no. It has to really be in your face. And California and other state laws say that to be clear and conspicuous, the text has to be in larger size than the surrounding font. It has to be set off from the surrounding font in, different format or other symbols that call attention to it. So, again, there's all of these technical requirements, but then when you... I can tell you those words, but then you actually have to look at it on the page because courts have looked at these things and said, well, this out of the box solution isn't going to get you there because the language, the material terms appear below the call to action button. Somebody who's zoomed in might not see that.

Claudia Lewis: 17:47

And I would imagine that some of these subscriptions have something that's unique to the brand, and so a white label wouldn't necessarily work. It would make sense to me that they would have to be tailored. I'm just thinking about my own personal experience, which you talked about, before. It's like, oh, I didn't realize this was going to come twice a month sometimes. They're sending things more frequently.

Claudia Lewis: 18:07

And as a consumer, I'm not always paying as much attention as I could. I do like the idea of the truncated... Like, before I put my credit card in, I can see what I'm going to do, when it's going to come, and, how I can get out of it if I wanted to.

Shahin Rothermel: 18:22

Absolutely. And I think that is something else that a lot of companies in the beauty industry will do is the bundle and save or volume discounts, which make absolute sense, and a lot of times people do want those. The problem comes into play when you default somebody in that they don't really understand what they've been defaulted into. I take the position, and I've gone... I've argued with class action plaintiffs' attorneys and regulators about this, is that there's nothing inherently wrong with defaulting somebody into something.

Shahin Rothermel: 18:51

As long as they know what it is. Or you're encouraging somebody to take this road rather than that road. Right? But they need to understand what that road is that they're being led on, and they can't be shocked by, you know, all this makeup that shows up that they've gotta now use under duress because they can't return it.

Claudia Lewis: 19:07

Well... And I also think that regulators can overreach. So sometimes I feel like that long arm of the law is a little bit heavy handed. And so I really do appreciate your mentioning that it's... Compliance is temporal. It's just on a continuum. So you could be compliant on Tuesday, but not on Friday. It's the same in the FDA world. So we did everything correctly on Tuesday. On Thursday, someone put in the wrong ingredient, and we have a recall on our hands.

Shahin Rothermel: 19:34

Absolutely. And I'm glad you mentioned that. I think that it's easy for me, amid the helter skelter of the auto renewable world, to forget that there's other pieces of compliance outside of sort of just the main advertising and marketing, things like dark patterns, countdown clocks that are, you know, regulators will look at. You got the FDA side that you deal with every day, and we forget really about the fact that if somebody gets in trouble for their auto renewal program, if they get on somebody's radar for their autorenewal program, that could then translate into something on the FDA side in terms of the regulatory classification or claim substantiation.

Claudia Lewis: 20:13

Exactly. And and whether the products are safe. Are they safe to be used in this bundle? It raises a lot of different regulatory questions. So we have to get Shahin on the phone and make sure that we're doing subscriptions correctly.

Shahin Rothermel: 20:26

And whenever I see an FDA regulated product or a beauty product, I say, okay. Are these claims okay? Are these structure function claims being made for cosmetic? I'm calling Claudia to see what the FDA said about that recently.

Claudia Lewis: 20:37

Absolutely. I think you talked a lot about regulations. You talked about, litigation. You talked about California, which is a huge state that does a lot of regulatory work in this space. But are there other states, or do you expect enforcement to increase, in this area?

Claudia Lewis: 20:52

Like, New York is also... Has an active AG practice. Florida does. Texas is another active AG state. Are you seeing them step into the space similar to California?

Shahin Rothermel: 21:03

Yes. The New York attorney general's office has recently done a sweep on auto renewal programs. I'm seeing other states get into the mix. I mean, Ohio has always been pretty active. All of the West Coast states are getting...

Shahin Rothermel: 21:16

Washington and Oregon. We've seen it in Colorado and Illinois, the Florida AG. So on the attorney general side, we are certainly seeing a ton of action. The class action litigation in the area is a little bit more interesting. California law is very easy.

Shahin Rothermel: 21:35

The courts will allow you to sue somebody for saying that today is Monday, and for our listeners, today is Monday, but California courts will let that proceed. We're starting to see lawsuits under, Washington's auto renewal law. Illinois, I've got I've got somebody out there who's who's saying, hey. There's an Illinois law. I'm gonna start suing under that.

Shahin Rothermel: 21:56

North Carolina's auto renewal law says that if, the terms of the contract are gonna change, they have to be written in bold. And I've seen... Yeah. And I... And Claudia's making a face right now, of shock.

Shahin Rothermel: 22:07

But... Yeah. And and and this idea that, okay, well, auto renewal disclosures need to be in bold if it's gonna change. We actually saw a court grant a motion in favor of the plaintiff where a newspaper company didn't put the renewals in bold, and the court said this is clear and conspicuous under one statute, but not under North Carolina's auto renewal statute. And if you're a coder and you're online, you know that it's not as though you just say bold or not bold when you're doing the coding for the page.

Shahin Rothermel: 22:32

There's different levels of of contrast. Right.

Claudia Lewis: 22:35

So it can be very tricky. Yes. Yes. Very tricky. What is one key takeaway you want brand owners, business executives, and in house counsel to leave with after listening to this episode?

Shahin Rothermel: 22:48

Look at your auto renewal program early and often because the law does change, and I'm going to cheat and have two takeaways. Look at what customers are saying. Are you getting complaints directly to your company? Are there complaints being made online publicly? Because those complaints, for better or for worse, are going to be an indicator under the eyes of the regulators and challengers of what people actually think even though it is a...

Shahin Rothermel: 23:17

It's a specific sample of people. If they're complaining about one trend of things, I didn't know that the free trial was gonna convert into an auto renewal. Maybe they knew, but they couldn't cancel. Then a challenger is going to say that is evidence indicative of a problem, and because you had complaints, if you got them directly, you were certainly on notice.

Shahin Rothermel: 23:37

If they were on third party websites, you have constructive notice. Basically, you should have known. People are out there complaining. You're engaged in all this subterfuge. Like, it's just... It's... You gotta do something here.

Claudia Lewis: 23:48

Exactly. Exactly. Well, I think that's a... That's very good feedback and a very good discussion. Thank you for being here today, Shahin.

Shahin Rothermel: 23:56

Of course.

Claudia Lewis: 23:56

I always learn something when I'm with you.

Shahin Rothermel: 23:58

Thank you, Claudia.

Claudia Lewis: 23:59

And I always have fun as well.

Shahin Rothermel: 24:00

Me too. This has been great. Thank you, Claudia.

Claudia Lewis: 24:03

Okay. That's all we have for today. I want to thank Shahin for helping us better understand how beauty and wellness brands can navigate auto renewal laws, build more compliant subscription programs, and reduce the growing litigation and enforcement risks in this space. You can read more about Venable's beauty and wellness team by visiting venable.com/beauty. I'm Claudia Lewis.

Claudia Lewis: 24:26

Thank you for listening to the Beauty Law Glow-Up.