Auto-Renewal Subscriptions Face New Legal Requirements in New York

During the Covid-19 pandemic, auto-renewal subscriptions for goods/services have soared in popularity.In November 2020, New York passed a new law with detailed compliance requirements for auto-renewal subscriptions.

New York’s new auto-renewal law affects any company offering goods or services to consumers through any kind of subscription plan that automatically renews. The law goes into effect in February 2021.

What are Auto-Renewal Subscriptions?

Auto-renewal subscriptions ensure consumers have continued access to the goods and services they love. These subscriptions a linchpin of e-commerce. Consumers sign up once to receive goods and services on an ongoing basis. Charges show up monthly on their credit card bills. Some of these subscriptions start with free or low-charge trial periods or free gifts, all of which convert over to monthly payments for the duration of the subscription period. Sometimes the monthly payments are higher than what consumers paid during trial periods.

What’s the problem?

In New York, and around the country, regulators have been concerned that marketers have not obtained affirmative consent from customers to automatically renewing charges. Consumers may think they have signed up merely for a trial or to receive a free gift. Often, they do not understand that renewing monthly charges will show up automatically on their bills.  In addition, cancellation clauses may be difficult to understand and navigate.For example, at the onset of the pandemic, many New Yorkers had difficulty canceling gym memberships. The New York Senate’s press release remarked that “convoluted renewals have created a public health hazard for New Yorkers during the pandemic, including some who were told they had to visit their gyms in person to cancel memberships.”

Are all auto-renewal plans dangerous for consumers?

The New York State press release ignores the benefits and convenience these subscriptions offer to consumers when implemented well. Subscriptions relieve consumers from the burden of paying monthly bills for services they know, enjoy, and want to continue to receive. Without automatic renewal, if they forget to pay their invoice or pay it late, service would be interrupted. In addition, automatic renewal subscriptions often mean discounts for consumers as compared with one-time purchases of services or goods. In short, subscriptions provide options to consumers. Who wouldn’t want choices? While regulators and class action lawyers have long been concerned about bad actors in the space, these plans have proved popular over and over with consumers who like their convenience.

Is New York alone in its concerns about auto-renewal subscriptions?

New York already had an auto-renewal law embedded in its General Obligation Law. This statute covered only service, maintenance, or repair contracts relating to real or personal property. With its new statute, New York joins more than half the states who regulate auto-renewal subscriptions broadly. In recent years, California, Oregon, Vermont, and the District of Columbia have also implemented more stringent requirements.

In addition, the Federal Trade Commission (FTC) also has regularly scrutinizes auto-renewal subscriptions, free trial conversions, and negative option renewal plans, pursuant to Section Five of the FTC Act. The agency also regulates deceptive online subscription plans pursuant to the federal Restore Online Shoppers Confidence Act (ROSCA).

How do you meet New York’s new requirements?

For the most part, New York’s new legislation mirrors other states’ statutes. The statute stresses the need for clear and conspicuous disclosures, continued communication with the consumer through the enrollment and renewal processes, and termination provisions.

The biggest change for marketers doing business in New York’s concerns cancellation. Once the statute is effective, New York will require marketers to provide an easy online cancellation mechanism for customers who signed up initially online. (It is noteworthy that the major credit card companies and California already required a similar cancellation option. To that end, many brands may already comply with this new legislative mandate.)

Does the New York Statute explain how to obtain affirmative consent from consumers?

New York’s new legislation reminds marketers they must obtain affirmative consent from the consumer before enrollment. The statute does not mandate how to obtain that consent. It does mandate a variety of clear and conspicuous disclosures before enrollment, including:

• The subscription will auto-renew unless the consumer cancels by a certain date;
• The length of the auto-renewal term, unless the consumer has chosen the term OR notice that the auto-renewal is continuous and indefinite;
• Any upfront minimum purchase;
• The amount of recurring charges and when will the consumer incur the charges. (This can be particularly tricky to implement well with free gifts or trial periods);
• A description of how to cancel

The statute provides further details on the definition of “clear and conspicuous” disclosure when viewed in print or heard on audio. The definition will require some interpretation by legal teams and marketers, particularly in space-constrained website and social media spaces.

What does New York require once the consumer is enrolled?

Once consumers are enrolled, the marketer must provide the consumer with a tangible acknowledgment which the consumer can retain summarizing the program, the offer terms, the cancellation policy, and how to cancel. Changes in terms must be communicated clearly to the consumer in a timely manner. The statute also explores how to set up easy-to-use mechanism or cancellation mechanism. Again, marketers must provide an easy to find and execute cancellation option online if the consumer signs up online.

Can a New Yorker sue under this new statute?

Enforcement of New York’s new law is pursuant to the state AG, who can impose civil penalties and injunctive relief. There is no private right of action.

Could violations of the New York statute cost a brand money?

If New York follows suit with enforcement as other regulators have, violations of this new statute could lead to financial penalties.

• California has been particularly aggressive in enforcing its statute. In February 2020, for instance, Box.com, a cloud storage provider, had to pay $274,000 in penalties, costs, and restitution.
• In September 2020, in one of its latest enforcement actions in this area, the FTC reached a $10 million settlement with ABCmouse about its remote learning platform. The settlement resolved charges of illegal marketing and billing practices under ROSCA. The chief allegation was that ABCmouse had failed to make sufficient disclosures around auto-renewal. Parents allegedly did not provide affirmative consent to keep receiving monthly charges. In addition, the FTC also alleged that cancellation was difficult and often not implemented effectively.

Are there risks of class actions and financial penalties to brands?

Class action lawyers are also litigious around auto-renewals. During summer 2020,a class sued Ancestry.com for violations of California’s statute. The plaintiffs seek over 250 million dollars and injunctive relief because of lack of clarity around free trial and autorenewal practices. The case is currently heading to arbitration where an arbitrator will determine whether the class can proceed.

What should a brand do now?

If a company has not done due diligence on its auto-renewal subscription services in some time, now is the time to do so. New York’s new requirements are different from other states’ laws. Other states may require affirmative opt-ins, double opt-ins, certain terms to appear in bold face, or specific time periods for consumer notifications. E-commerce is often national in scope. Thus,nit is important to determine the highest common denominator.

In addition, once a brand determines the structure of its auto-renewal program, there is still more legal work to be done. The brand should also work with the legal team on implementation, advertising and promotion, and continued consumer notifications.

For a free consultation about your auto-renewal subscription programs, please contact us here.