Many states have passed laws in the past few years taking aim at automatic renewals in contracts such as subscription-based services. As people have found themselves home more and more during the COVID pandemic, the number of subscription services with automatic renewals have exploded. New York recently passed a law more strictly regulating these automatic subscription renewals. The new law is set to take effect on February 11, 2021.
New York’s new law is meant to replace an existing law concerning automatic renewals which was narrow in scope and applied only to contracts “for service, maintenance, or repair to or for any real or personal property” with a renewal period longer than one month. The scope of the new law is much broader, covering any company offering goods or services to consumers through any kind of subscription plan that automatically renews—which includes free trials, free gifts, and reduced-price trial periods that convert to paid subscriptions automatically charged to consumers’ credit cards. As the press release accompanying the passage of the law explained, the new law is meant to better protect consumers who may not understand how to cancel such subscriptions and to avoid “convoluted renewals [that] 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.”
New York’s new statute prohibits automatically renewing a contract without a consumer’s “affirmative consent” for the renewal. Absent this affirmative consent, some goods the provider may have sent the consumer can be deemed “unconditional gifts.” Absent from the new law, however, are guidelines for how providers are to obtain this consent.
The new law also requires clear and conspicuous disclosures before enrollment. Specifically, it requires that “automatic renewal terms,” such as the cancellation policy, recurring charges, and length of the renewal term, among other things be presented in a “clear and conspicuous” way and in “visual proximity” to the request for a consumer’s consent. Consumers must also receive an acknowledgment in “a manner that is capable of being retained by the consumer” that includes the automatic renewal terms and information regarding how to cancel the agreement. Providers must also provide a web-based option for cancellation. And if a provider makes any material changes to its renewal terms, those new terms must be provided to consumers in a “clear and conspicuous” notice.
One important aspect of the new law is that it does not purport to create a private right of action for consumers that would allow them to sue providers directly to enforce violations. Instead, the statute gives the power to enforce violations to the New York Attorney General by seeking an injunction or imposition of statutory penalties of $100 per violation (up to $500 per violation for “knowing” violations). The new statute also provides a good-faith defense for providers who can demonstrate a violation was not intentional and resulted instead from a bona fide error.
Illinois has a similar law known as the Automatic Contract Renewal Act, 815 ILCS 601/1 et seq. The Illinois law requires a provider to disclose the automatic renewal clause clearly and conspicuously in the contract, including the procedures for canceling the service or subscription. This law applies to “any person, firm, partnership, association, or corporation that sells or offers to sell any products or services to a consumer pursuant to a contract, where such contract automatically renews unless the consumer cancels the contract.” A violation of the Illinois law constitutes an unlawful practice under the Illinois Consumer Fraud and Deceptive Business Practices Act.
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