Automatic Renewal Laws Legislation to Watch in 2021

Several state legislatures are currently considering bills that would enact or expand an automatic renewal law (ARL). ARLs regulate the form and content of automatic renewal provisions, as well as the procedures for disclosing renewals, obtaining consent, providing reminders and cancelling contracts, among other things. Many apply to only certain types of automatically renewing contracts, such as gym memberships. But more than a dozen states have broad ARLs that can be read as applying to virtually any automatically renewing consumer contract. And while some contain relatively few requirements, others impose extensive, exacting rules — which are not at all consistent from state to state. The latter kind of ARL, not surprisingly, has attracted the attention of the plaintiffs’ bar, which has filed a growing number of class actions in California and elsewhere.

Although this patchwork of regulation can create compliance challenges for even the most scrupulous businesses, an increasing volume and variety of businesses have nevertheless been adding automatic renewals to their contracts in recent years. It is easy to see why. Automatic renewals offer convenient, uninterrupted delivery of goods and services ranging from streaming entertainment to groceries and other household supplies. Such services can literally be life-saving, particularly during a pandemic.

But lingering concerns over surprise renewals or stifling cancellation procedures have inspired increased legislation. New York, for example, just became the latest of several states to enact a broad ARL, which took effect in February 2021. As of now, 30 states and the District of Columbia have an ARL on the books. And since January 2021 alone, a staggering 16 bills in 13 states would enact a new ARL or expand an existing one. Suffice it to say that ARLs (and their resulting penalties for noncompliance) are having a moment. And if this recent wave of new bills is any indication, ARL regulation and litigation are here to stay.

Below is a high-level summary of these 16 new bills, grouped by the bills that would: (1) create a new ARL where none existed before; (2) expand an ARL that is narrow in scope; and (3) amend an already-broad ARL.

Potential Brand New ARLs

First, the following seven bills have been proposed in six states (Kentucky, Indiana, West Virginia, Massachusetts, Alabama and Texas) that, as of now, do not have an ARL and thus have not yet regulated in this area:

• Kentucky: This bill, proposed in January 2021, would regulate automatic renewal provisions in all consumer contracts and would require a business to place clear and conspicuous automatic renewal offer terms in visual proximity to a request for the consumer’s consent. It would also impose requirements on disclosures and cancellation procedures, including a requirement that a business provide advance notice of any “material change” to the renewal terms. See Kentucky H.B. 262.
• Indiana: Also introduced in January 2021, this ARL would govern automatically renewing consumer paid subscriptions, memberships, or purchase agreements entered into over the Internet. It would require clear and conspicuous disclosure of the automatic renewal terms in visual proximity to a request for consent and notices to consumers of both material changes in the terms and the approaching renewal of the contract. See Indiana H.B. 1433.
• West Virginia: This bill, proposed in February 2021, would similarly require a business to provide clear and conspicuous notice of the automatic renewal terms in visual proximity to a request for consent. Notice to consumers would be required for any material changes to the contract terms and to remind them of upcoming renewals for terms lasting at least one year. See West Virginia S.B. 315.
• Massachusetts: In February 2021, two ARL bills were introduced. The first would require businesses offering free trials that automatically renew into paid contracts to provide clear and conspicuous disclosure of the offer terms, offer cancellation options similar to how the consumer signed up, and remind consumers 5–10 days in advance of the paid renewal if the trial period is longer than 30 days. See Massachusetts H.B. 1378. The second would require businesses offering automatic renewals to provide a toll-free phone number, email address, postal address or “another cost-effective, timely, and easy-to-use mechanism for cancellation,” including an online cancellation option for consumers who signed up online. See Massachusetts H.B. 3276.
• Alabama: A bill introduced in February 2021 would require automatically renewing consumer contracts to include clear and conspicuous disclosures of renewal offer terms in visual proximity to the request for consent and provide an acknowledgment of terms retainable by the consumer. It would also govern cancellation procedures and require notice to consumers of material changes in the contract terms. See Alabama H.B. 454.
• Texas: In February 2021, a new bill was filed that would regulate automatically renewing service contracts. It would require clear and conspicuous disclosures, reminders for customers in advance of renewal dates and procedures allowing customers to cancel using the same method used to sign up. Violations made as a result of an error, and in spite of compliance practices in place, would not be subject to liability under the proposed law. See Texas H.B. 2259.

Possible Expansion of Narrow ARLs

Next, two bills have been proposed in states (Missouri and New Hampshire) that already have a narrow ARL, that is, one that applies only to a small category of businesses:

• Missouri: Although the current ARL in Missouri applies only to buyers’ club contracts, this bill, proposed in January 2021, would regulate automatic renewal provisions in all consumer contracts and would require clear and conspicuous disclosure of the automatic renewal terms in visual proximity to a request for consent. Consumers would also be entitled to notice of material changes in the contract terms. See Missouri H.B. 766.
• New Hampshire: The existing ARL regulates only health club service contracts, but this bill, also proposed in January 2021, would effectively ban automatically renewing service contracts by making it unlawful to include “in a contract for services an automatic renewal provision that does not require the consumer to accept, in writing, an additional term of service prior to the expiration of the current term.” The bill would not otherwise regulate (or ban) automatically renewing contracts for goods, although “services” is not defined under the proposed law. See New Hampshire H.B. 553.

Proposed Changes to Broad ARLs

Lastly, five other state legislatures (Oregon, California, Illinois, North Carolina and Florida) are considering seven new bills that would modify these states’ broad ARLs:

• Oregon: This bill, proposed in January 2021, would expand existing law by requiring businesses to obtain consent from consumers specifically to the renewal and to any material changes, rather than only to the agreement containing the automatic renewal offer terms. It would also require consumers to be sent notice of material changes in a “separate communication.” See Oregon H.B. 2016.
• California: This bill, proposed in February 2021, would require businesses that offer free trials or discounted introductory rates to send consumers a notice explaining how to cancel 3–7 days before they are charged. It would also require consumers to be able to cancel online “without engaging any further steps that impact or restrict the consumer’s ability” to cancel. See California A.B. 390.
• Illinois: In February 2021, two new ARL bills were introduced. The first would expand the existing ARL, which only applies to contracts 12 months or longer, to contracts of six months. See Illinois H.B. 604. The second bill would require a “cost-effective, timely, and easy-to-use mechanism for cancellation” and mandate that online signups could be cancelled online. See Illinois H.B. 3955.
• North Carolina: This bill, proposed in February 2021, would specify the required contents of automatic renewal disclosures. However, unlike the above bills, it would lessen some existing requirements, such as by requiring that renewal notices be sent only for automatic renewals of 12 months or more, in contrast to the existing requirement that notices be sent if the renewal is longer than 60 days. See North Carolina H.B. 103.
• Florida: Two nearly identical bills, one in each legislative chamber, were introduced in early March 2021. They would add regulation of any “automatic renewal or continuous service offer to a consumer” to Florida’s existing broad regulations of consumer service contracts. They would require clear and conspicuous term disclosures in visual proximity to the offer and notice to consumers of material changes in terms. Notably, businesses could avoid penalties for violations by showing they resulted “from a bona fide error made notwithstanding the maintenance of procedures reasonably adopted to avoid such error.” See Florida H.B. 1557 and S.B. 2000.

Takeaways

This flurry of recent bills demonstrates at least two things. First, it is abundantly clear that state legislatures are active in this space, with an increased focus on the regulation of automatically renewing contracts — with no signs of stopping. Second, it is equally apparent that ARL compliance is an ever-evolving process that requires careful attention to existing laws and a system for staying up-to-date with the latest changes and modifications. As more and more states enact ARLs, companies that operate virtually anywhere in the U.S. using renewing contracts should, at a minimum, consult with counsel to confirm whether their agreements fall within the scope of any current ARLs and, if so, the specific requirements for compliance. But these new bills also teach an important follow-up lesson: keep checking regularly, as the landscape may have changed.

Indeed, the statutory language of an ARL is just the tip of the compliance iceberg, as court decisions can and often do define the contours of these laws as they are applied to new factual contexts. Even if each of the above bills becomes law, new questions will arise, such as what constitutes “material changes” requiring notice, what “further steps” means in California or how “services” is defined in New Hampshire. These types of ambiguities can easily create litigation risk, thus requiring businesses to stay vigilant for any case law that may provide useful guidance.

For More Information

Faegre Drinker’s consumer contracts team will be closely monitoring these new bills. Questions about complying with ARLs can be directed to the authors listed below or to your usual Faegre Drinker contact.

1. A 16th bill, Rhode Island H.B. 5601, was introduced in February but withdrawn in March. It would have effectively banned many automatic renewals by requiring consumers affirmatively to consent to renewal within sixty days before renewal.