NY Auto-Renewal Law Raises Compliance, Litigation Concerns

Faegre Drinker litigation partner Michael Daly and associates Matthew Adler and Antoinette Snodgrass authored an article for Law360 titled “NY Auto-Renewal Law Raises Compliance, Litigation Concerns.” In it, the authors examine the potential compliance and litigation issues that could arise from New York’s new automatic renewal law (ARL), set to take effect in February 2021.

The authors explain that while many businesses and consumers have come to appreciate automatic renewals to avoid the cost and inconvenience that can otherwise result from the expiration of a contract, automatic renewals have also become a trap for unwary businesses through complicated, conflicting and sometimes overlapping ARLs across the country. For example, how terms must be disclosed, how consent must be obtained and how termination must be permitted.

As the authors note, while some statutes apply only to certain kinds of contracts—gym memberships, for example—the recent trend has been to sweep more and more contracts within their scope. And, unsurprisingly, the plaintiffs bar has taken to invoking the most broad and burdensome ARLs in a growing number of consumer class actions.

New York’s recent adoption of a new ARL statute—while keeping its original ARLs—means that businesses should endeavor to comply with both ARLs if they apply.

Though seemingly innocuous, the authors explain that the requirements imposed by ARLs like this one can create considerable compliance challenges. That is especially true of businesses whose operations implicate many states' laws, or whose customers and contracts may not neatly fit within the definitions of "consumers," "subscriptions" or "purchasing agreements."

However, the authors say the silver lining for scrupulous companies that do their best to comply with the new law’s technical requirement is that the new ARL has a good faith defense for businesses whose alleged violations were "not intentional and resulted from a bona fide error made notwithstanding the maintenance of procedures reasonably adopted to avoid such error."