Automatic renewals refer to the business practice of subscribing a customer to receive a product or service and billing customers periodically for products and services without needing to obtain their express consent before each charge.  Federal and state regulators aggressively police automatic renewal marketing models because they are often misused by online marketers that may not always provide consumers with adequate disclosures or provide an easy mechanism to cancel their subscriptions before being charged again.

Restore Online Shoppers’ Confidence Act (ROSCA)

At the federal level, Internet-based automatic renewals are regulated by the Federal Trade Commission pursuant to the Restore Online Shoppers’ Confidence Act.

ROSCA requires clear disclosures of material terms, informed consent before obtaining financial information to process a purchase, and a simple mechanism to cancel the charges.  Violations of ROSCA are categorized as unfair or deceptive acts or practices under the Federal Trade Commission Act.

Digital marketers tend to earn the unwanted scrutiny in the form of Civil Investigative Demands (CIDs) or lawsuits with misleading “risk-free” trial offers, undisclosed charges if consumers do not quickly cancel the “risk-free” trial, undisclosed automatic shipment programs that send consumers unordered merchandise, difficult-to-follow upsells that add another layer of confusion, unlawful charges to consumers’ credit or debit cards, freezing out consumers that try to stop the unauthorized shipments and charges, and using straw owners to conceal activities.

“Products touted as ‘risk free’ shouldn’t come loaded with hidden costs and obligations,” according to FTC attorney Andrew Smith, Director of the FTC’s Bureau of Consumer Protection.  “The FTC will continue to bring actions against this kind of deceptive and unfair marketing, and will seek to return money to victimized consumers.”

State Automatic Renewal Legislation

At the state level, approximately two-dozen states have implemented some form of automatic renewal legislation.  California, Vermont, Virginia, Washington, D.C. and North Dakota have recently adopted and/or bolstered their ARL laws.  Importantly, North Dakota and Virginia’s ARL laws provide for private causes of action. 

California’s ARL law has recently been bolstered.  In general and without limitation, it requires disclosures to customers for automatic renewals, free gifts and trials, as well as the provision of a mechanism to cancel subscriptions online.

In Vermont, customers must take an affirmative action to opt-into automatic renewal terms, in addition to accepting the contract.  Vermont is the first state to require a double opt-in with respect to automatic renewal provisions. 

In Virginia, consumers must first provide affirmative consent to the automatic renewal terms prior to being charged.  In D.C., consumers must opt-in to the subscription following the conclusion of the free trial period.

Marketers should proactively evaluate automatic renewal programs to ensure compliance with federal and state legal regulations, including various consent requirements.

FTC Seeks Public Comment on Negative Option Marketing

In addition to ROSCA, the FTC relies upon the Negative Option Rule and the Telemarketing Sales Rule to address harmful negative option practices.  The former addresses only pre-notification plans (e.g., book-of-the-month clubs) and does not reach other common forms of modern negative option marketing, such as automatic renewals.

The agency does not believe that the various requirements necessarily provide industry and consumers with a consistent legal framework across different media and types of plans.  The FTC also does not believe that  current regulations provide the specificity necessary to deter deceptive practices.

As detailed in an Advance Notice of Proposed Rulemaking, the FTC is seeking public comment on ways to improve existing regulatory requirements, including whether the agency should use its rulemaking authority under the FTC Act to expand the scope and coverage of the existing Negative Option Rule.