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New Year Updates and Insights on Auto Renewal Laws and FTC Developments

Attorney Marc Roth Reviews State Legislation to Federal Rulemaking: Key Changes in Auto Renewal Practices and FTC Oversight

For those who believe the statute of limitations has expired for wishing others a happy new year, we checked with the etiquette machers over at Quora and based on their collective expert opinions, we’re feeling pretty good saying it until about January 14thish.  If you disagree…well…you disagree, hopefully we can remain friends.

As for the ever-exciting world of auto renewal, a lot has happened since our last alert, so sit back, grab a cup of tea, a nice nosh, your readers, and enjoy the show. 

Ok, now to the substance of today’s report.

In 2023, nine states either enacted new laws or amended their existing auto-renewal laws.  Six (GA, ID, KY, ND, TN, VA) were reported on our blog last summer, the remaining three (CT, IL, NY) are summarized below.  

Meanwhile, on the federal front, as we previously reported last Spring, the FTC initiated a rulemaking in March 2023 to amend the current Prenotification Negative Option Rule to cover a broader spectrum of auto-renewal/continuous service offerings.  See the Notice of Proposed Rulemaking (NPRM) here. The FTC then announced on December 4, 2023, that it would host a virtual “informal” hearing on January 16, 2024 in connection with the rulemaking, at which a handful of commenters to the NPRM would have an opportunity to provide oral testimony on the agency’s proposals.

Shortly thereafter, a coalition of organizations representing companies that will be impacted by the rulemaking submitted a letter to the FTC expressing serious concerns with both the substance of the NPRM and the process by which the FTC is conducting the rulemaking, and requesting interest in participating in the January 16 hearing.  To say the letter eviscerates the FTC would be an understatement. If even half the points made in the letter are true, the FTC’s “gonna have some ‘splanin’ to do.” (Fun Fact: apparently Ricky Ricardo never said those exact words to Lucy; just another example of the Mandela effect).

If you are interested in watching the January 16 hearing (next Tuesday!), visit the FTC website just before 10 AM ET that day and look for the link to the feed (so I am told).  Should be interesting television to say the least.

One last item of interest re the FTC… just yesterday the agency reported it would be adjusting the maximum civil penalty amount for violations of Section 5 of the FTC Act, which includes violations of rules such as ROSCA and prior settlement orders, from $50,120 to $51,744 per violation.  Yet another reason to ensure compliance with FTC rules.

Now for the new state developments.

Connecticut HB 5314.  This bill, which was signed into law June 28, 2023 and became effective October 1, 2023, supplements (and does not replace) a similar existing law Conn. Gen. Stat. Ann. § 42-126b, which has a narrower scope and limited requirements.  This new law requires sellers to present the “usual suspect” enrollment disclosures upfront in a manner that identically tracks the California definition of “clear and conspicuous,” but without using that term.  But unique here is a requirement to include in the offer terms a link to the cancel option for automatic renewal offers that are made online and contact information for the sellers.  These requirements are without peer in any other state law.

The new law requires sellers to allow consumers the ability to cancel by a calling toll-free telephone number, sending an email or letter via USPS postal mail, or an online means.  Consumers who enroll online must be able to cancel online, at will and without having to take any offline action.  Online cancel options may include (i) a prominently displayed direct link or button located either within the consumer’s (1) account or profile, or (2) device or user settings; or (ii) an email message from the business to the consumer, which is immediately accessible by the consumer and to which the consumer may reply without obtaining any additional information.  Sellers would be prohibited from obstructing or delaying a consumer’s effort to cancel.

Like California and some other states that mandate an online cancellation option for consumers who enroll online, sellers may require subscribers who maintain an account with the seller to enter their account information or otherwise authenticate their identity before allowing them to cancel.  But, a consumer who is unwilling or unable to do this must be allowed to cancel by any of the other means mentioned above.

Sellers must send a notice of a material change to the offer terms, identifying the change and how consumers can cancel.

Even though the existing law §42-126b addresses free trials, HB 5314 is a bit broader, as it includes disclosure and notice requirements for a free gift or trial period, in which case sellers would have to disclose in the offer terms (i) the price that will be charged following expiration of such period, and (ii) how the price might change following expiration of such period.  Where an offer is made electronically or by telephone and includes a free gift or trial period, or a discounted or promotional price period, the seller would have to send the consumer a notice prior to the expiration of the period disclosing much of the same information as the initial enrolment terms.

As for the timing of this notice, unless the seller does not collect or possess a consumer’s email address or telephone number, if the free gift or trial period or discounted or promotional price period is at least thirty-two days in duration (read, generally: more than a month), the notice must be sent between 3 and 21 days prior to the end of the period, and if such period is at least a year, the notice must be sent between 15 and 45 days prior.

Unrelated to the auto renewal portion of the law, sellers who bill customers by electronic invoice must provide consumers the ability to request and receive these invoices in paper form. 

Illinois SB 328.  Signed into law June 9, 2023 and effective January 1, 2024, this bill amends the current Automatic Contract Renewal Law 815 ILCS 601/1 to (i) prescribe particular disclosures that must be made to consumers prior to enrollment, (ii) define “clear and conspicuous” similar to the California ARL, (iii) require an order acknowledgment that includes the auto renewal terms, cancellation policy and information regarding how to cancel (which could be a link to instructions) in a manner that may be retained by the consumer, and (iv) if the offer includes a free gift or trial, how to cancel before the consumer pays for the goods or services associated with the offer.

New York SB 5941.  Signed into law on December 23, 2023 and became effective immediately, this bill amends current law GBL 29-BB to require a renewal notice for offers with an initial term of a year or longer.

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