FTC Proposes Changes to Automatic Renewal Laws

If you are a business that offers subscription-based products or services, you may want to pay attention to the Federal Trade Commission's (FTC) recent proposed changes to the automatic renewal laws. These changes could affect how you disclose, obtain consent, and cancel automatic renewals for your customers.

The FTC is the federal agency that enforces consumer protection laws and regulations in the United States. One of its main goals is to prevent unfair or deceptive practices that harm consumers or competition. The FTC has the authority to issue rules and guidelines, conduct investigations, file lawsuits, and impose penalties for violations.

One of the areas that the FTC regulates is automatic renewal contracts, which are agreements that automatically renew a product or service at the end of a term unless the consumer cancels. Automatic renewals can be convenient for both consumers and businesses, but they can also lead to consumer complaints and disputes if they are not clearly disclosed and easy to cancel.

The FTC has issued a notice of proposed rulemaking (NPRM) that would amend its existing rule on automatic renewal contracts, which was issued in 2010. The proposed changes are based on the FTC's experience in enforcing the rule and feedback from stakeholders. The FTC claims that the proposed changes would provide more clarity and consistency for businesses and consumers, and would better align with state laws on automatic renewals.

Some of the key proposed changes are:

• Expanding the scope of the rule to cover all types of products and services, not just magazines and other publications.
• Requiring businesses to provide a clear and conspicuous disclosure of the material terms of the automatic renewal contract before obtaining the consumer's consent. The disclosure must include:
  • The length of the initial term and each subsequent term;
  • The amount of each recurring charge and when it will be charged;
  • The minimum purchase obligation, if any;
  • How to cancel the automatic renewal; and
  • Any other material information that affects the consumer's decision to enter into the contract.
• Requiring businesses to obtain a separate affirmative consent from the consumer for each automatic renewal contract. The consent must be obtained through a checkbox, button, or other mechanism that requires the consumer to take an affirmative action to indicate their agreement. Pre-checked boxes or default settings are not sufficient.
• Requiring businesses to provide a confirmation email or other written communication after obtaining the consumer's consent. The confirmation must include:
  • A copy of the disclosure of the material terms;
  • A toll-free telephone number, email address, postal address, or other easy way for the consumer to cancel; and
  • Information on how to obtain a refund or credit for any charges made within one billing cycle before cancellation.
• Requiring businesses to honor cancellation requests made through any reasonable means, such as phone, email, online form, or mail. Businesses must not impose any fees, conditions, or burdens on consumers who want to cancel.
• Prohibiting businesses from charging consumers for products or services after they have canceled their automatic renewal contract.

The FTC is seeking public comments on its proposed changes until April 25, 2023. You can submit your comments online at https://www.regulations.gov.  

If you have any questions or concerns about how these proposed changes may affect your business, please contact us to discuss the potential implications. You should also review your current practices and policies on automatic renewals and make sure they comply with the existing rule and any applicable state laws.

Automatic renewals can be a beneficial way to retain customers and generate recurring revenue for your business. However, they also come with legal obligations and risks that you need to be aware of and follow. By providing clear disclosures, obtaining express consent, sending confirmation emails, honoring cancellation requests, and avoiding unauthorized charges, you can avoid potential problems with the FTC and your customers.