Several states and the Federal Trade Commission (FTC) have implemented autorenewal laws aimed at (i) better protecting consumers and providing transparency in automatic renewals (e.g., subscriptions) and (ii) mandating easy cancellation processes to terminate such products.
Although state laws vary, the amended California Automatic Renewal Law (CARL) and the FTC's Click-to-Cancel Rule (FTC Rule) provide a comprehensive overview of what businesses can expect when complying with autorenewal laws. While these autorenewal requirements have consumers saying "click, click hooray" understanding and implementing these obligations can create a compliance conundrum for businesses. Here is a summary of what businesses should know.
Who and What Do These Laws Govern?
Automatic renewal products and services, continuous service agreements and negative option features (Autorenewals) are governed under various state laws and the FTC Rule. While these terms vary, they typically include "any plan, product or arrangement that is automatically renewed at the end of a definite term for a subsequent term." Examples of Autorenewals include:
- Paid Subscriptions (including subscriptions on a free trial basis and promotional/discounted offer basis); and
- Free-to-Pay and Fee-to-Pay Conversions (i.e., an offer or agreement to sell or provide any goods or services in which a consumer receives a product or service for free or a reduced amount for an initial period and then will incur an obligation to pay for the product or service if they do not take affirmative action to cancel before the end of that period).
What makes these Autorenewal laws so important for businesses is their broad applicability. Any entity that provides Autorenewals may be subject to the obligations below.
When Do These Laws Take Effect
The FTC Rule took effect January 14, 2025; however, regulated entities have until May 14, 2025, to comply. CARL takes effect July 1, 2025. Additionally, several state Autorenewal laws are currently in effect.
What are Businesses' Obligations under Such Laws
While several obligations exist under these Autorenewal laws, the core obligations under CARL and the FTC Rule are (i) obtain consumers' affirmative consent for the Autorenewal; (ii) disclose/provide notice of the Autorenewal to consumers; and (iii) ensure cancellation is simple, easy to locate and symmetrical to the Autorenewal enrollment process.
Affirmative Consent.
- CARL: A business must obtain consumers' express affirmative consent to the Autorenewal terms. Consent must be obtained before charging a consumer for the autorenewal.
- FTC Rule: Consent must be obtained before charging the consumer. The required consent may be obtained through a check box, signature, or other substantially similar method. The consumer must affirmatively select or sign to accept the Autorenewal and no other portion of the transaction. The consent request must be presented in a manner and format that is clear, unambiguous, non-deceptive, and free of any information not directly related to the consumer's acceptance of the Autorenewal.
- Retention: Under CARL and the FTC Rule, consent must be obtained for at least three years.
Present Autorenewal Offer Terms.
- CARL: The CA law requires entities to present
Autorenewal offer terms before the subscription or purchasing
agreement is fulfilled. What must be included to consumers is (i) a
disclosure that the subscription or purchasing agreement will
continue until the consumer cancels; (ii) a description of the
cancellation policy that applies to the offer; (iii) the recurring
charges that will be charged to the consumer's credit or debit
card or payment account with a third party as part of the
Autorenewal plan or arrangement, and that the amount of the charge
may change, if applicable, and the amount to which the charge will
change if known; (iv) the length of the Autorenewal term or that
the service is continuous, unless the length of the term is chosen
by the consumer; and (v) the minimum purchase obligation, if any.
- Acknowledgment. CARL also requires entities to provide an acknowledgment of the renewal terms that includes the (i) Autorenewal offer terms; (ii) cancellation policy and (iii) information on how to cancel in a manner that is capable of being retained by the consumer (e.g., email, mail).
- Annual Reminder. Businesses must also provide an annual reminder to any consumer who is under an annual Autorenewal agreement in the same medium that led to the activation of the Autorenewal, or the same medium in which the customer is accustomed to interacting with the business (e.g., email).
- FTC Rule: The FTC Rule does not outline an explicit requirement to list offer terms, however disclosing the Autorenewal pricing, duration and other information is further outlined in the "Disclosure/Notice" section below.
Notice/Disclosure.
- CARL: CARL notice obligations are covered when
presenting the renewal offer terms discussed above. However, CARL
requires entities to provide additional notice in limited scenarios
when either (i) the consumer accepts a free gift, trial or
discounted/promotional price lasting for more than 31 days, that
was included in an Autorenewal offer or (ii) the consumer accepted
an Autorenewal offer with an initial term of one year or longer
that automatically renews unless the consumer cancels the
Autorenewal. The content requirements for this additional notice
are like the offer terms above, but also require a business to
include:
- The length and any additional terms of the renewal period;
- One or more methods by which a consumer can cancel the Autorenewal;
- If the notice is sent electronically, the notice must include either a link that directs the consumer to the cancellation process or another reasonably accessible electronic method that directs the consumer to the cancellation process if no link exists; and
- Contact information for the business.
- FTC Rule: Before obtaining a consumer's
billing information, a business must disclose all material terms,
regardless of whether those terms directly relate to the
Autorenewal, including but not limited to:
- A description providing that consumers will be charged for the Autorenewal, or that those charges will increase after any applicable trial period ends, and, if applicable, that the charges will be on a recurring basis unless the consumer takes timely steps to prevent or stop such charges;
- Each deadline (by date or frequency) by which the consumer must act to prevent or stop the charges;
- The amount (or range of costs) the consumer will be charged and, if applicable, the frequency of the charges a consumer will incur unless the consumer takes timely steps to cancel; and
- The information necessary for the consumer to find the simple cancellation mechanism.
Notably, the FTC Rule disclosure must appear immediately adjacent to the consumer's consent for the Autorenewal (i.e., next to the affirmative consent checkbox).
- Cancellation. Under CARL and the FTC Rule,
businesses must allow consumers to cancel their Autorenewal that is
symmetrical to the enrollment process. The goal of these laws is to
create a seamless cancellation process that is not complicated for
subscribers. The options for cancellation must be in a simple
fashion that is "in the same medium" used to enroll or in
the same medium in which the consumer is accustomed to interacting
with the business. For example:
- Enroll by phone means cancel by phone; and
- Enroll via mobile application means cancel via mobile application or by email if the consumer routinely interacts with a business via email.
- Save Offers (CARL-Specific). CARL outlines
requirements for businesses that choose to incentivize an
individual from canceling (e.g., "Before you go, here is a
discount"). Under CARL, the obligations when implementing save
offers depend on the medium in which the offer is advertised.
- Online Save Offers. If a consumer expresses their interest to cancel by an online system, a business may display a discounted offer, retention benefit or other information regarding the effects of cancellation ("Save Offer") but a prominent "click to cancel" button must be adjacent to any Save Offer.
- Save Offer Via Telephone. If a consumer requests to cancel by telephone, a business may present a Save Offer provided that the business first clearly and conspicuously informs the consumer that they may complete the cancellation process at any time by stating that they want to "cancel" or words to that effect. If the consumer states their intention to "cancel" or words to that effect, a business must promptly process the cancellation and must not otherwise obstruct or delay the consumer's ability to cancel.
Enforcement.
- CARL: CARL offers enforcement in two ways (i) California regulators can seek penalties up to $2,500 per violation and (ii) individuals have a private right of action allowing them to sue companies directly for CARL violations.
- FTC Rule: The FTC can impose civil penalties of $51,744 per violation. Unlike CARL, there is no private right of action under the FTC Rule.
Looking Ahead.
The obligations above are simply an overview of the requirements under CARL and the FTC Rule. Given the broad scope of these Autorenewal laws, businesses should:
- Determine whether the business offers any Autorenewal product or service;
- Identify the medium each Autorenewal product is offered (e.g., by website, mobile application, in-person, over the phone or a combination of mediums);
- Consider applicable laws including state laws like CARL and the FTC Rule;
- Outline an Autorenewal process for each product and specific medium (businesses should consider at what stage in the enrollment process is affirmative consent collected, at what stage in the enrollment process is notice provided and so on);
- Test your cancellation processes (businesses should assess whether canceling the product is simple and easy or if cancellation is complicated/a scavenger hunt); and
- Work with legal counsel to ensure applicable Autorenewal obligations are in place.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
