Everyone thinks that when the federal government shuts down, nothing happens in Washington. Not true. Last week, following in the footsteps of other states, the District of Columbia passed a new law regulating automatic renewal offers. The law affects all companies that sell goods or services pursuant to a contract that automatically renews at the end of a definite term. Although the law mirrors other states’ laws in some respects, it creates much stricter requirements in others.
First, similar to other states’ requirements, the law requires advertisers who sell goods or services on an automatic renewal basis to clearly and conspicuously disclose the automatic renewal provision and cancellation procedure in the contract.
Second, if a company sells an automatic renewal offer with an initial term of 12 months or more that automatically renews for a term of one month or more, the company must send notifications to the customer at the end of the first year and annually thereafter, which must be sent via mail, email, text message or mobile phone app (if the customer has consented to receiving such mobile messages). The notification must clearly and conspicuously disclose: that the contract will automatically renew unless the customer cancels; the cost of the goods or services for the automatic renewal term; the deadline by which the customer must cancel to prevent automatic renewal; and the methods by which the consumer may obtain details of the autorenewal provisions and cancellation procedures. If the notice is provided by email, the email must include a hyperlink allowing the customer to cancel the automatic renewal.
Finally, if a company offers free trials to customers that convert to a paid subscription with a renewal term of one month or more, the company must notify the customer between one and seven days before the trial period ends that the contract will automatically renew, and obtain the customer’s affirmative consent to the automatic renewal before charging the customer. Critically, this consent must be obtained even if the company already obtained the consumer’s affirmative consent to the free trial.
Although the law imposes arduous requirements, it also offers a safe harbor defense for good faith violations of the law. However, to avail itself of this safe harbor defense, the company must implement written procedures to comply with the law, any violations must have been by mistake, and in the event of a mistaken violation of the law, the company must provide the customer with a credit for the amounts billed or refund the customer for all amounts paid by the customer due to the mistaken renewal.
The law comes in the wake of MasterCard’s tightening requirements on negative option marketing, in addition to the passage of stricter automatic renewal laws in other states like Virginia and Vermont. Companies offering products on an automatically renewing basis should take note and make sure their offers comply with the most recent laws and requirements.