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The Green Sheet Online Edition

July 12, 2021 • Issue 21:07:01

Readers Speak: Automatic contract renewals and state law

We wish to thank John DeVries, president and CEO of National Processing Agency Inc., for sending us the following about state laws pertaining to automatic renewal agreements:

"California’s Senate Bill 313, which went into effect in 2018, is among the most stringent legislation pertaining to auto renewal law (ARL). Under the law, a business that makes an automatic renewal offer or continuous service offer that includes a free gift or trial must include in the offer a clear, conspicuous explanation of the price that will be charged after the trial ends or the manner in which the subscription or purchasing agreement pricing will change at the trial's conclusion. It also prohibits a business from charging a consumer’s credit or debit card, or account with a third party, for an automatic renewal or continuous service offered at a promotional or discounted price for a limited time without first obtaining the consumer’s consent.

"In addition, if such an offer includes a free gift or trial, the business must disclose how to cancel, and allow the consumer to cancel before paying for the goods or services. And it requires that a consumer who accepts an automatic renewal offer or continuous service offer online be allowed to terminate it, as specified.

"California’s original ARL was already broader and more detailed than the requirements of the federal Restore Online Shoppers’ Confidence Act (ROSCA). The stricter California rules came amid a significant increase in class action litigation on behalf of consumers under California's original statute, including a recent multimillion-dollar judgment against EHarmony.

"Under the ARL, a company that enters into an auto-renewal contract with a California consumer can be held liable for violations; therefore, businesses offering goods or services on an auto-renewal basis in California should comply with the updated rules. In particular, companies with a free trial or promotional pricing models should revise their pre-and post-purchasing disclosures to comply with the new requirements. Class action litigation can be costly, disruptive and risky for any businesses."

Alert your colleagues

Are you aware of changes to laws or regulations that your peers should know about? Email us at greensheet@greensheet.com. We'll help spread the word. end of article

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