New York’s brand-new automatic renewal law, SB 1475, went into effect this week, on February 9, 2021. The state joins dozens of others that have already enacted similar laws.
Subscription plans, from video or music streaming services to magazines and online classes, and continuity services that offer everything from coffee beans to cleaning supplies, have become an essential part of our lives, especially more recently as the COVID-19 pandemic has forced consumers to rely on online stores to fulfill even their most basic, everyday needs. It is, therefore, no surprise that there is a renewed focus on consumer protection issues related to automatic renewal plans or continuity services.
Online automatic renewals are regulated at the federal level under the Restore Online Shoppers’ Confidence Act (ROSCA), which is enforced by the Federal Trade Commission. At the state level, more than two dozen states have enacted automatic renewal laws (ARLs), including California, whose ARL has been used as the basis for multiple class actions in recent years.
The New York State Legislature is the latest to join the trend of enacting a far-reaching ARL. Similar to the California ARL, the New York ARL covers both automatic renewal (defined as “a plan or arrangement in which a paid subscription or purchasing agreement is automatically renewed at the end of a definite term for a subsequent term”) and continuous service (defined as “a plan or arrangement in which a subscription or purchasing agreement continues until the consumer cancels the service”). The key provisions of the New York ARL are summarized below:
- Seller must present the offer terms in a clear and conspicuous manner before the subscription or purchasing contract is fulfilled and in visual or temporal proximity to the offer acceptance request. The offer terms must include the following clear and conspicuous disclosures: (1) that the subscription or purchasing contract will continue until the consumer cancels; (2) the description of the cancellation policy; (3) the recurring amount that will be charged, and that the amount of the charge may change, if applicable, and the amount to which the charge will change, if known; (4) the length of the automatic renewal or continuity term, unless the term is chosen by the consumer; and (5) the minimum purchase obligations, if any.
- Seller must obtain affirmative consent to the offer terms before charging the consumer’s credit/debit card or account with a third party.
- Seller must provide the consumer with an acknowledgment in a manner that can be retained by the consumer, which acknowledgment must include (1) the offer terms, (2) the cancellation policy and (3) information on how to cancel. If the offer includes a free trial, the acknowledgment must include information on how to cancel and allow the consumer to cancel before the consumer pays for the good or services.
- Seller must provide a toll-free telephone number, an email address, a postal address if the seller directly bills the consumer, or another cost-effective, timely and easy-to-use cancellation method.
- Seller must provide the consumer with a clear and conspicuous notice of any material change in the terms of the offer and provide information on how to cancel in a manner that is capable of being retained by the consumer, prior to implementation of the material change.
- If seller sends any goods or products to a consumer under an automatic renewal or continuous service agreement without first obtaining the consumer’s consent, such goods or products will be deemed an unconditional gift to the consumer.
- New York’s attorney general can seek an injunction for a violation of the statute, and the court can impose civil penalties of up to $100 for a single violation (and not more than $500 for multiple violations resulting from a single act or incident) or up to $500 for a knowing violation (and not more than $1,000 for multiple violations resulting from a single act or incident). However, a business that can demonstrate a violation was not intentional and resulted from a bona fide error made even though it has procedures to avoid such error will not be deemed to have violated the statute.
Prior to this new ARL, New York had a more limited ARL, N.Y. Gen. Oblig. Law § 5-903, which only applies to service, maintenance or repair contracts for any real or personal property that have an automatic renewal period of more than one month. This more limited ARL, which is still effective, requires the service provider to give notice of the existence of an automatic renewal clause in the contract before the term is renewed in order for such clause to be enforceable, but it does not have the upfront disclosure requirements, easy cancellation method and other consumer-friendly terms that we have come to expect from ARLs more recently. Notably, this ARL applies to B2B contracts whereas the new ARL only applies to consumer contracts.
Why it matters: Given the popularity and prevalence of subscription plans and continuity services, it is highly likely that some of these plans may draw the scrutiny of the New York attorney general under the new ARL, which allows the attorney general to seek injunctive relief and civil penalties. Moreover, while the New York version does not expressly provide for a private right of action, it is possible that given the similarities between the New York ARL and the California ARL, plaintiff lawyers could use the new ARL together with existing state consumer protection laws to bring claims against businesses. To minimize legal exposure under the New York ARL, any businesses offering subscription plans or continuity services should re-examine their order/checkout process, offer terms, cancellation procedure and order acknowledgment notice to ensure that they comply with the requirements of the New York ARL. Keep in mind that a good faith effort to comply with these requirements, such as by instituting a robust compliance program, could insulate a business from liability under the New York ARL.