Recently, Kentucky enacted an automatic renewal law (ARL) that will be effective January 1, 2024. Kentucky joins a growing list of states with broad ARLs that apply to contracts with automatic renewal or continuous service provisions. Georgia’s legislature is also on the cusp of approving an ARL. With growing popularity of automatic renewal products — think all those web streaming services you probably forgot you had – states and the Federal Trade Commission are paying more attention to ensure consumers understand product terms and have the ability to easily cancel.
Applicability and requirements under ARLs vary significantly from state to state and online sellers are particularly challenged. This is because the ARL of the state in which a consumer is located applies, and most online sellers do not geographically limit their potential customer base. Common ARL requirements include:
- Pre-purchase terms disclosures in a clear and conspicuous manner;
- Consent to the automatic renewal provision;
- Automatic renewal reminders (typically 15-60 days before renewal with variation across states and product renewal periods); and/or
- Easy cancellation methods that are no more burdensome than sign-up.
A violation of an ARL can carry heavy penalties which makes the risk of non-compliance substantially outweigh the cost and brand reputation benefit of compliance. Potential risks include:
- Civil penalties, often including fines of up to $5,000 per violation;
- Ability of consumers to cancel the contract in whole or in part;
- Issuance of consumer refunds;
- Attorney General action obtaining temporary or permanent injunction;
- Restitution for consumers who incurred loss of money or property directly resulting from such violation(s); and/or
- Class action lawsuits.
As more states enact ARLs, sellers should ensure compliance with both state and federal regulations by working with experienced legal counsel. We are actively tracking ARLs in each state as they are enacted and/or amended and stand ready to assist.
*Jennifer Tran contributed to this article
A Partner at M&S, Josh advises clients on a range of proactive and responsive matters, helping them achieve their business goals while complying with federal and state privacy and other consumer protection laws.