Vermont Tightens its Grip on Automatic Renewal Contracts

Most states have laws regulating “automatic renewal contracts” (ARC), but Vermont’s new House Bill 593 is one of the strictest. The Act, which updates Vermont’s current ARC laws, became law on May 28, 2018. The new regulatory requirements will take effect on July 1, 2019 and are aimed at protecting consumers from deceptive business practices.

The Act applies to contracts with an initial term of one year or longer that renew for a term longer than one month.  For these contracts, the Act requires:

  1. The contract state clearly the terms of the automatic renewal provision in plain language in bold face type; and
  2. The consumer must take an affirmative action to opt into the automatic renewal provision in addition to accepting the contract in general.

If a buyer opts into an automatic renewal provision, the seller must provide a written or electronic notice to the consumer 30 to 60 days prior to the earliest of either:

  1. The automatic renewal date;
  2. The termination date; or
  3. The date by which the consumer must provide notice to cancel the contract.

The seller’s notice also must include disclosure of material terms such as the date of termination and a clear statement that the contract will renew automatically unless the consumer cancels the contract on or before the termination date, one or more methods by which the consumer can cancel the contract, and other key information.

Vermont is the first and only state in the country to require a “double opt-in” for ARCs. Not only must consumers accept the contract itself but they must also take some affirmative action to opt in to the automatic renewal provision.

For contracts entered into prior to July 1, 2019, the Act requires that sellers send written or electronic notices to the consumer as mentioned above before automatically renewing the contracts. If a contract will automatically renew on or before June 30, 2019, then the seller must send the consumer notice as soon as is commercially reasonable to do so after the Act takes effect.

In addition to Vermont’s Act, California recently strengthened its ARC law by requiring sellers to offer consumers who purchase online an exclusively-online cancellation option (Cal. Bus. & Prof. Code § 17602(c)). As ARCs gain popularity, sellers can expect even more regulations to come. Now is an optimal time for sellers to review their ARC practices with their counsel to ensure compliance.

* Ali Najaf contributed to this post.