Liam Kenney

Associate Editor

Loyola University Chicago School of Law, JD 2021

In the age of online consumerism, many companies utilize automatic renewal programs to deliver their products and services to customers on a recurring basis for a monthly or annual charge. Recently, autorenewal programs have seen an increase in consumer protection through legislation at both the state and federal level along with enforcement actions brought by private plaintiffs, state attorney generals, and the Federal Trade Commission (“FTC”). Organizations that utilize automatic renewal should be aware of the uptick in autorenewal program enforcement and look to strengthen and update their policies where appropriate.

The basics of autorenewals

The Restore Online Shopper’s Confidence Act (“ROSCA”) is the main federal regulation that dictates how automatic renewal programs should operate. Under ROSCA, companies that utilize autorenewal programs online must first meet several requirements in order to charge customers for products or services on a recurring basis. Express and informed consent must be obtained before charging, customers must be informed of the material terms of the offer, and a simple way to cancel the autorenewal must be provided. State laws vary in their technical requirements but are general similar to that of the federal statute.

Other relevant legislation includes the Federal Telemarketing Sales Rule (“TSR”). TSR applies to telemarketing and sales made over the phone. Under TSR the seller organization must truthfully, clearly, and conspicuously disclose the steps a consumer must make to avoid the related charges, the nature of the goods or service offered, the dates of the charges for payment, and that the customer must make an affirmative action to avoid future charges. Similar to ROSCA, an express agreement from the customer must be obtained to be charged. There are also a series of recordkeeping requirements that must be followed by the seller organization.

Seller organizations would also do well to keep in mind other relevant regulations such as the Federal Trade Commission Act and the Electronic Funds Transfer Act (“EFTA”). The Federal Trade Commission Act prohibits unfair or deceptive acts or practices in or affecting commerce. Companies should be wary of using such unfair or deceptive tactics when utilizing an autorenewal program. The EFTA especially applies to companies that deal with debit card transactions and contains requirements for confirmation, material changes, and recordkeeping.

Recent enforcement action

The FTC has made a point to target companies in possible violation of the Federal Trade Commission Act and ROSCA. Last fall (2020) the online company Age of Learning was ordered to pay $10 million in penalties and was forced to change its marketing and billing practices. The FTC found that the organization had renewed and charged tens of thousands of customers for memberships without their consent. The FTC’s complaint alleged that Age of Learning failed to notify customers that their memberships would renew automatically, that the charges would recur every year unless the customer cancelled their membership and neglected to inform customers how they could cancel their membership. Customers had attempted to cancel memberships through a variety of avenues including by email, phone, and Age of Learning’s customer support system. However, the company did not follow the cancellation procedures that it had established and required its customers to, “find and navigate a lengthy and confusing cancellation path that repeatedly discouraged consumers from canceling” according to the complaint. Companies should heed this example and look to bolster their policies and actions against potential violations moving forward.

The recent focus of ROSCA enforcement has been issues such as a failure by the marketer to adequately disclose the terms and conditions of an automatic renewal offer the Act’s “clear and conspicuous” standard. The focus has also included the failure to provide a simple and straightforward method of cancellation, and failures to properly disclose how a customer may stop recurring charges. Penalties for violations of the above-mentioned statutes include injunctive relief and monetary relief in the form of refunds, contract recissions, disgorgement, and statutory penalties through the FTC or state authorized civil penalties. It is important to note here that the Supreme Court is currently deciding AMG Capital Management, LLC v. Federal Trade Commission which may establish the scope of authority that the FTC has to recover monetary relief for certain FTC actions.

Summary of requirements

In general, companies should keep in mind the foundational principles of the legislation discussed above and analyze their renewal programs for potential violations. Autorenewal programs should conform to six main principles. These are: clear and conspicuous disclosures, affirmative express and informed consent, confirmation of orders, a simple method of cancellation, reminders of renewal, and notice of material changes to the offer. By establishing compliance with these principles, companies are well on their way to avoiding enforcement action.