Consumers have come to expect — indeed, to welcome — automatically renewing contracts. That is true now more than ever, as the regular replenishment of certain household goods has gone from being a matter of convenience to a matter of survival.
Yet the regulation of such contracts has become Balkanized by byzantine state automatic renewal laws (ARLs). Dozens of ARLs across the country impose overlapping and sometimes conflicting conditions on, for example, how terms must be disclosed, how consent must be obtained and how termination must be permitted. While some statutes apply only to certain kinds of contracts, the recent trend has been to sweep more and more contracts within their scope. And not surprisingly, the plaintiffs’ bar has responded by invoking — and sometimes distorting — the broadest and most comprehensive ARLs in a growing number of consumer class actions.
On November 11, 2020, New York joined the growing list of states with a sweeping ARL that could give rise to such suits. Bill S1475A — which was just signed into law by Governor Cuomo — is a dramatic departure from New York’s original ARL. Indeed, it adopts many of the features of California’s ARL, which is one of the most onerous ARLs in the country, and which has been the subject of considerable class action litigation. The new ARL will take effect in February 2021. Below, we briefly discuss New York’s original ARL and the new law.
New York’s Original ARL
New York’s original ARL is narrow. Although it applies to both commercial and consumer contracts, it applies only to contracts “for service, maintenance, or repair to or for any real or personal property” in which the renewal period is longer than one month. N.Y. Gen. Oblig. Law § 5-903. Other contracts are beyond its scope.
The original ARL generally requires that businesses send a renewal reminder between 30 and 15 days before a term expires. Reminders must: (1) be in writing; (2) be served personally or by certified mail; and (3) call the recipient’s attention to the existence of the contract’s automatic renewal provision.
Importantly, the original ARL has not been repealed. To the contrary, it will remain on the books even after the new ARL takes effect. Businesses should therefore comply with both of New York’s ARLs if they apply.
New York’s New ARL
New York’s new ARL is both broader and narrower than its original ARL. It is broader because it applies to any automatically renewing “subscription” or “purchasing agreement,” as those terms are defined by the statute, irrespective of the underlying subject matter of the contract. But it is also narrower because it applies only to contracts with “consumers,” which it defines as a person who is buying or leasing the goods or services at issue “for personal, family, or household purposes.” The new ARL should not, then, apply to commercial contracts.
The new ARL is different not only in scope, but also in substance. First, it prohibits renewing a contract if a consumer’s “affirmative consent” to the automatic renewal is not obtained. If it is not, some goods that may have been sent to the consumer may be deemed an “unconditional gift” — an unusual remedy that inevitably inspired a torrent of litigation under California’s similar statute.
Second, the new ARL requires advance notice of specific things in specific ways at the point of sale. Specifically, it requires disclosures of certain “automatic renewal terms,” for example, the cancellation policy, recurring charges, and length of the renewal term, among other things. And it requires that those disclosures be presented not only in a “clear and conspicuous” way, but also in “visual proximity” to the request for a consumer’s consent. These requirements — though seemingly innocuous — can pose significant difficulties from a compliance standpoint and are oft-litigated issues under California’s ARL.
Third, the new ARL requires that consumers receive an acknowledgment — in “a manner that is capable of being retained by the consumer” — that includes, among other things, the automatic renewal terms and information regarding how to cancel the agreement. It also requires that the cancellation procedures include a web-based option.
Fourth, the new ARL requires that any material change to the renewal terms must be sent to the consumer in a “clear and conspicuous” notice — again with information for how to cancel, and again in a manner that is “capable of being retained by the consumer.”
Finally, the new ARL gives the New York attorney general the power to seek an injunction, and permits courts to impose civil penalties of $100 per violation (or up to $500 per “knowing” violation). Notably, the new ARL does not purport to create a private right of action to enforce violations through lawsuits under the ARL itself. It is important to note, however, that courts in states with similar ARLs have allowed a private right of action for ARL violations if it is otherwise permitted by other state consumer protection statutes. Time will tell whether New York courts will permit a private right of action here. In either case, the new statute provides a good-faith defense for businesses whose alleged violations were unintentional and resulted from a bona fide error.
For More Information
Faegre Drinker’s consumer contracts team will be closely monitoring the new ARL and any government enforcement actions and private lawsuits, which we expect will try to establish a private right of action. Questions about complying with this and other ARLs can be directed to the authors listed below or to your usual Faegre Drinker contact. For further information on other state ARLs and compliance issues, click here.