March 23, 2021

Drafting and Enforcing Automatic Renewal Clauses: Continuous Contracts and Subscription Services

Consumer Protections, Penalties, Trends in California and New York and More



Partner Mike Daly and Associates Matthew Adler and Antoinette Snodgrass are presenting a CLE webinar on drafting and enforcing automatic renewal provisions in subscription agreements and other continuous contracts. In addition to looking at nationwide trends, they will address the recent New York law that went into effect on Feb. 9, 2021, joining an increasing number of laws imposing strict demands on automatically renewing and continuous contracts.

The recent New York law related to automatically renewing contracts is much more expansive than the prior law limited to contracts for "service, maintenance or repair." The new law resembles the California automatic renewal law that has spawned a considerable amount of class action litigation and follows the national trend of regulating such contracts.

More than half of the states currently have restrictions on auto-renewal clauses in consumer contracts. Automatic renewals can benefit both customers and businesses; customers enjoy having their favorite products or services delivered to them automatically and businesses benefit from the predictable delivery of their products and services. States and regulators seek to ensure that online retailers and service providers will not misuse automatic renewals and fail to provide consumers with adequate disclosures or an easy mechanism to cancel their subscriptions before being charged again.

Counsel need to be aware of differing state laws and advise businesses on restructuring their current automatic renewal processes in every state in which they operate. Businesses must consider the additional consent requirements and update their systems so that customers are not automatically billed until the business receives all the opt-ins required to process the transaction.

Most state regulations include significant penalties for noncompliance. Some states levy traditional fines that can total millions of dollars due to the nature of subscriptions and violations. Other states allow consumers that receive goods or services from businesses that fail to comply to keep the product or services as a gift with no payment due.

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