Automatically renewing contracts — which have become increasingly popular for the convenient, uninterrupted delivery of goods and services they provide — continue to be targeted by state legislatures concerned about supposedly unexpected renewals or inconvenient cancellation procedures. In the few months since our last update, three states — California, Delaware and Illinois — have passed new or amended automatic renewal laws (ARLs).
California Borrows Common Requirements From Other States
Governor Newsom’s signing of A.B. 390 on October 5 means that businesses operating in California — which is already a hotbed for ARL litigation — will need to comply with even more regulations effective July 1, 2022. California’s ARL was one of the first of its kind, and other states have more recently enacted ARLs with requirements not found in California. A.B. 390 essentially borrows some of these newer requirements, which will be familiar to businesses with existing multi-state ARL compliance strategies.
California will now require businesses to provide renewal reminders, 15 to 45 days before renewal, to customers who agreed to an initial contract term of one year or more. Businesses offering free or discounted trials lasting more than 31 days will also need to provide a renewal reminder 3 to 21 days before the trial period expires. While California already mandated an online cancellation option for agreements entered into online, the amendment adds detailed requirements concerning consumers’ ease of access to cancellation links.
Delaware Enacts Broad ARL for 2022
Delaware has now adopted its first ARL applying to broad categories of consumer contracts. S.B. 93, which will take effect on January 1, 2022, will apply to the sale, lease, or offer for sale or lease of any merchandise to a consumer. It will require (1) clear and conspicuous disclosure of automatic renewal terms; (2) renewal reminders 30 to 60 days before the cancellation deadline for certain renewals extending the contract beyond 12 months; and (3) a cost-effective, timely and easy-to-use cancellation mechanism, including online cancellation for agreements entered into online.
While Delaware’s new law includes provisions that have become relatively common in other states, it is noticeably less burdensome than some other ARLs. For example, it only applies to “merchandise” — not “goods and services,” as often seen — and it does not include specific rules about free trials, like those recently adopted in California. Consumers can file suit for violations of the law, but they must first provide businesses with an opportunity to cure the alleged violation. Businesses that nonetheless find themselves embroiled in litigation might also be able to invoke a “good faith” defense explicitly set forth in the new law.
Illinois Adds Online Cancellation Requirement
Illinois, which already had a broadly applicable ARL, passed an amendment that will require an online cancellation option for consumers who enter into agreements online. H.B. 3955 will go into effect on January 1, 2022. This is substantially the same as requirements that are already in place in other states, such as California, Colorado, New York and Vermont, as well as one of the provisions that will go into effect in Delaware.
For More Information
Faegre Drinker’s consumer contracts team continuously monitors developments relating to ARLs. Questions about complying with ARLs can be directed to the authors listed below or to your usual Faegre Drinker contact.