The first half of 2022 saw significant activity affecting the state automatic renewal laws (ARLs) that regulate continuing or renewing contracts:
- Lawsuits were filed against prominent companies such as Amazon and Google.
- A federal court adopted a novel interpretation of the “acknowledgment” requirement in California’s oft-litigated ARL.
- New ARLs were enacted with bipartisan support in Tennessee and Idaho.
- Amendments were enacted in Florida and Virginia.
In combination with continued legislative interest in other states, these recent developments suggest that ARLs will continue to grow in substantive scope and geographic reach.
Following fitness app developer Noom’s $62 million class settlement of ARL claims in January, new ARL actions show no sign of slowing. These new lawsuits include a putative class action alleging that various Amazon services — including Amazon Prime — violate the California ARL. Also notable is a putative class action targeting Google and YouTube services such as YouTube Music, YouTube TV and YouTube Premium. Although the cases are substantively similar, the Google action is procedurally different from most recent ARL litigation because it was filed not in a California court under California’s ARL, but in the District of Oregon under Oregon’s ARL.
Conflicting Interpretations of California’s “Acknowledgment” Requirement Continue
In a May 6, 2022, opinion in Rutter v. Apple Inc., the Northern District of California reached the novel conclusion that the “acknowledgement” required by California’s ARL can be satisfied before a purchase, specifically in a copy of the terms and conditions that was presented before the purchase was finalized. Rutter v. Apple Inc., No. 21-4077-HSG, 2022 WL 1443336, at *7 (May 6, 2022). Although other federal courts have read the requirement broadly and approved acknowledgments sent many months after a purchase, Rutter appears to be the first decision to address the propriety of an acknowledgment before a purchase.
California’s ARL requires “an acknowledgment that includes the automatic renewal offer terms or continuous service offer terms, cancellation policy, and information regarding how to cancel,” Cal. Bus. & Prof. Code § 17602(a)(3), and states that such acknowledgement “may” be provided “after completion of the initial order.” Id. § 17602(e)(1). The California Auto Renewal Task Force (CART) — a coalition of district and city attorneys — has read this provision as requiring that an acknowledgment be sent shortly after a purchase. Indeed, it has required in settlements that “post-payment acknowledgments“ be provided, for example, within 24 hours by email or 21 days by mail. By contrast, the Ninth Circuit and the Central District of California have held that notices sent many months after purchase were satisfactory “acknowledgments,” even concluding that “the ARL explicitly permits a later reminder of renewal to replace the original notice for purposes of satisfying [the acknowledgment requirement].” Hall v. Time, 857 Fed. App’x 385, 387 (2021) (mem.) (emphasis added).
In the recent Rutter decision, the Northern District of California found that “the ARL does not require ‘post-purchase’ disclosures” in light of the statutory language that the acknowledgment requirement “may be fulfilled after completion of the initial order.” Rutter, 2022 WL 1443336, at *7 (emphasis in original).
Of course, the Rutter ruling — which granted leave to amend the complaint — could yet be revisited. And neither the negotiated terms of settlements nor these federal rulings are binding on California state courts. But until the California legislature or state courts authoritatively resolve the issue, Rutter adds to the growing weight of authority favoring a permissive interpretation of the “acknowledgment” requirement.
Tennessee Adopts Broad ARL for 2023
On April 13, 2022, Pub. Ch. 803 became law in Tennessee. Effective January 1, 2023, it will apply to any automatic renewal or continuous service offer for consumer goods and services.
The law borrows common features from other ARLs. It will require sellers to provide clear and conspicuous disclosures of the renewal terms in proximity to a request for the consumer’s consent to the agreement. Consumers — including those who sign up for free trials — must be provided an acknowledgment containing the terms and cancellation information and also must be notified of any “material” change in terms. The law mandates a “cost-effective, timely, and easy-to-use” cancellation method, as well as an online cancellation option for agreements entered into online.
A violation of the ARL will constitute an “unfair or deceptive act or practice” under the state’s Consumer Protection Act of 1977, which grants consumers a right to sue and gives enforcement authority to the Tennessee attorney general.
Idaho Adopts ARL for Online Sales for 2023
On March 23, 2022, SB 1298 became law in Idaho. Effective January 1, 2023, it will apply to “automatic subscription renewal” agreements “entered into via the internet to provide goods or services to an Idaho consumer,” making it narrower in scope than many ARLs — like the new Tennessee law — that apply to goods and services purchased both online and offline.
The new law is also relatively limited in its requirements. Businesses must clearly and conspicuously disclose the renewal terms and cancellation methods. They also must offer free cancellation methods “that include free online cancellation” and “cancellation in the same manner used to subscribe.” Customers must receive a reminder 30–60 days in advance of any renewal for a term of 12 months or more.
Violations of the ARL will be considered violations of the Idaho Consumer Protection Act, which offers consumers a right to sue, renders the contract voidable and provides enforcement authority to the state attorney general.
Virginia and Florida Continue Online Cancellation Trend
Two more states are poised to join a growing number of states requiring an online cancellation option for consumers who enter into renewing agreements online.
In Virginia, HB 78 was signed into law on April 11, 2022. Effective July 1, 2022, it will require businesses “making automatic renewal or continuous service offers through an online website” to “make available a conspicuous online option to cancel.”
HB 749 was signed into law in Florida on June 3, 2022. Among other things, it amends Florida’s existing ARL to require that consumers be allowed “to cancel the service contract in the same manner, and by the same means, as the consumer manifested his or her acceptance of the service contract” — effectively requiring an online cancellation option for consumers who enter into agreements online.
These bills come on the heels of recent laws in other states requiring an online cancellation option for online agreements. Within the past year, some form of this requirement has appeared in a new Delaware ARL, an amendment to the Illinois ARL and the recently passed Tennessee ARL. And California — which has long had an online cancellation provision — last year passed amendments adding significant detail to its online cancellation requirements; as discussed in our Fall 2021 update, these amendments will go into effect on July 1, 2022.
Increased Legislative Activity Suggests Continued ARL Expansion
The bipartisan support for recent ARL legislation, combined with continued legislative interest in states currently without ARLs, suggests that ARLs will continue to expand in their geographic reach and their substantive scope.
Among the seven ARL bills passed since the beginning of 2021, only two — in Colorado and Idaho — received any notable opposition. Even so, the Colorado bill still passed the legislature by a nearly 2-to-1 margin, and the Idaho bill sailed through by a roughly 6-to-1 margin. Bills in California, Delaware, Illinois, Tennessee and Virginia received, collectively, a single recorded “no” vote.
Even failed legislative efforts are notable for the quantity and extent of support some have received. Unsuccessful bills to enact broadly applicable ARLs were introduced this year in Iowa, Kentucky, Michigan (with a second more limited bill), Missouri, New Jersey, Oklahoma, Pennsylvania and West Virginia. Although most of these bills died early in the legislative process, two bills made more progress and had strong support (one passed the Kentucky House 75–12, and the other passed the West Virginia Senate 33–0).
For More Information
Faegre Drinker’s consumer contracts team continuously monitors developments relating to ARLs and regularly helps clients tailor compliance strategies to their business needs. Questions can be directed to the authors or to your usual Faegre Drinker contacts.