New York recently became the latest state to enact strict laws regarding the provision of automatic renewal and continuous service clauses in paid subscription or purchasing agreements with consumers (N.Y. Gen. Bus. Law §§ 527 and 527-a). The new law went into effect on February 9, 2021.
New York joins other states such as California, District of Columbia, Florida, Georgia, Hawaii, Illinois, Louisiana, New Mexico, North Carolina, Oregon, Vermont, and Virginia who have enacted similar laws broadly regulating the use of auto-renewal clauses by sellers of goods and services in contracts with their consumers.
New York’s new law broadly governs any contract for goods or services with “any individual who seeks or acquires, by purchase or lease, any goods, services, money, or credit for personal, family, or household purposes” (N.Y. Gen. Bus. Law § 527(4)) in which a “plan or arrangement in which a paid subscription or purchasing agreement is automatically renewed at the end of a definite term for a subsequent term” (N.Y. Gen. Bus. Law § 527(1)) or in which a “plan or arrangement in which a subscription or purchasing agreement continues until the consumer cancels the service” (N.Y. Gen. Bus. Law § 527(5)). In addition to the new law, New York maintains an existing law applicable to service contracts for service, maintenance, or repair to or for any real property with auto-renewal periods greater than one (1) month. (N.Y. Gen. Oblig. Law § 5-903).
The following five points provide an overview for complying with New York’s recently enacted automatic renewal law:
- Clear and Conspicuous. Before the purchase of goods or services is made, the terms of the offer should “clearly and conspicuously” present that the subscription or purchasing agreement will continue until terminated, the cancellation policy, the amount of the recurring charges, the length of the automatic renewal term or that the service is continuous, and the minimum purchase obligation, if any. This may be accomplished by displaying the terms in larger type than the surrounding text, in contrasting type, font, or color to the surrounding text of the same size, and/or set off from the surrounding text of the same size by symbols or other marks that clearly calls attention to the language. For example, if made as an online purchase, the renewal terms should be in visual proximity to the acceptance button, however, not below it, and should not be contained in a link.
- Affirmative Consent. The consumer should affirmatively consent to the automatic renewal provision before the consumer is initially charged for the services and/or product purchased. It is generally accepted that a checkbox to agree next to the automatic renewal clause may suffice. However, the checkbox should not be “pre-checked” and if the consumer is also agreeing to other terms and conditions of the purchase, that consent should be separate from the automatic renewal consent.
- Acknowledgment. After the purchase, the consumer should receive a retainable notice that provides an acknowledgment of the automatic renewal terms, the applicable cancellation policy, and information on how the consumer can cancel the product and/or service. It is recommended that this acknowledgment be promptly sent by email after the order is received and/or contained in the first shipment of the product.
- Cancellation. The consumer should be provided with an “easy-to-use” mechanism to cancel the contract. This may include a toll-free number, email address, or postal address. If the consumer purchased the product or service online, then the consumer must also be able to cancel online.
- Changes to Automatic Renewal Terms. Before material changes to the auto-renewal policy or cancellation policy are made effective, the consumer must be notified of the changes in a “clear and conspicuous” manner, such as in an email or on the website where the consumer purchased the products and/or services, and the notice should be displayed prominently and set apart by bold text, colored text, all caps, or in a box. The notice should also contain information on how the consumer may cancel the subscription or purchasing agreement in a manner that is retainable by the consumer.
Additionally, before a consumer initially purchases a free trial to a subscription that automatically renews after the free trial ends, the seller should clearly and conspicuously provide to the consumer the price that will be charged after the free trial ends and how the subscription will change after the free trial.
Failure to comply with New York’s law can result in several penalties: (1) the violative good and service will be considered an unconditional gift which allows the consumer to seek full restitution for all amounts paid; (2) New York’s Attorney General can seek injunctive relief against the seller; and (3) Courts can impose the following penalties: (i) up to $100 for a single violation and up to $500 for multiple violations resulting from a single incident, or (ii) up to $500 for a single violation and up to $1000 for multiple violations resulting from a single incident where the seller knew that it was committing a violation.
Under N.Y. Gen. Bus. Law § 527-a(7), the law provides an exception to liability if the seller can demonstrate that it attempted to comply with the law in good faith and the violation resulting from a bona fide error.
It is recommended that sellers of products and/or services to consumers in New York (and other regulated states), consult with legal counsel to ensure that its contracts or terms and conditions that include an automatic renewal or continuous service provision comply with New York’s new law to avoid liabilities, including potential consumer class-action claims.