New York Reforms Automatic Renewal Laws

Morgan Lewis - Tech & Sourcing
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Morgan Lewis - Tech & Sourcing

New York Governor Andrew Cuomo signed New York State Senate Bill S01475, which reforms New York State law surrounding automatic renewals for consumer contracts, on November 11. The bill reflects the growing trend of widening the scope of automatic renewal laws (ARLs) on a state level, following the lead of states including California and Vermont, and will take effect in February 2021 (90 days after signature).

In this post we look at the differences between New York’s existing ARL and the new ARL, what businesses can do to prepare for the new ARL, and the penalties for noncompliance with the new ARL.

THE EXISTING ARL

The existing ARL (General Obligations Law § 5-903) applies to both commercial and consumer contracts, but only to those with a renewal period of over one month and that are “for service, maintenance, or repair to or for any real or personal property.”

Under the existing ARL, businesses must send a written renewal reminder between 15 and 30 days before the expiration of a term highlighting the existence of the contract’s automatic renewal provision.

Notably, the existing ARL has not been repealed, so businesses must continue to comply with the existing ARL along with the new ARL.

THE NEW ARL

Scope

The scope of the new ARL is materially different from the existing ARL:

  • First, the new ARL does not apply to commercial contracts; it applies only to contracts with “consumers.”
  • Second, the ARL applies to any automatically renewing “subscription” or “purchasing agreement,” regardless of the subject matter.

This means that a significant number of consumer-facing businesses will be required to comply with the new ARL if they include automatic renewal provisions in their contracts.

Certain types of businesses are exempt, including entities regulated by the NY Department of Financial Services and banks, bank holding companies, or the subsidiary or affiliate of either, or credit unions or other financial institutions licensed under state or federal law.

Requirements

The new ARL places the following material obligations on businesses using contracts within the scope of the new ARL:

  • A requirement to disclose the “automatic renewal terms,” including cancellation policies and minimum purchase obligations. Notably, such disclosures must be both “clear and conspicuous” and “in visual proximity” to the request for the consumer’s consent.
  • “Affirmative consent” to the automatic renewal provision must be received from a consumer.
  • A requirement to provide a clear notice of any material change to the renewal terms in a manner that is “capable of being retained by the consumer.”
  • Maintenance of user-friendly cancellation options, which must include a web-based option.

PREPARING FOR THE NEW ARL

Review Contracts

Businesses should review their contracts to consider if they are in scope of the new ARL.

Create Processes and Procedures

Businesses will need to create new processes and procedures to comply with the new ARL, including procedures that will allow the business to provide the necessary disclosures (in a clear form, e.g., text that stands out from the surrounding text), and the ability to provide the necessary notices, obtain the necessary consents, and provide user-friendly cancellation options.

Continued Compliance with Existing ARL

Remember that the existing ARL remains effective and will need to be complied with in addition to the new ARL.

PENALTIES

Under the new ARL, the New York attorney general can seek injunctions and courts can fine businesses up to $500 for a single “knowing violation” and up to $1,000 for multiple violations as a result of a single act or incident.

Businesses will be able to avoid liability if they can show that the violation was “not intentional and resulted from a bona fide error made notwithstanding the maintenance of procedures reasonably adopted to avoid such error.”

 

Trainee solicitor Rebecca Agliolo contributed to this post.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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