UK Auto-Renewal Consumer Subscription Terms Come Under Scrutiny

Morgan Lewis - Tech & Sourcing

The UK government is considering responses to its proposed reforms to auto-subscription rules for consumer contracts, as part of a broader consultation on reforming UK competition and consumer policy.

Depending on the government’s approach, businesses could be required to update both their subscription terms and conditions and their initial and ongoing contracting processes with consumers. The proposed reforms would not require changes to business-to-business subscription contracts.

PROPOSED REFORMS

Subscription models can be beneficial to both consumers and businesses, offering competitive prices for goods, services, and digital content as well as operating with more predictable revenue.

For certain sectors, auto-renewing subscriptions are an important part of sustaining online business models. However, the UK government has expressed concern in respect of arrangements which may leave consumers “locked in” to indefinite contracts, and invited submissions from stakeholders as part of its consultation.

The UK government proposes to clarify UK law to expressly require businesses to:

  • make consumers aware, in a clear and prominent manner, that their order or agreement is for a subscription contract and include information such as the minimum contract terms and price per billing period, whether the contract will auto-renew or auto-extend at the end of the contract term, and any minimum notice period for cancellation;
  • ·offer consumers the choice at the pre-contractual stage to enter the subscription without an auto-renewal;
  • present auto-renewal as an opt-in choice; and
  • send reminders of auto-renewal to consumers a reasonable time before the end of any commitment period. Such reminders would need to include the date and length of renewal, the current price and the price following renewal and any notice period and other requirements for cancelling auto-renewal.

In its consultation, the UK government also asked for views on whether businesses should be required after a reasonably long period of time where there is evidence of inactivity (for example, through electronic records or streaming activity) to give notice of suspension of service and to stop charging for consumption of goods, services and digital content. The government did not propose, although it sought views on, what constitutes a “reasonably long period.”

The proposed reforms would be intended to apply generally to subscriptions for goods, services, and digital content across the economy. However, the government does not intend for the requirements to apply where an interruption in supply could result in serious harm to consumer welfare in principle, such as contracts for the supply of medicines or contracts for certain financial services such as insurance.

The consultation closed on October 1, 2021.

ANALYSIS

The proposed reforms come amid a rise of online shopping, accelerated by the pandemic, and an increased use of subscription contracts. The proposals are also part of the UK government’s agenda to strengthen consumer protection following the United Kingdom’s departure from the European Union.

Notably, in the same month that the UK government’s consultation closed, the UK Competition and Markets Authority (CMA)—the UK antitrust agency—published nine Compliance Principles for anti-virus software business that use auto-renewing contracts. The principles include presenting key subscription information to consumers, enabling customers to easily turn off auto-renewal, reminding customers about auto-renewal in good time before it happens and providing appropriate safeguards for customers who are no longer using a product following auto-renewal. The CMA also has an ongoing investigation into the supply of online gaming memberships, notably the use of auto-renewals for online gaming contracts.  

The UK government’s proposals go further than the CMA’s principles regarding requiring an opt-in choice of auto-renewal and potentially requiring suspension of accounts for inactivity, rather than “appropriate safeguards” such as reminders of auto-renewal. In its response to the government’s consultation, the CMA supported both of these proposals and suggested that a 12-month period of inactivity was an appropriate length of time, both due to the prevalence of annual subscriptions, and because people find the concept of one year easy to comprehend.

Morgan Lewis will continue to monitor the UK government’s consideration of responses to its proposed reforms.

[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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