Several state legislatures are currently considering bills that would enact or expand an automatic renewal law (ARL). ARLs regulate the form and content of automatic renewal provisions, as well as the procedures for disclosing renewals, obtaining consent, providing reminders and cancelling contracts, among other things. Many apply to only certain types of automatically renewing contracts, such as gym memberships. But more than a dozen states have broad ARLs that can be read as applying to virtually any automatically renewing consumer contract. And while some contain relatively few requirements, others impose extensive, exacting rules — which are not at all consistent from state to state. The latter kind of ARL, not surprisingly, has attracted the attention of the plaintiffs’ bar, which has filed a growing number of class actions in California and elsewhere.
Although this patchwork of regulation can create compliance challenges for even the most scrupulous businesses, an increasing volume and variety of businesses have nevertheless been adding automatic renewals to their contracts in recent years. It is easy to see why. Automatic renewals offer convenient, uninterrupted delivery of goods and services ranging from streaming entertainment to groceries and other household supplies. Such services can literally be life-saving, particularly during a pandemic.
But lingering concerns over surprise renewals or stifling cancellation procedures have inspired increased legislation. New York, for example, just became the latest of several states to enact a broad ARL, which took effect in February 2021. As of now, 30 states and the District of Columbia have an ARL on the books. And since January 2021 alone, a staggering 15 bills in 12 states would enact a new ARL or expand an existing one. Suffice it to say that ARLs (and their resulting penalties for noncompliance) are having a moment. And if this recent wave of new bills is any indication, ARL regulation and litigation are here to stay.
Below is a high-level summary of these 15 new bills, grouped by the bills that would: (1) create a new ARL where none existed before; (2) expand an ARL that is narrow in scope; and (3) amend an already-broad ARL.
First, the following six bills have been proposed in five states (Kentucky, Indiana, West Virginia, Massachusetts and Alabama) that, as of now, do not have an ARL and thus have not yet regulated in this area:
Next, two bills have been proposed in states (Missouri and New Hampshire) that already have a narrow ARL, that is, one that applies only to a small category of businesses:
Lastly, five other state legislatures (Oregon, California, Illinois, North Carolina and Florida) are considering seven new bills that would modify these states’ broad ARLs:
This flurry of recent bills demonstrates at least two things. First, it is abundantly clear that state legislatures are active in this space, with an increased focus on the regulation of automatically renewing contracts — with no signs of stopping. Second, it is equally apparent that ARL compliance is an ever-evolving process that requires careful attention to existing laws and a system for staying up-to-date with the latest changes and modifications. As more and more states enact ARLs, companies that operate virtually anywhere in the U.S. using renewing contracts should, at a minimum, consult with counsel to confirm whether their agreements fall within the scope of any current ARLs and, if so, the specific requirements for compliance. But these new bills also teach an important follow-up lesson: keep checking regularly, as the landscape may have changed.
Indeed, the statutory language of an ARL is just the tip of the compliance iceberg, as court decisions can and often do define the contours of these laws as they are applied to new factual contexts. Even if each of the above bills becomes law, new questions will arise, such as what constitutes “material changes” requiring notice, what “further steps” means in California or how “services” is defined in New Hampshire. These types of ambiguities can easily create litigation risk, thus requiring businesses to stay vigilant for any case law that may provide useful guidance.
Faegre Drinker’s consumer contracts team will be closely monitoring these new bills. Questions about complying with ARLs can be directed to the authors listed below or to your usual Faegre Drinker contact. Further information about ARLs and compliance issues can be found in “Automatic Renewal State Laws: 2020 Edition.”