The negative option space has been quite active at the state level recently, with new laws enacted and existing laws updated — and the last few months have been no exception. Below are some recent updates, particularly relevant for those marketing subscriptions and other negative option programs.
On March 13, 2024, Utah's governor signed into law the "Automatic Renewal Contracts Act." Effective January 1, 2025, the new law applies to contract provisions that automatically renew at the end of a definite, paid term for a subsequent, paid term longer than 45 days. The Act includes consumer notice requirements for automatically renewing contracts and trial period offers, as well as a section on enforcement, which empowers Utah's Division of Consumer Protection to bring civil actions and impose administrative fines of up to $2,500 per violation. The Act also includes a long list of individuals, entities and agreements exempt from its provisions, including, among others, service contracts, financial institutions, public utilities, and rental and property management agreements.
Next, on April 4, 2024, Virginia's governor signedHouse Bill 744 into law, which amends and adds to its existing auto-renewal law, with such amendments to take effect on July 1, 2024. Most significantly — and differing from most other state laws — Virginia expanded its definition of "consumer" to include not only individuals who purchase goods or services for personal, family or household purposes, but also any small business that purchases goods or services for business purposes. "Small business" is defined as "a business that is at least 51 percent independently owned and controlled by one or more individuals ... who are U.S. citizens or legal resident aliens and, together with affiliates, has 250 or fewer employees or annual gross receipts of $10 million or less averaged over the previous three years." Additionally, the amendments clarify the timing of the law's disclosure and consent requirements, which must be satisfied "prior to the completion of the initial order for the automatic renewal or continuous service," and implement a consumer notice requirement for offers that will automatically renew after a period of more than 30 days and extend the offer for a period of more than 12 months.
Finally, California's legislature has proposed amendments to its auto-renewal law which would apply to "contracts entered into, amended, or extended on or after January 1, 2025." Importantly, many of the amendments mirror the Federal Trade Commission's proposed updates to its Negative Option Rule governing subscriptions and recurring payments. Among other things, the bill would:
- revise the definitions of "automatic renewal" or "continuous service" to specify that those subscriptions or purchasing agreements may be free or paid;
- require the business to obtain the consumer's affirmative consent to the automatic renewal or continuous service separately from any other portion of the contract, and to maintain records of the consumer's consent for at least three years, or one year after the contract is terminated, whichever period is longer;
- require the business to send an annual reminder that discloses the product or service to which the automatic renewal or continuous service applies, the frequency and amount of the associated charges, and the means to cancel;
- require the ability to cancel to be available in the same medium that the consumer used to enter into the automatic renewal;
- require a cancellation mechanism by toll-free telephone number to, among other things, be answered promptly during normal business hours (as defined) and not obstruct the ability to cancel; and
- require clear and conspicuous notice of fee increases (including increases the consumer affirmatively consented to in an existing plan or arrangement) and information regarding how to cancel in a specified manner at least 45 days before the fee increase takes effect.
As of May 2, 2024,the bill was ordered to a third reading in the Assembly.
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