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2 Words That Every Auto-Renewal Subscription Service Needs to Know: Clear & Conspicuous

There are two words you should know: clear and conspicuous.

Million-dollar settlements in both private and government actions across the country have been the result of subscription services companies violating well-established (and new) laws relating auto-renewal terms and conditions. The U.S. Federal Government through the Federal Trade Commission (FTC) and a majority of U.S. states have restrictions for subscription or purchase agreements that automatically renew, especially if such agreements are with consumers. Being compliant in all 50 states and federal law may be a tall task, but there is at least one requirement that is in common with virtually all of them—clear and conspicuous.

When your business sells its subscription service, part of the business model is to make it as easy as possible for your customers and clients to remain as your customers and clients through minimal administrative effort. Having them re-sign terms and conditions, even online, or agreeing to long-term agreements are typically not a viable option for either party. The problem is that previous bad actors aggressively implemented negative option subscription services by capturing customers through free giveaways only to slip auto-renewal terms into the fine print that would suddenly appear on the customer’s credit card.

This strategy died quickly after the FTC, state governments, and private citizens started enforcing legal action against these nefarious actors by simply requiring subscription based business to state their auto-renewal terms clearly and conspicuously to the buyer. This means you are prohibited from just burying the fact you will be charging the customer’s credit card monthly until they cancel in the fine print, or in some states, within in a linked terms and conditions.

Various states and the FTC define in more detail what they consider clear and conspicuous. Though each state is different, looking to the State of California is a great starting point, as they are leading the charge in regulating auto-renewal consumer agreements and have already updated the law twice in the last eight years, with the last update to an already stringent law going into effect on July 1, 2018.

There are many ways to satisfy the clear and conspicuous requirement. For most subscription box businesses, clear notices that a customer is signing up for a subscription they will be charged monthly for is something you would want to implement anyway in order to avoid a negative customer experience, but subscription box companies still fall into legal traps. For example, disclosing how and when a customer may terminate the subscription often fails to comply with many states’ law, especially in California where they now require subscriptions that are registered online to unequivocally accept termination of the subscription online as well.

Are you worried about being compliant with auto-renewal laws? Start with remembering two words: clear & conspicuous. After that, seek legal counsel to ensure your terms and conditions and checkout process is up-to-date with today’s every-changing requirements.

Written by Nasir Pasha (Managing Attorney, Pasha Law PC)
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