In the wake of increasing continuity billing practice complaints, the Federal Trade Commission (“FTC”) is again taking a hard look at the space. The FTC has once again reviewed its 1973 Negative Option Rule, which was enacted, in part, to regulate automatic renewal plans, free to pay conversions, and continuity billing. Some of the recently proposed changes to the FTC’s Negative Option Rule can be found here.
When it comes to emerging consumer issues, state authorities often take their regulatory cues from the federal government. Continuity billing is no exception. The most recent amendments to California’s continuity billing law took effect on July 1, 2022, a discussion of which can be found here. Less than two years later, on April 1, 2024, California introduced Assembly Bill 2863, which proposes major amendments to the State’s automatic renewal plan regulations. Following on the heels of this announcement, in another jurisdiction, Virginia Governor Glenn Youngkin signed HB 744 into law, expanding the notification requirements for businesses that offer continuity billing plans to his constituents. Against this backdrop of increased legislative activity, businesses that offer automatic renewals need to familiarize themselves, and ensure compliance, with the latest iterations of continuity billing regulations, both federal and state.
Important Changes to State Continuity Billing Laws
California’s amendments to its continuity billing regulations have yet to be signed into law. Nevertheless, it benefits businesses to review some of the more significant proposed changes to California’s regulations in advance of their likely passage, including:
- Affirmative consumer consent: businesses would be required to obtain two separate types of consumer affirmative consent: 1) consent to the automatic renewal of the continuity billing offer; and 2) consent to any other terms of the offer. Businesses would also be required to maintain “verification of the consumer’s affirmative consent for at least three years, or one year after the contract is terminated, whichever period is longer.”
- Restricting dark patterns: businesses would be prohibited from including “any information in the contract that interferes with, detracts from, contradicts, or otherwise undermines the ability of consumers to provide their affirmative consent.” Businesses would be prohibited from misrepresenting “any material fact related to the transaction” or “any material fact related to the underlying good or service.”
- Increased notice obligations: businesses would be required to send annual reminders “in the same medium” that the consumer used to sign up for the continuity billing offer, with annual reminders detailing the frequency and amount of the charges paid by the consumer for the product or service, and cancellation mechanisms. In addition, businesses would need to provide notice of fee increases no less than 45 days before the fee increase takes effect.
- Increased cancellation requirements: businesses would be required to offer consumers the ability to cancel or terminate the product or service “in the same medium” that the consumer used to sign up for the offer. Businesses would also be required to offer cancellation via a toll-free telephone line, answering calls “promptly” for at least 12 hours, between the hours of 6 a.m. and 10 p.m.
Meanwhile, Virginia’s amendments to its continuity billing regulations take effect on July 1, 2024. Businesses should be aware of some of HB 744’s most meaningful changes, including:
- Broader application: a continuity billing contract is defined as a plan or arrangement “in which a subscription or purchasing agreement continues until the consumer cancels the service.” The term “consumer,” which originally applied to only an “individual,” has now been amended to also include any “small business,” expanding the scope of the regulation from direct-to-consumer to also include business-to-business.
- Automatic renewal notices: consumers must now be provided with additional notifications informing them: 1) that the continuity billing offer will automatically renew unless the consumer cancels; 2) of the latest date by which to cancel to avoid renewal; 3) of the methods by which to cancel; and 4) of the current offer’s terms and conditions.
- Consent to charge: prior to the expiration of a consumer’s initial continuity plan order, businesses may not charge the consumer’s financial account for an automatic renewal without first obtaining the consumer’s affirmative consent to an agreement containing the continuity billing offer’s terms and conditions.
These are only a few of the major changes (proposed and enacted) to the continuity billing regulations of California and Virginia. Businesses engaged in the automatic renewal space should review the regulatory changes (and proposed changes) in their entirety.
Continuity Billing Provision Changes Are Extensive
It is becoming more and more common for businesses to offer continuity billing plans to consumers. Federal and state authorities have taken notice and are now closely scrutinizing and more strictly regulating these types of billing arrangements. The attorneys at Klein Moynihan Turco have years of continuity billing regulation experience. If your business offers continuity billing plans to customers, hiring experienced counsel to review and update the language of your contracts (and sign up flows) could save you a great deal of money down the road.
If you require assistance with automatic renewal law compliance or related regulatory investigation defense, please email us at info@kleinmoynihan.com or call us at (212) 246-0900.
The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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