Automatic Renewal Terms in Business-to-Business and Consumer Contracts: Enhanced FTC and State Scrutiny

Description

Over the last few years, several states have passed new automatic renewal laws (ARLs) that regulate continuing or renewing contracts. Other states have likewise amended existing ARLs to add detailed restrictions and requirements.

In line with the activity at the state level, earlier this year, the FTC released a notice of proposed rulemaking to overhaul the agency's rule regarding negative option plans--contracts and subscriptions for goods and services that automatically renew if the consumer takes no action. The proposed rule would prohibit certain types of misrepresentations, require certain disclosures and affirmative consent, and require an easy means of cancellation, with very limited opportunities for companies to save the transaction.

Violations of the proposed new rule would allow the FTC to seek consumer redress and civil monetary penalties of more than $50,000 per violation.

Based on the state ARLs already in place and the FTC's proposed new rule, companies that sell products or services using negative options should conduct a review of their disclosures, contract terms, consent processes, cancellation procedures, and the like to prepare for these new amendments and to mitigate the risk of FTC or state scrutiny.

Listen as our authoritative panel discusses state ARLs and the FTC's proposed new rule and what they mean for businesses that use negative option terms in their contracts.