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$10 Million Auto-Renewal Risks

Posted by Nicole Call | Sep 21, 2020 | 0 Comments

Auto-renewal charges cost a company $10 Million. No matter what industry you're in, if you use auto-renewals - learn from this company's experience. 

Now, there's blood in the water, which is just the beginning and will likely trigger: 

  • Additional federal agencies investigations, 
  • Individual state government investigations, 
  • Class action lawsuits by hungry plaintiffs' attorneys, and
  • Third-party service providers choosing to no longer to business with the company, e.g., merchant providers, suppliers, etc.   

Restore Online Shoppers' Confidence Act and Telemarketing Sales Rule 

The primary legal basis for this $10 Million cost to the business is noncompliance with the Restore Online Shoppers' Confidence Act, 15 U.S.C. Section 8401-05 (“ROSCA”) and Telemarketing Sales Rule, 16 C.F.R. Section 310.2(w) (“TSR”). See FTC vs. Age of Learning, Inc. Case 2:20-cv-7996 (US Dist. Central Dist. CA 2020). 

Generally, businesses are prohibited from auto-renewals online (aka negative option feature) unless the business: 

  1. Clearly and Conspicuously discloses all material terms of the transaction before obtaining the buyers billing information;
  2. Obtains the buyers express informed consent before making the charge; and
  3. Provides simple mechanisms to stop recurring charges.   

Create a defensible position that your business is in compliance with ROSCA and TSR by applying these Tips: 

  1. Hyperlinking to important, key terms is inadequate. You need informed consent for auto-renewal. Before collecting the buyers billing information and buyer agrees to auto-renewal, clearly and conspicuously disclose all material terms of the auto-renewal before obtaining the buyers information - this means all information that a buyer would think is important or that would impact their decision in BIG, BOLD letters, as close as possible to the representation of the initial price and term (preferably with an additional acknowledgement click) including, but not limited to: 
    • You will be charge [$amount][time period]
    • Automatically Renews [time period, e.g., annually, monthly, etc];  
    • Opt-Out Cancellation [instructions on how to opt-out by phone, email and webformNOTE: Make cancellation as simple as it is to buy, should be minimal steps, and make sure that your system is set up to timely process their cancellation. 
  2. Regularly review buyer complaints and determine whether your webpages and/or processes are misleading or deceptive - have third-parties evaluate and report what is causing the complaints and legal counsel on how to address it. 
  3. Timely make changes to webpages, online mechanisms, policies, procedures & practices to address what is causing the buyer complaints.  
  4. Make sure buyers can easily find how to cancel / opt-out.
  5. Make sure buyers can easily cancel / opt-out by: telephone, email and through a short web-form (yes, all three ways and no run around).
  6. If you have multiple charges associated with a buyer, make it so that they can select what charges to cancel and include an option to cancel all future charges.
  7. Do not require multiple clicks to cancel.  
  8. Do not take them through multiple screens to persuade them not to cancel and to take them "off" the cancellation path. If you do have a few screens, make it possible for them to skip ahead or cancel without visiting each screen. 
  9. Do not require them to provide a reason or explanation (you can ask, but don't require it).

These straightforward tips can help save you and your business time, money and resources by: 

  • Reducing risks 
  • Improving customer satisfaction resulting in less customer complaints 
  • Maintaining relationships with merchants resulting in less disputes and refunds, and  
  • Create and/or increase trust with government regulators. 

If you want some help, let's get started! Just review the marketing packages offered and/or schedule an initial consultation today.  

About the Author

Nicole Call

BIZLAWGIC is the brainchild of Nicole R. Call, who has been active in the legal profession for two decades. In that time, she has served: businesses, nonprofits, quasi-governmental entities, governmental entities, judges, and individuals. With this wealth of experience she provides unique insight in meeting small businesses legal needs.

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