Vermont Enacts Nation's Most Stringent Automatic Renewal Law

On May 28, 2018, the Vermont legislature enacted the most stringent automatic renewal statute in the country. While similar to some state laws that govern auto-renewal contracts by requiring sellers to clearly and conspicuously disclose the material terms of the offer, obtain express consumer consent, provide an easy way to cancel and send a reminder notice prior to the start of a new term, Vermont now stands alone in two material respects:  the auto-renewal provision in a contract must be presented in boldface type, and consumers must take two actions to accept the auto renewal offer. The new law, VT HB 593, goes into effect on July 1, 2019.

Fortunately, the new law only applies to contracts with an initial term of one year or more and subsequent terms that are longer than one month. This means that sellers that offer a product or service for an initial term of less than a year that renews on a monthly, quarterly or even semi-annual basis are not covered. Thus, escaping its reach are most online streaming music, video, and gaming subscriptions, as well many continuity delivery services, that renew and are billed on a monthly basis. But sellers that renew contracts, at least initially, on an annual or longer basis, such as magazine and newspaper publishers and their agents and other annually renewing online subscription services, will need to review and revise their marketing materials to comply with the law or omit Vermont residents from their offerings.

While both the boldface type and two-action acceptance requirements are extreme and exceed all current federal and state laws in this area, the former is the most Draconian in that it has no peer in either law or through regulatory and class action settlements. Most states with auto-renewal laws generally require companies to present the terms of the offer “clearly and conspicuously.” California and Oregon stand out by specifically defining “clear and conspicuous” as “(i) in larger type face than the surrounding text, (ii) in contrasting type, font, or color to the surrounding text of the same size, or (iii) set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language.” While these options give sellers some latitude in how they choose to present the terms of their offer, the new Vermont law is not as forgiving. In fact, the law leaves virtually no discretion at all in the way the terms must be presented:  boldface type means boldface type. The new law also requires the terms to be presented in “plain and unambiguous language,” which on its face may seem similarly stifling but at the same time may leave room for interpretation.

The two-action requirement, on the other hand, while not compulsory by any law, does appear in several state and federal auto-renewal investigation settlements, most recently between the Santa Monica, CA, District Attorney and dating site eHarmony (December 2017) and exercise product firm Beachbody (August 2017). Both of these agreements require these companies to obtain a consumer’s consent through, for online and written offers, a “check box, signature, or other substantially similar mechanism that consumers must affirmatively select or sign to accept” the auto renewal terms. This opt-in must be separate from and in addition to clicking a “Submit” or “Purchase Now” button for the overall order. This same language and requirement also appears in various FTC orders, such as a November 2017 settlement with online lingerie site Adoreme, Inc.

The purpose of the “two-action” requirement is to address regulator concerns that consumers, when responding to an offer for a product or service that may include a free trial, may not understand that they are signing up for an auto-renewing program with default recurring billing. As a result, these settlements and others require consumers to take an affirmative action tied specifically to the auto-renewal provision to ensure this aspect of the offer is understood and expressly agreed to by the consumer. Prior to Vermont enacting this new law, only companies subject to orders like the ones noted above were required to implement this two-action process. But effective next July, all companies offering an auto renewing product or service with an initial term of one year or more to residents of the Green Mountain State must do the same.

Like many other states with auto-renewal laws, the new Vermont law will require covered sellers to send consumers, which includes both individuals (B-C) and businesses (B-B), a renewal reminder notice between 30-60 days prior to the renewal of a new term that states the date the contract will terminate and renew, the length of the new term, the methods by which the consumer may cancel, and the seller’s contact information.

The law exempts auto-renewing contracts issued by financial institutions and credit unions, as each are defined by Vermont law.

As for existing auto-renewal contracts in effect as of the July 1, 2019 effective date, for contracts that will renew after the effective date, sellers must send the renewal notice described above within the required 30-60 day window and for contracts renewing before the effective date, “as soon as commercially reasonable after the law takes effect.” 
  
With the passage of this new law, Vermont now joins the growing number of states with laws that specifically govern auto-renewal offers. Sellers must now be aware of and comply with these states’ varying disclosure, consent, order acknowledgment and reminder notice requirements as well as federal laws applicable to these offers, such as the Restore Online Shoppers Confidence Act, the FTC’s Telemarketing Sales Rule and the Electronic Fund Transfer Act and its implementing Regulation E (for debit card transactions). Failure to comply with these laws can result in regulatory investigations and consumer class action law suits, which could be costly and devastating to any business.