Continuity programs and subscriptions are becoming the payment model of choice for e-commerce businesses. In these situations, customers are periodically billed for goods and services on a continual basis until the customer decides to cancel the subscription or automatically renew.
To avoid unwanted attention from regulators and plaintiffs’ attorneys, companies that use these payment models should keep abreast of regulatory rules and guidance, and in turn, model their programs in a compliant way.
Companies have been grappling with a changing landscape of state law requirements. States continue to pass new and amended legislation governing enrollment, notifications, and cancellation of automatic renewals.
For example, Tennessee, Minnesota, South Carolina, Virginia, and Utah passed bills this year to introduce or update their own automatic renewal laws. Although there are consistencies among these states, companies need to be aware of some nuances and state-specific requirements.
On the federal side, the Biden administration recently announced its Time Is Money agenda, which scrutinizes big corporations and time-consuming paperwork to maximize profits. It calls out automatic renewal subscriptions and memberships, stating that consumers “shouldn’t have to navigate a maze just to cancel unwanted subscriptions and recurring payments.”
The administration expressed support for the Federal Trade Commission’s proposed rule that, if finalized, would require subscription cancellation processes be at least as easy to navigate as the enrollment path.
Historically, the FTC—the leading regulator in the e-commerce space—has largely relied on policy statements and enforcement to regulate the marketplace. In 2021, the FTC expanded its requirements for merchants to demonstrate informed consent to subscription terms. In addition, the proposed rule and enforcement policy stresses the importance of allowing consumers to cancel in the same way (channel) and effort in which they enrolled.
Although updates have been proposed, the FTC hasn’t finalized rulemaking. It has used existing laws to bring enforcement actions against high-profile defendants Amazon.com and Adobe for, among other things, their alleged failure to offer appropriate cancellation options.
In 2023, the FTC sued Amazon in federal court in Washington state for allegedly using dark patterns such as manipulative design practices to enroll consumers in Amazon Prime without their consent. The FTC’s complaint also focused on Amazon’s cancellation path, a process so cumbersome that Amazon internally used the term Iliad to describe the process, an allusion to Homer’s epic 24-book poem about the decade-long Trojan War.
The FTC has more recently taken action against Adobe, and two of the company’s executives, Maninder Sawhney and David Wadhwani, regarding the company’s automatic renewal subscription practices, in particular their cancellation practices, in federal court in the Northern District of California.
The government takes issue with Adobe’s enrollment and cancellation flows, arguing that the enrollment terms aren’t properly disclosed and bring unnecessary friction to the cancellation process.
While companies await final FTC rulemaking and guidance, analyzing the FTC’s allegations against Adobe and Amazon can help mold a comprehensive compliance strategy. In particular, the FTC focuses on the two bookends of the automatic renewal process—enrollment and cancellation.
When it comes to enrollment, it’s important that the complete automatic renewal terms are properly disclosed to customers, and that customers have a clearly marked opportunity to consent or reject those terms before payment. It isn’t sufficient to include the terms in a popup, or link to a different web page that displays the full terms. The automatic renewal terms must be unavoidable in the enrollment path so that it can’t be questioned whether the customer knew what they were signing up for.
A company’s cancellation process for subscriptions should be at least as easy to cancel as it is to complete the initial enrollment. Customers shouldn’t feel constant pushback as they attempt to navigate a cancellation path. The process shouldn’t be overly complicated, time-consuming, or burdensome, and should be evaluated in terms of the complexity or lack thereof in signing up.
Regulators and lawmakers are increasingly taking issue with the bombardment of offers to retain customers throughout cancellation processes. Companies should ensure that if save offers are presented, that they’re done so in a way that complies with applicable state laws, noting that some states such as Minnesota are moving toward requiring a customer’s consent to being presented with a save offer.
Companies should ensure customers aren’t forced to reject a barrage of offers before the cancellation request is processed or are somehow taken out of the cancellation path if they are considering a save offer.
Attorneys should keep in mind the FTC and Biden administration’s position on automatic renewal programs and emphasis on transparent user experiences for consumers. Advising companies with automatic renewal programs requires ongoing monitoring of the evolving state and federal landscape regarding these practices and staying current with government interpretations of such requirements.
As we wait for the finalized FTC rule, it’s necessary to look to other forms of guidance, such as the FTC’s recent enforcement actions, to formulate informed and complete advice with respect to compliance.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Andrew Lustigman is chair of the firm’s advertising, marketing, and promotion group and co-chair of the brand management and protection group at Olshan Frome Wolosky.
Morgan Spina is an associate at Olshan Frome Wolosky and focuses on advertising, marketing, brand management, and intellectual property.
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