Operating subscription products legally in the U.S. is becoming more challenging as states across the country pass new laws and amend existing ones to regulate subscription businesses more closely. The growing patchwork of laws and regulations is proving increasingly complicated for publishers and other companies to navigate, and some are finding themselves potentially exposed to legal action as a result.
States have stepped up their scrutiny of subscription models in recent years, specifically around automatic renewal charges and the provision of free trials. At least 20 states now have laws in place regulating subscription models, but local legislatures continue to pass new laws and revise existing ones.
Legal experts say compliance is becoming more complex as new requirements are added regularly. Multiple states introduced or updated subscription-related laws in 2022, for example, with California, Colorado, Delaware and Illinois each adding new requirements around clearer renewal notices and more robust cancellation options.
“States are imposing more granular requirements around subscriptions and it’s likely we’re going to see more states with laws on the books,” said Julie O’Neill, a partner at law firm Morrison & Foerster who specializes in consumer protection compliance.
Specific legal requirements vary between states, but states such as California and New York impose particularly stringent rules designed to ensure companies communicate subscription terms to consumers prior to purchase, gain explicit consent to charge customers on an ongoing basis, and provide straightforward cancellation mechanisms and procedures.
Falling short of these requirements can have potentially significant ramifications as well, with damages calculated – in some instances – based on the number of subscriptions sold. “The financial exposure can be great,” O’Neill said.
An uptick in litigation
With subscription products gaining prevalence and legal requirements around them becoming more complex, legal experts say they’ve seen a notable increase in class action litigation targeting auto-renewal law violations in recent months. Companies selling products on a subscription basis are finding themselves under increased scrutiny, including publishers and media companies.
Some states’ auto-renewal laws offer up particularly “easy targets” for plaintiff attorneys, experts say, because their disclosure and consent requirements are so specific. It’s relatively straightforward to establish whether a company is gaining the “clear and conspicuous” consent required by California law to bill consumers on a recurring basis, for example, or whether renewal notices are being delivered within the timeframes required.
Gannett Media found itself on the receiving end of a class action lawsuit in New Jersey last August which alleged the company’s auto-renewal policy violated New Jersey’s Consumer Fraud Act and the Electronic Fund Transfer Act. Sports streaming service FloSports was also hit with a class action suit in California alleging it did not gain consent before charging consumers’ payment methods on a recurring basis, while LinkedIn faced allegations it violated Oregon’s Automatic Renewal Law.
Navigating the patchwork
Some publishers say they’re employing a “one size fits all” approach to compliance. This involves establishing a single checkout flow and notice system that satisfies most states’ automatic renewal laws and rolling it out to all customers across the U.S. If laws change at the state level, the broad approach can be updated to ensure general compliance is maintained for subscribers in different markets across the U.S.
This may result in instances where publishers are more transparent with subscribers than they’re legally required to be in some states, but publishers may feel more comfortable with being “over-compliant” than non-compliant.
According to law firm Gunderson Dettmer, to comply with most state requirements companies must ensure they provide clear and conspicuous notice of offer terms, collect affirmative consent from subscribers, deliver a post-sale acknowledgment, provide consumer-friendly cancellation options, and notify subscribers of any upcoming payments prior to being charged. (Specific requirements are far more detailed, however.)
Other publishers may be willing to take on a little more risk by employing approaches that satisfy most state-level requirements, but may not meet some states’ more “arduous” requirements. Vermont, for example, requires a “double opt-in” with respect to automatic renewals which requires that subscribers – in addition to agreeing to subscription terms at the point of purchase – take a second affirmative action to opt into automatic renewals. This could add significant friction to publishers’ checkout processes if applied to customers in all states.
“One-size-fits-all” approaches could have other benefits beyond just broad legal compliance. Building systems and checkout flows once is likely to be significantly cheaper and less complex than attempting to build and maintain multiple experiences tailored to subscribers in various different states, for example. But companies with the resources and inclination might opt to take a more nuanced state-by-state approach, which could enable them to avoid unnecessary friction for customers in some states, potentially boosting revenues as a result.
The exact approaches taken by different publishers will vary based on a variety of factors, including the nature of their companies and their products, the location of their audiences and subscribers, access to resources and their tolerance for risk.
But according to O’Neill, tracking customer complaints closely could provide a strong signal if approaches and systems need revisiting and updating. “Companies should keep a close eye on complaints, and if they’re seeing an uptick in complaints it may be a good time to reevaluate,” she said.