** Auto Renewal Lawsuits – from the FTC, State Attorney Generals and Private Plaintiffs on the increase **

By: Brent E. Johnson 

We’ve blogged in the past about California’s Automatic Purchase Renewal Statute (“CAPRS”), which is intended to “end the practice of ongoing charging of consumer credit or debit cards or third party payment accounts without the consumers’ explicit consent for ongoing shipments of a product or ongoing deliveries of service.” Cal. Bus. & Prof. Code § 17600. 

Since California passed CAPRS was enacted in 2010, a majority of states have followed suit – although none as stringent as CAPRS.  That is, until the newest addition — an enhanced New York law (N.Y. Gen. Bus. Law § 527-a) which goes into effect on February 9, 2021.  This law matches CAPRS in most material respects.  It requires (in line with CAPRS):

• “affirmative consent” prior to obtaining payments
• “clear and conspicuous” disclosure of autorenewal terms
• user-friendly cancellation options (such as an exclusively online option)
• a post-sale acknowledgement and, for free trials, a cancellation option prior to payment
• a penalty provision that deems any goods sent in violation of the disclosure/consent requirements an “unconditional gift”

The less prescriptive federal standard is also worth noting.  Under the Restore Online Shoppers’ Confidence Act (15 U.S.C. § 8401 et seq) (ROSCA), charging online consumers via negative options is prohibited unless all material terms are clearly and conspicuously disclosed and express informed consent is obtained.

Both state and federal agencies are aggressively policing this territory.

The FTC has recently settled charges against online companies.  On September 8, 2020, the Agency settled for $10 million against an online learning company ABCmouse related to allegations ABC enrolled thousands of consumers in auto renewing payments without proper consent and misrepresented its cancellation process.  On September 21, 2020, a similar settlement was reached with online supplement manufacturer NutraClick LLC for $1.04 million related to allegations the company failed to fully disclose the terms of its negative option membership program to customers.

In California, a specific inter-governmental Auto Renewal Task Force (CART) made up of prosecutors from District Attorney’s Offices across California has been actively prosecuting cases.  The task forces’ recent settlements include:

• February 2, 2019: Guthy Renker – $1.2m civil penalties, $7.3m consumer fund.
• March 2, 2019: efax.com: $615K in penalties and costs and, up to $585K in consumer fund.
• February 25, 2020: Box.com: $240K in penalties and costs and, up to $34K in consumer fund.
• October 29, 2020: Checkpeople.com:  $725K in penalties and costs and, up to $50K in consumer fund.
• March 5, 2021: Classmates.com: $400K in penalties and costs and, up to $150K in consumer fund.

The above does not include the ever ready California plaintiff’s bar – which has (after a flurry of activity in 2017 – 2018 against established online subscription model companies) been pursuing newer entrants to the market – for example a recent $22.5 million settlement against dating app Bumble approved in July 2020.  See Nick King Jr. et al. v. Bumble Trading Inc. et al., 5:18-cv-06868 (ND. Cal.)

The take-away – with two of the top four US markets now governed by the CAPRS style disclosure/consent/acknowledgment/cancellation models – companies with any sort of subscription program should update their policies and work-flow – or face the threat of litigation – which springs both from private and public attorney generals.