Connecting state and local government leaders
Automatic renewal plans have prompted class action lawsuits.
This story was originally posted by Stateline, an initiative of the Pew Charitable Trusts.
Like millions of Americans, Colorado state Rep. Cathy Kipp started a diet during the pandemic. She used a heavily advertised program called Noom, which came with a discounted deal for the first eight months.
She stopped following the program after about six months. But like millions of others, she forgot to cancel after the initial contract ended, and Noom automatically renewed her for another eight months, at a total cost of $179.
“I was doing [legislative] bills, and I didn’t have time to cancel, and I should have,” Kipp, a Democrat, acknowledged in a phone interview.
Kipp said everyone she encountered had a similar story. Another customer at her hair salon, for example, said she was mad at her local newspaper for automatically renewing her subscription. “If you have to take proactive action to cancel a contract, it becomes that much more difficult,” Kipp said.
Kipp’s experience, along with those of her constituents, prompted her to introduce a bill aimed at making it easier to cancel subscription plans that automatically renew.
Colorado Gov. Jared Polis, a Democrat, signed her bill in July, and the law took effect Jan. 1. It requires companies to provide detailed information on how an automatic renewal works, to give notice at least 25 days before the renewal commences and to offer a “simple, cost-effective, timely, and easy-to-use” way to cancel.
The bill passed easily despite some opposition from businesses that use automatic renewal, Kipp said, largely because nearly every lawmaker she spoke to reported having similar experiences. She recalled one staffer who stopped her on her way to speak in the House chamber with a story of trying to get out of a wine subscription club.
“It’s about everybody,” Kipp said, “because everybody has these auto renew contracts, and everyone has a hard time getting out of them.”
Experts in online marketing say the dollar amount of automatic renewal plans is difficult to quantify. But a 2019 study done for the British government, which also is considering regulating automatic renewal contracts, found subscriptions in nonregulated businesses are worth about 25 billion British pounds annually, about $33.3 billion in U.S. dollars. The study showed consumers spend around £1.8 billion ($2.4 billion U.S.) per year on subscriptions they do not think are a good value.
Putting limits on automatic renewal plans is increasingly popular.
Many other states—including California, Delaware, Georgia, Hawaii, Illinois, Louisiana, New Mexico, New York, North Carolina, Oregon, Vermont and Virginia—have enacted similar laws to curb automatic renewal, and roughly 10 other states are considering similar legislation this year.
In addition to state laws, the automatic renewal plans have prompted class action lawsuits, and the Federal Trade Commission also is looking into the issue.
Noom, the company that inspired Kipp’s bill, earlier this month settled a class action lawsuit for $62 million, in which app users alleged the company misled consumers into signing up for programs that proved hard to get out of. In the suit, eight former customers alleged that Noom charged them from $45 to nearly $450 without their consent.
One of the allegations posited that Noom required customers to cancel through their personal Noom coaches, who proved difficult to reach and often did not respond before the trial period ended and the contract was automatically renewed. The suit quoted an anonymous Noom software engineer as saying the cancellation process was made difficult “by design.”
As part of the suit, Noom has changed its subscription practices, according to an open letter from the company’s founders, Artem Petakov and Saeju Jeong. Emails to Noom’s public relations department seeking a comment on state laws regarding automatic renewals went unanswered.
The problem is widespread. Overall, the Better Business Bureau in 2020 reported more than 58,400 complaints about “free trials” and automatic renewals over the previous three years, in which customers lost an average of $140.
Harry Brignull, a digital designer and psychologist who uses the term “dark patterns” to describe the methods he studies, said the idea is to push customers to do “things you wouldn’t have done if you understood it at the time” or make it so hard for customers to get out of a system they just give up.
In a phone interview from the United Kingdom, where the same sorts of methods occur as in the U.S., Brignull said the types of coercion include:
- “Roach Motel,” in which the site makes it easy to get into a purchase but hard to get out of. (This is patterned after the pest control slogan: “You can check in, but you can’t check out.”)
- Price comparison prevention, which makes it hard to compare services.
- “Sneak into basket,” in which extra items are added to an order.
- Misdirection, in which the user design purposefully focuses your attention on one thing to distract you from another.
- Hidden costs, in which extra charges are added at the end of the ordering process.
- Forced continuity, such as when a free trial ends but a credit card keeps getting charged.
“When you design a website, it’s easy to make something easy or hard,” Brignull said. “It costs nothing to do that.”
For example, if a company has limited hours for cancellation, the user might forget. If the hours are Monday to Friday, 9 a.m. to 5 p.m. Eastern Standard Time, that might be inconvenient for someone who called on a Saturday. Once a customer is transferred to a representative, that employee will probably try to talk the customer out of canceling by offering another “free” month, he said.
California’s law, enacted last year, takes effect July 1. It adds new renewal reminder and cancellation requirements to an existing statute.
Under the new law, businesses selling plans with an initial term of one year or more will have to give notice that the plan is up for renewal within 15 to 45 days of the renewal date. Those notices will tell consumers that the contracts will renew automatically unless canceled. In addition, if companies offer a “free trial” or initial discount lasting longer than a month, they must give similar notices to subscribers three to 21 days before the trial period ends.
California Assemblymember Marc Berman, the Democrat who sponsored the California bill, said in a phone interview he tried to cancel a subscription he signed up for online and “ended up in this abyss.”
“You gotta go here and do this, then go there and do that, and then you gotta call somebody between 2-2:30 every other Wednesday,” he said.
“I was talking to my staff about it, and they all had similar stories,” he said. “I think that’s why the bill was so successful; all of my colleagues have been through it.”
There was, however, opposition from business associations and companies that use the tactics. The Association of Magazine Media, a trade group, which also opposed the Colorado bill, worked in both states to modify the bills but not kill them outright.
Rita Cohen, senior vice president for legislative and regulatory policy for the magazine group, said the organization offered suggestions in California and testified in Colorado. One of the group’s concerns was the timing and length of notices that would be required to cancel subscriptions.
Cohen said that different timelines and requirements by different states make it difficult for companies to comply. “Our intention is to make it easy for the consumer,” she said.
“More and more states are saying if you buy online, you should be able to cancel online,” she added, but some bills simply say consumers must be able to cancel “by the same method” they subscribed.
That’s unworkable, Cohen said, because, as an example, some people sign up for magazine subscriptions at trade shows and can’t go to another trade show to cancel. Modifying legislation to take vendors into account “shows an understanding of the need to both balance business realities and what is best for the consumer.”
In October, the FTC announced it was cracking down on what it described as “dark patterns” and “trick or trap” schemes used to entice people into signing up for goods or services and then automatically renewing them or making them difficult to cancel.
“The agency is ramping up its enforcement in response to a rising number of complaints about the financial harms caused by deceptive sign up tactics, including unauthorized charges or ongoing billing that is impossible [to] cancel,” the agency said in a news release. The agency said it will be increasing its legal action against companies if they fail to provide “clear, up-front information, obtain consumers’ informed consent, and make cancellation easy.”
In September, the FTC won a $10 million case against the children’s learning company ABCmouse, which, the agency alleged, unfairly billed users and made it difficult to cancel the service. More than 250,000 people received refunds because of the case, the agency said.
In 2015, a similar case the FTC brought against DirectTV was ultimately dismissed, however, because a judge said there wasn’t enough evidence to justify the $4 billion claim.