Are your auto-renewal terms accessible, fair and transparent?
Auto-renew contracts are coming under scrutiny following the increase in online shopping and emerging consumer trends during the pandemic.
We all have experience of contracts and subscriptions that auto-renew. Subscriptions can be an easy and low-cost way to purchase goods, services and digital content. But auto-renewing contracts can have the disadvantage of locking consumers in for further periods of time, sometimes at increased prices and with no straightforward option to cancel.
The government has recently consulted on the competition and consumer policy which has led to proposed reforms to the law governing auto-renew contracts for consumers.
The conclusion of the consultation focuses on the cancellation difficulties for consumers with some auto-renew contracts. There are subsequent proposals for the introduction of additional protections for consumers.
Any specific changes to be introduced are not yet known; however, we expect that businesses may be required to refresh their terms and conditions containing auto-renew mechanisms and their processes for consumer contracts to ensure greater fairness and transparency.
The Competition and Markers Authority’s (CMA) investigation into anti-virus businesses has led to agreements with two of the top providers, Norton and McAfee, who have pledged to make changes to their auto-renew contracts so that they are easier to understand and to exit. Microsoft has given assurances along the same lines following the CMA’s recent announcement of an investigation into the auto-renewal practices of Nintendo Switch, Playstation and Xbox.
How does this affect you?
The CMA published a list of compliance principles for anti-virus businesses that use auto-renewing contracts. Whilst the list is aimed at anti-virus businesses, the principles echo the more general proposals in the government consultation.
Some of the key proposals require businesses to:
- implement clear and obvious notices prior to the contract being formed which informs the consumer that the contract is an auto-renew contract that will renew at the end of the term;
- apply a process where consumers have to opt-in to auto-renew;
- offer the same contract without an auto-renew option; and
- contact consumers prior to a contract auto-renewing with appropriate information such as: date and length of renewal, existing contract price and the updated price after renewal, the notice period and any requirements for cancellation.
The above proposals link back to the general guidance that the CMA published in 2015 on unfair consumer terms, which highlights that consumer terms must be accessible, transparent and fair.
What should you do?
If your business is consumer-facing then you should consider whether your standard terms have auto-renewal mechanisms and what their practical effect on the consumer is. If you conclude that it would be difficult for an average consumer to cancel the auto-renew function, then it’s unlikely the CMA would approve and you should consider updating your terms to improve compliance.
How can you get help?
If you are unsure about whether your consumer terms would be deemed fair by the CMA, or that they could be refreshed, then our Commercial and Intellectual Property team would be glad to provide advice.