Developments in Federal & State Automatic Renewal Laws

Overview

Significant changes to automatic renewal laws (ARLs) are set to occur in 2025, with new regulations from the FTC and amendments in California, Minnesota, and Utah. The FTC’s updated rule expands the scope to include business contracts and requires clear disclosures and consent. California’s new ARL tightens consent and cancellation requirements, while Minnesota’s law mirrors California’s strict standards. Utah’s law is less detailed and focuses on renewal reminders. Businesses must adapt to these evolving regulations to ensure compliance.

As subscriptions and memberships for goods and services have become common, more states have enacted or amended ARLs, regulating aspects of contract renewals. These laws require clear and conspicuous disclosures, affirmative consent, acknowledgments, and reminders.

Initially a rare area of regulation, ARLs now exist in 35 states and Washington, D.C. Many remaining states are considering legislation to establish additional ARLs. Compliance with this patchwork of state laws is complex, particularly for businesses with nationwide operations. While some statutes are similar, others use distinct language, define terms differently, and impose specific requirements.

Amendments to the Federal NOR

On November 15, 2024, the FTC amended its NOR, which was first issued in 1973. The amended rule broadens its predecessor. The NOR now applies to any negative option feature, defined as a contract provision where the consumer’s silence or failure to take affirmative action to reject a good or service or to cancel the agreement is interpreted as acceptance or continued acceptance of the offer. It includes automatically renewing contracts, free-to-pay conversions (free trials), and similar agreements. This applies to transactions conducted online, by phone, on paper, or in person. Unlike many state ARLs, the federal NOR applies to both consumer and business-to-business contracts.

Other key provisions of the NOR include:

• No Misrepresentations. The NOR prohibits misrepresenting a material fact about goods or services with a negative option feature. While other amendments to the NOR take effect on May 14, 2025, this provision was effective on January 14, 2025. 

• Content of Disclosures. Before collecting a buyer’s billing information, sellers must disclose material terms, including the nature of recurring charges, amounts, frequency, and cancellation instructions (with a deadline to stop future charges).  

• Format of Disclosures. Disclosures must be clear and conspicuous and appear immediately adjacent to consent methods for the negative option. A seller must obtain express informed consent for the Negative Option Feature separately from the rest of the transaction. This means one consent for the contract and another for its renewing nature. Compliance can be achieved via a checkbox, signature, or similar methods.

• Additional Consent Requirements. A seller cannot include any information that interferes with, detracts from, contradicts, or otherwise undermines a consumer’s ability to provide express informed consent. This provision prohibits dark patterns—deceptive web designs that trick consumers into providing consent. Moreover, a seller must keep proof of consent for at least three years. However, records are unnecessary if a seller can demonstrate by a preponderance of the evidence that it uses processes ensuring no consumer can complete the transaction without consent.

• Cancellation Mechanism. The FTC's Click to Cancel rule requires sellers to provide a cancellation method as easy as the original consent. Options must be offered through the same medium; for example, if consent was given online, an online cancellation option is required. In-person consent should allow cancellations in person when practical, as well as online or by phone.

The NOR does not preempt state ARLs unless inconsistent, allowing ARLs to offer greater consumer protection. It serves as a floor, not a ceiling. While the NOR lacks exempt entity categories, anyone may petition the FTC for exemption. Additionally, there is no private right of action besides FTC enforcement, but individuals in states with broad consumer protection laws might still sue for alleged NOR violations.

This new federal regime has faced criticism. The NOR broadly regulates consumer and business contracts, featuring provisions that could expand the FTC’s enforcement authority. It effectively creates an ARL in about 15 states without their own. Various industry groups have filed petitions in four federal appeals courts, challenging the NOR as arbitrary, an abuse of discretion, and exceeding FTC’s authority. The FTC recently rejected a stay request, so the amendments are expected to take effect unless a court intervenes or the FTC changes direction.

California’s ARL

The future for the federal NOR is unclear, but amendments to California’s ARL will take effect on July 1, 2025, after Gov. Gavin Newsom approved Assembly Bill No. 2863 (AB 2863). The ARL will now include requirements for free trials (free-to-pay conversions) and apply to contracts entered into, amended, or extended on or after July 1, 2025, impacting many existing subscriptions.

The amendments share similarities with the federal NOR but also include significant differences. The notable new provisions include:

• No Misrepresentations. The amended law prohibits misrepresentation of material facts in transactions, including automatic renewals or continuous services.

  
  

• Express Affirmative Consent. Current law requires a business to obtain affirmative consent to the agreement containing the automatic renewal offer terms. The amended law keeps this requirement and adds the need for the consumer’s express affirmative consent to the automatic renewal or continuous service offer terms. It is unclear how this new provision alters existing affirmative consent requirements since express affirmative consent is not defined. Additionally, the provision does not mandate that this express affirmative consent be separate from the overall consent to the contract or transaction.

• Additional Consent Requirements. The amended ARL will prohibit including information in the contract that interferes with, detracts from, contradicts, or otherwise undermines a consumer’s ability to provide affirmative consent. This provision mirrors the federal NOR and addresses dark patterns. Proof of consent must be maintained for at least three years or one year after contract termination, whichever is longer.

• Cancellation by Phone. If a business offers cancellation via a toll-free number, it must answer calls promptly during normal business hours and cannot obstruct or delay the consumer’s cancellation of automatic renewal or continuous service. The amended law allows a business to make save offers—i.e., to present the consumer with a discounted offer or retention benefit, provided that the business clearly informs the consumer that they may cancel at any time by stating “ cancel “ or similar words. If the consumer requests cancellation, the business must promptly process it. For consumers leaving a voicemail to cancel, the business must, within one business day, either process the cancellation or call the consumer back regarding the request.

• Cancellation Online. The general requirements for online cancellation will remain unchanged. Still, the amended law allows businesses to make save offers, such as displaying discounted offers, retention benefits, or information regarding cancellation effects to consumers who request to cancel online. However, businesses must simultaneously display a prominently located direct link or button entitled click to cancel. The business must promptly process the cancellation if a consumer clicks this link.

• Cancellation Through the Same Medium Used to Consent. Current law mandates online cancellation for consumers with continuing or automatically renewing contracts, and the amended law will expand this requirement.

• It will require a cancellation option in the same medium used by the consumer for the automatic renewal transaction or one they regularly use to interact with the business, including in person, by telephone, mail, or email.

• Notice of Fee Change. Existing law mandates that businesses provide clear notice of any material change in renewing agreements, including cancellation information, in a retentive format. Now, notice must be sent before the change is implemented. The amended law adds a timing requirement for fee changes, requiring notice to be sent 7 to 30 days before the change takes effect.

  
  

• Renewal Reminders. Current law mandates renewal reminders only if a consumer accepts a free trial lasting over 31 days or has a contract that automatically renews for one year or more. These reminders remain required under the amended law, with added stipulations to send them before confirming the consumer’s billing information, including the charge amount and frequency. Furthermore, businesses must provide annual renewal reminders for ongoing consumer contracts, delivered in the same medium that activated the automatic renewal or continuous service, or in the medium the customer typically uses. The annual reminder must disclose the product or service details, charge amounts, frequency, and cancellation options.

New ARLs in Minnesota and Utah

Minnesota and Utah recently enacted new ARLs, which took effect on January 1, 2025.

The new Minnesota law applies to contracts beginning January 1, 2025, and resembles California and New York's restrictive ARLs. It introduces unique requirements, such as prohibiting sellers from using unfair tactics to delay cancellation after receiving a request.  Unlike upcoming California amendments, sellers cannot make save offers without prior consumer permission, which must be obtained post-cancellation request. However, sellers may ask about cancellation reasons without requiring answers, inform consumers of cancellation consequences, and suggest options to maintain the relationship, like downgrading or pausing subscriptions.

The Utah law is less detailed than most ARLs and lacks many typical provisions. It applies only to contracts with a renewal term longer than 45 days, apparently excluding month-to-month contracts. The main new requirement is that renewal reminders must be sent 30 to 60 days before the renewal date, clearly disclosing the renewal date, total cost, and cancellation options.