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Is Your Automatically Renewable Contract Enforceable?

Is Your Automatically Renewable Contract Enforceable?

Author: Stan BarrettDate: December 8, 2020

Setting up contracts to renew automatically offers evident business advantages, but it could also give rise to unintended liability if applicable laws and regulations are not followed. As businesses’ use of subscription services has grown, many states have adopted restrictions on their use, while other states, like New Jersey, are considering limiting their enforceability.  These state laws and regulations supplement federal restrictions on automatic renewals, embodied both in principles promulgated by the Federal Trade Commission (“FTC”) to guide marketers on uses of automatic renewals that do not constitute unfair practices (see 15 U.S.C. § 45(a)(1) (“Section 5 of the FTC Act”)) and also in the Restore Online Shopper’s Confidence Act (“ROSCA”).

Automatic renewal clauses typically state that a service will automatically renew on a certain date for a specified price unless the consumer provides advance notice of its intention to terminate the agreement to the seller. Practically speaking, these clauses allow businesses to renew subscription services simply by charging a consumer’s credit card kept on file. 

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