Businesses with membership or subscription consumer contracts that contain automatic renewal terms are all too familiar with federal and state laws that regulate these provisions. While some of these laws are industry specific – like those applying to gyms, health clubs or businesses providing periodic services – others apply to any contract that includes automatic renewals.

The task of complying with these laws is about to become more complicated due to three major changes: (1) a new federal law with broad application, (2) amendments to California’s existing automatic renewal law, and (3) a new automatic renewal law in Minnesota. These new laws are intended to make it easier for consumers to understand and cancel certain contracts that automatically renew.

Rollout of New Laws

The Federal Trade Commission (FTC) published its new “Click to Cancel Rule” on November 15, 2024 (formally titled “Rule Concerning Recurring Subscriptions and Other Negative Option Programs”). When it becomes effective on January 14, 2025, covered sellers must immediately comply with the “Misrepresentations” section but will have until May 14, 2025 to comply with the remainder of the rule.

California’s current automatic renewal law has been around since January 1, 2022, but its recent amendments will become effective July 1, 2025.

Minnesota’s new automatic renewal law becomes effective January 1, 2025.

What Do the New Laws Regulate?

The FTC’s Click to Cancel Rule modifies and expands on existing federal law and regulates contracts that contain a “Negative Option Feature,” which means the consumer’s silence is interpreted by the seller as an agreement to continue with the existing arrangement. This applies to automatic renewals, continuity plans, free-to-pay conversions, fee-to-pay conversions or pre-notification negative option plans.

While the terminology used in the California and Minnesota automatic renewal laws (ARLs) is different than that used in the FTC’s Click to Cancel Rule, these laws generally cover the same types of consumer contracts.

Both the California and Minnesota ARLs regulate plans, arrangements or provisions of a contract in which a paid subscription or purchasing agreement automatically renews for additional terms or continues until the consumer cancels. Starting July 1, 2025, the California ARL will also apply to offers for “free-to-pay conversions,” which are when a consumer receives an initial product or service for free but then is obligated to pay going forward unless they cancel before the end of the period (e.g., trial subscriptions).

What Do the New Laws Require?

The FTC’s Click to Cancel Rule and the California and Minnesota ARLs impose a number of requirements relating to automatic renewal provisions and the consumer contracts they regulate –with the goal of better informing consumers and making it easier for them to cancel these types of contracts. Some of the key requirements include:

• “Clear and conspicuous” disclosure of the automatic renewal
• Consent to the automatic renewal
• *Confirmation of the consent to the automatic renewal
• No misrepresentations as to the automatic renewal
• *Notice of subsequent “material changes” to the terms of the automatic renewal
• Easy way of canceling the contract with the automatic renewal
• *Annual reminders of the automatic renewal

*NOTE:  These requirements are not included in the FTC’s Click to Cancel Rule, but contained in the California ARL or Minnesota ARL, or both.

While the FTC’s Click to Cancel Rule does not include an exemption for good faith compliance, California, Minnesota and a number of other states with automatic renewal laws contain such exemptions.

Are Nationwide Contracts Still Possible?

Once effective, the FTC’s Click to Cancel Rule will establish the minimum level of protection for consumers relating to contracts that contain automatic renewals on a nationwide basis (i.e., the federal floor). The Click to Cancel Rule specifically notes, however, that states can afford consumers more protection. Therefore, in addition to complying with the FTCs’ Click to Cancel Rule, a business that wants to use a single, form consumer contract on a nationwide basis, will also need to comply with any applicable state automatic renewal laws that impose more stringent requirements, like those in California, Minnesota and a number of other states.