By paying a regular fee, subscribers receive a recurring delivery of products, often picked at random for the customer by the supplier. The convenience of these boxes appearing on the doorstep, coupled with the “reward uncertainty” for what might be in the box, can be a powerful strategy for keeping consumers engaged with brands.
This model has gained traction in the US with several large brands rolling out subscription services; for example for children’s sneakers, and Australia is not far behind – in both instances it looks set to transform the way customers access and interact with their favorite brands. This article sets out a few legal considerations for businesses considering, or operating subscription models in the US and Australia.
In the US, automatic renewal subscriptions allow a business to habitually charge a consumer for its product or service subscription each time it expires, unless the consumer cancels the subscription. Both federal and state laws regulate these subscriptions. Under federal law, consumers are protected by the Restore Online Shoppers’ Confidence Act (ROSCA). ROSCA ensures all consumers are aware of the terms associated with an automatic renewal policy before they purchase products or services. More specifically, this law requires that the terms of auto-renewal subscriptions be disclosed in a “clear and conspicuous” manner. Businesses should communicate these disclosures:
- using various fonts, contrast colors, text size, and background variations to display the disclosures;
- using plain terms, rather than legal jargon; and
- throughout the entire website, including the home page, the shopping cart, and a confirmation email after purchase.
Violations of ROSCA are considered unfair or deceptive acts or practices, subject to monetary penalties. Under ROSCA, the Federal Trade Commission and state attorneys general have the authority to bring an action on behalf of the residents of any state against any person or business that violates this federal subscription renewal law.
In terms of state law, approximately 25 states have enacted or proposed laws that regulate automatic renewal terms and disclosures. Businesses that offer auto-renewal subscription programs for products or services online are held accountable for each state’s law. Therefore, a business can ensure compliance with all state laws if it satisfies the standard of the state with the strictest requirements.
California and several other states require that businesses offering recurring subscriptions must:
- present the terms in a “clear and conspicuous” manner;
- not charge the consumer’s credit card or bank account without the consent of the consumer;
- allow for an online cancellation method; and
- not change material terms of the subscription without using “clear and conspicuous” language.
Depending on the state, if a business violates the auto-renewal law, the product or services will be deemed unconditional gifts to the consumer and the business must bear the entire cost. Additionally, some states allow individual consumers the right to bring an action against a business to enforce the law, resulting in the potential for a consumer class-action suit.
In Australia, subscriptions are considered purchases that are captured by the Australian Consumer Law (ACL). It is therefore important that retailers adhere to the same laws that would apply to a standard online or in-store purchases of that item, these include ensuring:
- it is governed by terms of supply that include refund and returns policies, which comply with mandatory consumer guarantees prescribed under the ACL with respect to products being:
- of acceptable quality – safe, lasting, having no faults, looking acceptable and doing all the things someone would normally expect them to do;
- fit for purpose – the product should do what the business told the consumer it would do before it was purchased;
- accurately described – subscription boxes are unique in that they inherently rely on uncertainty; however, the fundamental character of the contents must be described in a way that indicates to consumers what they will receive (includingdisclosing, prior to or at the time consumers purchase the subscription, that the products will be selected randomly); and
- able to meet any express warranty – meaning it meets any representation made about the product at the time of purchase;
- consumers are given notice of any key terms prior to, or at the time that they subscribe, or they are provided with a link to the terms of supply and required to confirm their acceptance before proceeding;
- it is not a subscription trap, meaning it is clear to consumers up front that an original purchase commits them to an ongoing subscription; and
- there is a clear and easy mechanism for consumers to unsubscribe and there are no unreasonable cancellation penalties.