Colorado’s new law governing automatic renewal clauses in contracts, C.R.S. 6-1-732, went into effect January 1, 2022. Colorado, which already had a statute governing such clauses in health club membership agreements, now has robust disclosure and notice requirements for all automatic renewal contracts offered to Colorado residents except those in certain industries, such as insurance and banking. Free trials that automatically turn into paid subscriptions are included under the act, but importantly, all existing contracts are grandfathered in, as Section 2 of the enacting legislation states that it only applies to contracts executed on or after its effective date of January 1, 2022.
The requirements of the law are three-fold:
- up-front disclosure;
- simple cancellation; and
- ongoing reminders.
Any offer subject to automatic renewal must make the renewal terms “clear and conspicuous” before the contract is accepted, by using larger print, contrasting font/color, or otherwise setting off the text. This requirement also applies to free trials that automatically turn into paid subscriptions. Burying the renewal language in a separate online link is prohibited, as any link used for details about the renewal must be (i) available before purchase, (ii) directly adjacent to the purchase link, and (iii) itself labeled, or directly adjacent to, a clear and conspicuous disclosure that the purchase is subject to automatic renewal.
Upon purchase, the customer must be sent a written acknowledgement (such as a confirmation email) that reiterates the automatic renewal terms and provides the cancellation policy and instructions on how to cancel. Cancellation must be provided as “a simple, cost-effective, timely, easy-to-use, and readily accessible mechanism.” The statute gives an example of this – a “one-step online cancellation link” on the provider’s website that is available immediately to the consumer (allowing for an authentication protocol). Telephonic cancellation is not mentioned, though that would seem to run the risk of violating the simple and timely requirements.
Lastly, companies will need to stay in ongoing contact with automatic renewal customers. If there are any material changes to the terms, companies must provide a clear and conspicuous notice of the change (in a manner retainable by the consumer, i.e. not over the phone) along with reiterating the cancellation policy and mechanism. Even without any changes to the terms, companies must clearly notify their customers prior to each annual renewal. Physical mail is allowed for this purpose, and text messages and mobile phone “push” notifications can be utilized if the customer authorizes that form of communication or regularly uses it to communicate with the company. The statute has very specific timing requirements for notice. For contracts of one year or more, a renewal notice must be sent between twenty-five (25) and forty (40) days prior to each renewal. For contracts of less than one year, the notice must be sent twenty-five (25) to forty (40) days in advance of any renewal that would extend the contract beyond twelve (12), twenty-four (24), or thirty-six (36) total months, etc. In other words, month-to-month customers would need to be sent their notice of renewal prior to each anniversary.
The hospitality & leisure industry, through possible automatic renewal clauses found in Travel Club Subscription Agreements and Exchange Agreements, will need to be mindful of the new rules when conducting business in Colorado.
Multiple other states are proposing similar legislation, including New Jersey, Virginia, and West Virginia. This is a trend we will be keeping an eye on.