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Automatic subscription renewal laws: a merchant’s guide

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedMar 20232 min read

Subscription-based models are growing in popularity among businesses and customers alike. And, while they offer a number of advantages to businesses, they also present opportunities for misuse. Some businesses have been known to abuse the model by unfairly charging customers that aren’t aware of how automatic subscription renewal works.

One particular method businesses use to take payments from customers unfairly is by setting them up with a free trial, but not warning them or reminding them that they will be charged at the end of it if they don’t cancel it in time.

In response, consumer protection regulations have stepped up. The Restore Online Shoppers confidence Act (ROSCA) made some headway back in 2010, but more recently different states have placed new laws and regulations in place to protect subscribers.

In order to make sure your subscription service is 100% compliant, let’s delve into some of these state laws and explain what they entail for businesses.

California automatic renewal law

California has always been ahead of the game when it comes to consumer friendly subscription laws. Back in July 2018, California passed an amendment that requires businesses offering free trials to clearly state whether they will charge consumers at the end of the trial. The law also states that businesses must offer options for consumers to cancel their trial online.

This was to try and stop companies taking advantage of customers who didn’t realize they would be automatically charged at the end of a free trial. It also prevents these businesses from having complicated and timely cancellation procedures that effectively force people to continue to pay in order to avoid the hassle of canceling.

Other states with automatic renewal laws

In January 2019, Virginia passed a similar law to California, requiring businesses to provide information about cancellation when offering a free trial. They must also allow the consumer to cancel before they are charged for goods or services.

In Columbia, as of February 2019, businesses must offer a second opt-in for customer’s after a free trial. This means that consumers must confirm that they want to continue using the service after the trial expires, rather than assuming they do if they don’t actively cancel.

In 2019, Vermont also passed a law stating that consumers must affirmatively opt in to the automatic renewal provision in addition to accepting the contract .

Additionally, Colorado, Delaware and Illinois have recently passed automatic subscription renewal laws. In Colorado and Delaware, subscription businesses must notify customers of their renewal payment several weeks in advance of taking the payment. Illinois added to existing renewal laws, now stating that businesses must provide a straightforward cancellation process and allow customers to cancel electronic subscriptions online.

For a full list of automatic subscription renewal laws presented state by state, see this Faegre Drinker document.

Why do I need to know about automatic subscription renewal laws?

As a business, it’s imperative that you stay up to date and compliant with these frequently updated regulations. Failure to do so can result in penalties and can render the contracts you have with customers void.

Subscription payments with GoCardless

GoCardless offers an innovative, quick and easy solution for subscription-based companies to collect recurring payments from customers in the form of the ACH Debit solution. This enables businesses to collect payments directly from their customers' bank accounts, effectively eliminating the risk of late payments.

With GoCardless’s ACH Debit solution, you can manage your payments using a simple online tool, or integrate with the GoCardless REST API. Your customers will be able to set up ACH Debit payments online, so there’s no need to complete tedious paper authorization forms. Then, as soon as an authorization is in place, you can collect one-off or recurring payments from customers automatically.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.