A screen displays logos for streaming services. States are passing new laws to try to make it harder for companies to automatically renew subscriptions, sometimes at higher prices, without consumers’ knowledge or consent. (File/Chris McGrath/Getty Images)
When Tennessee state Rep. Bob Freeman, a Democrat, studied his cable and internet bill last year, he kept seeing recurring charges for app subscriptions he didn’t recognize. Turned out, his 14-year-old daughter had been signing up for subscriptions with introductory rates and never canceling when they rolled over to the full price.
“I would question her bills, and she said, ‘Oh, it’s only $1.99.’ Those were teaser rates,” he said in an interview. To actually cancel, he said, he had to send an email to the company for a follow-up phone call, during which the company representative would try to talk him out of it.
“It was clear it was not meant for convenience. … It was clear it was predatory,” he said.
That experience, plus dealing with his grandmother — who would sign up for apps at $2.99 a month that would then renew for $14 without her knowledge — persuaded him that a new law was needed to ensure greater transparency and consumer protection.
Freeman introduced a bill that would require more notice from companies before subscriptions are automatically renewed.
Originally, his bill also would have required companies to get another “yes” from customers — “affirmative consent,” in legislative lingo — before charging consumers’ credit or debit cards.
But after strong objections from cable and streaming services, Freeman said, the bill was amended to eliminate that requirement.
“They got all bent out of shape,” he said of the industry.
In April, Tennessee Republican Gov. Bill Lee signed the legislation.
State law now requires companies to give “clear and conspicuous notice” to consumers if the automatic renewal will occur more than 60 days after the initial sign-up. It also mandates that they clearly communicate when they will begin charging for the service.
About half a dozen other states, including South Carolina, have enacted similar laws this year.
What SC law says
South Carolina’s law, which took effect in May, requires companies to notify customers of any automatic subscription renewal 30 to 60 days in advance. The notification must “conspicuously disclose” the pending charge and provide details on how to cancel if they don’t want to pay, such as a toll-free number, email address “or other cost-effective, timely, and easy-to-use mechanism for cancellation.” If customers do nothing after getting that information, the charge will go through.
Senate President Thomas Alexander said he introduced the measure last year after a constituent called him about an automatic renewal that caught him by surprise.
Not only do companies make it difficult to keep track of often-increasing charges, but they make it “hard to know how to terminate,” Alexander, R-Walhalla, told the SC Daily Gazette on Tuesday.
But the law, which passed both chambers unanimously in the spring, means in the Palmetto State “they’re going to have to make the consumer aware and that the higher rate will be imposed on them if they do not act,” he said, calling the consumer-friendly law an example of “government the way it ought to work.”
A company’s failure to comply makes the contract unenforceable. The South Carolina law excludes service contracts with phone carriers, cable companies and internet providers — basically, companies that bill for services monthly, Alexander said.
Companies respond
Companies that rely on subscriptions say some of the tougher measures will only annoy and confuse consumers.
Navdeep Sahni, an associate professor of marketing at the Stanford Graduate School of Business, said giving consumers more information about automatic renewals and how to cancel is good for business. He said this means consumers would be more open to trying new things and “not get tricked into getting something they don’t want.”
Sahni said businesses only hurt themselves if customers feel burned by the experience.
But earlier this year at a Federal Trade Commission hearing on a proposed federal rule, Michael Powell, president and CEO of NCTA – The Internet & Television Association, warned that many customers might misunderstand the “click to cancel” measures.
A customer “may face difficulty and unintended consequences if they want to cancel only one service in the package,” Powell said, because “canceling part of a discounted bundle may increase the price for remaining services.”
Powell added that “three out of four of the cable and broadband customers who called to cancel end up retaining some or all service after speaking with an agent.”
In an email to Stateline, association spokesperson Brian Dietz said the organization would have no further comment on the proposed federal rule or similar state laws.
It was clear it was not meant for convenience. … It was clear it was predatory.
– Tennessee Democratic state Rep. Bob Freeman
What other states are doing
In Virginia, a new law that took effect in July requires companies to notify consumers of their option to cancel within 30 days of the end of the trial period. The Minnesota measure, which takes effect Jan. 1, stipulates that companies must give customers the opportunity to cancel via a “simple mechanism,” such as a checkbox or submission button.
And a bill sent to California Democratic Gov. Gavin Newsom a month ago would tighten an already stringent auto-renewal law. Brandon Richards, Newsom’s spokesperson, said the governor has until Sept. 30 to sign or veto the bill.
The laws are designed to help people be more mindful of what they are signing up for.
In a March survey by CNET, a consumer-focused website, 48% of respondents said they had signed up for a free trial of a paid subscription and then forgotten to cancel it.
“I’m sure a lot of the time people just don’t get around to [canceling] it,” said Steve Baker, an attorney and former regional director at the Federal Trade Commission. “And they make it hard to cancel. It’s not something you necessarily file a complaint about it. It’s more of a minor annoyance.”
Freeman, the Tennessee lawmaker, said businesses with good products shouldn’t fear the new rules.
“If you have a good product, when the teaser rate burns off, [I can subscribe],” he said.
Like Freeman, Utah Republican state Sen. Todd Weiler, who sponsored the auto-renewal bill in his state, was motivated by personal experience. Weiler said he makes a point to record the date when a discounted or free offer expires and full charges kick in.
“I consider myself an intelligent person,” he said. “It’s usually easier to find the cancellation information when you sign up, so I go there and paste it into my calendar. I try to be diligent. But sometimes I still get caught.”
SC Daily Gazette Editor Seanna Adcox contributed to this report.
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