The Competition and Markets Authority (CMA) has published a new set of compliance principles (Principles) following its review of the use of auto-renewing contracts by antivirus software firms. The Principles aim to protect consumers from being locked into contracts they no longer want or need and/or being charged renewal fees which are higher than quoted on sign-up.

What is an ‘auto-renewing’ contract?

An auto-renewing contract is one that automatically renews at the end of its current term. The contract will continue indefinitely, renewing at regular intervals until the consumer requests an end to the contract.

Who should be complying with the Principles?

The Principles have been issued in response to the CMA’s investigation of antivirus software firms, but it’s likely that some – if not all – of the Principles will apply to other consumer-facing businesses who use auto-renewing contracts, since the ‘harms’ the CMA is seeking to limit are not unique to the antivirus software sector.

The Principles focus in particular on contracts that auto-renew to a subsequent contract term of one year or more, as these types of contracts are more likely to lock consumers into long-term or unwanted contractual commitments. However, a number of the Principles will also be relevant to shorter auto-renewing contracts (for example, where the contract auto-renews on a monthly basis) and, as noted in our Comment section below, the CMA has separately made recommendations which, if made law, will apply to auto-renewing contracts of all lengths.

What do the Principles say?

Before the consumer signs up:

Principle 1:

• Explain how much the consumer will be charged on renewal, the length of the renewed contract period, and how auto-renewal works.
• Give consumers the option to either actively opt-in to auto-renewal or take a fixed period contract.
• Explain how consumers can end the auto-renewal and their refund rights.

Principle 2:

• Make sure any pricing claims are genuine. Saving claims on the initial fee for a subscription should refer to temporary offers, not savings calculated against the standard price charged on auto-renewal.

 Principle 3:

• Ensure that the Principle 1 information is featured clearly and prominently before the consumer clicks ‘subscribe’ (or equivalent sign-up wording).
• Provide a copy of this information in a confirmation email which includes clear links to the mechanism that turns off auto-renewal and the refund policy.

During the consumer’s contract:

Principle 4:

• Make it as easy for consumers to turn off auto-renewal as it is to sign up in the first place.
• Include instructions on how to turn off auto-renewal in FAQs and consumer communications.

Principle 5:

• Before the auto-renewal occurs, provide consumers with sufficient notice about: the upcoming renewal fee; when the payment will be taken; the date by which consumers should turn off auto-renewal to stop the renewal taking place; the length of the renewed contract period; and the consumer’s right to end the renewal and receive a refund.
• Make sure this reminder is clearly labelled and is separate from any marketing communications.

 Principle 6:

• Do not turn auto-renewal back on after it has been turned off by the consumer, unless the consumer’s explicit consent has been obtained.

Once the consumer’s contract has auto-renewed:

Principle 7:

• Provide consumers with written confirmation that their contract has auto-renewed, the length of the renewed contract, the fees charged, information about termination and refund rights, and when the next payment is scheduled to be taken.
• Provide the opportunity for an appropriate refund, with a minimum 2 week cooling off period.
• Offer consumers an ongoing right to a pro-rata refund, particularly if auto-renewal was the default position (i.e., not expressly opted into).

 Principle 8:

• Make sure it’s straightforward for consumers to request a refund (i.e., as easy as it was to sign up) and receive their money back in good time.
• Keep the refund process online if possible.

 Principle 9:

• If it’s obvious that a consumer is not using their auto-renewed product/service, take steps to engage with the consumer before taking further payments on auto-renewal.

Comment:

The Principles reflect and build on recommendations made by the CMA in its recent response to the UK Government’s consultation on reforming competition and consumer policy, in which the CMA made very clear its view that greater regulation of auto-renewing consumer contracts is needed.

The CMA’s recommendations included:

• an express requirement for businesses to offer consumers a genuine choice, at the pre-contract stage, to take the subscription without auto-renewal;
• a prohibition on businesses taking renewal payments without consumers’ express consent;
• reminder obligations applicable to subscription contracts of all lengths such that consumers are effectively reminded that their contract will renew before each renewal takes place (with the exception that if the billing period of their contract is less than 3 months, consumers they are reminded every 3 months);
• after every renewal, an obligation to provide a reasonable “cooling off period” whereby the consumer can cancel the subscription and obtain a full refund, and in cases of billing periods of longer than 6 months, the consumer should be able to obtain a pro-rata refund where they choose to cancel their renewed subscription after the initial cooling off period;
• an obligation to provide a simple automated online process for turning off auto-renewal and for requesting a refund; and
• after a certain period of inactivity, a prohibition on taking any further renewal payments from the consumer, without the consumer’s explicit consent to do so (the CMA suggests 12 months of inactivity as an appropriate benchmark).

Whilst it remains to be seen which of the CMA’s recommendations will become black letter law, it’s very clear both from the Government’s consultation itself and from the CMA’s consultation responses and its recent investigative activities (including those summarised above) that businesses who use auto-renewing consumer contract models should be taking note, taking stock, and amending their practices where necessary.

If you’d like to discuss any of the points set out above in greater detail, please do get in touch.