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Laws Aimed At Alleviating Abuse Stemming From Manipulative Subscription Tactics
By Judith Bachman
Recurring revenue. It is the holy grail for businesses.
Recurring revenue, as the name suggests, is continuous revenue a company expects to receive from its customers. Businesses often measure recurring revenue over a particular period of time, say a year; known as annual recurring revenue (ARR). ARR is frequently used by businesses operating on a subscription-based model such as Netflix, Quickbooks On Line, and gym memberships.
Having steady or rising ARR enables businesses to scale rapidly, get funding, and expand.
While subscription-based models are a boon for businesses and their ARR, they can be a quagmire for consumers who want to free themselves of the commitment. As we all know too well, companies can make it torturous to cancel a subscription. “Friends” fans will well remember the episode when Chandler tried to cancel his gym membership only to be upsold and then tried to close his bank account from which the gym fees were withdrawn only to be upsold, there as well. It’s only funny when it’s a riff on a sitcom. Less so when the frustration is real.
Knowing the risks to consumers, New York recently put a law in place restricting how businesses offer and manage subscriptions. The New York statute requires businesses to provide clear disclosures, informed consent, and a way to easy cancel a subscription.
In particular, the New York statute mandates that businesses give clear and conspicuous terms for the automatic renewal subscription including explicit notice that the subscription will continue until the consumer cancels it, directions as to how to cancel a subscription, information on the cost of the subscription, and reminders before each auto renewal goes into effect.
Additionally, a business must obtain affirmative consent from customers confirming that they are choosing to enroll in an automatically renewing subscription.
Businesses violating the statute are subject to enforcement actions by the New York State Attorney General and subject to penalties ranging from injunctions and fines from up to $100 per incident or $500 for a willful violation. Since these penalties could be multiplied per subscriber, a business could face a staggering amount of liability if it does not adhere to the regulations.
To avoid this liability business must be proactive in ensuring that they are in compliance with the statutes and regulations regarding automatically renewing subscriptions. Business should review advertising, marketing, operations, offers, and subscription terms to ensure they meet applicable laws.
Beyond that, an organization should designate a point person to monitor this issue. Much like recent data privacy obligations, reasonable and good faith subscription practices are required for compliance.
Judith Bachman is the founder and principal of The Bachman Law Firm PLLC in New City. judith@thebachmanlawfirm.com 845-639-3210, thebachmanlawfirm.com