Auto-renewal of consumer contracts

In October 2021 the Competition & Markets Authority (CMA) published new compliance principles on auto-renewal practices following its investigation into the anti-virus industry.

The compliance principles are intended to guide businesses towards achieving a compliant position and to reduce the risk of them facing enforcement action. Unsurprisingly, the broad thrust of the principles is that consumers must be treated fairly and openly.

Why was action necessary?

The CMA was particularly concerned that auto-renewing contracts pose a risk to consumers because they can result in the consumer being:

• Locked into contracts which they do not want or need
• Charged unexpected renewal fees or prices higher than expected.

There are nine compliance principles for businesses to follow, broken down into different stages of the contractual journey.

Before sign-up

• Ensure consumers can make fully informed choices about auto-renewal
• Ensure price claims are true and accurate
• Confirm auto-renewal terms to the consumer.

The guidance here centres around transparency. The consumer should understand how auto-renewal will apply to the contract, the relevant costs and what their rights are to opt-out before auto-renewal or terminate after auto-renewal. This information should be displayed to the consumer on the order page, i.e. before they click “buy now” to confirm their purchase.

The consumer should also be provided with a copy of this information in a confirmation email after the purchase has completed, including a link to where auto-renewal can be turned off by the consumer.

During the contract

• Ensure consumers can turn off auto-renewal easily
• Remind consumers in good time before auto-renewal happens
• If the consumer turns auto-renewal off it must stay off

Broadly speaking, it should be as easy for the consumer to turn off auto-renewal as it was for them to sign up in the first place. Barriers should not be placed in the way of consumers who wish to turn off auto-renewal. A consumer should not be required to contact a call centre if they were able to sign up online, for example.

Reminders about renewal should be timed appropriately (not too early; not too late) and the message should be clear and prominent. It should not be hidden amongst marketing material, for example.

After auto-renewal

• Provide consumers with an opportunity to change their mind
• Ensure ease of obtaining a refund if a consumer requests one
• Ensure safeguards for consumers who are not using the product post-renewal.

The CMA recommends that compliance is more likely where consumers are given a cooling off period of two weeks post-renewal and, more generally, a pro-rata refund right throughout the renewal period.

The trader should have appropriate systems in place to check whether the consumer is using the product. In the context of anti-virus software, this included checking whether consumers were receiving updates and, if not, querying whether further renewal should take place.

Summary

Auto-renewal of contracts has obvious benefits for the trader and may also provide convenience for the consumer. Traders should exercise some caution, however, to ensure auto-renewal is applied in a responsible and transparent way, otherwise there will be a strong suspicion of unfairness which could result in enforcement action.

Whilst the compliance principles are targeted at the anti-virus industry, any business which uses auto-renewing contracts with consumers in the UK should read them with interest. The CMA’s enforcement action in this area indicates its view of a ‘best practice’ approach to auto-renewing contracts and it is reasonable to assume that the compliance principles will have broader application in the future.