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Thompson Hine LLP, a full-service business law firm with approximately 400 lawyers in 8 offices, was ranked number 1 in the category “Most innovative North American law firms: New working models” by The Financial Times and was 1 of 7 firms shortlisted for The American Lawyer’s inaugural Legal Services Innovation Award. The firm has been recognized by the National Law Journal as a Legal Technology Trailblazer and featured by Bloomberg for its innovative service delivery models, which drive accuracy and predictability. The firm’s commitment to innovation is embodied in Thompson Hine SmartPaTHTM – a smarter way to work – predictable, efficient and aligned with client goals. For more information, please visit ThompsonHine.com and ThompsonHine.com/SmartPaTH.

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An automatic renewal (auto-renewal) clause within a contract grants sellers the right to automatically renew its provisions of services to consumers when the initial subscription term expires unless the consumer affirmatively cancels the subscriptions. This contractual framework is widely used, especially regarding services purchased online (e.g., consumer goods, magazines, credit monitoring services). They are also becoming more controversial and subject to <a href="https://www.federalregister.gov/documents/2023/04/24/2023-07035/negative-option-rule#citation-49-p24722">greater scrutiny and regulation</a>. <a>Utah recently enacted </a><a href="https://le.utah.gov/~2024/bills/static/HB0174.html">House Bill (HB) 174</a>, which requires businesses to provide advanced notice to consumers before auto-renewal becomes effective and imposes costly damages for violations. It provides similar requirements for “trial period” contracts. Companies should work with counsel to design an appropriate compliance strategy to address HB 174, and similar (and in some instances more stringent) requirements set forth in other state laws.

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<a>On March 13, 2024, Utah Governor Spencer Cox signed HB 174 into law</a>. Its provisions will become effective on January 1, 2025. The law regulates both “automatic renewal provisions” and “trial period offers.”

HB 174 defines an “automatic renewal provision” as “a provision under a contract that is automatically renewed at the end of a definite, paid term for a subsequent, paid term that is longer than 45 days.” Accordingly, in plain terms, HB 174 does not apply to contracts having auto-renewal clauses extending contracts at less than 45-day intervals, presumably because such short-term contracts give consumers multiple times to cancel their contracts during any given year.

Under HB 174, a “trial period offer” means an “offer to provide a period of time to sample or use a product or service without payment.”

New Requirements for Auto-Renewal Contracts

HB 174 mandates that businesses that provide an individual with a product or service pursuant to a contract that includes an “automatic renewal provision” must furnish notice to the individual of the following:

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This notice must be provided by the business to the individual at least 30 but not more than 60 days before the day on which the automatic renewal provision takes effect.

New Requirements for Trial Period Contracts

Under HB 174, a business that provides a consumer with a “trial period offer” must provide the consumer with notice of the following:

A business that uses these trail period offers must provide the consumer with this notice, at least three days before the day on which the period of time under the trial period offer expires.

Clear and Conspicuous Notice Requirements

The auto-renewal and trial period notices must be provided to consumers in a clear and conspicuous manner. This means that they must be in print, (i) in larger type than the surrounding text, (ii) in contrasting type, font, or color to the surrounding text of the same size, or (iii) in a manner set off from the surrounding text of the same size by symbols or other marks that clearly call attention to the language. Alternatively, this notice could be communicated to the consumer through audio, in a volume and cadence sufficient to be readily audible and understandable.

HB 174 includes important exceptions. For instance, it does not apply to business-to-business contracts, and focuses exclusively protecting individual consumers. It does not apply to insurance agencies or similar businesses regulated by Utah’s insurance code or to banks and financial institutions regulated by federal law. It also does not apply to public utilities and certain types of service contracts (e.g., car repair services). In addition, HB 174 also does not apply to certain types of rental agreements or property management agreements.

HB 174 clearly states that any automatic renewal provision included in a contract that does not satisfy the law’s requirements “is void,” which can significantly limit an organization’s ability to recover losses it may have incurred when providing its goods or services under the contract.&nbsp;

In addition, under HB 174, Utah’s Division of Consumer Protection is given authority to enforce the law, which includes (but is not limited to) the ability to impose an administrative fine of up to $2,500 for each violation of the law. For businesses that have executed hundreds or thousands of contracts with their customers, these damages could be staggering if applied to each contract that violates the law. In certain limited circumstances, a court may also impose reasonable attorney fees, court costs, and investigative fees on businesses subject to enforcement actions.

Recommendations

Organizations that have auto-renewal and trial period-to term related clauses in their contracts should undertake several measures to ensure they are in compliance with HB 174 and other similar federal and state requirements such as:

As noted above, auto-renewal and trial period-related clauses are both widely used and are subject to a higher level of scrutiny and regulation. Companies should note that several states provide additional and more stringent legal requirements for consumer contracts than those under HB 174. Accordingly, companies should work with counsel to design an appropriate compliance strategy to address HB 174, and other state laws.

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

https://admin.thompsonhine.com/wp-content/uploads/2024/03/Utah-Creates-New-Consumer-Protection-Model-for-Auto-Renewal-and-Trial-Period-Contracts.pdf

Utah Creates New Consumer Protection Model for Auto-Renewal and Trial-Period Contracts

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