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Complying with the new auto-renewing contract principles

View profile for Tara Jones
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Complying with the new auto-renewing contract principles

On 19 October 2021, the Competition and Markets Authority (CMA) published new principles for anti-virus software businesses that use automatically renewing contracts with consumers in the UK.

The CMA has asked all businesses operating in the field of anti-virus software to review their contracts and practices to ensure they are fully compliant with consumer protection laws.

Undoubtedly, it would also be advisable for any other business which uses auto-renewing contracts with consumers to consider reviewing their current terms to ensure they are compliant.

What is an auto-renewing contract?

This is a contract that is automatically renewed without amendment, year after year, unless one of the parties provides notice in writing that it is not to be renewed.

It can sometimes be referred to as an ‘evergreen clause’ in a contract and in a commercial context can be seen in loan type contracts and service agreements.

In our everyday lives we see these clauses in Premium TV subscriptions, mobile phone contracts or car insurance policies.

Many consumers have been ‘caught out’ having signed up to such a contract and then forgotten to cancel it before the renewal date and have been left to pay for a service they no longer use or require.

What is the issue with auto-renewing contracts?

Whilst the function of auto-renewing contracts can be a positive to businesses in that they are not left with a gap in service if they are late with renewing a contract or forget to renew altogether, they can also present issues.

For example, these clauses from a business perspective are often found in long term service contracts and when first initiating business relationships with new suppliers/customers.

The clause often goes unnoticed, or is nonchalantly forgotten about, until an attempt is made to terminate the contract. 

Often termination can only be achieved by serving written notice to the other party before the renewal date or by consent by the other party.   

Can businesses get money back from an auto-renewal?

In business to business contracts, the law considers that businesses are in a position to decide whether they wish to enter into a contract on the terms presented and there is limited relief available if a business enters into an auto-renewing contract and the cancellation date before renewal is missed.

Can individuals get money back from an auto-renewal?

In business to consumer contracts, there are more protections available, but it can still take a significant amount of time and energy to resolve disputes if complicated cancellation provisions are included in the contract.

What are the new compliance principles for anti-virus software businesses?

Below I outline the key compliance principles for auto-renewing contracts:

When the customer first signs up

The business must give all customers clear information and key points about auto-renewal, including but not limited to, how much they will be charged to renew, the length of the renewed contract period and how auto-renewal works.

The business must also make sure that any price claims made are accurate and do not mislead customers.

During the contract

If your contracts impose automatic renewal terms, your business must provide reasonable means for your consumers to exit the automatic renewal terms fairly or to turn these off indefinitely.

This option must be communicated in plain and intelligible language. Customers must also be reminded about the auto-renewal of the contract in good time before it happens.

When the contract has been auto renewed

The software supplier should inform customers that their contract has auto renewed and provide them with written confirmation.

They should also provide the opportunity for an appropriate and straight forward refund (online if practicable) as quickly as possible.

Where it becomes clear that a customer is not using an automatically renewed product, the supplier should take steps to engage with them and should not assume it is right to continue to take payments if the customer does not respond.

Why have these principles been introduced?

These Principles are designed to provide practical advice for anti-virus software businesses to help them to ensure that they comply with consumer protection law and reduce the risk of facing enforcement action.

They are also a useful aide for businesses that use auto-renewing contract terms to ensure consumers are being treated fairly.

What if my business fails to comply?

Failing to comply with the new Principles could result in an investigation being undertaken by the CMA. If necessary, the CMA can take enforcement action against businesses.

This happened earlier on in the year when leading anti-virus software providers (namely McAfee and Norton) gave formal commitments to make changes to their automatically renewing contracts so they are easier to understand and to exit by their customers.

They were also required to ensure customers who auto-renew knew their extended refund rights.

More severe penalties such as fines and prison sentences can also be ordered by the courts, which is why it is important to keep practices under review as the law continues to develop in this area.

To view the Principles in full please click here.

Corporate & Commercial Solicitors

If you would like to discuss further about auto-renewing contracts or have any other commercial related queries, please contact our Company and Commercial team. We are happy to assist you with your specific circumstances.

We offer a free initial appointment to all new clients. To get in touch with our bright lawyers simply call 01202 499255 or visit our get in touch page.

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