If you’re reading this, you probably live a life where — like it or not — you’re subject to an array of “subscriptions,” traditional or virtual. More and more, the modern consumer is seeped in a market of services, in-person and digital, where purchases are not one-time but recurring. Maybe your gym membership is billed monthly, or your home security service. Maybe you have boxes from an online retailer arriving at your doorstep regularly, full of cooking ingredients, medicine, or cat food. Your love life could even depend on a monthly subscription to a dating app.
It won’t surprise you that many companies that run a subscription-based model will incentivize new sign-ups through a short free trial. If you’ve ever signed up for one of these, you’ll know that you have to put down your credit card information at the start. If you don’t cancel before the trial period is over, the company automatically charges your card for the price of a subscription, which recurs periodically until you cancel it. In other words, they’re all opt-out systems instead of opt-in.
That trick works pretty well to get new paying subscribers, simply because so many of the free-trial folks forget to opt out. In a recent survey, nearly half of respondents said that they had forgotten to cancel the free trial subscription that they’d signed up for, some of them multiple times a year. The trend was especially common among millennials, who forgot to cancel 65% of the time (though slightly less, 59%, with Gen Z).
Are Auto-Renewals Legal?
Is what these companies are doing legal? In the U.S., it’s a bit complicated due to the regulatory framework involving both federal and state governments. Last year, the Federal Trade Commission (FTC) proposed a "click to cancel" rule to make it as easy for consumers to cancel subscriptions and recurring payments as it is to sign up for them. This proposal addresses deceptive practices where businesses make it difficult for consumers to cancel unwanted subscriptions, often leading to unauthorized charges. Key provisions include a simple cancellation mechanism, requirements for sellers to ask consumers if they want to hear additional offers before pitching them, and mandatory annual reminders for non-physical goods subscriptions.
But the rule has not yet taken effect. It’s still at the stage where the public can comment on the proposed rule. Unsurprisingly, trade groups representing publishers, advertisers, and videogame companies are opposing the rule, arguing that it would confuse consumers and create business issues. They claim the current system works well, with few complaints, and warn that simpler cancellation processes could lead to accidental cancellations and missed essential deliveries. They also argue that the existing multi-step cancellation procedures protect consumers and allow companies to offer better deals to retain customers. The FTC is reviewing the feedback and has not yet decided on its next steps.
YouTube’s Subscription Tiers
Some of the most common digital subscriptions are for entertainment, of course. You probably have at least one television- or music-streaming service (or are mooching off your roommate’s Netflix and your big sister’s Spotify). Even if you don’t, you’ve probably used plain old YouTube. If you’ve ever been really annoyed with the recurring advertisements the platform subjects you to, you may have considered signing up for its Premium membership, which takes out all the pesky ads, among other perks. YouTube also offers other paid memberships, such as YouTube TV and YouTube Music.
Recently, though, the popular streaming company has been facing a legal battle over its subscription services and their auto-renewal features. In 2022, a group of plaintiffs in Oregon filed a class action against YouTube and its owner, Google.
Users Take YouTube to Court
The plaintiffs were individuals who had used one of YouTube's various subscription services. They claim that when consumers sign up for these subscription services, they are enrolled in programs that automatically renew from month-to-month or year-to-year, resulting in recurring charges to their credit cards, debit cards, or third-party payment accounts. But YouTube allegedly violated Oregon law by not disclosing a 7-day cancellation policy.
The plaintiffs claim that YouTube failed to take several important steps: providing clear and conspicuous disclosures of the automatic renewal terms; obtaining consumers' affirmative consent before charging their payment methods; and providing an acknowledgment that includes the automatic renewal offer terms and information on how to cancel the subscriptions. This, they claimed, led to consumers being charged on a recurring basis without proper notice or consent, making it difficult for them to cancel their subscriptions.
The plaintiffs claimed that the way YouTube ran things violated several different Oregon state laws. For example, they said that the fact that the platform's subscription services automatically renew without providing the necessary disclosures and obtaining the required affirmative consent from consumers was in violation of Oregon's Automatic Renewal Law (ARL).
The case made its way through a federal district court and was appealed to the Ninth Circuit.
YouTube’s Defense
Google and YouTube argued that their subscription services comply with Oregon's relevant laws – not only the ARL, but also the “Free Offer Law” (FOL). The FOL mandates that businesses clearly disclose all terms of "free offers" before consumers accept them, including any financial obligations, cancellation policies, and the timeframe for cancellation to avoid charges. It requires businesses to obtain consumers' affirmative consent to these terms and provide straightforward methods for cancellation, such as a toll-free number or an online method similar to the sign-up process.
Google/YouTube pointed out that their Checkout Pages fully disclose all required automatic renewal terms, including the subscription's renewal nature, cancellation policy, recurring charges, and renewal term length. These disclosures, they claimed, are “clear and conspicuous” as they use bold fonts, contrasting types, and clear separations. They also argued that the ARL does not require the disclosure of refund policies, which plaintiffs incorrectly claim.
The defendants further contended that their Acknowledgment Emails include all necessary terms and cancellation information, presented clearly with hyperlinks for easy cancellation. They argue that their method of obtaining affirmative consent through a click box is sufficient and consistent with established caselaw, and that their cancellation methods comply with the ARL and FOL. Finally, the companies pointed out that plaintiffs failed to allege reasonable efforts to use the provided cancellation method, which is a requirement under the FOL.
Ninth Circuit Says No Case
The Ninth Circuit basically took the streaming company’s side, affirming the lower court's decision to dismiss the lawsuit against YouTube and Google.
The court pointed out that the 7-day cancellation policy did not apply to the subscriptions at issue in this case, noting that the policy applies to rentals, not to free trials for subscriptions. Since the appellants did not rent any products from YouTube, the ARL and FOL did not require the disclosure of this irrelevant term.
The court also determined that YouTube's automatic renewal terms were clear and conspicuous at checkout, and that acknowledgment emails sufficiently disclosed the necessary terms. Additionally, the court ruled that YouTube properly obtained affirmative consent for automatic renewals through the subscription button, and that the appellants failed to demonstrate that YouTube's cancellation policy violated the ARL or FOL, as they did not follow the provided cancellation link.
Related Resources:
- Can I Sue a Satellite or Streaming Company? (FindLaw's Learn About the Law)
- Did I Waive My Right to Sue Disney By Accepting Their Terms and Conditions? (FindLaw's Law and Daily Life)
- Pricing Disputes: You Pay the Lowest Marked Price (FindLaw's Consumer Protection)
