HCR Law Events

27 July 2021

Key considerations for auto-renewal terms in consumer contracts

We have all had that email telling us our car/pet/house insurance will auto-renew in x weeks. Indeed, the purpose of an auto-renewal term is to automatically renew the length of a contract, but should you consider the use of auto-renewal terms within consumer contracts?

Consumer contracts should contain provisions that stipulate how long the contract shall last. The duration is a key aspect for the consumer to understand, but consumers may find themselves stuck in a contract for much longer than expected as a result of auto-renewal terms, either because of a lack of understanding of an auto-renewal term or a failure to read the contract.

Examples of auto-renewal terms

When a consumer enters a membership contract with their local gym, the gym will usually offer a range of memberships, paying perhaps monthly or annually. Most of the time these membership contracts will contain an auto-renewal clause, but how often do gyms openly inform members that the gym memberships are subject to an auto-renewal term?

To give an example – let’s say that Dwayne Johnson starts his new training routine for an upcoming Hollywood movie and decides to sign up for an annual membership on 01 January 2021. The membership contract contains a clause which stipulates that, upon the expiry of the annual term (31 December 2021), the contract shall automatically renew, unless notification is received from Dwayne Johnson that he wishes to terminate the contract before the next renewal term. If Dwayne Johnson fails to notify the gym before the expiry of the annual term, then he will find himself locked into the gym membership for another year.

These auto-renewal terms can be found in a variety of contracts for a wide range of services, such as your subscription contract with Netflix that renews monthly or your car insurance contract that will renew annually.

The exact wording and formatting of the auto-renewal term will vary widely from contract to contract so particular attention should be paid when reading through a contract.

Uses of auto-renewal terms

In recent years the Competition and Markets Authority (CMA) has shown its teeth by clamping down on auto-renewal terms within the gaming industry. In addition to the CMA, consumer protection legislation requires businesses to treat their consumers fairly. There is potential for auto-renewal terms to be unfair towards consumers, so businesses must consider the use of auto-renewal terms carefully within their contracts.

To avoid potentially breaching consumer protection legislation, there are some potentially onerous steps that businesses can take:

  • clearly setting out, in advance, to the consumer, the renewal and termination rights they have when entering into the contract
  • offering them an opt-in option for auto-renewal of the contract rather than making the auto-renewal a default position
  • during the term of the contract, reminding the consumer of the renewal date in advance, including information on their termination rights
  • taking steps to prevent the auto-renewal if the consumer is not making use of the services
  • allowing the consumer to terminate, if the contract has auto-renewed, without imposing an unreasonable termination fee or lengthy notice period.

The steps above are not mandatory, but they can help prevent businesses from breaching consumer protection legislation and receiving bad publicity from consumers complaining about being treated unfairly.

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