Changes in Consumer Protection Law

by | Dec 30, 2022 | Law and Business

Software Law: Changes in Consumer Protection Law Affect SAAS Providers

In the 21st century, both businesses and consumers use cloud-based software services for, e.g., ordering dinner, billing, research, keeping budgets, storage, and even seeing what to watch on TV.  Most fee-based software agreements have automatic renewal clauses, commonly referred to as “evergreen clauses.” These clauses are typically seen with software, websites, and applications. Automatic renewal provisions state a contract will be automatically renewed if no party cancels before the current term expires.

Cash in business bank accounts does not always follow along, and sometimes there is not enough cash/credit to pay at the exact time that the software vendor charges the account on file resulting in consumer overdrafts.

When consumers complain, legislatures take action.  States like Colorado have been beginning to enact new laws requiring, e.g., software licensors/vendors with evergreen clauses to provide a thorough, clear, and distinguishable disclosure regarding when it will charge evergreen fees before the signing of the contract.  The signing is considered even before payment is collected, for example, the time when a consumer signs up for a free/initial term.

Review/Draft to Comply:

Before the contract/terms of service are accepted by the end user, any offer that is subject to automatic renewal must make the renewal conditions “clear and visible” by using a bigger type, a contrasting font or color, or another way to make the information stand out. This stipulation also holds for free trials that convert into paid memberships on their own. In addition, any link used to provide information about the renewal must be available before purchase,  next to the purchase link, and itself labeled, or next to, a clear and conspicuous disclosure that the purchase is subject to the automatic renewal. Burying the renewal language in a separate online link is prohibited.

A written acknowledgment (order confirmation or confirmation email) detailing the conditions of automatic renewal, the cancellation policy, and cancellation instructions must be delivered to the consumer after the transaction. A simple, cost-effective, easy-to-use, and readily available option for cancellation must be offered. The law provides an illustration of this in the form of a one-step online cancellation link. A link the customer may use right away on the provider’s website (allowing for an authentication protocol). Although it would seem to incur the danger of failing to comply with the basic and timely criteria, telephonic cancellation is not stated.

Why Cloud-Based Software Vendors Should Care:

Software vendors generally cannot control what states they sell into.  So they need to draft their contracts to comply with the most rigorous requirements.  The ramifications are that by not doing so, the provider is violating consumer protection act laws that can lead to civil or even criminal ramifications.  In summary, even one state’s consumer protection laws are nothing to blow off.

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