Take great care if including terms that tie consumers into recurring contracts. Even if you have done this for years. That is the clear message from the UK’s CMA, which is investigating the anti-virus software and online gaming markets, with a focus on auto-renewals. The CMA’s message is directed at software businesses, but is also relevant for platforms, gaming, entertainment and many other sectors where auto-renewal is often the norm.
Consumer laws make clear that any terms that may be considered unfair or unusual must be prominently brought to a consumer’s attention.
The CMA’s investigation was launched as a response to the loyalty penalty ”super-complaint” from Citizens Advice about long term customers overpaying for key services. Among other things, this raised concerns that some anti-virus software companies’ terms and practices may be unfair and could result in UK customers paying for services they no longer want or need.
The CMA has been considering whether automatic renewal is set as the default option, whether notification of renewal is sent and, if so, the timing of the notification, when renewal payments are taken, and whether the renewed subscriptions are charged at a different price to the original subscription.
In May 2021, the CMA accepted an undertaking from McAfee covering a range of changes designed to improve the overall function and flexibility of McAfee’s automatically renewing contracts for consumers, including:
- giving customers whose contract has auto-renewed an ongoing right to terminate the contract and obtain a pro-rata refund of the amount they have been charged, after their existing refund window has expired. This will also apply to customers who asked for a refund in 2020, but were refused
- emailing customers to make them aware of their refund rights, and providing clear information on the McAfee website about the refund rights
- simplifying and streamlining the processes to turn off auto-renewal and obtain a refund. This includes building a mechanism to allow most customers to request refunds automatically
- ensuring customers are made aware, up front, that their contract will auto-renew, of the price they will be charged for the product upon automatic renewal and when the money will be taken; and
- where the price will be higher on auto-renewal, not giving the impression that the initial price represents a saving by comparison.
A few weeks later, the CMA announced that it had accepted similar undertakings from Norton. Norton is also making changes designed to make automatically renewing contracts easier to understand and terminate, including:
- as with McAfee, giving customers whose contract has auto-renewed an ongoing right to terminate the contract and obtain a pro-rata refund of the amount they have been charged, after their existing refund window has expired. This will also apply to customers who asked for a refund in 2020, but were refused
- making refunds available through an automated system to make it simple and easy for customers
like McAfee, ensuring customers are made aware, up front, that their contract will auto-renew, the price they will be charged for the product upon automatic renewal and when the money will be taken;
- where the price will be higher on auto-renewal, not giving the impression that the initial price represents a saving by comparison; and
- contacting customers who have not used their product for a year to advise them of the fact and make clear their options.
The CMA had issued proceedings against Norton after it refused to provide outstanding information to assist with its investigation. Norton raised various arguments as to why it thought it didn’t have to provide the information, with which the CMA disagreed. No surprise but, as a result of the undertakings, the CMA no longer needs the information, and is applying to discontinue the action. If we needed a reminder, this illustrates that the CMA will take action.
As well as the software sector, in 2019, the CMA launched a consumer law investigation into the auto-renewal practices of Nintendo Switch, Playstation and Xbox. The investigation is examining several issues including whether contract terms are unfair, how easy it is to cancel or obtain a refund, and how fair the renewal process is.
Finally, the issue has been considered by Ofcom in relation to telco contracts, especially auto-renewal of mobile and broadband contracts. You may not know that it prohibits auto-renewals in its licence conditions for consumers (and small businesses with fewer than ten employees), unless they specifically opt in.
Naturally, sales and finance teams love a recurring revenue stream but, auto-renewals (as well as an ability to pass on price rise) require transparency, clarity and consumer choice. Definitely not a journey to leave on auto pilot.
"The CMA will not hesitate to take action where it believes companies are using auto-renewals unfairly” https://www.gov.uk/government/news/norton-extends-refund-rights-after-cma-action