Businesses that depend on recurring billing as a revenue stream face heightened risk as scrutiny of automatic renewal subscription models increases. More than 30 states have laws with requirements for businesses with auto-renewal products and services, generally defined as contracts that will continue unless the consumer cancels.
Such contracts can vary by state and may include agreements for products or services where free trial periods will convert to paid subscriptions at a higher price if the consumer doesn’t cancel before the trial period’s expiration date.
This year, numerous states including California and New York implemented stricter requirements for companies offering auto-renewal contracts. Both federal and state enforcers, as well as private litigants, have ramped up actions against companies for subscription programs that allegedly fail to provide sufficient disclosures, obtain informed consumer consent, and impose burdensome cancellation processes.
Companies should stay ahead of enforcement by proactively coordinating across legal, product, and design teams to develop compliant and intuitive consumer-facing flows.
Legal Landscape
Auto-renewal contracts continue to evolve rapidly, with both federal and state regulators monitoring subscription practices. Although the Federal Trade Commission’s revised Negative Option Rule was vacated by the US Court of Appeals for the Eighth Circuit in July on procedural grounds, the agency remains active in enforcing similar standards under the Restore Online Shoppers’ Confidence Act and Section 5 of the FTC Act.
State laws vary significantly and create a complex compliance environment for businesses operating across jurisdictions. Key obligations include clear and conspicuous disclosure of material terms (such as pricing, renewal frequency, and cancellation deadlines), obtaining affirmative consent to renewal terms, and providing accessible cancellation options.
Some states also require that consumers be provided with pre-renewal notices and advance notice of material changes, such as price increases.
Enforcement
The FTC has pursued aggressive enforcement against automatic renewal practices using longstanding authorities, signaling that this remains a strong priority for the agency notwithstanding the vacatur of the revised Negative Option Rule.
In September 2025, the FTC announced a $2.5 billion settlement with Amazon, resolving allegations about the Prime membership program. That followed last summer’s settlement of a longstanding lawsuit against Match Group over its subscription practices, requiring the company to pay $14 million in redress.
States also have ramped up enforcement. In August, California’s Automatic Renewal Task Force secured a $7.5 million settlement with HelloFresh for allegedly enrolling consumers without clear disclosures, proper consent, or easy cancellation options. Consumers are taking aim at these practices, availing themselves of private rights of action under some states’ auto-renewal laws.
Key Compliance Tips
In light of these multiple fronts, companies should consider a more proactive approach to compliance.
Assess the case for subscriptions. Legal teams should partner with business teams early to determine whether a subscription model makes sense. This includes educating stakeholders on compliance obligations and reputational risks tied to recurring billing practices. If the decision is made to structure a product or service as a subscription, companies should consider how those plans are structured. For instance, an annual renewal option often triggers greater compliance obligations than one that recurs on a month-to-month basis.
Adopt a consumer perspective. Legal teams should guide product, design, and customer-facing teams to evaluate user flows through the lens of a reasonable consumer. Ask: What would I want to know before signing up? How would I like to be able to cancel this service? Applying this perspective helps to promote clarity, transparency, and alignment with consumer protection standards.
Foster collaboration across teams. Legal teams should work closely with product, engineering, customer care, and sales teams to translate federal and state auto-renewal requirements into actionable user experience guidance that ensures compliance.
Build scalable compliance frameworks. Compliance leads should develop a scalable framework that aligns with the most stringent auto-renewal requirements applicable to their business, helping to reduce future redesigns and limit enforcement risk.
Integrate customer feedback insights. Compliance leaders should ensure feedback from customer service is incorporated directly into product and user experience updates. These insights are essential for confirming that user flows not only meet regulatory standards but function as intended to deliver a consumer-friendly experience.
Participate in policy development. Legal teams should consider engagement in rulemaking and legislative efforts to ensure business perspectives are adequately represented in those processes and shape regulations in ways that balance consumer protection with operational realities.
Adopting these compliance strategies can aid companies in better alignment with consumer expectations and regulatory precedent—mitigating the risk of costly litigation, enforcement actions, and reputational damage.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.
Author Information
Jehan Patterson is of counsel at Covington focused on consumer protection matters, including advertising, data privacy and security, and financial services.
Haley Johnson is an associate at Covington focused on advertising and consumer protection issues.
Carter McCants is an associate at Covington specializing in complex consumer protection matters.
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