Online subscription retailers face tougher regulation

Auto-renewal subscription programs are a great way for e-commerce businesses to build a constant revenue stream. And they benefit both the company and the consumer. Companies can sell their product or service consistently over a period of time, while the customer doesn’t have to be hassled with repurchasing the product or service every month or year.

My daughter has a guinea pig, and we have set our Amazon account to send us her preferred guinea pig food each month, for which we get automatically charged the same amount each month. Little Trevor will never starve! Similarly, we subscribe to Netflix, and we pay a fee that is automatically charged to our credit card each month. Many subscription programs offer new customers the ability to try a service for free for a trial period. To take advantage of the free trial offer, customers have to provide a credit card that will be automatically charged at the end of the trial if the customer does not cancel in time.

Subscription programs and free trial offers are not new. But executing subscription programs and free trial offers in a legally compliant manner still stymies companies large and small. Minor compliance violations can hit both a company’s bottom line and its reputation. The ease with which a customer can sign up online for a subscription program or free trial offer has attracted even more interest from regulators. Indeed, some old subscription program laws are being updated at the state level and lawsuits are being pursued.

Online dating service eHarmony, for example, was recently hit with a consumer-protection lawsuit filed by four California counties (Santa Clara, Santa Cruz, Napa and Shasta) and the city of Santa Monica over its automatic-charging practices. According to the Santa Clara County District Attorney’s Office, eHarmony “did not clearly and conspicuously explain the automatically charged subscription fee, did not provide the consumer with their dating contract, or explain their right to cancel as required by law.”
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