The War on Contract Renewals

In 2024, ESA tracked over 25 “negative option” bills across the 50 states. I often refer to them as automatic contract renewal limitation bills, which is a mouthful, but better describes the legislation. These bills often will make contracts easier to cancel for the consumer and harder to comply with for the business.  

You may have seen the commercials on TV. Actors pretend to be frustrated because they don’t know why they are losing money every month. The commercial offers them a solution where they can pay another company to go through their subscriptions and cancel them for them. They reason that nobody likes to sit on the phone or do research on how to unsubscribe. The business model must be successful because I have personally seen these advertisements for years. Health clubs use it, fruit of the month type clubs, and others. 

Personally, I was on a call for over 45 minutes to cancel a satellite radio subscription last year. I mistakenly believed that since I had received a new credit card that my service would end when my new contract came up. I was obviously incorrect, as I began to see invoices saying I was behind on my payments. I had previously signed up online and when I went back to their website, I read the only way to cancel was by calling them. 45 minutes, most of which was hold time, finally brought me back to someone I will call their “closer”. The closer just so happened to find a deal significantly cheaper than what I was paying previously. I understood the practice. They wanted to keep me onboard instead of losing me as a customer, and after seeing me go through the lengths I did to cancel it and save about $20 month, they found their “best” deal. It is this sort of behavior that flooded the Federal Trade Commission (FTC) for years. Consumers complained of these deceptive practices. 

So, the FTC and state legislators found a problem in need of a solution. However, just like the right to repair, they are painting with too broad a brush. The FTC wanted to create a “click-to-cancel” policy where there needs to be a “simple mechanism to cancel the negative option feature and immediately halt charges.” Found in much of the legislation coming from the states were sharp deadlines. For example, one state wants you to notify consumers that their bill is about to be renewed (in case they want to cancel it) at least two weeks before renewal but not more than four weeks. 

Much of our industry relies on renewable contracts to support the recurring revenue models. Month-to-month contracts are the most popular, but some companies also use year-to-year contracts. The month-to-month option offers greater flexibility to the consumer as it only commits them for the month. It seems silly that to protect consumers the FTC and state governments could make it so difficult that they would force much of the industry to lock in consumers to annual contracts. 

A simple cancel button sounds like a nice option until you consider all possibilities. If you have kids or grandkids there is a chance that you have lent them your tablet or cell phone so they can entertain themselves for a moment. What will happen though if a toddler accidentally clicks a cancel button in an app? Would the service immediately cease so the company could “immediately halt charges”? Or would there need to be additional confirmation? Would the FTC allow for that second cancel option, or would it be considered in violation of their new rule? 

The notification given to consumers that it is time to decide whether their contract renews or not sounds nice in theory. But what company wants to spend resources on sending out notifications, every month, that a contract is about to be renewed? What would happen if the consumer’s email or phone number has changed, and they did not receive the notification? Should security and fire alarm systems simply be shut off if the consumer did not receive in the affirmative? Who would be held liable in that case? 

All of this is why ESA filed a lawsuit against the FTC and has fought to change legislation at the state level. We submitted comments, along with our partner associations, to the FTC sharing our concerns about their decision. Following their decision, we filed a lawsuit challenging the new rule. Not only do we disagree with it, but we also do not believe the FTC has the authority to make such a decision. Most legislators agree with us after they have heard our concerns. They wanted to target certain industries but not ours.  

In 2025, it is highly likely we see this war on contracts continue. Even if we are successful in our lawsuit, there will be states attempting to reel in bad actors. I can’t blame them for it. However, they must be sure not to make it harder for the security and life safety industry to protect people, places, and property. As always, we will remain vigilant as we fight to protect our industry.