Auto-renewal subscription services under spotlight again

Following an investigation by the CMA into the online console video gaming sector, Microsoft has committed to make a series of improvements to its auto-renewal subscriptions for Xbox online gaming services. 

Subscription services are currently under close scrutiny as the government considers how to update consumer rights in this area following the ongoing BEIS consultation on ‘Reforming competition and consumer policy’.  The government’s proposals could impact on a broad range of subscription contracts, encompassing not only digital content subscriptions, but also subscriptions of more traditional goods and services.

While it remains to be seen how far the government will go in regulating subscription services, the commitments the CMA has agreed with Microsoft may offer some hints as to the kind of behaviour it may expect from businesses when it comes to auto-renewal:

Pre-contract information

 Microsoft’s first undertaking relates to the provision of various ‘Clear and Prominent Information’ prior to a customer placing an order.  This includes information on the consequence of automatic extension, namely that, unless automatic extension is disabled, the initial contract period will automatically extend and a subsequent fee will be taken.  Microsoft must also provide details of how and when the customer may change their automatic extension settings in order to stop being charged the subsequent fee, as well as details of how the customer can receive a refund after an accidental renewal. 

The undertaking clarifies that this information may be displayed by way of an interstitial screen, pop-up screen or hover over, provided that this is a mandatory part of the transaction process and the customer doesn’t have to take any material step to access this information.

Refunds

Microsoft will contact existing customers who have an active annual subscription to advise them how to stop further automatic extensions and also provide them with a one-time option to terminate their contract within 30 days and receive a pro-rata refund.

Subsequent fee increases

Email notification (or console messaging) must be sent at least 30 days (or any other notice period prescribed by law) before the relevant fee increase is due to take effect.  This notification must explain the ability to avoid the price increase by stopping the automatic extension (with a clear access route to the electronic system that allows customers to stop the automatic extension).

Inactive customers

As part of its investigation into the online console video gaming sector, the CMA was particularly concerned that people may not realise they are still paying for services they no longer use.   Microsoft has undertaken to identify customers who have been inactive for over 12 months and email them to ensure that they can access their account details and stop automatic extension of their subscription if they want to.   If they continue not to use their membership, a further email will be sent letting the customer know that Microsoft will ultimately turn off the customer’s recurring billing. 

Accidental Renewal Refund Policy

A further undertaking relates to the promotion of Microsoft’s Accidental Renewal Refund Policy on its customer support webpage and an obligation to provide information about the existence and the significant terms of this Policy in confirmation emails sent to customers (both at the beginning of the subscription contract and also following auto-renewal).

Comment

In its consultation on ‘Reforming competition and consumer policy’, the government acknowledges that regulators such as the CMA have continued to intervene in relation to subscriptions, helping traders to understand their legal obligations and protecting consumers.  However, further action is proposed to strengthen the law and make certain pre-contract information about subscription lengths and auto renewals mandatory.

The Microsoft undertakings are a helpful indicator of the sort of “up front” information that is likely to be required.   Traders are unlikely to object in principle to greater transparency and proactive reminders about auto-renewals. However, the government is considering going one step further and compelling businesses to offer consumers an ostensibly binary choice between a subscription contract that either does or does not auto-renew (or roll-over) upon expiry. 

It has become standard practice in many sectors (for example, insurance, broadband, music streaming etc.) that once the initial term expires, the contract will roll-over automatically until the consumer elects to cancel it.  Compelling all traders to offer, and in many cases create, an auto-expiring product has the potential to add significant direct costs which may need to be passed on to consumers.   If the government decides that such an interventionist approach is necessary, some traders may need to revisit their financial models.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2022. Specific advice should be sought for specific cases. For more information see our terms & conditions