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Does Your Merchant Agreement Have An Auto Renewal Clause?

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Emily Hale

Emily Hale

Emily is a writer, strategist, and freelance consultant based in Indianapolis. She is driven to create content that empowers her readers and her clients to make better choices in their business and their lives. When she's not in the thick of researching and developing blogs for Merchant Maverick, she likes to cook from scratch for her family or escape outdoors and meander through nature with her rescue pup.

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24 Comments

Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

    April

    What happens if a company auto-renews, but because the card is no longer in use and empty, no charge was made but they are threatening to take you to collections for not paying?

    I only became aware of it after the deadline had passed and they automatically renewed me. When I tried to cancel my subscription, it said that if I cancel I would still be obligated to pay for a year of service even though I am canceling.

    Can they charge me for a year of service if I cancel and will not be using their service?
    Can they send me to collections for not paying to cancel?
    This company is in Germany and I am in the U.S.

      Jessica Dinsmore

      Hi April,

      Have you reached out to the company and spoken with a customer service representative to work out a solution? If you have, I’d suggest escalating the matter to the supervisor level, or maybe even several levels up. When speaking with the company, emphasize that no payment was made (because the card had expired) and you really don’t want the company’s services anymore. If you hadn’t been using their services, even better–and definitely mention that. See if they’ll agree to cancel, just because they want to give a good customer experience. If not, you can try requesting a reduced term (say 3 months?), and consider taking the deal. Don’t forget to be nice/polite to the person on the other side. Sometimes, they’ll go an extra mile for you if you treat them with respect. Good luck!

        BRIAN M MCLAUGHLIN

        Hello, I was under contract with a heating oil company. The contract was for 1 year. At the end of that year I renewed the contract for another year. That same day I was apporached by a competing heating oil company that offered a much better price so I contracted with them. The renewed contract was cancelled by me in writing the next day. I assumed that I had the same contract terms from the original which stated that if I cancelled in writing in 3 business days that the Early Termination Fee would be waived. This language was not present on the renewal contract. Note, that the renewal was done over the phone and no written contact was signed, however I gave my verbal consent. I am now being charged $399 from the original oil company and they are standing put on charging this fee. Stating that the renewal does not have the same right as the original contract. In my opinion, the renewal is a new contract and would enable me the right to exercise the 3 days buyer remourse clause. Thoughts?

          Jessica Dinsmore

          Hi Brian,

          It sounds like you might want to consult with a lawyer experienced in contract law. Our expertise on contracts is limited to Merchant Accounts. Best of luck!

            Sherry W

            Our company has been held hostage in an auto-renewal contract with a trash disposal company since 2001……………..yes, 18 YEARS! During that time, our rate has increased by 10% per year, so you can imagine how high it has become at this point. Phone calls to them to discuss some kind of price reduction were met with a swift reminder that they are operating under the terms of the contract and NO, there’s nothing that can/will be done about it. The auto-renewal clause locks us into 3 year terms, and with employee turnover in the accounting department, we have not been able to “catch” the small window of opportunity to cancel the contract. And like you mentioned, they require cancellation notices to be sent on company letterhead, via certified mail, between 60-120 prior to the end of the current term. Finally we were able to submit the cancellation notice following all of the various rules they dictated and our time with them is coming to an end. Now, of course, they’re offering all kinds of discounts, promotions & incentives to entice us to stay. Unfortunately, this experience has left such a bitter taste in our mouth, that we are no longer willing to work with them, under any conditions. But my question is this……………is there anything illegal about what they’ve done – auto-renewing us for 18 years? Was there anything else we could have done?

              Emily Hale

              Hi, Sherry! Wow, that sounds like a very frustrating cycle. Despite the length of time, there would likely not be anything you could do from a legal standpoint since the terms were laid out in the contract, and nothing was broken as far as that goes. Unfortunately, that is the nature of how frustrating these things can be. In situations that arise where the merchant account provider was unresponsive or in your case, you keep missing your window, what we recommend is to escalate the issue in a way by making complaints with the BBB or other review sites. Because that is your right to do so, and because it often gives them a little more incentive to respond and repair their reputation. Of course, I am speaking in general terms, so your situation may vary. I’m glad to hear that you were finally able to leave your contract. This Merchant Account Comparison page may help you find a better option. Best of luck on finding a better company that offers more flexible terms.

                E

                Can anyone help with California? It was a contract signed in 2013! They’ve renewed every year. I know, I should have “known,” but just recently tried to cancel and they threatened with early cancellation fee.

                  Emily Hale

                  Hi E,

                  That is the unfortunate thing about auto-renewal clauses. They do and can renew without your approval, and companies often don’t go out of the way to remind you, either. Your best bet is to take a look at your merchant agreement and follow the steps of cancellation outlined in this post. You can ask the company to waive the fee, but unfortunately that is up to their discretion. Best of luck!

                    Ronalyn

                    Does anyone know what happens when you live in New York, but the company(United States Bankcard service) you signed a contract in is California. The company they use to process your money (Global Payments) is in Maryland. So which state do you use?

                      This comment refers to an earlier version of this post and may be outdated.

                      Jeremy

                      most likely there is a clause in the contract stating that any dispute is to be settled in a specific state. read the contract. if not then it would be n the state where the dispute is filed with the court.

                        This comment refers to an earlier version of this post and may be outdated.

                        Chris

                        is auto renewal enforceable in Colorado? and in Utah? Can you also find out about New York

                          This comment refers to an earlier version of this post and may be outdated.

                          Jen

                          Florida’s Statue is 501.165
                          http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0500-0599/0501/Sections/0501.165.html

                            This comment refers to an earlier version of this post and may be outdated.

                            Brandon

                            Wisconsin passed a statute requiring certain disclosures and notices in some business contracts. Does non-specific language such as “30 days prior thereto” fulfill the Date of the Deadline disclosure requirement? Or must a contract disclose the Date of the Deadline written as a specific date i.e. December 31, 2014? Are auto renewals with the non-specific language enforceable under the Wisconsin statute?

                              This comment refers to an earlier version of this post and may be outdated.

                              Bob Dooley

                              Please sign my petition to make “automatic renewals” illegal. http://www.thepetitionsite.com/888/669/102/demand-an-end-to-automatic-renewals/?z00m=22383501&redirectID=

                                This comment refers to an earlier version of this post and may be outdated.

                                Anon

                                Do you know any details regarding the requirements/validity of automatic renewal clauses in MA?

                                  This comment refers to an earlier version of this post and may be outdated.

                                  Max Ahmen

                                  Write to your legislators!!!!

                                  See below article:

                                  The state of Florida passed a new bill affecting automatic renewal of contracts. Under House Bill 751, titled, An act relating to automatic renewal of service contracts, service providers must include a clear and conspicuous clause in the contract specifying the terms of the automatic renewal, as well as give notice — between 30 and 60 days prior — that the contract will self-renew.

                                  This statute was signed by Florida governor, Charlie Crist, on May 12, 2010 and will affect all contracts entered into on or after July 1, 2010. As Ken Kirschenbaum of Kirschenbaum & Kirschenbaum, P.C., Garden City, N.Y., points out in a recent newsletter, the bill exempts business subscribers, but also all renewals of up to one month, which he suggests sellers should consider as a safe bet in light of similar statutes passed and likely to pass across the United States.

                                  At least 10 other states have passed or amended similar legislation in the past four years and ESA director of government relations, John Chwat says we will see many more follow suit. “I’m following about 23 to 24 [proposed bills] at the moment. Some have not passed this session but some are still active.” With all 50 state legislatures meeting in 2011, Chwat predicts those 23 or 24 bills could grow significantly. “It’s a big and popular issue in consumer protection at the state legislature level. And we haven’t seen the end of it.”

                                  In addition to Florida, states with similar, enacted, automatic renewal legislation include Arkansas, Connecticut, Illinois, New Mexico, North Carolina, New York, Pennsylvania, Tennessee and Utah.

                                  Of those states looking to pass anti-automatic renewal statutes, Tennessee, which currently has legislation stating automatic renewal on residential alarm contracts is permitted up to one year, is notable for drafting bills specifically targeting alarm system contractors. Senate Bill 1476 and House Bill 0786, which were opposed this session, would disallow automatic renewal clauses altogether, as well as impose other requirements on alarm system contracts.

                                  Bob Worthy, who as Legislative Committee chairman for the Alarm Association of Florida worked very closely with the new Florida statute, saw it develop from a potentially challenging legislative proposition to a manageable regulation. “It all boils down to education; a lot of states don’t have strong alarm associations to warn legislators as to possible pitfalls,” Worthy said. “We came out probably better off than a lot of states that passed bills with no industry representation.”

                                  Last year, the California Alarm Association (CAA) was able to secure an exemption from Senate Bill 340, which requires a conspicuous clause and specific approval from the subscriber on automatic renewal bids. According to an ESA press release, the CAA argued that the alarm industry is already regulated by Alarm Act statutes and the Department of Consumer Affairs via the Bureau of Security and Investigative Services. CAA also proposed that the alarm industry requires special consideration as automatic renewal of contracts ensures subscribers’ “safety and well-being.”

                                  “This is a significant victory because the legislature has now recognized that there are unique circumstances regarding alarm contracts and we will be able to cite the exemption in future legislative debates in other states,” reads the release.

                                  On the other side of the legislative coin, New York Senate Bill 7230, which would amend a previous law requiring notice of automatic renewal by certified mail, was referred to the Judiciary Committee March 24, 2010. The bill is particular to electronic and life safety alarm services and says that payment by a subscriber after a contract has expired acknowledges the extension of that contract and fulfills the notice requirements of the law already in place. This bill, as well as the California exemption, is the result of very active lobbying, according to Chwat.

                                  “This fall, everyone should be aware of these types of bills coming down the pipe,” Chwat advises. “If they’re not going to take a proactive stance like New York has, states should seek to get exemption like California.”

                                  Bob Ireland, president of the Alarm Association of Florida, advises, “All sides need to work together keeping an open mind about new legislation.” He stresses that whatever the law, “Every company should make it very clear to their client what the terms and conditions of the contract are — including what the renewal clause is.” ESA and Kirschenbaum agreed, in their respective literature, that maintaining open communication with consumers is key in avoiding negative repercussions from these statutes.

                                  For information on automatic renewal statutes state by state, visit http://www.kirschenbaumesq.com/autorenewal.htm

                                    This comment refers to an earlier version of this post and may be outdated.

                                    Max Ahmen

                                    These auto renewal clauses DO NOT COMPLY with Contract law. Where are these politicians who are supposed to oppose these contract provisions? Bet they are too busy cozying up with the the corporate world violating our rights!

                                      This comment refers to an earlier version of this post and may be outdated.

                                      Craig

                                      My state has made provisions protecting merchants from this practice. It was enacted in July of 2013. One of the last lines of the state document states: “This Act shall become effective on July 1, 2013, and shall apply only to contracts entered into on or after that date. I entered into my contract in 2010, but it auto-renewed in December of 2013.

                                      So where do I stand? Is this enforceable in my case because the contract auto-renewed after the effective date of the state law? Or is it not – because the original contract was signed back in 2010?

                                        This comment refers to an earlier version of this post and may be outdated.

                                        Tom DeSimone

                                        Hi Craig,

                                        Based on similar circumstances I’ve seen, the effective date of the law would have to predate the agreement for you to be legally absolved here. (Disclosure – I’m not a lawyer and this is not legal advice!) But if you take it up with the BBB, you can usually get the early termination fee waived or at least partially waived.

                                        Good luck to you, and please come back to browse our favorite providers (who do not use early termination fees).

                                          This comment refers to an earlier version of this post and may be outdated.

                                          G

                                          I think CA SB340 might work!

                                            This comment refers to an earlier version of this post and may be outdated.

                                            G

                                            Doesn’t ACT 192 – 2009 Senate Bill 190 void these extensions for all states?

                                              This comment refers to an earlier version of this post and may be outdated.

                                              jdlaughead

                                              There are 5 parts of a contract
                                              Offer
                                              Acceptance
                                              Consideration
                                              CAPACITY OF THE PARTIES-MEETING OF THE MINDS
                                              Legality
                                              Now which 3 parts does Auto renewal violate, one,four and Five

                                              Meeting of the minds stand out, how can you agree to a contract in the future when you might not even exist. What happens when you agree at a certain price, and when thy renew they raise the price 10 fold! I am going to see what the New Federal office of Consumer Protection (CFPB) can do to end it. It seems the FTC, does nothing for the consumer.

                                                This comment refers to an earlier version of this post and may be outdated.

                                                Jen Hoglund

                                                Hello!
                                                Since you mentioned looking at laws in each state that may make these types of contracts enforceable, have you had a chance to review Minnesota? And if yes, will you please share with me?
                                                Looking at a five year contract signed in 2007 that NOW has renewed itself for five more years. What a hit. As you mentioned…Now I know. Had no idea this was even possible.
                                                Thanks,
                                                Jen H

                                                  This comment refers to an earlier version of this post and may be outdated.

                                                  Amad E.

                                                  Jen,

                                                  Unfortunately I don’t know the laws in Minnesota. I’m sure you can find out that information by contacting your state attorney general.

                                                    This comment refers to an earlier version of this post and may be outdated.

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