Subscription traps: Auto-renewals and the Fair Trading Act

Subscription Traps, Auto-Renewals, and New Zealand Consumer Law

Subscription services often involve auto-renewal (a feature of a contract or service that automatically extends the term of the agreement at the end of each period unless explicitly cancelled by the consumer). When the terms of auto-renewal, particularly cancellation processes, are unclear, hidden, or difficult to enact, this can lead to what is known as a subscription trap (a business practice where consumers are enrolled in a recurring service with hidden or difficult-to-cancel auto-renewal terms).

New Zealand consumer law, primarily through the Fair Trading Act 1986 and the Consumer Guarantees Act 1993, provides protections for consumers against such practices.

The Fair Trading Act 1986

The Fair Trading Act 1986 (FTA) prohibits misleading and deceptive conduct by businesses and provides for the regulation of unfair contract terms in standard form consumer contracts (a contract prepared by one party without negotiation with the other party, for the supply of goods or services to an individual for personal, domestic, or household use).

Misleading or Deceptive Conduct

Businesses must not engage in conduct that is misleading or deceptive, or likely to mislead or deceive [Source: Fair Trading Act 1986, s 9]. This includes failing to adequately disclose material information about a service, such as the existence of auto-renewal, the price, or the process for cancellation. Hiding key terms in fine print or making cancellation unduly difficult could be considered misleading conduct.

Additionally, businesses must have reasonable grounds for any unsubstantiated representation (a claim or promise made by a business about goods or services for which there were no reasonable grounds at the time it was made) they make about goods or services [Source: Fair Trading Act 1986, s 12A]. For example, if a business claims a service is 'easy to cancel' but the process is intentionally convoluted, this could breach the FTA.

Unfair Contract Terms

The FTA regulates unfair contract terms (a term in a standard form consumer contract that causes a significant imbalance in the parties' rights and obligations, is not reasonably necessary to protect the legitimate interests of the party who would be advantaged, and would cause detriment to a party if applied or relied on) in standard form consumer contracts [Source: Fair Trading Act 1986, s 46L].

For a term to be considered unfair, it must meet three criteria [Source: Fair Trading Act 1986, s 46L(1)]:

It causes a significant imbalance in the parties' rights and obligations arising under the contract.
It is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term.
It would cause detriment (whether financial or otherwise) to a party if it were applied or relied on.

The FTA lists examples of terms that may be unfair. These include terms that allow one party to unilaterally vary the terms of the contract, or a term that automatically renews a fixed-term contract unless the consumer gives specific notice, where the renewal mechanism is not clearly transparent or presented [Source: Fair Trading Act 1986, Schedule 2, clauses 2 & 6].

Transparency is a key consideration. A term must be expressed in plain language, be legible, and presented clearly [Source: Fair Trading Act 1986, s 46H]. A term is presumed to be not transparent if it is hidden in fine print or difficult to understand [Source: Fair Trading Act 1986, s 46I(2)].

The Consumer Guarantees Act 1993

The Consumer Guarantees Act 1993 (CGA) applies to services ordinarily acquired for personal, domestic, or household use [Source: Consumer Guarantees Act 1993, s 43(1)]. While the FTA addresses the contractual terms and transparency of auto-renewals, the CGA ensures that the service itself, once acquired (whether through initial subscription or auto-renewal), meets certain standards.

Under the CGA, services must be provided with reasonable care and skill [Source: Consumer Guarantees Act 1993, s 28(a)]. They must also be fit for any particular purpose that the consumer makes known to the supplier [Source: Consumer Guarantees Act 1993, s 29], and be completed within a reasonable time where no specific time has been agreed upon [Source: Consumer Guarantees Act 1993, s 30].

If a service provided under an auto-renewed subscription fails to comply with any of these guarantees, the consumer may be entitled to remedies. These remedies can include requiring the supplier to remedy the failure, or cancelling the service contract and obtaining a refund or compensation if the failure cannot be remedied or is of a substantial character [Source: Consumer Guarantees Act 1993, s 32, s 37].

Consumer Rights and Business Obligations

Consumers have the right to clear and transparent information regarding subscription terms, especially those pertaining to auto-renewal and cancellation. Businesses have an obligation to provide this information clearly and prominently, ensuring that the process for cancelling a subscription is straightforward and easily accessible.

Enforcement and Remedies

The Commerce Commission is responsible for enforcing the Fair Trading Act 1986 [Source: Fair Trading Act 1986, s 36B]. It can investigate complaints, issue warnings, take enforcement action, and apply to the courts for declarations that contract terms are unfair [Source: Fair Trading Act 1986, s 46J].

Consumers who believe a business has breached the Fair Trading Act or Consumer Guarantees Act may have several avenues for redress:

Contacting the business directly to resolve the issue.
Making a complaint to the Commerce Commission, which can investigate and take action against businesses that breach the law.
Bringing a claim to the Disputes Tribunal for claims up to $30,000 (or $50,000 if all parties agree) [Source: Disputes Tribunal Act 1988, s 13].
Taking legal action in court for larger or more complex matters. Under the FTA, courts can order remedies such as damages, refunds, or cancellation of contracts where a breach has occurred [Source: Fair Trading Act 1986, s 43].

When to Seek Independent Legal Advice

Individuals seeking to understand their specific rights and options regarding auto-renewals or subscription traps are encouraged to consult with a legal professional. Community Law Centres (https://communitylaw.org.nz/) offer free legal advice. Additional guidance can be sought from Citizens Advice Bureau or directly from the Commerce Commission for specific consumer protection matters.