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September 15, 2016Download PDF

My contract auto-renewed! Am I screwed?

Any consumer who signs a contract for services of any kind should be on the lookout for an automatic renewal clause. These provisions (also known as “Evergreen Clauses”) typically specify that the contract will continue if not cancelled within a specific amount of time. Often, the contract will be extended for the same period provided in the original agreement, and this can be many months and even years at a time! It is easy to see why vendors like automatic renewal provisions: they eliminate administrative burdens in having to keep track of expiring agreements and having their customers agree to new contracts. For the consumer, however, automatic renewal clauses can be extremely problematic if not properly disclosed.

Companies include automatic renewal provisions in a variety of consumer agreements and not always where you’d expect to find them. Consumers should pay particular attention when entering into leases and purchasing gym memberships, telecommunications and cable services, home security services and any online service that is provided over a term of months or years.

So, what does an automatic renewal clause look like? Usually, it will say: “upon expiration of the initial term, this Agreement will automatically renew for a similar term, unless the customer provides written notice of termination 30 days prior to the renewal.” Automatic renewal clauses may further specify that the service provider has an obligation to provide notice to the consumer prior to the renewal to enable the consumer to exercise the right to cancel if he or she so desires.

In the example mentioned above, a customer would have a very narrow window of opportunity (30 days prior to the renewal) to cancel and if the customer fails to comply, the contract would automatically renew. But, what if the customer had no idea that the contract was going to renew? In many cases, people forget that they signed contracts with auto renewal provisions, then a year or several years go by and they do not discover the renewal until they try to cancel the agreement. Even the most vigilant among us do not keep track of renewing contracts, and businesses do not always give specific notice that a contract renewal is approaching. Without adequate notice, consumers may be trapped into a contract extension that they never wanted. And the worst part about it is that if customers try to cancel a renewed agreement, they can be subject to hundreds or even thousands of dollars in early termination fees and penalties as a result.

Recognizing that consumers can be taken advantage of in this manner, many states have laws regulating automatic renewal clauses. Illinois has a statute called the Automatic Contract Renewal Act (the “ACRA”) governing such provisions in consumer contracts. That law provides that any agreement providing for an automatic renewal “shall disclose the automatic renewal clause clearly and conspicuously in the contract, including the cancellation procedure.” 815 ILCS 601/10(a). The “clear and conspicuous” requirement means that the clause must be easily discernible from surrounding text so that the consumer is likely to see it. An example of a clear and conspicuous renewal clause is one where the provision has a descriptive heading or appears in a larger font, capitalized, and/or in bold print.

Even if a service provider’s contract renewal meets the clear and conspicuous requirement, however, the Illinois ACRA also requires (for a contract lasting 12 months or more and subject to a renewal period of more than one month) that the service provider must notify the consumer in writing of an impending renewal. 815 ILCS 601/10(b). That notice “shall be provided to the consumer no less than 30 days and no more than 60 days before the cancellation deadline. Id. (emphasis added).

Under the ACRA, Illinois consumers have some powerful defenses to combat improper contract renewals. Because other jurisdictions have similar laws, we encourage anyone facing an unwanted contract renewal to investigate their rights and seek appropriate legal advice.