Last chance saloon: EU consumers only have one opportunity to withdraw from auto-renewing subscription contracts
When do EU consumers have a right to withdraw from subscription contracts? And how will this differ to the UK’s approach under the new Digital Markets, Competition and Consumers Bill (DMCC)?
The key takeaway
The European Court of Justice (ECJ) has confirmed that EU consumers only have a right to withdraw from subscription contracts at the start of the contract, provided consumers have been clearly informed of their right to withdraw. This means that customers do not get a further right to withdraw when a free trial period ends or when a subscription automatically renews. This position marks a significant difference to upcoming new UK legislation aimed at dealing with subscription traps.
As we reported in our Summer Snapshots, the European Commission has been developing its consumer rights agenda and seeking to improve consumer protection measures.
On 5 October 2023, the ECJ held that Article 9(1) of the Consumer Rights Directive (CRD) granting the “14 day cooling off period” must be interpreted to mean that consumers only have one window within which to withdraw from distance contracts that include a free trial period and if consumers have been informed in a “clear, comprehensible and explicit manner” that payment is required after the trial period ends.
This ruling was made following a request from the Supreme Court of Austria on whether Verein für Konsumenteninformation (VKI) was correct in asserting that Sofatutor GmbH, a German business offering a 30-day free trial for access to its education services, should be ordered to inform its customers of the “conditions, time limits and procedures” for exercising their right to withdraw from subscriptions as the trial was approaching its end.
One opportunity to withdraw
VKI argued that a correct interpretation of Article 9(1) CRD would grant consumers a right to withdraw not only when their 30-day free trial with Sofatotur started but also when the trial ended and the contract converted into a paying subscription, as well as whenever that subscription automatically renewed again in future.
However, although the ECJ found that the extension of an existing fixed term contract could give rise to a renewed right to withdraw, this was not implicit in a contract that includes a free trial period, or automatic renewals, when consumers have been informed from the outset that these are features of the contract.
Requirement to inform
The ECJ’s decision also highlights the importance of Article 6(1)(h) CRD’s requirement for consumers to be informed of the “conditions, time limit and procedures” for exercising their right to withdraw from distance contracts within 14 days. The purpose of this right is to give consumers an opportunity to examine and understand the services they are receiving and which they need because the contract is being agreed remotely. Consequently, if this information is not provided, or the terms of a contract change significantly when a free trial period ends, then a new right to withdraw may emerge.
Why is this important?
This decision is interesting as it will represent a post-Brexit divergence between the EU and the UK on the topic of subscription contracts - see the UK’s incoming DMCC, which we covered in our Summer Snapshots.
Under the DMCC, consumers will have the right to cancel a subscription contract during both an initial free trial period and again during a “renewal cooling off period” which starts when a free trial ends. Further renewal periods will also start “at any time” another renewal payment is due, such as when subscriptions automatically renew. The planned rules also ensure that UK consumers receive a second renewal period if businesses follow a “freemium” model, such as by giving limited access to their service during a free trial and saving their full offering until a paid subscription starts.
Additionally, whilst those trading in the UK will also be required to inform consumers of their right to withdraw from subscription contracts, failure to comply with this obligation is set to become a criminal offence. Comparatively, the CRD takes a much more lenient position of only extending consumers’ withdrawal periods by up to 12 months if they are not correctly informed.
Any practical tips?
Whilst this decision allows businesses operating in the EU to be clear that offering free trials and auto-renewing subscriptions will not create new rights for consumer to withdraw from contracts, it also highlights that businesses should provide clear terms governing the entirety of such contracts as soon as any free trials begin.
The key piece to watch here, however, is that businesses operating in both the UK and the EU should be aware of the upcoming divergence that the UK’s DMCC will bring. Businesses may want to consider using separate terms for governing such contracts in the UK and the EU, much as this may feel like a practical headache to implement. On the flip side, if businesses wish to only use one set of terms across both jurisdictions then they will need to comply with the UK’s upcoming, and much more consumer friendly, requirements.