New Contract Requirements in Louisiana

At some point in time, almost everyone enters into a contract that includes an automatic renewal clause. Most cell phone contracts are automatically renewed without any action by the owner. So are equipment leases, Internet service provider contracts, pest extermination contracts, and many more. In most of these the customer is the party obligated to take some action to prevent the renewal of the contract, such as sending notice to the vendor or provider of services that the customer wants to terminate the contract.

Recently, Louisiana enacted legislation to regulate automatic renewal clauses in contracts to provide that any contract that automatically renews if the consumer fails to cancel it must disclose the automatic renewal clause clearly and conspicuously and include clear and conspicuous language describing how to cancel the contract.

Act No. 906 of the 2010 Louisiana legislative session added ' 2716 to Title 9 of the Louisiana Revised Statutes, concerning the need for disclosure of automatic renewal language in contracts for products and services. More specifically, the new statute provides:

A. Any person, firm, or corporation engaged in commerce that sells, leases, or offers to sell or lease, any products or services to a consumer pursuant to a contract, when the contract automatically renews unless the consumer cancels the contract, shall disclose the automatic renewal clause clearly and conspicuously in the contract or contract offer.

B. Any person, firm, or corporation engaged in commerce that sells, leases, or offers to sell or lease, any products or services to a consumer pursuant to a contract, when the contract automatically renews unless the consumer cancels the contract, shall disclose clearly and conspicuously how to cancel the contract in the initial contract, contract offer, or with delivery of products or services.

The Act was introduced as Senate Bill No. 802 by Sen. Joe McPherson. It was not the first time the legislation had been introduced. Previous legislation was a lot broader and included immovable (real) property as well as movable (personal) property. It also would have provided that contracts violating the law would be deemed null and void, instead of reverting to a 30-day renewal contract as it currently reads. More particularly, subsection E of the statute provides that any “contract automatically renewed in violation of this Section shall revert to a thirty day renewal contract in accordance with the same terms.”

Industry groups like the Louisiana Banker's Association (“LBA”) and the Equipment Leasing and Finance Association (“ELFA”), a trade association that represents financial services companies and manufacturers, were involved early on in the legislative process. Most likely these early efforts helped to reduce the law's far-reaching effects.

Lack of Defined Terms

The Act's lack of defined terms suggests that the new law could be applied very broadly. Definitions of the term “consumer” are sprinkled throughout the Louisiana Revised Statutes and usually apply solely to personal, family and household services and products. For example, the Louisiana Lease of Movables Act defines “consumers” as natural persons entering into a lease primarily for personal, family, or household purposes. LSA-R.S. 9:3306. Likewise, the Louisiana Rental-Purchase Agreement Act defines “consumer” as a natural person who rents personal property under a rental-purchase agreement to be used primarily for personal, family, or household purposes. LSA-R.S. 9:3352.

The new law contains no such limiting language. Consequently, in accordance with the Louisiana Civil Code, the words of the law must be given their generally prevailing meaning. La. C.C. art. 11. Because “consumer” generally means “one that consumes: as a : one that utilizes economic goods,” presumably, the new statute applies to all contracts for products or services that are not otherwise specifically exempted under the new law. www.merriam-webster.com/dictionary. That should include the lease of most movable items, including furniture and equipment, and services such as cell-phone, waste disposal, technical support, etc. It is too early to tell how broadly it will be interpreted by the courts.

The statute does exempt the following:

(1) The Louisiana Rental-Purchase Agreement Act as provided in R.S. 9:3351 through 3362.

(2) Banks, trust companies, savings and loan associations, savings banks, credit unions, finance or credit companies, industrial loan companies, or any other financial institution licensed or organized under the laws of any state or the United States, or any foreign bank maintaining a branch or agency licensed under the laws of the United States, or any subsidiary or affiliate thereof.

(3) Insurers licensed under Title 22 of the Louisiana Revised Statutes of 1950.

(4) A contract entered into before January 1, 2011.

(5) A contract that allows for cancellation by the consumer by written notice within thirty days or within one month, after the initial period has expired. LSA-9:2716(D).

Persons are considered in violation of the law unless the person, firm, or corporation demonstrates all of the following:

(1) It has established and implemented written procedures to comply with this Section and enforces compliance with the procedures.

(2) Any failure to comply with this Section is the result of error.

(3) When an error has caused the failure to comply with this Section, it, as a matter of routine business practice, provides a full refund or credit for all amounts billed to or paid by the consumer from the date of the renewal until the date of the termination of the contract, or the date of the subsequent notice of renewal, whichever occurs first.

Three Other States

Only three other states have laws targeting contractual automatic renewal clauses: New York, Rhode Island and Wisconsin. But there is no consistency among the laws. Wisconsin enacted new legislation in 2009 (Act No. 192) that will take effect May 1, 2011. Like Louisiana it covers automatic renewal clauses, specifically in business equipment leases. If the contract includes an automatic renewal clause, then it must also include certain disclosures describing what the customer must do to cancel the contract. W.S.A. 134.49. Without the disclosures, the automatic renewal clauses are unenforceable and the contract terminates at the end of the current contract term. Id.

Wisconsin also has a statute covering residential leases that requires the landlord to notify the tenant of an automatic renewal clause. W.S.A. 704.15. Essentially, the landlord is required to remind the tenant that the lease will be automatically renewed unless the tenant gives written notice to the contrary to the landlord prior to the end of the lease.

New York's law is similar to Wisconsin's reminder law concerning residential leases. In New York though, the law only covers personal property leases, not real property. NY GEN OBLIG ' 5-901. Further, New York has a similar law covering service, maintenance, and repair contracts affecting both real and personal property. NY GEN OBLIG ' 5-903.

Finally, Rhode Island's law covers leases of personal property. It also requires the lessor to provide notice to the lessee that the lease will be automatically renewed unless the lessee gives written notice to the contrary prior to expiration of the lease. RI ST ' 6-13-14.

Conclusion

Act No. 906 became effective on Aug. 15, 2010, but the new law does not apply to any contracts entered into before Jan. 1, 2011. That should give vendors time to reprint form contracts that do not contain the proper “clear and conspicuous language” that should inform the consumer that the contract will be automatically renewed unless canceled by the consumer. However, the language that will be considered sufficiently proper remains to be seen.

Any contract automatically renewed in violation of the new law reverts to a 30-day renewal contract in accordance with the same terms. Dennis Brown, vice president of state government relations for ELFA, indicated that because of issues in the consumer arena, we can expect to see similar laws dealing with automatic renewal clauses in other states in the future.

Sharon Morris is of counsel in the Baton Rouge, LA, office of Lemle & Kelleher LLP. She practices in the areas of real estate and commercial transactions, with an emphasis on commercial financing, secured transactions and leasing. Morris regularly represents lenders and borrowers. She may be reached at [email protected] or 225-387-5068.

At some point in time, almost everyone enters into a contract that includes an automatic renewal clause. Most cell phone contracts are automatically renewed without any action by the owner. So are equipment leases, Internet service provider contracts, pest extermination contracts, and many more. In most of these the customer is the party obligated to take some action to prevent the renewal of the contract, such as sending notice to the vendor or provider of services that the customer wants to terminate the contract.

Recently, Louisiana enacted legislation to regulate automatic renewal clauses in contracts to provide that any contract that automatically renews if the consumer fails to cancel it must disclose the automatic renewal clause clearly and conspicuously and include clear and conspicuous language describing how to cancel the contract.

Act No. 906 of the 2010 Louisiana legislative session added ' 2716 to Title 9 of the Louisiana Revised Statutes, concerning the need for disclosure of automatic renewal language in contracts for products and services. More specifically, the new statute provides:

A. Any person, firm, or corporation engaged in commerce that sells, leases, or offers to sell or lease, any products or services to a consumer pursuant to a contract, when the contract automatically renews unless the consumer cancels the contract, shall disclose the automatic renewal clause clearly and conspicuously in the contract or contract offer.

B. Any person, firm, or corporation engaged in commerce that sells, leases, or offers to sell or lease, any products or services to a consumer pursuant to a contract, when the contract automatically renews unless the consumer cancels the contract, shall disclose clearly and conspicuously how to cancel the contract in the initial contract, contract offer, or with delivery of products or services.

The Act was introduced as Senate Bill No. 802 by Sen. Joe McPherson. It was not the first time the legislation had been introduced. Previous legislation was a lot broader and included immovable (real) property as well as movable (personal) property. It also would have provided that contracts violating the law would be deemed null and void, instead of reverting to a 30-day renewal contract as it currently reads. More particularly, subsection E of the statute provides that any “contract automatically renewed in violation of this Section shall revert to a thirty day renewal contract in accordance with the same terms.”

Industry groups like the Louisiana Banker's Association (“LBA”) and the Equipment Leasing and Finance Association (“ELFA”), a trade association that represents financial services companies and manufacturers, were involved early on in the legislative process. Most likely these early efforts helped to reduce the law's far-reaching effects.

Lack of Defined Terms

The Act's lack of defined terms suggests that the new law could be applied very broadly. Definitions of the term “consumer” are sprinkled throughout the Louisiana Revised Statutes and usually apply solely to personal, family and household services and products. For example, the Louisiana Lease of Movables Act defines “consumers” as natural persons entering into a lease primarily for personal, family, or household purposes. LSA-R.S. 9:3306. Likewise, the Louisiana Rental-Purchase Agreement Act defines “consumer” as a natural person who rents personal property under a rental-purchase agreement to be used primarily for personal, family, or household purposes. LSA-R.S. 9:3352.

The new law contains no such limiting language. Consequently, in accordance with the Louisiana Civil Code, the words of the law must be given their generally prevailing meaning. La. C.C. art. 11. Because “consumer” generally means “one that consumes: as a : one that utilizes economic goods,” presumably, the new statute applies to all contracts for products or services that are not otherwise specifically exempted under the new law. www.merriam-webster.com/dictionary. That should include the lease of most movable items, including furniture and equipment, and services such as cell-phone, waste disposal, technical support, etc. It is too early to tell how broadly it will be interpreted by the courts.

The statute does exempt the following:

(1) The Louisiana Rental-Purchase Agreement Act as provided in R.S. 9:3351 through 3362.

(2) Banks, trust companies, savings and loan associations, savings banks, credit unions, finance or credit companies, industrial loan companies, or any other financial institution licensed or organized under the laws of any state or the United States, or any foreign bank maintaining a branch or agency licensed under the laws of the United States, or any subsidiary or affiliate thereof.

(3) Insurers licensed under Title 22 of the Louisiana Revised Statutes of 1950.

(4) A contract entered into before January 1, 2011.

(5) A contract that allows for cancellation by the consumer by written notice within thirty days or within one month, after the initial period has expired. LSA-9:2716(D).

Persons are considered in violation of the law unless the person, firm, or corporation demonstrates all of the following:

(1) It has established and implemented written procedures to comply with this Section and enforces compliance with the procedures.

(2) Any failure to comply with this Section is the result of error.

(3) When an error has caused the failure to comply with this Section, it, as a matter of routine business practice, provides a full refund or credit for all amounts billed to or paid by the consumer from the date of the renewal until the date of the termination of the contract, or the date of the subsequent notice of renewal, whichever occurs first.

Three Other States

Only three other states have laws targeting contractual automatic renewal clauses: New York, Rhode Island and Wisconsin. But there is no consistency among the laws. Wisconsin enacted new legislation in 2009 (Act No. 192) that will take effect May 1, 2011. Like Louisiana it covers automatic renewal clauses, specifically in business equipment leases. If the contract includes an automatic renewal clause, then it must also include certain disclosures describing what the customer must do to cancel the contract. W.S.A. 134.49. Without the disclosures, the automatic renewal clauses are unenforceable and the contract terminates at the end of the current contract term. Id.

Wisconsin also has a statute covering residential leases that requires the landlord to notify the tenant of an automatic renewal clause. W.S.A. 704.15. Essentially, the landlord is required to remind the tenant that the lease will be automatically renewed unless the tenant gives written notice to the contrary to the landlord prior to the end of the lease.

New York's law is similar to Wisconsin's reminder law concerning residential leases. In New York though, the law only covers personal property leases, not real property. NY GEN OBLIG ' 5-901. Further, New York has a similar law covering service, maintenance, and repair contracts affecting both real and personal property. NY GEN OBLIG ' 5-903.

Finally, Rhode Island's law covers leases of personal property. It also requires the lessor to provide notice to the lessee that the lease will be automatically renewed unless the lessee gives written notice to the contrary prior to expiration of the lease. RI ST ' 6-13-14.

Conclusion

Act No. 906 became effective on Aug. 15, 2010, but the new law does not apply to any contracts entered into before Jan. 1, 2011. That should give vendors time to reprint form contracts that do not contain the proper “clear and conspicuous language” that should inform the consumer that the contract will be automatically renewed unless canceled by the consumer. However, the language that will be considered sufficiently proper remains to be seen.

Any contract automatically renewed in violation of the new law reverts to a 30-day renewal contract in accordance with the same terms. Dennis Brown, vice president of state government relations for ELFA, indicated that because of issues in the consumer arena, we can expect to see similar laws dealing with automatic renewal clauses in other states in the future.

Sharon Morris is of counsel in the Baton Rouge, LA, office of Lemle & Kelleher LLP. She practices in the areas of real estate and commercial transactions, with an emphasis on commercial financing, secured transactions and leasing. Morris regularly represents lenders and borrowers. She may be reached at [email protected] or 225-387-5068.