Nonprofit Report - April 2019

Date: April 2019
The Laws Impacting Automatic Renewal of Membership Dues - The Basics for Associations
By: Megan Spratt

More and more associations are moving toward the automatic renewal model for their membership dues.  From a financial standpoint, it is a no-brainer for associations, and it can also serve as a convenient model for both associations and their members who don’t want to risk having their memberships lapse.  However, before adopting an automatic renewal model for membership dues, associations should be aware of the basic legal requirements concerning automatic renewal laws, or “ARLs.”

As background, ARLs vary from state to state and are constantly evolving.  Some state ARLs apply to all consumer contracts, while other states only regulate certain contracts, such as home security systems and gym memberships.  Generally, however, state ARLs include variations on the following:
  • The auto-renewal offer terms, as well as the cancellation policy, should be presented in a clear and conspicuous manner.
  • The consumer’s, or member’s, affirmative consent should be obtained before charging for an automatic renewal.  
    • The user interface should be designed so that the user must scroll down, read, and accept all relevant terms before providing payment, rather than being able to accept and pay without needing to actually view all relevant terms.  
    • The automatic renewal offer terms should be in visual proximity to the request for consent to the offer.  So, directly above or next to the “start membership” button, there should be clear language notifying the member that the association will automatically continue the membership and will charge the current membership fee of $XX to the credit card on file on a monthly/yearly basis until the membership is canceled.  
  • There must be a fairly easy mechanism for canceling, and the member should be able to cancel online.  
  • Advance notice of the renewal should be given in order to provide members with an opportunity to cancel.  This helps prevent undesired renewals and a possible wave of consumer complaints.  
  • Clear notice of material changes to terms that have been accepted should be provided before they go into effect, along with information regarding how to cancel.
  • The member should be provided with an email acknowledgement of all relevant terms, as well as the cancellation policy and procedures.

Note also that, while there is no comprehensive federal law specifically governing auto-renewal offers, there is the more general Restore Online Shoppers’ Confidence Act, 15 U.S.C. §§ 8401-8402, under which a seller is obligated to disclose material terms of a transaction and to obtain the consumer’s consent before charging the consumer. 

The California automatic renewal law, which can be found in Section 17602 of the California Business and Professional Code, is the strictest of the ARLs in the United States.  As a result, if an association does business in all fifty states, then compliance with the California law becomes necessary.   There have been some recent clarifications and changes to the California law’s requirements.  Specifically relevant for associations, California law now mandates that the consumer or member be able to cancel exclusively online those auto-renewing memberships that were initially purchased online.  This may include, but is not necessarily limited to, a termination email formatted and provided by the association that a member can send to the organization without additional information.  This essentially outlaws practices requiring cancellation by mail or phone for those who purchased the auto-renewal offer online.

In addition, under the California law, organizations that provide an automatic offer that includes a free gift, trial, or promotional pricing must provide notification on how to cancel the auto-renewal prior to being charged.  The organization is also required to identify the amount that will be billed when the free trial or promotion ends.  If the price offered initially is promotional in nature and will later increase, the organization cannot bill the higher price until after member consent to the non-discounted price has been obtained.  For those who violate the California law, the consequences can be severe, including civil penalties or class action lawsuits alleging violations of California’s Unfair Competition Law.  

To summarize, while it is OK for associations to offer automatic renewal of membership dues, the offer should be carefully structured so that the terms are clear and upfront, to ensure that members are not caught off guard. 
Federal Lobbyists Must Now Disclose Past Convictions
By: Jim Kahl

As the April 22 deadline approaches for submitting quarterly federal lobbying reports, organizations that employ or retain lobbyists must be aware of new registration and reporting obligations.   The Justice Against Corruption on K Street Act of 2018, or the "JACK Act,” requires every registered lobbyist to disclose whether he/she has been convicted in a federal or state court of an offense involving bribery, extortion, embezzlement, an illegal kickback, tax evasion, fraud, conflict of interest, making a false statement, perjury, or money laundering. 
At the end of March, the Offices of the Secretary of the Senate and the Clerk of the House of Representatives issued revised lobbying registration and reporting forms in order to comply with the law.  New fields have been added to the online lobbying reporting system for information required by the JACK Act (line 15 on the LD-1 registration and line 29 on the LD-2 quarterly lobbying expense report). 
If none of the lobbyists listed on a registration or report have been convicted of a JACK Act offense, a box to that effect must be checked.  If a lobbyist has been convicted of a JACK Act offense, detailed information about the offense, the jurisdiction, and the date of conviction must be disclosed.  Once a JACK Act disclosure is required for a listed lobbyist, that same disclosure is required on every future registration or quarterly report that includes the lobbyist. 
The JACK Act was signed into law on January 3, 2019, and became effective immediately.  Since the revised online reporting forms have only just become available, previous registrations or quarterly reports filed on or after that date may have to be amended, but only if there are JACK Act offenses to disclose.  The Congressional guidance memorandum on the JACK Act can be viewed at this link.    
The short name of the new law – the “JACK” Act—refers to infamous lobbyist Jack Abramoff, who was convicted of tax fraud and bribery in 2006.  The investigation of his activities at that time was instrumental in the enactment of the Honest Leadership and Open Government Act of 2007, which significantly revised the federal lobbying and ethics laws.

Please contact Jim Kahl if you have any questions about the JACK Act or any other federal lobbying compliance questions.
Reminder of Notice Requirements for Type III Supporting Organizations

All Type III supporting organizations with a calendar tax year must deliver the following documents to each of its supporting organizations by May 15, 2019.
  1. A written notice describing the type and amount of support provided by the supporting organization to the supported organization during 2018;
  2. A copy of the supporting organization’s most recently filed Form 990 or 990-EZ; and
  3. A copy of the supporting organization’s current governing documents, to the extent not previously provided.
Type III organizations are operated in connection with one or more 501(c)(3) organizations.
For additional information, please contact Eileen Johnson.