In February, Massachusetts Attorney General Joy Campbell announced a $6.5 million settlement with Safe Home Security, its CEO, and affiliated companies to resolve allegations that their practices violated state consumer protection laws by “trapping Massachusetts consumers in long-term auto renewal contracts” and engaging in illegal debt collection practices, among other activities.

According to the Consent Judgment, Safe Home Security provided home security monitoring services for a monthly fee over a fixed term, usually three or five years. The contracts would automatically renew for an additional term of a month or a year, unless the consumer cancelled in writing more than 60 days before the end of the term.

The AG filed suit in December 2019, after receiving complaints from consumers. The complaint alleged that Safe Home Security employed the following “unfair practices designed to trap consumers in their contracts:”

• Failing to cancel contracts when consumers submitted timely written cancellation requests;
• Ignoring consumers attempting to cancel their agreements, and misinforming consumers about the requirements needed to cancel;
• Renewing accounts for consumers who had not made payments in years and clearly did not wish to continue receiving services; and
• Steering consumers wishing to cancel into contract renewal, rather than cancellation.

Other allegations included:

• Billing and collecting for charges during periods of time where services were not provided due to malfunctioning or inoperable home security systems;
• Engaging in excessive debt collection calls and aggressive debt collection tactics;
• Sending letters that did not contain required notices of consumers’ rights;
• Charging compounding interest on balances where payments were missed, despite contracts stating simple interest would be charged; and
• Threatening to report damaging information to consumer reporting agencies.

The settlement includes a $1.8 million fine, and an obligation to forgive $4.7 million of outstanding debt. Safe Home Security is also enjoined from violating state debt collection laws, must clearly disclose if interest will compound, must not misrepresent contract terms, including provisions about cancellation rights, and must not knowingly report incorrect information to consumer reporting agencies and third-party debt collectors.

Safe Home Security is obligated to correct reporting inaccuracies and create a consumer report dispute mechanism. They are also ordered to provide credit for monitoring charges if a home security system is nonfunctional and cannot be serviced within 15 days.

Additionally, Safe Home Security is to revise their agreements for Massachusetts consumers as follows:

• Contract language about security monitoring charges, contract term, automatic renewal provisions, cancellation policies and procedures, late fees, finance charges and other costs must be “explicitly and affirmatively disclosed” in at least size 12 bold font;
• Each of the above contract provisions must individually require the consumer’s initial or signature;
• Cancellation must be offered at any time via telephone, e-mail, and a web portal;
• Cancellation must be effective within no more than 30 days from the date requested; and
• Upon cancellation, consumers in an auto renewal period are obligated to pay any arrears that exist, but their accounts are not to accrue any additional charges or be required to pay any percentage beyond 30 days of monitoring charges.

Regulators and state legislatures continue to be interested in automatic renewal agreements, with a particular focus on cancellation procedures. For example, Colorado, Delaware, and Illinois have enacted laws regarding automatic renewals, discussed here, and the CFPB recently issued guidance on this issue, discussed here.

On March 23, tune in to the The Crypto Exchange Podcast for an episode focusing on automatic renewals. In the episode, we review the requirements of federal and state laws, and provide an update on enforcement activity.