Subscription Service Businesses Take Notice: Amendments to California’s Automatic Renewal Law Are Here
Subscription service providers should be aware of the various changes coming to California's automatic renewal law. California’s already stringent laws governing recurring subscription programs are about to become even more restrictive. The latest amendment to California’s automatic renewal law takes effect on July 1, 2022, with additional enrollment and cancellation requirements.
Originally enacted in 2010, the California automatic renewal law (“ARL”) applies to businesses that offer “automatic renewal offer or continuous service offer” to California consumers. Therefore, a paid subscription that automatically renews falls within the scope of the ARL. Over the years, e-commerce has developed rapidly, with substantial growth in the use of automatic renewal plans across many industries.
The existing law, which was last amended in 2018, requires businesses to: (1) clearly and conspicuously disclose notice of the recurring nature of the transaction; (2) obtain consumers’ “affirmative consent” to the automatic renewal terms (i.e. opt-in to the recurring nature of the transaction); (3) provide a post-transaction acknowledgment that includes the automatic renewal terms and cancellation policy in a way that can be retained by the consumer; (4) provide consumers with an “easy-to-use mechanism for cancellation”, including information about how to cancel; and (5) provide notice of material changes to any offer terms.
The revised law (California Assembly Bill 390) requires businesses to comply with two additional requirements for cancellation and notice:
Cancellation: Online consumers must have the ability to cancel their subscription immediately, and be able to do so through either (1) a “prominently located direct link or button” on the website or (2) a preformatted email that the consumer can send to terminate the subscription without taking any further steps. This requirement is more specific than the previous “easy-to-use mechanism for cancellation” and was implemented to prohibit “further steps that obstruct or delay the consumer’s ability to terminate” the renewal.
Notice: Businesses will be required to send a more robust notice as to free, discounted or promotional pricing that lasts more than 31 days. Specifically, the notice must clearly and conspicuously disclose that the subscription will automatically renew, the length of the renewal period, how to cancel, and the contact information for the business. If the initial trial period lasts for one year or longer, the notice must be provided between 15-45 days before renewal. Otherwise, notice must be given between 3-21 days.
Businesses offering subscriptions or automatically renewing goods and services to California consumers should immediately review their policies and contracts (whether signed agreements or online terms of service) to ensure that their operations fall into compliance with the new ARL obligations. Failure to do so could result in significant penalties, including the treatment of goods or services as “gifts” when consumers unknowingly are entered into subscriptions to which they did not affirmatively consent.