October 22, 2019

October 22, 2019

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October 21, 2019

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Updates to California Auto-Renewal Law Take Effect on July 1, 2018

Companies that offer or are considering subscription-based plans should take note that new requirements for automatic renewal offers (“auto-renewals”) take effect in California on July 1, 2018.  California Senate Bill No. 313 (“SB 313”) amends existing law to extend additional protections to consumers where an auto-renewal offer includes a free gift or trial or where promotional pricing will change once the promotional period ends.  It also requires that certain consumers have the ability to opt-out exclusively online.

The current California auto-renewal law, Section 17602 of the California Business and Professions Code, among other things, requires businesses to:

  • present auto-renewal offer terms in a clear and conspicuous manner;

  • obtain the consumer’s affirmative consent before charging the consumer for an automatic renewal or continuous service;

  • provide an acknowledgment that includes the offer terms, cancellation policy, and information regarding how to cancel in a manner that is capable of being retained by the consumer, as specified;

  • provide a toll-free telephone number, email address, postal address (if the company directly bills the consumer), or “another cost-effective, timely, and easy-to-use mechanism” for cancellation; and

  • provide clear and conspicuous notice of material changes to auto-renewal terms.

SB 313 builds on these requirements.  First, as of July 1, if a consumer accepted an auto-renewal offer online, companies must allow consumers to terminate auto-renewals “exclusively online.”  This opt-out mechanism may include (but is not necessarily limited to) “a termination email formatted and provided by the business that a consumer can send to the business without additional information.”  This new provision prohibits practices such as requiring cancellation by telephone or mail for consumers who accepted the auto-renewal offer online.  In this regard, the new law goes beyond the requirements of the Restore Online Shoppers Confidence Act (“ROSCA”), the federal statute enacted in 2010.

Second, SB 313 amends Section 17602 to require a “clear and conspicuous explanation of the price that will be charged after the trial ends or the manner in which the subscription or purchasing agreement pricing will change upon conclusion of the trial.”  This obligation to disclose future changes in terms also extends to offers involving promotional or discounted prices for a limited period of time.

As with California’s current law, violating the new auto-renewal law may result in civil penalties or class action lawsuits alleging violations of California’s Unfair Competition Law.  Recent class actions involving auto-renewal allegations under California law have resulted in settlements of upwards of $2.5 million.

© 2019 Covington & Burling LLP

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About this Author

Laura Kim, Covington, Regulatory and public policy lawyer
Of Counsel

Laura Kim draws upon her longstanding experience at the Federal Trade Commission (FTC) to advise clients across industries on complex advertising, marketing and privacy matters. She provides proactive compliance advice and represents clients responding to inquiries from federal, state, and self-regulatory bodies and currently serves as the vice-chair of the firm’s Advertising and Consumer Protection practice group.

Ms. Kim re-joined Covington after a twelve-year tenure at the FTC, where she served as Assistant Director in two divisions of the Bureau of Consumer...

202-662-5333
Theodore J. Karch, Covington, intellectual property attorney
Associate

Ted Karch advises clients in a range of industries on the legal and reputational risks inherent in today’s data-driven world. His practice involves advising on US federal and state data privacy and cybersecurity laws as well as international privacy rules, including the EU General Data Protection Regulation (GDPR) and China’s Cybersecurity Law.

Mr. Karch helps clients navigate issues that arise in developing and launching innovative products. He has advised clients on practical solutions for approaching issues implicated by laws involving biometric data, online behavioral advertising, geolocation information, genetic privacy, children’s privacy, student privacy, and unfair and deceptive practices. This advice often spans multiple jurisdictions, including the US, the EU, and China, among others.

In addition, Mr. Karch advises clients in managing their intellectual property portfolio, especially copyright and trademark assets.

415-591-7094
Melanie Ramey, Covington Law Firm, Washington DC, Data Privact and Cybersecurity Law Attorney
Associate

Melanie Ramey is an associate in the firm’s Washington office. She is a member of the Data Privacy and Cybersecurity and Communications and Media Practice Groups.

Ms. Ramey is a member of the Bar of California. District of Columbia bar application is pending; supervised by principals of the firm.

Representative Matters

  • Assisted a healthcare services company in responding to FCC rulemaking.

  • Assisted a banking client in navigating telemarketing laws...

202-662-5363