On July 1, 2018, California Senate Bill No. 313 (the “Amended Law”) went into effect. The Amended Law revised Section 17602 of California’s Business and Professions code, requiring businesses to adapt to a stricter Automatic Renewal Law (“ARL”). After July 1, 2018, companies offering automatically renewing subscription services to California State customers must clearly and conspicuously notify consumers how to cancel their free trials before they are charged.
How will this affect your business?
Distinguishing State and Federal Automatic Renewal Laws
Similar to California, many states have implemented some form of automatic renewal law. In addition, the Federal Government enacted the Restore Online Shoppers’ Confidence Act in 2010. Businesses that operate throughout the Country may find it difficult to adhere to state specific automatic renewal laws which vary from state to state. California tends to be on the forefront when it comes to adopting stricter consumer protection laws and it is a best practice for online and mobile companies to comply with the strictest state laws and apply these restrictions across the board in all jurisdictions.
Revisions to the Bill
Prior to amendment, California’s ARL made it unlawful for businesses to: (A) make an automatic renewal offer to a Californian consumer without first presenting the automatic renewal terms and conditions in clear and conspicuous language; (B) charge the customer for the automatic renewal offer without first receiving affirmative consent; and (C) fail to provide cancellation instructions to the customer. Under the existing law, lawsuits have been brought against such prominent business entities as Spotify, Hulu and Dropbox.
In an attempt to make customer billing practices more transparent, the Amended Law requires businesses that make an automatic renewal offer that includes a free trial (or discounted price, as applicable), to include a clear and conspicuous explanation of the price that will be charged after the trial (promotional price) period ends. Additionally, the Amended Law will prohibit businesses from charging customer credit or debit cards for automatic renewal after the promotional or discounted price period ends without first obtaining the customer’s consent. The Amended Law also requires businesses to allow customers to terminate the automatic renewal program at any time.
Making Certain Your Business is Compliant with Automatic Renewal Laws
Businesses that fail to comply with automatic renewal laws could face crippling class action lawsuits in many jurisdictions. Companies that offer subscription services should be aware of the changes in the law in California, especially if their offers are promotional in nature, including discounted price and free trial period offers. Businesses that offer free-to-pay conversions and continuity programs should consult with experienced counsel to ensure that they are compliant with the strictest of automatic renewal laws.