On July 1, 2018, e-commerce vendors doing business in California will have to allow online cancellation of auto-renewing memberships or recurring purchases that were commenced online. On that date, California’s updated Auto-Renewal Law (ARL) goes into effect. Vendors utilizing auto-renew features should be making plans now to comply by the deadline.
Currently, almost half of US states have some form of ARL. Some—such as California’s Business and Professions Code § 17600 et seq.—apply generally to consumer contracts, whereas others only apply to agreements in specific areas such as health club memberships and home security monitoring. Most ARLs require disclosure of renewal policies in a conspicuous manner, and some require a notice prior to the renewal to allow a consumer to cancel and prevent the renewal from occurring. The US Federal Government has also promulgated the Restore Online Shoppers’ Confidence Act, 15 U.S.C. §§ 8401-8405, which requires a vendor to disclose material terms of a transaction and obtain the consumer’s consent prior to the charge. Because many vendors do business in 50 states, they often seek to comply with all of these laws—which means that a typical practice is to comply with the strictest of them for doing business in all states.
California’s existing law already requires the vendor to present the automatic-renewal terms in a “clear and conspicuous” manner, obtain affirmative consent before charging a customer's account, and explain how to cancel the subscription. After the updated law goes into effect, vendors will not be able to require customers who signed up online to cancel via phone or mail—a tactic that was apparently the source of some consumer complaints (see the bill’s analysis). The text of the updated law is: “(c) ...a consumer who accepts an automatic renewal or continuous service offer online shall be allowed to terminate the automatic renewal or continuous service exclusively online....” §19602(b).
The updated California law also imposes new requirements on vendors providing an automatic renewal offer that includes a free gift, trial, or promotional pricing. Vendors must notify consumers how to cancel the auto-renewal before they are charged. Vendors must also explain the price to be charged when the promotion or free trial ends. And if the initial offer is at a promotional price that later will increase, the vendor must obtain consumer consent to the non-discounted price prior to billing.
Vendors who fail to comply with these laws could face class action and other claims. Here are some steps that vendors can take to mitigate the risk of claims under state and federal ARLs:
- Make your initial offer terms clear and conspicuous.
- Make the terms comprehensive, including, as applicable, a description of the product or service offered, the amount that will be charged, how often it will be charged, the length of the automatic renewal term, the minimum purchase obligation (if any), and how and when the consumer can cancel.
- Clearly disclose any material changes to the terms before they take effect.
- Obtain the consumer’s affirmative consent before you charge them.
- Provide a mechanism to cancel online, if you make the offer online.
- Confirm the terms by providing an acknowledgment with all relevant offer terms and cancellation policy and procedures that the consumer can retain for their records. This can be sent by email receipt.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Heather Meeker, an O’Melveny partner licensed to practice law in California, Scott Pink, an O’Melveny special counsel licensed to practice law in California, and Katie Tague, an O’Melveny associate licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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