Companies that offer services, whether online or offline, to consumers on a subscription or other automatic renewal basis should be aware that such offers are heavily regulated at both the federal and state levels. A recent amendment to Section 17602 of California’s Business and Professions Code provides a good opportunity for businesses that make subscription offers to review their practices. As of July 1, 2018, the obligations under California law will expand in two ways that may require businesses to update those practices.
The first change relates to the information that businesses must provide to consumers regarding the terms of a subscription offer. The current law already requires a business to provide certain information about the renewal process—such as the amount of the recurring charges, the length of the renewal period, and the cancellation policy—both before the consumer accepts the agreement, and afterwards in an acknowledgement. The amendment provides that, as of July 1, 2018, if the offer includes any free trial or gift component, the information provided to consumers must also include 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.”
The second change relates to the types of cancelation mechanisms that a business must make available. Under the current law, businesses must provide a cancelation mechanism that may include a toll-free phone number, email address, postal address, or another “cost-effective, timely, and easy-to-use” mechanism. The amendment provides that, as of July 1, 2018, consumers who accept a subscription offer online must be allowed to terminate it exclusively online (instead of, for example, being required to call a toll-free number or send a written notice by postal mail).
Accordingly, businesses that offer consumer subscriptions should take steps before July to ensure that:
- if the consumer receives a free or discounted trial, the consumer also receives clear and conspicuous notice of the price to be charged, or any changes to the price being charged, after the trial ends; and
- if the consumer originally entered into a subscription online, the consumer also receives an entirely online mechanism for canceling the automatic renewal.
Local district attorneys in California have recently sought to enforce California’s automatic renewal law, and plaintiffs’ attorneys have also attempted to bring class actions against companies related to alleged violations of the law, in some cases framed as a violation of California’s unfair competition law.
In addition to the obligations under the California law, businesses should also be aware of other legal considerations affecting subscription programs and free-trial offers. For example, certain states require that a business provide a reminder notice to a subscription customer before charging him or her, if the renewal period exceeds a certain length of time—typically six months. The federal Restore Online Shopper’s Confidence Act (ROSCA), which is enforced by the Federal Trade Commission (FTC), also imposes certain obligations. The FTC recently obtained a $1.3 million judgment against AdoreMe Inc.—an online lingerie marketer that allegedly failed to provide a simple mechanism to stop recurring charges. The defendant had allegedly made it hard for consumers to cancel memberships, including by limiting the mechanisms for cancelation requests, and inadequately staffing its customer service department.
The revisions to the California law, along with the patchwork of other applicable federal and state laws—and the attention from regulators, state attorneys and plaintiffs’ counsel—make it crucial for any business offering consumers a subscription or similar auto-renewal product or service to review its practices to ensure compliance.