With the boom in subscription-based businesses, California recently updated its Automatic Renewal Law (ARL), Cal. Bus. & Prof. Code § 17600 et seq. These new requirements will require subscription-based service providers to quickly adapt their current practices to avoid increased litigation or civil penalties under California’s newly amended ARL. The ARL was originally enacted in 2010 and was met with a flurry of litigation in California, including several class actions.
The updated law, effective on July 1, 2018, applies to businesses which offer an automatic renewal or continuous service, including free gift or trial offers. Automatic renewal offers must 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.” Senate Bill No. 313 (Sept. 28, 2017).
When a service is offered at a promotional or discounted price for a limited period of time, the advertiser must first gain consent before charging a consumer’s credit or debit card. If the offer also includes a free gift or trial, the advertiser is required to disclose how the consumer can cancel the service prior to getting charged or before the expiration of the promotional rate. If the offer is made online, the advertiser must allow the customer to cancel online.
Subscription-based service providers should consider implementing the following best practices in advance of July 1, 2018:
- Use “clear and conspicuous” language, especially when communicating cancellation policies to consumers.
- Inform consumers of cancellation policies and any instructions for cancellation (again in “clear and conspicuous” language) prior to consumers purchasing any goods or services.
- Ensure that cancellations are relatively easy for the average consumer to accomplish.
- Consult with an experienced attorney on whether to include arbitration provisions (or other liability limiting language, such as a class-action waiver) in literature provided to consumers.
- Assure there are mechanisms in place to receive consumers’ affirmative consent prior to charging consumers.
- Consider including “exclusively online” cancellation features where applicable.
Subscription-based service providers have ample time, before July 1, 2018, to adapt to California’s new amendments; such providers should quickly innovate and implement new business practices that conform to California’s new amendments to its ARL.