California Auto-Renewal Law Changes May Require Updates for Subscription Service Providers | Fenwick & West LLP
Subscription services are under increased scrutiny from regulators, lawmakers and the Complainants Bar. As we pointed out in a recent customer alert, the FTC cautioned companies against using “dark models” in paid subscriptions. In 2022, California’s Automatic Renewal Act (ARL) – one of the most stringent laws of its kind – will place even stricter enrollment (and cancellation) requirements on paid subscription services. Businesses with subscribers in California should be aware of this update and the new obligations it imposes.
ARL’s explicit goal is to “end the practice of continuous billing of consumer credit or debit cards or third party payment accounts without the explicit consent of consumers for in-process shipments.” a product or the deliveries of services in progress. The law broadly applies to any business that makes an “automatic renewal offer or continuous service offer” to a consumer in California, with exemptions for certain regulated entities.
Any paid subscription that renews automatically after a set period of time, such as monthly or annual purchases of physical goods, digital services, and subscriptions, falls within the scope of the ARL. For such subscriptions, the ARL imposes several disclosure, consent and cancellation obligations, including the following:
- Notice of the recurring nature of the transaction (or of any material change to the subscription contract) must be given in a “clear and visible” manner (note that the law is quite specific in stating what qualifies as “clear and visible”. “);
- The consumer must give his “affirmative consent” to the recurring transaction in order to register;
- The company must provide “acknowledgment” of certain important information; and
- An “easy to use cancellation mechanism” as well as some information on how to cancel should be provided; if registration is possible online, cancellation must be possible “exclusively online”.
ARL violations can be addressed through government enforcement actions. Although the ARL does not contain a private right of action for aggrieved customers, some plaintiffs have attempted to sue under other laws, such as the California Unfair Competition Act, potentially posing a significant risk. class action lawsuits for companies with even minor ARL offenses. In addition, ARL allows customers to treat goods as “unconditional gifts” when they are in subscriptions to which they have not expressly consented.
Updates to the law
California added two key enhancements to the ARL through Assembly Bill 390, enacted on October 4, 2021. These new measures will take effect on July 1, 2022.
First, the updated law is stricter when it comes to cancellation. In addition to existing requirements that companies disclose how to cancel and make the process “easy to use”, the revamped ARL will require that cancellation be possible “at will, and without initiating other measures that impede or delay the ability of the consumer to immediately terminate automatic renewal or continuous service.
The new cancellation provision specifically requires that companies (1) make available a pre-written email that the customer can send to cancel the subscription without further steps, or (2) provide a “direct link or button though. in view ”to cancel in the customer’s profile, account or settings page.
Renewal notice obligation
Second, the ARL will implement enhanced notification requirements that will take effect if the customer accepts a free, discounted, or promotional trial period that lasts longer than 31 days prior to the first renewal. Such notice must clearly and visibly disclose:
- That the subscription will renew automatically;
- How to cancel (with a cancellation link or other method directing the consumer to the cancellation process);
- The length of the renewal period (and additional conditions, if applicable); and
- Company contact details.
This notice must be given between three and 21 days (or, if the trial period lasts one year or more, between 15 and 45 days) before the trial period expires. By specifying a timeframe for renewing notices, this revision of the ARL aligns it closely with similar renewal laws in other states.
Key points to remember
The new ARL requirements do not come into effect until July 1, 2022, so companies offering subscriptions or automatically renewing goods and services still have time to bring their systems into compliance.
While immediate changes are not necessary, the new cancellation and notification provisions may require significant changes to a company’s website, applications, and customer service training, and compliance in certain circumstances may require a careful examination of current practices. Companies that make it difficult to cancel while trying to convince customers to change their minds will need to update their practices.
Many businesses may be genuinely interested in understanding why a customer is terminating a subscription, or may wish to offer incentives to keep a customer leaving. The ARL will not prohibit collecting feedback from departing customers or making new offers to improve customer loyalty, but the new ARL cancellation requirements will require these interactions to occur. after cancellation rather than as a means of to avoid this.
Adhering to these changes may require companies to update their websites and mobile apps. As a result, businesses serving customers in California should quickly assess how they might need to change their policies, communications, and platforms to become compliant by mid-2022.