Online Subscription Providers Beware of California’s Automatic-Renewal Law

The development of online subscription services and free trials have given rise to agreements with automatic renewal provisions. Originally, once a free trial to a subscription ended, the consumer would have to formally “opt in” to continue receiving the service or product. More recently, service providers have begun moving towards an “opt out” model where the service extends beyond the free trial window and charges begin automatically unless the consumer opts out. As a result, venders frequently receive payments simply because consumers accidentally miss the deadline to opt out and become aware of the charge only when they check their credit card statement. Consumers complained that auto-renewal terms were not fully spelled out in agreements.  

In 2010, California passed the Auto-Renewal Law, which requires subscription providers that use automatic renewals to disclose their subscription terms in a clear and conspicuous manner. Cal. Bus. & Prof. Code § 17600 et seq. The law applies to any subscription service, including those procured online, through paper, or by telephone. The statute’s purpose is to end the practice of ongoing credit or debit charges for ongoing services without the consumers’ explicit consent.  With a recent rash of class action suits, I thought it would be a good time to revisit the topic. 

Requirements under the Auto-Renewal Law
California’s Auto-Renewal Law lays out what businesses must do to have compliant automatic renewal agreements:

  • The automatic renewal service must offer terms in a clear and conspicuousmanner before the purchasing agreement is fulfilled, and terms must be in visual proximity to the request for consent to the offer;
  • The automatic renewal service must obtain affirmative consent from the consumers;
  • Subscription providers must include the automatic renewal offer terms, cancellation policy, and information regarding how to cancel; and
  • Subscription providers must provide a toll-free number or other cost-effective, accessible mechanism for cancellation.

The statute additionally requires that all the above provisions be satisfied prior to completing the initial order for the automatic renewal service. However, if the offer includes a free trial, then the business must disclose cancellation information and allow the consumer to cancel before the consumer pays for the goods or services.

For material changes to automatic renewal terms that consumers have already accepted, the law requires that the business provide the consumer with clear and conspicuous notice of the material change and provide information on how to cancel. Such notice must be fulfilled prior to implementing the material change.  

The Meaning of Clear and Conspicuous
The Auto-Renewal Law details what constitutes clear and conspicuous. Written disclosures must be “in a manner that clearly calls attention to the language” as follows:

  • In larger type than the surrounding text, or
  • In contrasting type, font, or color to the surrounding text of the same size, or
  • Set off from the surrounding text of the same size by symbols or other marks

For disclosures via telephone, clear and conspicuous means “in a volume and cadence sufficient to be readily audible and understandable.”

Penalties
Companies that violate the provisions listed above are subject to all available civil remedies. Detrimental to businesses, the statute also provides that services or goods delivered without obtaining the receiver’s affirmative consent are considered an unconditional gift. Thus, consumers may keep the services rendered and receive a refund. Non-compliance can lead to restitution of all revenues collected from California customers via the automatic renewal service, creating substantive regulatory, economic, and risk to a companies' reputation.

Conclusion

Since the statute’s passing, an increasing amount of class action lawsuits have been brought against automatic renewal agreements. As cases continue being filed, the application and practical effects of California’s Auto-Renewal Law on businesses will undoubtedly increase. 

ALG is staying well-informed of these and other Internet law and Intellectual Property law related matters to make sure we can properly counsel our clients. If you have any questions regarding this or any other Internet law or business law related matters, please contact Antoine Law Group, APC.

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