Tuesday, June 5, 2018

Companies that offer or are considering subscription-based plans should take note that new requirements for automatic renewal offers (“auto-renewals”) take effect in California on July 1, 2018. California Senate Bill No. 313 (“SB 313”) amends existing law to extend additional protections to consumers where an auto-renewal offer includes a free gift or trial or where promotional pricing will change once the promotional period ends. It also requires that certain consumers have the ability to opt-out exclusively online.

The current California auto-renewal law, Section 17602 of the California Business and Professions Code, among other things, requires businesses to:

present auto-renewal offer terms in a clear and conspicuous manner;

obtain the consumer’s affirmative consent before charging the consumer for an automatic renewal or continuous service;

provide an acknowledgment that includes the offer terms, cancellation policy, and information regarding how to cancel in a manner that is capable of being retained by the consumer, as specified;

provide a toll-free telephone number, email address, postal address (if the company directly bills the consumer), or “another cost-effective, timely, and easy-to-use mechanism” for cancellation; and

provide clear and conspicuous notice of material changes to auto-renewal terms.

SB 313 builds on these requirements. First, as of July 1, if a consumer accepted an auto-renewal offer online, companies must allow consumers to terminate auto-renewals “exclusively online.” This opt-out mechanism may include (but is not necessarily limited to) “a termination email formatted and provided by the business that a consumer can send to the business without additional information.” This new provision prohibits practices such as requiring cancellation by telephone or mail for consumers who accepted the auto-renewal offer online. In this regard, the new law goes beyond the requirements of the Restore Online Shoppers Confidence Act (“ROSCA”), the federal statute enacted in 2010.

Second, SB 313 amends Section 17602 to require 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.” This obligation to disclose future changes in terms also extends to offers involving promotional or discounted prices for a limited period of time.

As with California’s current law, violating the new auto-renewal law may result in civil penalties or class action lawsuits alleging violations of California’s Unfair Competition Law. Recent class actions involving auto-renewal allegations under California law have resulted in settlements of upwards of $2.5 million.