California imposes new requirements for automatic subscription renewals

On Oct. 4, Gov. Gavin Newsom signed Assembly Bill 390 into law, which amends California's existing law on automatic subscription renewals to impose new requirements on businesses that make automatic renewal or continuous services offers to consumers in California. The changes will become effective July 1, 2022.

COVID-19 has contributed to the rise of e-commerce, and businesses are increasingly looking for opportunities to generate revenue by providing services to consumers on an ongoing basis rather than relying on foot traffic to brick and mortar stores. As more and more businesses offer their products and services with memberships or subscriptions that automatically renew unless a consumer cancels, legislators across the country are increasingly focused on ensuring consumers are informed of automatically renewing agreements, and how to easily cancel them if they so desire.

California law defines "automatic renewal offer terms" as including the following:

• That the subscription or agreement will continue until the consumer cancels,

• Cancellation policy,

• The recurring charges that will apply, the amounts, and whether the amounts will change,

• The length of the automatic renewal term, and

• A minimum purchase obligation (if applicable).

California also defines continuous services as an arrangement or plan whereby a subscription or purchase agreement continues until the consumer cancels such subscription or agreement.

California's existing law was already one of the most stringent among state automatic renewal laws by requiring clear and conspicuous pre-enrollment disclosures, affirmative consumer consent prior to charging the chosen payment method, post-transaction acknowledgement, explanation of cancellation methods, and notification of material changes post-enrollment.

For example, California has established a rigid definition for "clear and conspicuous" in connection with disclosures. Disclosures are required to be "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, in a manner that clearly calls attention to the language. In the case of an audio disclosure, "clear and conspicuous" means "in a volume and cadence sufficient to be readily audible and understandable."

The amendments expand on the already robust California autorenewal law by requiring that:

For subscriptions/agreements of 1 year or longer, with autorenewal or continuous service: When the consumer accepts an automatic renewal or continuous service offer with an initial term of one year or longer that automatically continues unless the consumer cancels, a notice must be provided at least 15 days and not more than 45 days before the automatic renewal offer or continuous service offer renews, and

For a free gift or trial lasting more than 21 days, with autorenewal or continuous service: When a consumer accepts a free gift or trial lasting more than 31 days that was included in an automatic renewal or continuous service offer, or accepted an automatic renewal or continuous service offer at a promotional or discounted price that applies for more than 31 days, a notice must be provided at least 3 days before and at most 21 days before the expiration of the period for which the fee gift or trial, or promotional or discounted price, applies. The amendments provide that a "free gift" does not include a free promotional item or gift given by the business that is different from the subscribed product.

An offer is exempt from these notice requirements if the consumer does not enter into the contract electronically, and the business has not collected or maintained the consumer's email address, phone number, or other means of notifying the consumer electronically.

The amendments also specify what information that must be included in the notice, such as a statement that the subscription will automatically renew unless the consumer cancels, the length of the renewal period(s), and contact information for the business.

Prior to the amendments, California law required businesses that allow consumers to accept an automatic renewal or continuous service offer online to also allow a consumer to terminate the service exclusively online. The amendments provide that the consumer must be able to terminate the service online "without engaging in any further steps that obstruct or delay the consumer's ability to terminate the automatic renewal or continuous service immediately." The amendments also require businesses to provide a termination method that is either online in the form of a prominently located direct link or button or an immediately accessible termination email that a consumer can send to the business without further information.

The California Autorenewal Task Force, a coalition of district and city attorneys, has been active over the past few years with enforcement of the existing autorenewal law. In just the past couple of years, CART has brought enforcement actions alleging companies did not properly disclose autorenewal charges in a clear and conspicuous manner, did not obtain affirmative consent, did not properly provide acknowledgement after payment, and did not allow consumers to easily cancel their subscriptions.

Considering the steady stream of enforcement activity from CART over the past few years, it can be expected that their scrutiny of companies' subscription and autorenewal practices will continue as California's new autorenewal law takes effect in 2022.