Auto-renewal class actions on the rise

With recent changes to California's Automatic Renewal Law, Bus. & Prof. Code §§ 17600, et seq. (the "ARL"), there has been a rise in consumer class actions filed challenging the automatic renewal practices of companies with subscription services. The ARL is intended to provide consumers with "clear and conspicuous" notice of the automatic renewal terms related to recurring payment obligations. In October 2021, the California Senate amended the ARL to add more stringent requirements relating to the notice and cancellation options provided to consumers who have enrolled in memberships, subscriptions, or other recurring purchasing agreements.

The amendments to the ARL, which was first enacted in 2010, were made effective July 1, 2022. They include new requirements relating to the provision of written notice in advance of renewal dates on subscriptions with an initial term of one year or longer, as well as free trials and initial discount periods lasting longer than 31 days. Additionally, the ARL amendments require businesses to provide consumers with means of easily canceling their subscriptions online, "at will, and without engaging any further steps that obstruct or delay the consumer's ability to terminate the automatic renewal or continuous service immediately."

Simultaneously with the passage of California Assembly Bill No. 390, the Federal Trade Commission (FTC) issued a policy statement relating to the enforcement of the "negative option marketing" requirements embodied in its Negative Option Rule (16 CFR Part 425) and the Restore Online Shoppers' Confidence Act, 15 U.S.C. §§ 8401-8405 (ROSCA), which by the FTC's description, "prohibits any post-transaction third party seller ... from charging any financial account in an Internet transaction unless it has disclosed clearly all material terms of the transaction and obtained the consumer's express informed consent to the charge."

In the time since last summer, state and federal courts across California have seen a continued steady rise in putative class action cases brought under the ARL. Because the ARL itself does not provide a private right of action, most such cases assert state consumer protection statutory claims under California's Unfair Competition Law, Bus. & Prof. Code §§ 17200, et seq. (the UCL), the False Advertising Law, Bus. & Prof. Code §§ 17500, et seq. (the FAL), and the Consumers Legal Remedies Act, Cal. Civ. Code §§ 1750, et seq. (the CLRA) based on an alleged violation of the ARL. These cases often also assert broader common law claims for fraud, negligent misrepresentation, and unjust enrichment, and some allege violations of the federal Electronic Funds Transfer Act, 15 U.S.C. §§ 1693, et seq. (EFTA).

These cases can present a complex set of issues, both initially and in their later stages, through class certification, summary judgment and trial. Such issues can include:

• The ability of the plaintiff to demonstrate monetary or property loss sufficient to show actual injury and standing, as opposed to a purely technical violation of the ARL; Whether causation or a causal nexus exists between a company's alleged wrongful auto-renewal business practice and any alleged injury or harm to the plaintiff;

• Factual inconsistencies on review of the allegations in a complaint against documented account information (for example, reflecting that the plaintiff was given written notice and expressly consented to enrollment in a subscription that would renew automatically);

• The enforceability of any arbitration provisions, limitations of liability, and terms of use limiting or waiving the pursuit of class-wide relief;

• Changes in web content, including product/subscription pages, checkout pages, confirmation and reminder emails, terms of use over the defined class period (often a four-year time period); and

• The breadth of class definitions, which are very often not confined to persons who have suffered any concrete harm as a result of the conduct alleged in the complaint and irrespective of whether or not they actually wanted their subscriptions/memberships to renew.

Given the California Legislature's recent amendments to the ARL, subscription-based companies and their counsel should review the business's automatic renewal practices, including the contents of consumer-facing pages on websites and written confirmation materials or notices provided to consumers. Companies should also pay attention to complaints filed with the BBB and FTC to act quickly to address them. If a company receives a dreaded CLRA demand notice, promptly retain knowledgeable counsel who can effectively respond, provide appropriate guidance, cut off avenues for the recovery of damages, and potentially resolve the matter pre-suit or at an early stage of litigation.