Subscription services face increased scrutiny from regulators, lawmakers and the plaintiffs' bar. As we highlighted in a recent client alert, the FTC warned companies against using "dark patterns" in connection with paid subscriptions. In 2022, California's Automatic Renewal Law (ARL)-one of the most robust statutes of its kind-will place even stricter requirements on enrollment in (and cancellation from) paid subscription services. Businesses with subscribers in California should be aware of this update and the new obligations it imposes.
The express purpose of the ARL is "to end the practice of ongoing charging of consumer credit or debit cards or third-party payment accounts without the consumers' explicit consent for ongoing shipments of a product or ongoing deliveries of service." The law applies broadly 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 following a definite period-such as monthly or annual physical goods purchases, digital services and memberships-falls under the ARL's gamut. For such subscriptions, the ARL imposes several disclosure, consent and cancellation requirements, including the following:
- Notice of the recurring nature of the transaction (or any material changes to the subscription agreement) must be given in a "clear and conspicuous manner" (note that the statute is quite specific in spelling out what qualifies as "clear and conspicuous");
- The consumer must give "affirmative consent" to the recurring transaction to opt in;
- The business must provide an "acknowledgement" of certain material information; and
- An "easy-to-use mechanism for cancellation," as well as certain information about how to cancel, must be provided; if enrollment is possible online, cancellation must be possible in an "exclusively online" manner.
Violations of the ARL may be addressed by government enforcement actions. Though the ARL does not contain a private right of action for aggrieved customers, some plaintiffs have attempted to bring lawsuits under other statutes, such as California's Unfair Competition Law, potentially posing significant class action litigation risk to businesses with even minor infractions of the ARL. Additionally, the ARL allows customers to treat goods as "unconditional gifts" when they find themselves in subscriptions to which they did not affirmatively consent.
Updates to the Law
California added two key enhancements to the ARL through Assembly Bill No. 390, signed into law on October 4, 2021. These new measures go into effect on July 1, 2022.
First, the updated law is more stringent regarding cancellation. In addition to the existing requirements that businesses disclose how to cancel and make the process "easy-to-use," the revamped ARL will require cancellation to be possible "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."
The new cancellation provision specifically requires businesses to (1) make available a pre-written email that the customer can send to terminate the subscription with no further steps, or (2) provide a "prominently located direct link or button" to cancel in the customer's profile, account or settings page.
Renewal Notice Requirement
Second, the ARL will implement enhanced notice requirements that go into effect if the customer accepts a free, discounted or promotional trial period that lasts for more than 31 days before the first renewal. Such notice must clearly and conspicuously disclose:
- That the subscription will automatically renew;
- 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 terms, if any); and
- The business's contact information.
This notice must be given between three and 21 days (or, if the trial period lasts for one year or longer, between 15 and 45 days) before the expiration of the trial period. By specifying a notice renewal timeframe, this revision to the ARL aligns it closely to similar renewal laws in other states.
The new requirements of the ARL do not go into effect until July 1, 2022, so businesses offering subscriptions or automatically-renewing goods and services still have time to bring their systems into compliance.
While immediate changes are not required, the new cancellation and notice provisions may require significant changes to a business's website, apps and customer service training, and compliance in some circumstances could require careful scrutiny of current practices. Businesses that make it difficult to cancel while attempting to convince customers to change their minds will need to update their practices.
Many businesses may genuinely seek to understand why a customer is terminating a subscription, or may wish to offer incentives to retain a departing customer. The ARL will not prohibit collecting feedback from departing customers or making new offers to enhance customer loyalty, but the ARL's new cancellation requirements will require these interactions to occur after cancellation instead of as a means to avoid it.
Compliance with these changes may require companies to update their websites and mobile apps. Accordingly, businesses serving customers in California should promptly assess how they may need to modify their policies, communications and platforms to come into compliance by mid-2022.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.