Last month, HelloFresh agreed to settle an investigation by the California Automatic Renewal Task Force ("CART") made up of several California counties and cities. CART's lawsuit, filed contemporaneously with its agreed judgment, alleges the company violated California's UDAP laws) by enrolling consumers into auto-renewing subscription plans without proper disclosure or consent in violation of the state's Automatic Renewal Law. CART further alleges that HelloFresh violated more general provisions of California's UDAP laws including by:
- Not clearly disclosing information regarding free meals and gifts, including the fact that some only applied to subsequent purchases;
- Misleading customers with free delivery claims when only the first delivery was free;
- Using misleading comparison claims related to ordinary grocery purchases; and
- Including an offer countdown timer that "was simply a tactic to rush consumers through the checkout process" since the offer did not expire.
As part of the settlement, HelloFresh agreed to comply with California's laws. Among other things, HelloFresh must:
- Disclose the automatic renewal offer terms in close proximity to the request for consent, and immediately adjacent to the consent mechanism.
- Clearly and conspicuously disclose terms for any free gift or trial.
- Get express affirmative consent to the automatic renewal offer terms through "a checkbox, signature, express consent button, or other substantially similar mechanism."
- Provide an acknowledgement of the transaction that includes the automatic renewal terms, cancellation policy, and information regarding how to cancel in a manner that is capable of being retained by the consumer.
- Send reminder notices, as required by law.
- Send notices of material changes, including information on how to cancel, in a manner that is capable of being retained by the consumer.
- Provide an easy-to-use cancellation mechanism that, among other things, allows consumers who signed up online to cancel online.
The lawsuit and settlement terms largely repeat the requirements of the Automatic Renewal Law statute, providing little additional insight into CART's specific interpretations of the law. However, we note the terms requiring a "checkbox" and consent "immediately adjacent" to the terms are more specific than California's current requirements.
In addition to making these changes, HelloFresh agreed to pay $7.5 million, including: (a) $6.38 million in civil penalties, divided among the prosecuting agencies; (b) $120,000 in investigative costs; and (c) $1 million in restitution to be distributed to eligible California consumer claimants who cancelled their service after the first shipment.
As more states enact or strengthen laws governing automatic renewals, we expect to see these types of investigations increase, both by state Attorneys General themselves and the CART, especially now that the Eight Circuit vacated the FTC's Negative Option Rule.
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