Over the past several years, consumer spending on subscription services has reached an all-time high. To further regulate the industry, California made significant changes to its Automatic Renewal Law ("ARL"). The ARL imposes substantial information, notice, and consent requirements on businesses that offer continuous service plans to California consumers. The most recent amendment became law on July 1, 2022. There are a number of different continuous service or subscription plans that businesses offer to consumers. The statutes enacted by California to govern these continuity plans are arguably the strictest in the Nation. Understanding each type can prevent significant legal headaches for businesses engaged in commerce with California State residents.
Different Types of California Continuity Plans
Free-to-Pay Conversion: The consumer agrees to receive a product or service for free for a distinct and finite promotional period. The consumer will incur an obligation to pay for the product or service if he/she does not cancel before the promotional period expires.
Continuity Plan: The consumer agrees in advance to receive periodic shipments of goods or provision of services until he/she takes steps to cancel the plan.
Automatic Renewal: The business automatically renews the contract at the end of a fixed period unless the consumer instructs otherwise.
Pre-Notification Negative Option Plan: The consumer receives periodic notices offering goods/services and will receive the goods/services and incur charges unless he/she specifically rejects the offer.
Compliance Under California's ARL
Each of the four aforementioned plans are loosely categorized as "negative option plans." With all of these plans, the consumer agrees that the purchase of goods or services will continue until he/she explicitly opts out of the plan. Ultimately, the onus is on the consumer to clearly signal his/her intent to end the agreement. However, statutes governing continuity plans in California are evolving to shift more of this burden onto businesses.
Businesses engaged in e-Commerce in California should familiarize themselves with baseline ARL requirements. As of July 1, 2022, the ARL requires businesses that sell any type of negative option plan to:
1) send a reminder notice between 3 and 21 days prior to the expiration of a free trial or promotional price offer that lasts 31 days or more, or between 15 and 45 days in advance if the free trial or promotional price offer lasts 1 year or more;
2) clearly and conspicuously disclose in the reminder notice that the automatic renewal or continuous service plan will automatically renew unless the consumer cancels; the length of any additional renewal terms; and the methods by which the consumer can cancel the automatic renewal or continuous service plan (accompanied with a link that directs the consumer to the cancellation process or another reasonably accessible electronic cancellation method); and
3) permit the consumer to cancel his/her subscription immediately and at will, "without engaging any further steps that obstruct or delay the consumer's ability to terminate the automatic renewal or continuous service," by either a direct link or button in the consumer's profile, account or device settings, or a pre-formatted email that the user can send without any additional effort or information.
Experienced Marketing Attorneys Can Help Ensure Compliance with California's Continuity Law
Businesses that offer any type of subscription service must remain vigilant. California's legislature continues to maintain the strictest consumer protection regulations in the Country. Requirements are even more stringent and technical if your company offers negative option plans to consumers. We expect that future amendments to the ARL will be tailored to address evolving types of continuity subscription plans. The attorneys at Klein Moynihan Turco have significant experience in defending businesses against lawsuits filed under the ARL, and ensuring compliance so that future claims may be prevented.
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