Looking Ahead: Significant Changes in California Law for Subscription Merchants Coming in July 2022

5 min

The regulatory landscape of subscription-based offers continues to evolve. As we last covered earlier this year, federal and state regulators and private plaintiffs have ramped up actions and challenges against companies that sell products and services on an automatically renewing basis. This week, California Governor Gavin Newsom signed new legislation to protect California consumers. Among them are long-anticipated updates to California's Automatic Renewal Law (ARL) that impose new notice requirements on automatic renewal and continuous service offers with free or introductory trial periods and offers with an initial term of one year or longer, as well as stronger provisions allowing consumers to cancel services more easily and quickly. California's ARL applies to all businesses that make automatic renewal offers and continuous services offers to California consumers.

What is Subject to the New Notice Requirements?

Free Trials and Promotional Periods

The new law triggers notice requirements when a consumer accepts a free gift or trial lasting more than 31 days that converts into an automatically renewing offer, or the consumer accepted an automatic renewal or continuous service offer at a promotional or discounted price, with a promotional period of greater than 31 days. In these cases, the notice must be provided at least 3 days before and at most 21 days before the end of the free or promotional period.

The law clarifies that "free gifts" exclude a free promotional item or gift given by the merchant that is different than the subscribed product. Also, if the consumer does not subscribe to the offer electronically and the merchant has not collected or maintained the consumer's email address, phone number, or other means of notifying the consumer electronically, then the offer is exempt from the notice requirement.

Offers with an Initial Term of One Year or Longer

The new law also imposes notice requirements 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. In those cases, the notice must be provided at least 15 days and not more than 45 days before the automatic renewal offer or continuous service offer renews.

What are the New Notice Requirements?

The notice must clearly and conspicuously state:

  1. That the automatic renewal or continuous service will automatically renew unless the consumer cancels;
  2. The length of the trial or service and any additional terms of the renewal period;
  3. One or more methods by which the consumer can cancel the automatic renewal or continuous service;
  4. For electronically sent notices, a link that directs the consumer to the cancellation process, or another reasonably accessible electronic method that directs the consumer to the cancellation process if no link exists; and
  5. Contact information for the business.

What are the New Cancellation Requirements?

For years, California's ARL has required merchants that allow consumers to accept an automatic renewal or continuous service offer online, to also allow a consumer to terminate the service online. Likely to eliminate hard-to-navigate online cancellation pathways, the new law specifies that the consumer must be able to cancel 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 new law further specifies that the merchant must provide a method of cancellation that is online in one of the following formats:

  • A prominently located direct link or button which may be located within either a customer account or profile, or within device or user settings; or
  • By an immediately accessible termination email formatted and provided by the business that a consumer can send to the business without additional information.

Notwithstanding these cancellation methods, the law will permit a business to require a consumer to enter account information or otherwise authenticate online before cancellation, if the consumer has an account with the business. If a consumer is unwilling or unable to authenticate their account online prior to termination, the business must permit them to authenticate or cancel offline using another method, such as a toll-free telephone number, electronic mail address, or postal address.

What Hasn't Changed?

A business that offers an automatic renewal or continuous service must still present material terms in a clear and conspicuous manner, obtain the consumer's affirmative consent prior to charging his or her payment method, and provide an acknowledgment that includes the automatic renewal or continuous service offer terms, cancellation policy, and information regarding how to cancel in a manner that is capable of being retained by the consumer. Businesses must also notify consumers of any material changes to the automatic renewal or continuous service offer.

The new ARL will become effective July 1, 2022. Based on Venable's years of handling automatic renewal enforcement actions and litigation in California, we know that the devil is in the details, and the new law will present plenty of issues subject to interpretation and creative challenges by aggressive plaintiffs and regulators. For example, what constitutes an "obstruction" to online cancellation? What information can a business require for online authentication purposes before honoring a cancellation request? And, how can a company ensure that its offline customer service interactions (such a telephone interactions with customers) are consistent with the new law's requirements for easier online cancellation?

Contact the authors today to get your web pages, telephone scripts, order confirmation, email notices, and all related marketing materials reviewed and ready for the change.