With an influx of businesses shifting to or adding subscription-based components to their business models, states have followed suit in applying more stringent laws that these businesses must adhere to. Vermont and New York are just a couple examples of states that have added significant guidelines in recent years that subscription-based businesses must follow, with major changes centered around disclosure rules governing free or promotional trials and cancellation notice requirements.
Not to be outdone, California recently amended its automatic renewal law (ARL) to provide for even more protection for consumers. While these rules will be undoubtedly beneficial to consumers who often forget what subscriptions they’ve signed up for, at the same time they will likely prove to be burdensome for businesses moving forward. Regardless, companies doing business in California, which is practically every online subscription-based business, must act swiftly to implement the updated terms or they will face the possibility of lawsuits and fines.
The ARL in California has evolved over the years, first setting the baseline standard of clear and conspicuous disclosure of terms, providing a retainable acknowledgment, and easy to use cancellation mechanisms. In subsequent years, the California ARL later added further requirements for subscriptions centered around promotional rates, gifts, and free trials.
The most recent iteration of the ARL, which goes into effect on July 1, 2022, provides two notable changes: notice requirements for renewals and stricter cancellation terms.
Specifically, the newest version of the California ARL enforces strict timelines in which businesses must provide renewal notices. For those subscriptions having an initial term of at least one year, a written reminder notice must be sent 15 to 45 days before the subsequent renewal date, explaining that the consumer’s subscription will automatically renew unless it is cancelled by the consumer. For those consumers who were testing the subscription on the basis of a free trial, gift, or promotional trial period that is longer than 31 days, a written reminder notice must be sent 3 to 21 days before the expiration of such free trial, gift, or promotional period.
For both of these notices, the reminder notices must be clearly and conspicuously stated, which as mentioned above, is nothing new to the ARL. Namely, businesses should provide (i) that the subscription will automatically renew unless the consumer cancels the subscription, (ii) at least one method by which the consumer may cancel prior to renewal, (iii) the length of the renewal period, (iv) any additional terms to which the consumer would be subject to for such renewal, and (v) pertinent contact information by which consumers can contact the businesses. For those businesses with online subscriptions, which are most businesses on the subscription model, there must be an electronic way for the consumer to cancel prior to renewal. This can be done via a link or other electronic method.
In addition to the reminder notice requirements, businesses working under a subscription-based model can also expect to comply with stricter cancellation requirements. While cancellation terms have always been a focal point of the ARL, the new law requires businesses to make it even easier for consumers by allowing for immediate cancellation, which likely eliminates a business’s attempt to pull last ditch efforts to save the renewal.
The new cancellation method shall take the form of either (a) a prominently located direct link or button in the customer’s account or profile, device, or user settings; or (b) an immediately accessible termination email formatted and provided by the business that a consumer can send to the business without additional information. While there are multiple options, the best way to be in compliance with these guidelines is to provide a prominently displayed link that allows the consumer to cancel, free of any further steps such as a feedback survey, retention offer, or similar tool.
While the updated California ARL continues to evolve and add new requirements for businesses, the general theme remains the same in that consumers need to have a clear understanding of what they’re subscribing to and how they can get out of their subscription when the time comes. The new California ARL hammers down the point that transparency is key, and as in years past, other states will likely follow suit. As the laws will continue to increase in terms of consumer protection, businesses must stay proactive and diligent in understanding the nuances of these laws, both from a legal and logistical perspective.
