Governor Gavin Newsom signed Assembly Bill No. 2863 into law on September 24, 2024, amending California’s Automatic Renewal Law (ARL). The new legislation brings significant updates to how businesses offering subscription services must handle automatic renewals. Set to take effect on July 1, 2025, this amendment will impact businesses operating in California, particularly those offering “free-to-pay” conversions and other subscription-based models.
The updated ARL mirrors some of the recent changes made by the Federal Trade Commission (FTC) under its Negative Option Rule, but it also introduces unique requirements that businesses must adhere to in order to ensure compliance. Given that California’s law does not preempt the FTC’s regulations, businesses should prepare to comply with both frameworks, which are designed to protect consumers from automatic renewal pitfalls.
Expanded Scope: The amendment now applies to “free-to-pay” conversion subscriptions, requiring businesses to obtain explicit consumer consent when transitioning from a free trial to a paid subscription. This addresses concerns about customers unknowingly being charged after a trial period.
Enhanced Affirmative Consent: In addition to the pre-existing requirement for affirmative consent to the subscription terms, businesses must now obtain consumer consent to both the automatic renewal terms and the overall offer. While this is similar to earlier amendments, the new wording could prompt legal challenges or further clarification on what qualifies as “express affirmative consent.”
Clearer Disclosures: Businesses must now provide detailed information about the cost and frequency of renewals, along with a clear cancellation method before confirming any billing details. These disclosures can be sent after the initial order, but companies will need to ensure they’re meeting new standards that promote transparency without causing confusion for consumers.
Cancellation Must Be Simple: If a consumer subscribes to a service online, they must be able to cancel the service online as well. The new law mandates that cancellations must be timely, cost-effective, and user-friendly. Further, businesses can offer discounts or retention benefits, but only if they also display an easy-to-find method to cancel the service.
Annual Reminders for Ongoing Subscriptions: If a business sends an initial acknowledgment email about the automatic renewal offer, they are required to send annual reminders for services that renew yearly. This ensures that consumers are consistently aware of their subscription terms.
Clear Notification of Price Increases: If the price of a subscription or service changes, businesses must notify customers between 7 and 30 days before the change takes effect. The notice must be conspicuous and include clear information on how to cancel the service.
Consistency with FTC Guidelines: The new law includes provisions similar to the FTC’s Negative Option Rule, including the requirement for businesses to maintain records of affirmative consent for at least three years and to avoid misleading customers about the terms of the subscription. Companies are also prohibited from including information that undermines the consumer’s ability to understand or cancel the renewal.
For companies operating in California, the amendments to the ARL require significant operational adjustments. From enhancing disclosure practices to refining consent protocols, businesses must review their subscription models to ensure compliance with both California law and the FTC’s rules.
Legal experts from Wilson Sonsini Goodrich & Rosati, a leading firm specializing in automatic renewal law compliance, emphasize the importance of staying ahead of these changes. As subscription-based services become more prevalent, maintaining compliance with automatic renewal laws is crucial to mitigating legal disputes and safeguarding consumer trust.
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