Companies that offer or are considering subscription-based plans should take note that new requirements for automatic renewal offers (“auto-renewals”) take effect in California on July 1, 2018.  California Senate Bill No. 313 (“SB 313”) amends existing law to extend additional protections to consumers where an auto-renewal offer includes a free gift or trial or where promotional pricing will change once the promotional period ends.  It also requires that certain consumers have the ability to opt-out exclusively online.

The current California auto-renewal law, Section 17602 of the California Business and Professions Code, among other things, requires businesses to:

  • present auto-renewal offer terms in a clear and conspicuous manner;
  • obtain the consumer’s affirmative consent before charging the consumer for an automatic renewal or continuous service;
  • provide an acknowledgment that includes the offer terms, cancellation policy, and information regarding how to cancel in a manner that is capable of being retained by the consumer, as specified;
  • provide a toll-free telephone number, email address, postal address (if the company directly bills the consumer), or “another cost-effective, timely, and easy-to-use mechanism” for cancellation; and
  • provide clear and conspicuous notice of material changes to auto-renewal terms.

SB 313 builds on these requirements.  First, as of July 1, if a consumer accepted an auto-renewal offer online, companies must allow consumers to terminate auto-renewals “exclusively online.”  This opt-out mechanism may include (but is not necessarily limited to) “a termination email formatted and provided by the business that a consumer can send to the business without additional information.”  This new provision prohibits practices such as requiring cancellation by telephone or mail for consumers who accepted the auto-renewal offer online.  In this regard, the new law goes beyond the requirements of the Restore Online Shoppers Confidence Act (“ROSCA”), the federal statute enacted in 2010.

Second, SB 313 amends Section 17602 to require a “clear and conspicuous explanation of the price that will be charged after the trial ends or the manner in which the subscription or purchasing agreement pricing will change upon conclusion of the trial.”  This obligation to disclose future changes in terms also extends to offers involving promotional or discounted prices for a limited period of time.

As with California’s current law, violating the new auto-renewal law may result in civil penalties or class action lawsuits alleging violations of California’s Unfair Competition Law.  Recent class actions involving auto-renewal allegations under California law have resulted in settlements of upwards of $2.5 million.

We will continue to monitor developments in the federal and state auto-renewal arena and will keep you updated here on Inside Privacy.

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Photo of Laura Kim Laura Kim

Laura Kim draws upon her experience in senior positions at the Federal Trade Commission to advise clients across industries on complex advertising, privacy, and data security matters. She provides practical compliance advice and represents clients in FTC and State AG investigations. Ms. Kim…

Laura Kim draws upon her experience in senior positions at the Federal Trade Commission to advise clients across industries on complex advertising, privacy, and data security matters. She provides practical compliance advice and represents clients in FTC and State AG investigations. Ms. Kim advises on a wide range of consumer protection issues, including green claims, influencers, native advertising, claim substantiation, Made in USA claims, children’s privacy, subscription auto-renewal marketing, and other digital advertising matters. In addition, Ms. Kim actively practices before the NAD, including recent successful resolution of matters for both challengers and advertisers. She co-chairs Covington’s Advertising and Consumer Protection Practice Group and participates in the firm’s Internet of Things Initiative.

Ms. Kim re-joined Covington after a twelve-year tenure at the FTC, where she served as Assistant Director in two divisions of the Bureau of Consumer Protection, as well as Chief of Staff in the Bureau of Consumer Protection and Attorney Advisor to former Chairman William E. Kovacic. She worked on key FTC Rules and Guides such as the Green Guides, Jewelry Guides, and the Telemarketing Sales Rule. She supervised these and other rule making proceedings and oversaw dozens of the Commission’s investigations and enforcement actions involving compliance with these rules. Ms. Kim also supervised compliance monitoring for companies under federal court or Commission order.

Ms. Kim also served as Deputy Chief Enforcement Officer at the U.S. Department of Education, where she helped establish a new Enforcement Office within Federal Student Aid. In this role, she managed investigations of higher education institutions and oversaw issuance of fines and adverse actions for institutions in violation of federal student aid regulations. Ms. Kim also supervised the borrower defense to repayment division and the Clery campus safety and security division.