California Expands Automatic Renewal Legislation

On October 16, 2024, the Federal Trade Commission announced the final FTC “Click-to-Cancel” Rule pertaining to recurring subscriptions and memberships.

The Federal Trade Commission is not the only regulatory agency that actively enacts, updates and polices legislation governing  autorenewals, subscriptions and continuous service offers.  For example, state attorneys general are, in some instances, more aggressive than the FTC.  Some notable states with automatic renewal legislation include New York, Vermont, Colorado, Illinois, Tennessee, Virginia, Minnesota, South Carolina, Utah and California.

California’s Current Automatic Renewal Law

California’s auto renewal legislation is perhaps the most aggressive of all.  In short, California’s ARL applies to contracts with consumers, defined as “any individual who seeks, acquires, by purchase or lease, any goods, services, money, or credit for personal, family, or household purposes.”  It includes notice and cancellation requirements for free trials and automatically renewing subscription plans.  It also emphasizes the provision of a simple, easy-to-use cancellation mechanism.  In California, those making an automatic renewal or continuous service offer are required to present material terms in a “clear and conspicuous manner.”  Businesses are also required to seek and obtain a consumer’s affirmative consent to such terms in close proximity to making these material disclosures and prior to the point of billing the consumer.

Disclosures must include, for example and without limitation, that the subscription or purchase agreement will continue until the consumer cancels, a description of the cancellation policy, that recurring charges will be charged continuously until cancellation, the amount of the charges, the length of the automatic renewal term, and any minimum purchase obligations.  If the offer includes a free gift or trial, or an offer made at a discounted price for a limited period of time, the disclosure must set forth the price to be charged once the free trial or promotional period concludes.  It is unlawful for a business to charge a consumer without obtaining consent to the non-discounted price.

Importantly, California also requires that consumers be provided with a purchase acknowledgment after the sign-up process is completed.  The acknowledgment must contain the offer terms, cancellation policy and printable information about how the consumer can cancel the offer.  In the event that the offer includes a free gift or trial, the acknowledgment must also inform the consumer how to cancel and allow the consumer to cancel before being charged.

Those that make an automatic renewal offer or continuous service offer must also provide a toll-free number, a mailing address or another practical method for cancellation that is set forth in the written acknowledgment.  If online acceptance of an automatic renewal or continuous service offer is permissible, consumers must be presented with an option for online cancellation.

California’s ALR was recently updated.  In addition to the foregoing, business are required to provide consumers with a reminder notice prior to e renewal date for an automatically renewing offer if: (i) the automatically renewing offer includes a free trial or promotional period that lasts more than 31 days (notice must be provided between three and twenty-one days prior to the expiration of the promotion and must summarize the material terms); and (ii) the automatically renewing promotion includes an initial term that lasts for one year or longer (in which case, a business must provide notice between fifteen and forty-five days prior to the renewal date).  In both instances, the notice is required to set forth that the purchase will automatically renew unless the consumer cancels, the length of the renewal period, additional terms, how to cancel, and contact information.  Consumers cannot be required to engage in onerous steps that impeded the ability to immediately terminate.

California Amends Current Automatic Renewal Law

On September 24, 2024, California’s Governor, Gavin Newsom signed a bill into law (AB 2853) that will further broaden onerous requirements already in existence pursuant to California’s Automatic Renewal Law – Bus. & Prof. Code §§ 17600-17606.  The amendment will become effective July 1, 2025 and is another regulatory attempt to curtail deceptive marketing in conjunction with automatically renewing subscriptions and free trials.

The amendments are somewhat consistent with current federal legislation with a number of notable exceptions.  Federal law that regulates negative option marketing practices is known as the Restore Online Shoppers’ Confidence Act.  In short, ROSCA requires businesses to: (i) clearly and conspicuously disclose material terms of a negative option contract; (ii) obtain consumers’ express informed consent to be charged in connection with a negative option contract; and (iii) provide a simple mechanism to cancel.

California’s new ARL amendments are somewhat consistent with the amendments the FTC has recently proposed to its Negative Option Rule (“Click-to-Cancel” Rule).  Notable amendments include:

• The amended ARL expands the scope of existing legislation to encompass free trial offers that convert to paid subscriptions. California’s ARL no longer only applies to automatically renewing subscriptions and continuous service offers.

• The amended ARL states that “providing a discount offer or other consumer benefit” is permitted, however a prominent “click to cancel” button must be displayed adjacent to any save offer.  The button must result in a “prompt” cancellation.  The amendment also provides specific requirements for discount offers when a consumer attempts to cancel via telephone.

• California’s amended ARL requires that consumers be permitted to cancel their subscriptions “in the same medium” used to enroll or “in the same medium in which the consumer is accustomed to interacting with the business.”  This requirement is already in existence vis-à-vis online cancellations.  However, in the event that a consumer enrolls in a subscription promotion via telephone, a cancellation mechanism must be offered via a clearly and conspicuously disclosed phone number.  There is also a requirement that businesses answer calls, return calls and process cancellations via telephone, promptly.
• California’s amended ARL requires business that do business in California to obtain  “express affirmative consent” to material autorenewal or continuous service terms.

• The California amendment also requires businesses to notify consumers annually.  It does not matter if there exists any contractual modifications or if the autorenewal term is one year or longer).  Business are also required to notify consumers in the event of any price changes to an automatic renewal or continuous service plan (in addition to changes to other material terms).

Takeaway:  Numerous aspects of California’s amended ARL are consistent with already existing requirements under ROSCA, including, but not limited to, the application to free trial offers.  However, the amended ARL contains provisions that are not presently incorporated into ROSCA.  Consult with experienced FTC compliance attorneys to discuss ROSCA, California’s ARL and other state ARL legislation to ensure that applicable marketing practices are consistent with legal regulatory requirements.

Richard B. Newman is an FTC defense lawyer at Hinch Newman LLP. Follow FTC defense lawyer on X. 

Informational purposes only. Not legal advice. This article is not intended to and should be construed as legal advice. May be considered attorney advertising.