If you offer a subscription service or another automatic renewal-based model, you should scrutinize the most recent amendment to Section 17602 of California’s Business and Professions Code and review your service for compliance. On July 1, 2018, your obligations under California law will expand in two ways:
- Subscription service providers are already required to provide certain information about the renewal process—such as the amount of the recurring charges, the length of the renewal period, and the cancellation policy— before and after the consumer accepts the
agreement. As of July 1, 2018, if the offer includes any free trial or gift component, you will be required to include 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.” - Presently subscriptions must provide a cancelation mechanism that may include a toll-free phone number, email address, postal address, or another “cost-effective, timely, and easy-to-use” mechanism. However, as of July 1, 2018, consumers who accept a subscription offer online must be allowed to terminate the subscription exclusively online. You no longer can require online subscribers to call a toll-free number or send a written notice by postal mail.
Some California district attorneys have sought to enforce California’s automatic renewal law, and plaintiffs’ attorneys are also attempting to bring class actions against companies related to alleged violations of this law framed as violations of California’s unfair competition law.
States other than California also have laws that affect subscription services and free trials. If there are subscribers in another state, you will also need to comply with those state’s subscription service laws. Federal law also regulates subscriptions under the Restore Online Shopper’s Confidence Act (ROSCA), that is enforced by the Federal Trade Commission (FTC). Recently, the FTC obtained a $1.3 million judgment against AdoreMe Inc.—an online lingerie marketer that allegedly failed to provide a simple mechanism to stop recurring charges. AdoreMe Inc. allegedly made it difficult to cancel memberships by limiting the mechanisms for cancelation requests, and inadequately staffing its customer service department.
It is crucial for any business offering consumers a subscription or similar auto-renewal product or service to review its practices with legal counsel. While these laws may make it more difficult for subscription services to retain customers the cost of noncompliance can put you out of business.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
