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Auto-Renewal Update

May 29, 2018

Posted in Business Start Ups

Auto-renewal updates can be seen as time savers making your life a little easier or money sucking parasites taking your money without you being aware it’s happening. Most of these types of offers are part of “free trials” of magazines, apps and even food delivery services. If they are part of your business model a new California law will impact your practices.

California’s Automatic Renewal Law (ARL) goes into effect on July 1 and broadens the scope of the prior statute to include disclosure rules for temporary discounts and free trials. This update make clear that consumers accepting automatic renewal offers online need to be allowed to cancel. A cancellation could be done through an account portal or email. If the offer is made over the phone or in person there must be an understandable way to cancel, whether through a toll-free number, email or postal address.

The intent of the law is to ensure consumers understand recurring commitments they’re offered.

  • Terms must be stated to potential buyers in a “clear and conspicuous manner.” Businesses can achieve this by showing key terms in bigger, contrasting lettering or set off text.
  • Automatic renewal terms and costs must be placed close to the space used for a consumer to show his or her agreement.
  • If an offer starts with a free trial the cost and rules at the end of the trial also must be shown clearly and conspicuously.
  • If your business uses the telephone to communicate with consumers you need to state automatic renewal terms directly before asking for consent to a commitment.
  • If there are any material changes to the auto renewal consumers must be notified in advance using a clear and conspicuous notice allowing them to opt out if they so choose.
  • You must get affirmative consent before charging credit cards.
  • Subscription-based businesses need to explain how to cancel and be given a chance to opt out during a free trial period before there’s an obligation to pay. Service terms need to be summarized in a confirmation email or letter after an order is made.

If your business violates the law the price can be steep, especially if large numbers of customers have been impacted. There have been class action lawsuits involving automatic renewals settled for millions of dollars. You could include language in a sales contract or agreement to try to control your liability, such as a choice of law provision or use of mandatory mediation or arbitration.

If a potential claim can’t be resolved and it ends up in litigation the law provides defenses that may work for you. There may be no liability if you can show you acted in good faith and a plaintiff needs to show actual monetary or property loss.

The ARL mandates certain language be used in a certain way either when you’re speaking or the language is written online. Your practices and policies may need to be updated. In the big picture these may be seen as relatively minor issues but if you don’t pay attention to these details you may end up as the defendant in a lawsuit.

If your business relies on automatic renewal offers and you have questions or concerns about the new law, contact our office so we can talk about your situation, how the new law may apply and how we can help.