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If you run a subscription-based business in California, the recent expansion of the state’s Automatic Renewal Law (ARL) is something you can’t afford to ignore. Signed into law by Governor Gavin Newsom on September 24, 2024, AB 2863 introduces new requirements for businesses, including those offering free-to-pay conversions. These changes bring stricter consumer consent and cancellation rules, significantly impacting how businesses handle their subscription services.
With a compliance deadline of July 1, 2025, now is the time to evaluate your operations to avoid hefty penalties and legal risks. Below, we’ll break down the key provisions of this new law and what you need to know to stay compliant.
1. Easier Cancellation Process for Consumers
One of the most significant changes in AB 2863 is the requirement that consumers be able to cancel their subscriptions using the same method they used to sign up or interact with the business. This means if customers sign up online, they should be able to cancel online just as easily. Provide a seamless cancellation process to avoid legal trouble and damage to your business’s reputation.
2. Expanded Liability for Misrepresentations
Previously, the law only applied to the subscription terms themselves. Now, AB 2863 extends liability to cover misrepresentations related to the underlying goods or services. Whether you handle your marketing in-house or through a third-party organization, ensuring that all information provided to customers is accurate and transparent is crucial. Misleading consumers, even unintentionally, can expose your business to lawsuits and regulatory action.
3. Free-to-Pay Conversions Are Now Regulated
The new law also introduces stricter rules for free-to-pay conversions—where customers get an initial free trial that turns into a paid subscription if they don’t cancel. Under AB 2863, businesses must notify customers of these conversions before they’re charged and get their explicit consent. If your business uses free trials as a marketing tool, now is the time to update your procedures.
4. Restrictions on Retention Tactics
AB 2863 restricts common customer retention tactics such as offering discounts to prevent cancellation. While businesses can still offer incentives, they must ensure that these offers do not obstruct the cancellation process. Additionally, if a customer leaves a voicemail requesting cancellation, you must process the cancellation or respond within one business day.
5. Mandatory Consumer Consent
Perhaps the most impactful provision is the requirement for express affirmative consent to subscription renewals. This means businesses must get clear consent from consumers before any automatic renewal or continuous service begins. Simply burying this information in the terms and conditions won’t cut it—consent must be obtained separately and explicitly.
Take Action Now
AB 2863 places significant new obligations on subscription-based businesses. With the law set to take effect on July 1, 2025, now is the time to review your processes, customer service scripts, and contracts. Ensure your business is prepared to meet the new requirements to avoid legal pitfalls and maintain consumer trust.
Need help navigating these changes? Contact our business litigation team to schedule a consultation. We’ll help ensure your business remains compliant and protected.
