California Auto-Renewal Law: B2b Businesses Included?

California's Automatic Renewal Law (ARL) regulates businesses that sell recurring subscriptions and memberships. The ARL requires companies to make recurring charges clear to customers and to notify them of upcoming charges. The ARL applies to businesses and websites based in California. This includes e-commerce companies doing business in California. However, it's important to note that courts have determined that the ARL only applies to customers living in California.

Clear and conspicuous disclosure of offer terms

Clear and Conspicuous Disclosure:

• The ARL requires that the terms of automatic renewal agreements be presented in a clear and conspicuous manner. This means using a larger font size, contrasting colours, or setting off the text with symbols to make it stand out.
• The disclosure should include specific information such as the fact that the subscription will continue until cancelled by the customer, a description of the cancellation policy, the amount charged, the frequency of charges, and the length of the subscription or renewal term.
• If the subscription includes a free trial or promotional period, the disclosure must also include the duration of the trial, the price that will be charged after the trial, and how customers can cancel before being charged.
• The disclosure should be provided at the point of sale, in post-purchase communications like confirmation emails, and in reminder notifications before renewal.

Obtaining Affirmative Consent:

Clear and conspicuous disclosure is also essential when obtaining affirmative consent from customers. Businesses must ensure that customers clearly understand the terms of the subscription and provide their consent before being enrolled. This includes disclosing any promotional or discounted prices that apply for a limited time.

Online Cancellation:

The ARL requires businesses to provide an online cancellation mechanism for customers who signed up online. This can be done through an online form, a direct link or button in the customer's account settings, or a pre-formatted termination email that customers can send without adding any additional information.

Avoid Dark Patterns:

Businesses should avoid using "dark patterns", or deceptive tactics, that make it difficult for customers to understand the terms or cancel their subscriptions. This includes providing clear and conspicuous disclosures that are easy to find and not hidden in fine print.

Enforcement and Penalties:

The ARL is enforced by the California Automatic Renewal Task Force (CART) and non-compliance can result in significant penalties. Businesses may face civil penalties of up to $2,500 per violation, as well as private consumer protection lawsuits filed by affected customers.

Consumer consent

California's Automatic Renewal Law (ARL) is a piece of legislation designed to protect consumers from unwanted recurring charges. The law requires companies to obtain explicit consent from customers before subscribing them to auto-renewing services. This means that businesses must gain permission from the consumer to charge their credit or debit cards for any ongoing shipments of products or services.

The ARL outlines specific requirements for businesses to ensure consumer consent is obtained and maintained throughout the subscription process. Firstly, businesses must clearly and conspicuously disclose all relevant subscription terms to customers before they enrol in an automatic subscription program. This includes informing consumers that the subscription will continue until they cancel, providing a description of the cancellation policy, and detailing any recurring charges, including their frequency and potential for change. The ARL also stipulates that these terms must be presented in close visual proximity to the request for consent, using a larger or contrasting type, font, or colour to ensure visibility.

Additionally, businesses must provide a post-purchase confirmation, typically via email, that reiterates the subscription terms and provides information on how to cancel. This confirmation must be sent immediately after a customer signs up and should explain how to opt out of any free trials or promotional periods to avoid unwanted charges.

The ARL also mandates that businesses send reminder notifications about upcoming renewal charges. For subscriptions with an initial term of one year or more, reminders must be sent 15 to 45 days before the renewal date. For subscriptions with a free trial or promotional period exceeding 31 days, reminders must be sent 3 to 21 days before the expiration of that period. These reminders must include clear instructions on how to cancel the subscription and must be sent via email or another accessible electronic method.

To ensure consumers can easily withdraw their consent, the ARL requires businesses to provide an "immediate" method for cancellation. This means that the cancellation process should not include any additional steps or obstacles, such as requiring customers to call a support team after requesting cancellation. Instead, a direct link or button for cancellation should be easily accessible within the customer's account settings, profile, or billing page.

Overall, the ARL in California aims to protect consumers from unwanted charges by ensuring they provide informed consent for auto-renewing subscriptions. Businesses must disclose relevant terms, provide clear cancellation methods, and send timely reminders to maintain compliance with the law and respect consumers' consent.

Simple cancellation mechanisms

The California Automatic Renewal Law (ARL) requires businesses to provide a "cost-effective, timely, and easy-to-use mechanism for cancellation", such as a toll-free phone number or email address. An automated cancellation flow is also an option. The law specifies that consumers must be able to cancel "at will" and without the business "engaging any further steps that obstruct or delay" cancellation.

For customers who signed up online, businesses must allow them to cancel "immediately" and "exclusively" online. This can be done through a cancellation button or link in the customer's account settings, profile, or billing page, or by sending a pre-formatted cancellation email. The cancellation option should be "prominently", "continuously", and "proximately" displayed.

If providing a phone-based cancellation option, businesses must answer calls promptly during business hours and not "obstruct or delay" the customer's cancellation. They may present the customer with an incentive to stay or information about the effects of cancellation, but only after informing the customer that they may cancel at any time by stating their intent.

The ARL also requires businesses to send out reminders about upcoming charges for subscriptions, so that customers are not surprised by unexpected bills. These reminders must include details on how to cancel.

Requirements for promotional gifts and free trials

California's Automatic Renewal Law (ARL) outlines several requirements for promotional gifts and free trials. Here are the key provisions:

Disclosure Requirements:

• Businesses must clearly disclose all recurring fees associated with promotional gifts or free trials. This includes the cost of the subscription after the promotional period ends.
• The terms of the subscription, including the recurring charges, must be presented in a clear and conspicuous manner. This typically means using larger or contrasting text, or setting off the terms from the surrounding text to draw attention.
• If there is a promotional or discounted price that applies for a limited time, this information must be included in the subscription terms.
• Businesses must inform customers about how they can cancel the auto-renewal of their subscription before they are charged.
• If the price will change after the promotional period, businesses must obtain the customer's consent before billing the higher amount.

Notice Requirements:

• Businesses must provide a reminder notice before the expiration of a promotional gift or free trial that lasts more than 31 days. This notice must be sent between 3 and 21 days before the promotion's expiration and must include the terms of the offer and how to cancel.
• For subscriptions with an initial term of one year or longer, businesses must send a notice between 15 and 45 days before the renewal date.
• Notices must clearly state that the subscription will automatically renew unless the customer cancels, along with the length of the renewal period, any additional terms, at least one method of cancellation, and contact information for the business.
• If the notice is sent electronically, it must include a link or other accessible electronic method to direct the customer to the cancellation process.

Cancellation Requirements:

• Businesses must allow customers to cancel promotional gifts or free trials online if they signed up online. This can be done through a direct link or button in the customer's account or profile, or by providing a pre-formatted termination email that the customer can send without adding any additional information.
• Customers must be able to cancel "at will" and without any further steps or delays.
• The cancellation process must be easy to use and must not include any additional steps or requirements that may obstruct or delay the customer's ability to cancel.

Penalties for non-compliance

Non-compliance with California's ARL does not create a private cause of action. However, there have been several complaints under California's consumer protection statutes and unfair competition law since the ARL was created in 2010. Through these complaints, courts have determined that the ARL only applies to customers living in California. As long as a customer lives in the state, they can pursue an injunction if a company violates the ARL.

There are two types of penalties businesses can face for not complying with the ARL. The first are private consumer protection suits filed by customers affected by the law. Settlement amounts for such lawsuits can vary.

In addition, businesses can face civil penalties of up to $2,500 per violation. That's per violation, so depending on how many customers were affected, the total penalty can be high. For example, Rihanna's company, Savage X Fenty, was ordered to pay $1 million in civil penalties in a lawsuit filed by four California counties due to failing to comply with the ARL. Those penalties did not include the restitution owed to the victims. The company's violations included not properly disclosing and obtaining consent for recurring charges.

Another example of a company facing penalties for non-compliance with the ARL is Naked Wine. The California Automatic Renewal Task Force (CART) entered a settlement with the company, resolving allegations that its subscription programs violated California's ARL. The settlement required Naked Wine to pay full refunds to all California consumers who participated in the subscription program, as well as $650,000 in civil penalties and investigative costs.

It's important to note that California is not the only state with automatic renewal laws. Other states, such as New York, Virginia, Florida, Tennessee, and Idaho, have also enacted similar laws with varying requirements and stipulations. Businesses operating in multiple states should ensure compliance with the laws in each state to avoid legal issues.

Frequently asked questions