New Class Action Threat: Is Your Company Complying With California’s Automatic Renewal Laws?

Several class actions have been filed recently against companies offering music and video subscription services online for allegedly not complying with California’s Automatic Renewal Laws (California Business and Professions Code § 17602). This statute may apply whenever a company enrolls a California resident in an “automatic renewal” or “continuous service”

offering, where the customer’s subscription or service is renewed until he or she cancels. To comply, a business must take three steps: (1) clear and conspicuous disclosure of essential terms of the subscription offer, (2) obtain affirmative agreement by the subscriber to those terms, and (3) provide a copy of the terms, including how to cancel the subscription, in a form that the subscriber can keep for his or her records. In light of this recent spate of class-action lawsuits, a company offering services that may be subject to the Automatic Renewal Law may want to review its practices to ensure compliance.

To what kind of subscriptions does Section 17602 apply?

Section 17602 applies to automatic renewal and continuous service subscriptions. Automatic renewal refers to a subscription where the consumer pays initially for one period (e.g., a month) of the product or service and the subscription renews automatically for subsequent periods, until the subscriber cancels. Continuous service refers to a subscription where a consumer pays for a subscription until it stops. Section 17602 only applies to subscriptions with California consumers.

What essential terms must be disclosed?

Before a California consumer can agree to an automatic renewal or continuous service subscription with a business, the business must present the following five essential terms:

(1) That the subscription will continue until the consumer cancels it.

(2) When and under what circumstances a subscription can be canceled and how to cancel it.

(3) How much and how often the subscriber will be charged. If the amount might change, that possibility also must be disclosed, as well as how much it will change, if that is known.

(4) How long the automatic renewal period will last, or that the service is continuous. If the subscriber selects the length of the term, this term is not required.

(5) The minimum amount of time a subscriber must stay subscribed, if any.

How must these terms be presented?

Section 17602 requires that the essential terms be presented “clearly and conspicuously” or in a manner that obviously calls attention to the language.

Written Disclosure If the terms are written, they must be:

(1) In larger type than the surrounding text;

(2) In contrasting type, font, or color to the surrounding text; or

(3) Set off from the surrounding text by symbols or other marks.

The statute also requires that the essential terms appear in close visual proximity to the request for the subscriber’s agreement to the terms. Audio Disclosure For audio disclosure, the terms must be presented in a volume and at a pace that is both audible and understandable to the listener. They also must be presented close in time to the request that the subscriber agree to the essential terms.

Affirmative Consent Requirement

Before the subscriber is charged for the product or service being offered, he or she must affirmatively agree to the five essential terms of the subscription.

Acknowledgement Requirement

After the subscriber is enrolled, the business must provide acknowledgement of the consumer’s enrollment by providing a copy of the following information in a form the subscriber can retain for his or her records:

(1) The five essential terms of the subscription offer.

(2) When and under what circumstances a subscription can be canceled and how to cancel it.

(3) If there is a free trial period, the subscriber must be permitted to cancel his or her subscription before being charged for the product or service, and the acknowledgement must disclose how to cancel before that time.

(4) To assist with cancellation, the acknowledgement must also provide one of the following inexpensive and easy methods for cancellation such as: a toll-free telephone number; e-mail address; or mailing address (if the consumer is billed directly by the business).

Requirements Before the Company Changes Terms

Before a business materially changes the essential terms of the subscription, it must clearly and conspicuously (following the requirements for “clear and conspicuous,” discussed above) notify the subscriber of the material change or changes and inform the subscriber how to cancel his or her subscription. This notice must be provided in a form that the subscriber can retain for his or her records. In light of the recent class actions claiming violations of Section 17602, businesses offering subscriptions or automatically renewing services in California may wish to review their business practices to ensure compliance.