California Businesses Must Consider Auto-Renewal Law Changes

California’s Auto Renewal Law is one of the most comprehensive laws applying to businesses offering automatic renewal or continuous service subscriptions in the country. Notable changes over the past few years—including new measures going into effect in July—mean businesses need to stay alert to comply if they sell any consumer goods or services to consumers through subscription programs that automatically renew.

In July 2018, the law was amended to require online cancellation methods for consumers. Around the same time the law was amended, district attorneys across the state formed the California Automatic Renewal Task Force. According to participants in the Task Force, CART was formed to coordinate efforts to address the surge in consumer complaints around autopay and automatic subscription renewals.

Before CART, much of the law’s enforcement was by local municipal attorneys who individually addressed companies that allegedly violated California’s ARL. In practice, CART has attacked many renewal programs ranging from newspaper subscription services to dating websites. Frankly, if businesses are selling services and products tied to monthly recurring fees, care should be taken to avoid regulatory scrutiny.

In another significant change, the state in 2022 added a requirement that companies must provide reminder notices to consumers before their subscriptions renew, if the subscription had an initial term of one year or more. Businesses should keep in mind several concepts when offering automatic renewals or continuous service subscriptions.

Clear and conspicuous disclosures. California’s ARL places a significant emphasis on ensuring that businesses inform customers that the product or service they offer automatically renews. Businesses must ensure that the pertinent terms of the offer are disclosed in a clear and conspicuous manner.

Under the law, clear and conspicuous means visually proximate, or in the case of a voice offer, temporally proximate. The definition explicitly states that clear and conspicuous text need to be larger than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size.

Alternatively, the text could be set off from the surrounding text of the same size by symbols or other marks. The auto-renewal provisions must stand out from the other terms.

Consumer consent. Businesses are prohibited from charging a consumer’s credit or debit card without first obtaining the consumer’s “express affirmative consent” to the automatic renewal or continuous service terms. This consent must be retained by the business for at least three years or one year after the contract is terminated—whichever is longer.

Cancellation options. A customer’s ability to cancel must be available in the same medium used for the transaction or the medium in which the consumer is accustomed to interacting with the business.

This may include, but isn’t limited to, in person, by telephone, mail, or email. The law even details the mechanisms a business must have in place if a customer wishes to cancel by phone, such as promptly answering the phone and processing customer voice messages within 24 hours. Additionally, customers who purchased their subscriptions online must be able to cancel electronically.

Notices and acknowledgments. Following the auto renewal transaction, a business must provide an acknowledgment to the customer restating the service term and provide information regarding cancelation, including how to do so before the initial charge in instances that include a free gift or trial period. The law outlines various instances in which businesses offering subscription services must send customers a notice.

For example, they need to send reminder notices if the customer accepted a promotional offer that lasts more than a month or if the initial offer term was more than a year. They also need to send notice of material changes to the terms of the agreement. Finally, businesses must send a notice annual disclosing the product or service that automatically renews, the frequency and amount of charges, and cancellation information—regardless of the term of the subscription.

Most of the enforcement under California’s ARL has come from CART. However, California’s attorney general has expressed support for efforts to more heavily regulate auto renewal programs. In June 2023, California Attorney General Rob Bonta filed a comment letter supporting the Federal Trade Commission’s proposed amendments to its auto renewal rule. Once the new ARL provisions go into effect, we expect both CART and the attorney general to play pivotal roles enforcing compliance with these new requirements.

CART will likely continue its collaborative efforts to address consumer complaints and enforce the law, particularly focusing on the new requirements for expanded cancellation options. The attorney general, having shown support for stricter regulations, may also increase oversight and enforcement actions to regulate what he perceives to be unfair auto renewal practices.

To avoid regulatory scrutiny, and potential civil penalties of $2,500 per violation, businesses must work to ensure they adhere to the updated ARL, providing consumers with clearer terms, easier cancellation processes, and timely notices when required to do so.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Clayton Friedman is partner at Troutman Pepper Locke and a member of its regulatory investigations, strategy and enforcement practice group, and co-leads the state attorneys general practice.

Michael Yaghi is partner at Troutman Pepper Locke and a member of its regulatory investigations, strategy and enforcement practice and state attorneys general team.

Natalia Jacobo is an associate at Troutman Pepper Locke and a member of its regulatory investigations, strategy and enforcement practice and state attorneys general team.

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