Navigating Recent Changes to California’s Automatic Renewal Law

Among a series of laws taking effect this year is Assembly Bill No. 390, which augmented California’s stringent Automatic Renewal Law (ARL). The original ARL was passed in 2010 with the intent to “end the practice of ongoing charging of consumer credit or debit cards or third-party payment accounts” without first obtaining the consumers’ explicit consent for ongoing shipments of a product or ongoing deliveries of service.[1] Since the law’s passage, class action litigants have targeted a broad range of industries, from traditional retailers to online dating apps, which resulted in multi-million dollar settlements and other cases still ongoing.[2] Starting July 1, 2022, the amended ARL will include new requirements for cancellation and notice for subscription-based services to California consumers.

Under the new ARL, businesses will be required to allow consumers to terminate the service at will without engaging in any practices that obstruct or delay the consumer’s ability to cancel immediately. As we highlighted in an earlier legal alert, the new law signals California’s increasing scrutiny over “dark patterns” in connection with paid subscription services. Businesses should carefully review their automatic renewal practices to ensure that they are prepared for the latest changes. 

New Automatic Renewal Law Requirements will be effective July 1, 2022

As so much of our lives have moved towards subscription-based services for daily tasks, there has been an uptick in disputes over the renewal of these services. ARL applies broadly to any business that makes an automatic renewal offer or continuous service offer to California consumers. These include paid subscription services for goods, online services, and memberships. The enactment of the amended ARL further expands the law’s oversight in cancellation and renewal notice requirements.

The existing ARL requires the consumers’ affirmative consent prior to charging automatic renewal fees. The automatic renewal terms need to be presented at the point of sale in a “clear and conspicuous” manner, and in visual and temporal proximity to the request for affirmative consent.[3]

The new ARL implements specific timing requirements regarding the renewal notice: 

  • Automatic renewal of services or products with an initial term of one year or more will have to provide a reminder notice to consumers 15 to 45 days before the renewal date; 
  • For automatic renewal of free trial or promotional services or products that last longer than 31 days, companies must provide a reminder notice to consumers 3 to 21 days before the end of the trial period.

Businesses also need to provide a “prominently located direct link or button” located within a user’s account or profile, or within device or user settings; and an “immediately accessible termination email formatted and provided by the business that a consumer can send to the business without additional information.” This is consistent with the California Privacy Rights Act of 2020’s regulation of “dark patterns” with regards to subscription-based services. Consumers who are unwilling or unable to cancel online shall also have the alternative offline option to cancel that is timely, cost-effective and easy to use, such as a toll-free number.

Notably, businesses will be exempt from these reminder notice requirements if the consumer entered into the automatic renewal services offline and the business does not collect or maintain the consumer’s email address, phone number, or other means of notifying the consumer electronically.

The California Court of Appeal recently reviewed the scope of the ARL.[4]

The Court held that there is no private right of action under the ARL. Instead, plaintiffs had to rely on other remedies such as the California’s Unfair Competition Law to file a lawsuit. This effectively raised the pleading standard for plaintiffs bringing class action lawsuits. However, the amended ARL exposes businesses to new risks, where plaintiffs may seek a windfall from inadvertent violations of the new law.

Key Takeaway

California has one of the most robust consumer protection laws regarding subscription-based services. That said, each state approaches ARLs differently. Companies need to promptly evaluate their business models and decide whether to tailor their practices to state-specific requirements or use the strictest standards from each applicable state law. The substantial volume of litigation highlights the need to understand the broad coverage of ARLs to both in-state and out-of-state companies that offer services in California.

The attorneys with Gordinier Kang & Kim LLP have deep knowledge and experience advising companies regarding California’s ARL. If you have questions about how these changes may affect your business, please contact our legal team.

Disclaimer: GKK Legal Alerts is not intended as legal advice. Additional facts, facts specific to your situation, or future developments may affect the subjects contained above. Seek the advice of an attorney before acting or relying on any information herein.

[1] California Business and Professions Code Article 9 § 17600.

[2] Nick King Jr., et al. v. Bumble Trading Inc., et al., Case No. 5:18-cv-06868, (N.D. Cal. 2020); Turnier v. Bed Bath & Beyond Inc. et al, Case No. 3:2020cv00288 (S.D. Cal. 2021); Andrews v. Life Alert Emergency Response, Inc., et al., Case No. 5:21-cv-01769 (C.D. Cal. 2021).

[3] “Clear and conspicuous” refers to larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention tot eh language.

[4] Mayron v. Google LLC, 54 Cal.App.5th 566 (Cal. Ct. App. 2020).