From fashion clothing in the mail to gym memberships to monthly mobile app subscriptions, the subscription-based business model is everywhere and here to stay. As more companies adopt this model, states around the country have enacted laws requiring detailed disclosures that businesses must follow. The California Automatic Renewal Law (ARL)[1] is one example—and it just got a makeover. Recently, California enacted Senate Bill No. 313,[2] effective July 1, 2018, which further clarifies the disclosure requirements for free gift or trial offers and promotional price subscriptions, and also requires online cancellation mechanisms for online subscription services.
Lawsuit Themes
In recent years, several lawsuits have been filed in California under the ARL. A frequent allegation in these complaints is that a business failed to provide automatic renewal or continuous service terms in a clear and conspicuous manner. Other allegations include the failure to provide the terms in visual proximity to the request for consent, failure to provide acknowledgement of the terms and failure to provide an easy mechanism for the consumer to cancel the subscription. While there are often significant defenses to such claims, exposure can also be significant--settlements can be in the tens of millions of dollars.[3] To minimize risk of claims, companies with subscription-based business models should carefully reassess their subscription disclosures and procedures.
Requirements
To avoid potential claims under the ARL, companies should consider the following:
- Ensure the initial offer terms are clear and conspicuous. Companies should disclose the material terms of the automatic renewal or continuous service in a “clear and conspicuous”[4] manner. If there is a material change to the terms, this change should also be made clear to consumers prior to implementation.
- Acquire the consumer’s consent before charging the consumer.
- Make the terms comprehensive. Companies should inform consumers of everything they need to know: what they are being charged for, how much they will be charged, how often they will be charged, how long the automatic renewal term will last (or that the term will continue until the consumer cancels), the minimum purchase obligation (if any), and how and when they can cancel.
- Place the terms close by. Automatic renewal terms should also be displayed to consumers before a subscription or purchase agreement is fulfilled, and the language must be near the request for consent to the offer.
- Provide a mechanism...
