New Requirements for California Continuity or “Negative Option” Programs

On September 28, 2017, SB-313 was approved by Governor Jerry Brown effective July 1, 2018.  This most recent update to the law that governs how businesses may provide automatic renewal services to customers in the state comes in response to complaints regarding continuity programs under existing law.

Businesses that offer subscription-based services including through a website to California consumers must comply with Cal. Bus. & Prof. Code sections 17600-17606 by making certain disclosures regarding automatic renewal terms.  There are also federal laws applicable to subscription services, such as the Federal Trade Commission Act (15 U.S.C. § 41) which requires clear and honest disclosures regarding the company’s automatic renewal policies.  The Federal Trade Commission and state Attorneys General may also prosecute companies under 15 U.S.C. sections 8401-8405 for failure to comply with regulations applying to post-transaction charges and negative option features that include subscription services.

California’s new law requires a separate, stand-alone form for the consumer to review and approve to authorize subscription services through a third-party account such as a credit or debit card. The customer acknowledgment should include the terms of the automatic renewal agreement, the cancellation policy and how the consumer can cancel the service in a format the consumer can retain.  Businesses offering free trials must include a statement of how to cancel the services and allow the consumer to cancel the service before the consumer is charged for the good or service.  The statute also requires timely, simple and cost-effective cancellation mechanisms, such as toll-free phone numbers, mailing addresses and email addresses.  If there is to be a material change in the terms of the automated service, the business will need to provide the consumer clear and conspicuous notice of the change along with retainable cancellation instructions.

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