California Continues to Tighten and Expand Automatic Renewal Law with New Restrictions Taking Effect July 1, 2025
On September 24, 2024, Governor Gavin Newsom signed into law Assembly Bill No. 2863, which amends California’s Automatic Renewal Law (ARL), California Business and Professions Code Section 17600 et seq. Many of the amendment’s requirements are similar to those included in the Federal Trade Commission’s (FTC’s) recent amendments to the Negative Option Rule (FTC Rule), but there are important differences. Businesses operating in California should prepare to comply with both rules, given that the FTC Rule does not preempt consistent provisions of the ARL. The new law takes effect on July 1, 2025, and will have implications for companies that offer subscriptions or other services that automatically renew.
Background
Enacted in 2010, California’s existing ARL imposes detailed disclosure requirements for any recurring subscription services in California. In particular, it requires a business to clearly and conspicuously disclose offer terms and cancellation policies in any offer that contains an automatically renewing subscription. It also requires companies to obtain affirmative consent and to provide an “acknowledgment email” with the offer terms and cancellation information. And Section 17603 of the ARL declares that where a business’ disclosures fail to satisfy the ARL, barring proof of good faith, any goods the business sends to a subscriber are to be treated as an “unconditional gift.”
California has amended the law multiple times, most recently in 2021 where it introduced additional requirements around the substance of acknowledgement and reminder emails. That amendment also introduced requirements regarding when such emails must be sent. The current amendment adds multiple new requirements that are sure to generate disagreement and litigation. Below are some of the most important changes:
First, the amendment expands the ARL to be applied to subscriptions that are “free-to-pay conversions,” such as subscriptions that begin with a free trial and automatically convert to a paid subscription after an initial period. In other words, companies must get affirmative consent to the paid subscription terms when offering the free trial that will convert to a paid subscription.
Second, the amendment introduces a requirement for companies to “obtain the consumer’s express affirmative consent to the automatic renewal or continuous service offer terms.” Section 17602(a)(4). This is in addition to the pre-existing requirement to obtain “affirmative consent to the agreement containing the automatic renewal offer terms.” Section 17602(a)(2). Earlier versions of the bill would have required that businesses “obtain the consumer’s affirmative consent to the automatic renewal or continuous service separately from any other portion of the contract.” As a result, it is not clear if this new requirement should be read as simply tightening the requirements for affirmative consent, or as requiring an additional process to collect additional express affirmative consent to the automatic renewal terms.
Third, the amendment now requires that notices containing the automatic renewal offer terms, detail the cost of the subscription and frequency of renewal terms, and further requires companies to provide details of a cancellation method “before confirming the consumer’s billing information.” Section 17602(a)(8). There is no definition or guidance as to what “confirming the consumer’s billing information” means, but the law also provides, in an apparent contradiction, that these notices can be sent “after completion of the initial order.” Section 17602(i). As a result, companies may find that they need to introduce additional disclosures prior to the final checkout page and continue to send the same information in acknowledgement emails after completing the transaction.
Fourth, the amendment makes clear that if a user signs up for a service online, they must be able to cancel online as well. Section 17602(f). In tandem with that requirement, cancellation must be available in a cost-effective, timely, and easy-to-use mechanism. Section 17602(c). The amendment also establishes that it is permissible for companies to provide a “discounted offer, retention benefit, or information regarding the effects of cancellation” so long as the company simultaneously displays a prominent method to cancel. Section 17602(e)(2). Similarly, for annual renewals, if the service sent the original acknowledgment of the automatic renewal or continuous service offer via email, it must send annual reminders via email too. Section 17602(h).
Fifth, if a business makes a change to the amount being charged, they must provide notice between 7 and 30 days before the change is going to take effect. This notice must be clear and conspicuous and must provide information on how to cancel. Section 17602(g)(2).
The amendment imposes additional requirements and prohibitions that are similar or identical to the FTC Rule, such as requiring businesses to maintain affirmative consent verification records for at least three years, § 17602(a)(6), forbidding businesses to include information in the contract with consumers that “interferes with, detracts from, contradicts, or otherwise undermines” the ability for consumers to provide affirmative consent to automatic renewal, § 17602(a)(5), prohibiting explicit or implied misrepresentations of material facts related to the transaction or the underlying service that offers automatic renewals, § 17602(a)(7), among others.
Any company that offers subscriptions or services that automatically renew should carefully review these amendments and the underlying requirements in California and any other state in which they offer services, as well as the FTC Rule, for which Wilson Sonsini Goodrich & Rosati has published a concurrent alert. Wilson Sonsini regularly advises clients of all sizes regarding compliance with automatic renewal laws as well as the frequent disputes that arise under them. As companies implement or modify their sign-up flows for subscription-based services, it is important to keep the ARL in mind and to consult Wilson Sonsini’s team to stay abreast of recent development and best practices for compliance. For more information on the ARL and its requirements for businesses selling automatically renewing subscriptions, please reach out to Amit Gressel, Dale Bish, Victor Jih, or any member of the firm’s litigation or technology transactions practices.
