If the company fails to comply and doesn’t get explicit affirmative consent from each consumer to be charged for automatic renewals, the penalty is a full refund to the consumer of all payments made to the business, or an “unconditional gift” to the consumer.
The company may also face civil remedies for failure to comply with this law. Such failure to comply can cause a subscription-based company to risk losing substantial amounts of revenue.
The key requirements of California’s automatic renewal law include clear and conspicuous disclosures:
- That the subscription or purchasing agreement will continue until the customer cancels
- The description of the cancellation policy that applies to the offer
- Recurring charges that will be charged to the customer’s credit or debit card and the amount of the charge, and the amount the charge will change, if known
- The length of the automatic renewal term, unless the customer selects the length of the term
- Minimum purchase obligation, if any; and
- Notice of a material change in the terms of the automatic renewal or continuous service offer that has been accepted by the customer in California and information on how to cancel in a manner that is capable of being retained by the consumer.
California has one of the more rigorous automatic renewal statutes, given the penalty of a full refund to the consumer. However, Oregon has passed similar statutes, and other states, including Connecticut, Colorado, Illinois, Georgia, Florida, Hawaii, North Carolina and Louisiana, have passed variations of automatic renewal requirements.
Several other states have enacted automatic renewal requirements in specific circumstances (e.g., New York and Rhode Island).
The acquiring company may want such provision at the time of the company’s sale or sale of its subscription services, and this enables the company to anticipate the acquirer’s requirements and be better prepared for the transaction.
Dorothy Vinsky is Senior Counsel at Michelman & Robinson.