Effective December 2010, California enacted an Auto-Renewal Law (“ARL”), Business & Professions Code sections 17600-17606, in an effort to end the practice of ongoing charging of consumers, without their explicit consent, for continuing services or products.
Prior jurisprudence under the California Unfair Competition Law, Business & Professions Code §17200,et seq., or the Federal Trade Commission Act, 15 U.S.C § 41, et seq., simply required honest and clear disclosure and the avoidance of deceptive “fine print.” In contrast, the Automatic Renewal Law requirements are different and require more conspicuous disclosure than  traditional state and federal unfair competition and false advertising statutes.  The Automatic Renewal Law requires disclosures that automatically renewing charges for subscription services be disclosed in a “clear and conspicuous” manner, which it defines as more conspicuous than surrounding text, and that such disclosure be before and in immediate proximity to the consumer signature or online purchase authorization button.
The thrust of the ARL is codified in section 17602, which makes it unlawful to: (1) fail to present automatic renewal terms in a “clear and conspicuous manner” before the subscription is fulfilled, and in close proximity to the request for consumer consent; (2) charge the consumer’s credit card, debit card, or third-party account without first obtaining the consumer’s affirmative consent to the agreement containing the auto-renewal provisions; or (3) fail to provide the consumer with a retainable acknowledgement containing the automatic renewal terms and cancellation information.  The ARL also requires that businesses provide a toll-free telephone number, email address, “or another cost-effective, timely, and easy-to-use mechanism for cancellation” and clear and conspicuous notices of any material changes in the automatic renewal agreement.
In addition to the “clear and conspicuous” requirement, the law  requires that a company must provide a consumer with a written acknowledgement, in a manner that is capable of being retained by the consumer. The acknowledgment must include the following: the automatic renewal offer terms, a description of the cancellation policy, information on how to cancel and, if the offer includes a free trial, the fact that the consumer may cancel before being charged.  If there is a material change to the terms of the automatic renewal offer, the company must provide the consumer with “clear and conspicuous” notice of the change and information about how to cancel prior to implementation of the change in a manner that is capable of being retained by the consumer.
Non-compliance may result in restitution of all the renewal revenues collected from California customers – a possible outcome that creates substantial economic, regulatory and reputational risk.