California recently amended its Automatic Purchase Renewals law. The amended statute - effective July 1st -- requires marketers to provide consumers of automatic renewal or continuous service offers with more information and easier ways to terminate. Because California's rules touch most marketers and auto-renew programs draw a lot of scrutiny from state and federal regulators, we want to provide you with a top-line on the changes. Here's what you need to know.
What are automatic renewal programs? Think subscriptions, like that bag of pet food you have delivered every month, the Spanish language teaching app, or that publication you have delivered to your in-box every day. Auto-renew programs allow companies to provide goods and services to a consumer on an ongoing basis unless and until she cancels her plan. They are a form of "negative option" program. Prior to cancellation, the marketer considers the consumer to have consented to the new goods and services, as well as the charges for them. Although such plans can be very convenient for consumers, they can also be problematic if consumers thought they were signing up for a single order rather than a program where their credit cards will be charged on an ongoing basis.
Regulation At the federal level, the Restoring Online Shoppers' Confidence Act ("ROSCA") governs automatic renewal programs. ROSCA was enacted in 2010 to address the problem of consumers unwittingly signing up for ongoing subscriptions resulting in multiple charges on their credit cards. (Prior to ROSCA, deceptive negative option programs were subject to FTC enforcement under the agency's general Section 5 authority and, for certain programs, under the agency's Negative Option Rule.) ROSCA sets forth certain baseline requirements, including that marketers obtain unambiguous consent for the "negative option" feature of their sales. Specifically, ROSCA requires marketers to:
(1) clearly and conspicuously disclose all material terms of the transaction before obtaining the consumer's billing information;
(2) obtain a consumer's express informed consent before charging the consumer's card; and
(3) provide simple mechanisms for a consumer to stop recurring charges from being placed on the consumer's card.
Enforcement The FTC regularly brings enforcement actions against companies for failing to make appropriate ROSCA disclosures and failing to obtain consumers' affirmative consent. These cases make clear that hidden disclosures with pre-checked boxes do not constitute "affirmative consent." The cases also require marketers to make consumers aware of all the material terms of the plan, and ensure that consumers take some type of affirmative action before marketers may automatically charge their cards on a continuing basis.
California's new rules Several states also regulate auto renewal programs, most notably California - where an active plaintiff class action bar has brought many costly suits against marketers of auto-renew programs. Like ROSCA, California's Automatic Purchase Renewals law was also enacted in 2010. Also like ROSCA, the statute requires marketers offering automatically renewing plans to make clear and conspicuous disclosures about those plans and to obtain consumers' affirmative consent to ongoing charges. Unlike ROSCA, however, the California statute includes some very specific requirements for marketers offering such plans. And, beginning July 1, due to amendments enacted last fall, the statute's requirements will become even more stringent. In addition to requiring clear and conspicuous disclosures and affirmative consent, the law requires marketers to:
(1) provide the consumer an acknowledgement that includes the automatic-renewal terms, cancellation policy and instructions in a form that can be retained by the consumer;
(2) if the offer includes a free trial, include a clear and conspicuous explanation of the price that will be charged after the trial ends;
(3) provide a cost-effective, timely, and easy-to-use mechanism for cancellation, such as a toll-free number; and
(4) permit a consumer who places an auto-renew order online to terminate online.
In addition, California's statute spells out the disclosures that marketers of auto-renew programs must make, including:
(1) that the subscription will continue until the consumer cancels;
(2) a description of the applicable cancellation policy;
(3) the recurring charges that will be charged, and that the amount of the charge may change, if that is the case, and the amount to which the charge will change, if known;
(4) the length of the automatic-renewal term or that the service is continuous, unless the length of the term is chosen by the consumer; and
(5) the minimum purchase obligation, if any.
With regulators and plaintiffs' lawyers focused on subscription program compliance, now is a good time to review your program rules, disclosures, and procedures for obtaining consent.
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