Auto-renewing arrangements are more and more ubiquitous, from TV channel subscriptions to meal-kit delivery plans—and the regulators are interested. Late last year, the Federal Trade Commission (FTC) and California took actions with respect to auto-renewing subscriptions. The FTC issued a policy statement in October 2021, and California’s governor signed into law amendments to the state’s Automatic Renewal Law (ARL) that same month. California’s ARL amendments took effect in July 2022, so now’s a good time to survey where things stand and what’s to come for businesses offering auto-renewing products or services to California consumers.
What Are Auto-Renewing Products or Services?
Sometimes called “negative options,” auto-renewing products and services refer broadly to a category of transactions in which sellers or providers interpret a consumer’s failure to take an affirmative step to either reject or cancel an offer as assent to be charged for products or services.
What Is Required by Law Now?
There are at least two federal statutes implicated by auto-renewing products and services. The first is the Unordered Merchandise Act (UMA), which provides that “the mailing of unordered merchandise … constitutes an unfair method of competition and an unfair trade practice” violative of the FTC Act. Under the UMA, recipients of unordered merchandise may treat it as an unconditional gift and may use or dispose of it as they see fit. Recipients also may simply refuse delivery. Because the UMA applies only to mailed “merchandise,” courts have interpreted its coverage to reach “goods, wares,” or “any tangible item held out for sale,” but not “intangible” items such as memberships or subscriptions.
The second federal statute is the Restore Online Shoppers Confidence Act (ROSCA), which applies to “negative option” transactions, defined as “an offer or agreement to sell or provide any goods or services, a provision under which the customer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.” Under ROSCA, if a business charges or attempts to charge any consumer for goods or services online through a negative option, it must: (1) clearly and conspicuously disclose the material terms of the transaction before obtaining billing information; (2) obtain the consumer’s express informed consent before charging the consumer; and (3) provide “simple mechanisms” for a consumer to stop recurring charges.
Although different from ROSCA, California’s ARL imposes similarly rigorous information, notice, and consent requirements on businesses that make auto-renewal or continuous service offers to California consumers.
If a business is using an auto-renewal or continuous service plan that the consumer must cancel to stop automatic charges, the business must:
- present the offer terms in a “clear and conspicuous” manner;
- obtain consumer’s affirmative consent before charging his or her credit card; and
- provide an acknowledgment including auto-renewal offer terms, cancellation policy, and details on how to cancel, including a toll-free phone number, an email or postal address, or other “easy-to-use” means for cancellation.
Additionally, the ARL requires that if a material change in auto-renewal terms occurs, the business must “provide the consumer with a clear and conspicuous notice of the material change and provide information regarding how to cancel in a manner that is capable of being retained by the consumer.”
Like the federal UMA, California’s ARL provides that if a business sends merchandise or products to a consumer under an automatic renewal of a purchase or continuous service agreement without first obtaining the consumer’s affirmative consent, the merchandise or products are deemed unconditional gifts to the consumer, and the business must bear their entire cost.