How to Comply with California’s Automatic Renewal Law
California’s automatic renewal law (ARL) is consumer-protection legislation regulating aspects of subscription billing and online cancellation. If your business offers subscription services to consumers in California, the law applies to you (with some exceptions).
Compliance with the ARL means meeting certain requirements regarding subscription terms and consent to automatic renewal agreements, post-signup acknowledgements and notifications, and subscription cancellation.
This post offers guidance to B2C subscription-based businesses in SaaS, digital media and ecommerce to help you maintain compliance with the ARL.
Disclaimer: The guidance provided herein is for informational and educational purposes only and does not constitute legal advice. Please consult a legal/compliance representative when implementing subscription compliance policies and practices.
No, the law applies only to subscriptions offered to consumers (B2C), not businesses. Section 17601 of the code defines a consumer as “any individual who seeks or acquires, by purchase or lease, any goods, services, money, or credit for personal, family, or household purposes” (emphasis added).
Overview of the ARL
Enacted in 2010 and amended as recently as 2021, the California automatic renewal law (California Business and Professions Code § 17600) protects consumers from being enrolled in subscription billing plans without explicit consent, and is among the country’s strictest automatic renewal laws.
The California automatic renewal statutes do not apply to the following businesses:
Those regulated by the CPUC, the Federal Communications Commission, the Federal Energy Regulatory Commission, the Department of Insurance, or the Bureau of Electronic and Appliance Repair
Alarm company operators; banks, bank holding companies and affiliates/subsidiaries; credit unions or licensed financial institutions
“Any service provided by a business or its affiliate where either the business or its affiliate is doing business pursuant to a franchise issued by a political subdivision of the state or a license, franchise, certificate, or other authorization issued by the California Public Utilities Commission (CPUC).”
We’ll go into more detail below, but in summary, the legislation dictates:
When offering subscriptions, businesses must present “clear and conspicuous” terms and obtain “affirmative consent” to subscription billing plans
Subscription terms must be repeated in a post-transaction acknowledgement that can be retained by the customer, e.g. an email
Businesses must provide a “cost-effective, timely and easy-to-use” cancellation mechanism, such as a toll-free phone number or e-mail address
Notices must be sent regarding any material changes in terms
More recently, the California legislature added requirements regarding online cancellation and free trials:
Businesses must allow online cancellation for subscribers who signed up online
When obtaining affirmative consent, subscription terms must include information about any promotional or discounted price that applies for a limited amount of time
Businesses must send reminder notices before renewal under certain conditions
Proposed amendments (as of July 2024), if signed into law, would add further requirements to subscription signup, reminders and cancellation. Highlights:
Signup - Businesses would be required to obtain “affirmative consent” to subscription billing terms separately from other portions of the contract, and retain verification of this consent for at least three years or one year after the contract ends, whichever is longer
Annual reminders - Businesses would be required to send an annual reminder about the automatic renewal product/service, the frequency and amount of charges, and how to cancel, regardless of subscription term
Cancellation - Subscribers would have to be allowed to cancel in the same medium used to sign up for the subscription or in which the consumer is accustomed to interacting with the business
Again, these requirements are part of a proposed amendment and as of this writing have not become law.
Now let’s dig into how the ARL affects each aspect of subscription billing from signup to cancellation.
Subscription signup and the ARL
California’s automatic renewal law requires that businesses offering subscription billing agreements follow certain guidelines to ensure that consumers understand subscription terms and are not enrolled without their explicit consent.
In summary, when offering a subscription, businesses must:
Present offer terms in a “clear and conspicuous” manner before fulfillment
Obtain “affirmative consent” to subscription terms
Send an acknowledgement in a retainable form, e.g. an email
Clear and conspicuous disclosures
The law requires that the terms of automatic renewal agreement be displayed in a “clear and conspicuous” manner and specifies terms which must be supplied:
That the subscription will continue until canceled by the customer
A description of the cancellation policy
The amount that will be charged
That the amount may change (if relevant), and the amount to which it will change, if known
When the subscription will expire, or if it is continuous (unless the length is chosen by the consumer)
Details of a minimum purchase obligation, if any
According to California’s ARL, clear and conspicuous means “in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language. In the case of an audio disclosure, [it] means in a volume and cadence sufficient to be readily audible and understandable.” (Cal. Bus. & Prof. Code § 17601)
Affirmative consent
Businesses must obtain “affirmative consent” to automatic renewal, including terms about any promotional or discounted price for a limited period of time.
The ARL specifies that, if affirmative consent is not obtained, the goods or services “shall for all purposes be deemed an unconditional gift to the consumer.”
Proposed changes (2024), if signed into law, would require businesses to obtain affirmative consent to the automatic renewal agreement separately from any other portion of the contract.
Acknowledgements
Businesses must also provide an acknowledgement in a form that can be retained by the consumer. Similar to the signup terms, this acknowledgement must disclose:
That the subscription will renew automatically unless canceled by the customer
The length and additional terms of the renewal period
Method(s) of cancellation - If sent electronically, a link or other “reasonably accessible” electronic method
Contact info for the business
How to cancel before being charged, if a free trial
Renewal and other notices
Amendments to the ARL added a requirement to send renewal notices under two conditions:
The subscription term is one year or longer
The subscription contains an expiring free trial or initial discount period longer than 31 days
If the subscription term is one year or longer, notices must be sent 15-45 days before the renewal date reminding customers that their plans will automatically renew unless canceled.
For subscriptions with an expiring trial or discount period, a similar notice must be sent 3-21 days before the expiration of the applicable period.
In the case of a material change in terms, businesses must send a “clear and conspicuous” notice, plus how to cancel.
Proposed changes (2024), if signed into law, would require businesses to send an annual reminder about any automatic subscription renewals, the frequency and amount of charges, plus how to cancel, regardless of the subscription term.
Subscription cancellation and the ARL
Like the federal Restore Online Shoppers’ Confidence Act (ROSCA), the California ARL makes easy cancellation a key requirement.
The ARL dictates that, if offering subscription billing, a business must provide a “cost-effective, timely, and easy-to-use mechanism for cancellation,” such as a toll-free phone number or e-mail address. An automated cancellation flow is also an option.
Online cancellation for customers who enrolled online
Additionally, if customers are allowed to sign up online, they must be allowed to cancel “immediately” and “exclusively” online, either by clicking a prominent button or link within a customer billing portal/account/settings page, or by sending a pre-formatted cancellation email message.
By “immediately,” the law does not prohibit requiring the user to login to access the cancellation option, although an offline option must be provided.
The law goes on to specify that consumers must be allowed to cancel “at will” and without the business “engaging any further steps that obstruct or delay” cancellation.
Online cancellation flows often require customers to move through several steps—e.g. a churn survey, acknowledgements, discount offers and other deflections—before finalizing cancellation. To what extent these features might be considered to “obstruct” or “delay” cancellation under the legislation is unknown, but according to DLA Piper the law does not on its face “proscribe attempts to ‘save’ a consumer during the cancellation process,” though it does clearly prohibit “obstructive” efforts that functionally prevent a consumer from canceling.
Companies should scrutinize their online cancellation processes, particularly online chats with limited availability, extensive “save” attempts, and other cumbersome steps. The most cautious course for businesses is to provide an instant cancel option to consumers in California and other jurisdictions with similar ARL requirements and a standard cancellation flow to other customers.
On the instant cancellation page you’ll forgo multiple steps. Instead, provide a single page with an instant cancel button and retention offers, if desired. You can also ask (though not require) the customer for feedback, providing a link to an exit survey or your complete flow.
When allowing cancellation by email, businesses must, as dictated by the law, provide an “immediately accessible termination email formatted and provided by the business that a consumer can send to the business without additional information.”
Proposed changes (2024), if signed into law, would require businesses to allow consumers to cancel their subscriptions “in the same medium” that the consumer used to sign up, thus effectively removing email as a compliant means to cancel web and app subscriptions.
Conclusion
In 2010 California’s automatic renewal legislation led the way in consumer protection for subscription billing practices, and other jurisdictions have followed suit, including the FTC, New York and many other states. As these regulations continue to evolve, it’s important for subscription-based businesses to remain vigilant but not worried.
Let ProsperStack show you how easy it is roll out a compliant cancellation flow that leverages powerful insights, reduces churn and promotes brand loyalty. Schedule a demo today.
