The California Department of Alcoholic Beverage Control Issues Advisory on Club Renewals

The Advisory sets forth several requirements under the California Business and Professions Code Section 17601 and 17602, all of which must be met for an automatic renewal program to be lawful, including the following:

Disclosure:  The Automatic Renewal Offer Terms must be disclosed in a clear and conspicuous manner and in visual proximity, or in the case of an offer conveyed by voice, in temporal proximity, to the request for consent to offer.  Automatic Renewal Offer Terms means the following clear and conspicuous disclosures: (1) a statement that the subscription or purchasing agreement will continue until the consumer cancels; (2) a description of the cancellation policy that applies to the offer; (3) the recurring charges that will be charged as part of the automatic renewal plan, and that the amount of the charge may change (if applicable) 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.

Consent:  Affirmative consent must be obtained before charging the consumer.  As noted in the Advisory, the California Automatic Renewal Taskforce and the Federal Trade Commission, two entities that enforce automatic renewal laws, consider the affirmative consent requirements satisfied when a business provides a check-box, signature or other substantially similar method that a consumer must click, sign or select in order to accept the Automatic Renewal Offer Terms.

Acknowledgement:  A retainable acknowledgement containing the Automatic Renewal Offer Terms and cancellation information must be provided to the consumer.

Cancellation:  A toll-free number, email address, postal address, or another cost-effective, timely and easy-to-use mechanism must be provided for cancellation.  In addition, online cancellation must be allowed when the offer is accepted online.

Companies with subscription services that do not comply with the foregoing requirements (and similar requirements under federal law) could be found to be in violation of several laws that could result in substantial penalties, damages and injunctive relief.  Moreover, the Advisory notes further that licensees who violate these laws are also subject to potential disciplinary action by the Department for engaging in sales that violate provisions of the California Alcoholic Beverage Control Act relating to prohibited sales and marketing activities.

TAKEAWAY: As we have previously written, California’s automatic renewal provisions were amended effective as of July 1, 2018, imposing heightened restrictions on companies utilizing subscription-based business models.  While the Department’s Advisory is geared towards its licensees in the alcoholic beverage industry, the foregoing requirements reach far beyond the alcohol beverage industry and apply to all companies that utilize a subscription-based business model.  Recently, other states have begun to enact their own automatic renewal laws, such as North Dakota, as we have previously written.  In order to minimize exposure, we recommend that all companies utilizing subscription-based business models carefully consider all applicable automatic renewal laws in crafting their advertising, enrollment and confirmation procedures.

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