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New California Law Imposes Tougher Restrictions on Automatic Renewal and Continuous Service Offers Effective December 1, 2010: Plan Now

By Frank Hernandez*

An upcoming California law, taking effect on December 1, 2010, will be imposing tougher restrictions on those who offer services with automatic renewals or on a continuous basis.

An upcoming California law, taking effect on December 1, 2010, will be imposing tougher restrictions on those who offer services with automatic renewals or on a continuous basis. The law intends to end the practice of consumers' credit and debit cards being charged automatically and continuously without proper authorization. The targeted practices are quite common, so companies marketing these types of offers in California will have to be careful to conform their conduct to the new law.

The law targets two practices specifically. First, the law targets "automatic renewal" offers, defined as any "plan or arrangement in which a paid subscription or purchasing agreement is automatically renewed at the end of a definite term for a subsequent term." Second, the new law targets "continuous service" arrangements, defined as "a plan or arrangement in which a subscription or purchasing agreement continues until the consumer cancels the service." Some of the law's highlights are discussed below.

The new law requires marketers of these offers to (1) present the terms of the offer clearly and conspicuously; (2) obtain consumers' affirmative consent to automatic renewal or continuous service offers; (3) provide an acknowledgement to the consumer of the offer terms and cancellation policy; and (4) provide a cost-effective, timely, and easy to use mechanism for cancellation such as a toll-free telephone number or email address. The new law also has requirements concerning any subsequent material changes in the terms of the offers.

The acknowledgment aspect is one area in which marketers must pay particular attention. Under the law, the acknowledgment must include the automatic renewal or continuous service offer terms, cancellation policy, and information regarding how to cancel in a manner that is capable of being retained by the consumer. If the offer includes a free trial, the business shall also disclose in the acknowledgment how to cancel, and allow the consumer to cancel before the consumer pays for the goods or services.

Violation of the law will not be a criminal offense, but will subject the offender to civil remedies i.e. money penalties. Additionally, any product or service provided to a consumer in violation of the law will be deemed an unconditional gift, leaving the consumer to use or dispose of the goods in any way he or she sees fit. Moreover, given California's active class action bar, marketers are faced with yet another potential avenue of exposure.

There are numerous other aspects to the law which marketers must consider. Given the impending effective date, marketers should take the necessary steps now to conform their practices to the new law before it takes effect on December 1, 2010.

*Frank Hernandez was formerly with The Lustigman Firm.

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