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Guthy-Renker Reaches CART Automatic Renewal Lawsuit

Reflecting California’s continuing challenge to automatic renewal programs, direct marketing firm, Guthy-Renker, agreed to settle claims brought by multiple California city and district attorneys (CART) alleging that the direct marketing firm engaged in improper automatic renewal practices with respect to its sale of ProActiv skin products and Wen hair products.

Like many direct marketed products, ProActiv and Wen products are sold using a subscription based business model.   The regulators did not take issue with the marketers advertising claims. Rather, the task force alleged that Guthy-Renker failed to properly disclose the automatic renewal charges that result from purchases made on their websites, thereby acting in violation of state and federal laws requiring clear disclosure of those charges and affirmative consent from the consumer.

As part of the settlement approved by the Santa Clara Superior Court on February 1, 2019, Guthy-Renker has agreed to pay $1.2 million in civil penalties and $75,000 in investigative costs. The civil penalties and investigative costs are to be divided proportionately between the city and district attorney offices representing the People for the State of California in this case. Moreover, Guthy-Renker has agreed to pay an initial $1 million into a restitution fund for all affected consumers. If the initial deposit exceeds the amount required to fulfil the restitution demands of eligible recipients, the remaining money shall be converted into cy pres restitution. If, however, the opposite situation occurs and the $1 million initial payment is insufficient to cover the restitution costs, then Guthy-Renker shall deposit additional funds into the restitution fund, up to a total restitution payment of $7,307,450.

In addition to the monetary component of the settlement, Guthy-Renker agreed to certain injunctive measures. Namely, Guthy-Renker has agreed to obtain affirmative consent from automatic renewal consumers. For online or written orders, such affirmative consent must be obtained by an express act by the consumer, through a check-box, signature, express consent button, or other substantially similar mechanism. Further, affirmative consent to the automatic renewal offer terms must not relate to consent for anything other than the automatic renewal offer terms. For transactions conducted by telephone, Guthy-Renker must maintain an unedited voice recording of the entire transaction, including all disclosures and consent, for three years from the date of each transaction.

Guthy-Renker has also agreed to provide at least one post-payment acknowledgment of each automatic renewal transaction to all consumers containing the automatic renewal offer terms. Finally, Guthy-Renker must provide a simple mechanism for California consumers to cancel their automatic renewal subscription.

We have previously written on California’s unique automatic renewal laws, and the task force’s aggressive enforcement of these laws, including the unique requirement of disclosing an online method of cancellation.  This settlement is yet another example of CART’s aggressive enforcement activities.

Takeaway: This recent settlement serves as yet another reminder to marketers utilizing subscription-based business models of ongoing enforcement efforts with respect to automatic renewals, particularly in the State of California. Marketers utilizing automatic renewal procedures need to carefully consider each state’s automatic renewal laws in crafting their advertising, enrollment and confirmation procedures.

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