Let them out! ROSCA and California Auto-Renewal Law Changes | Hudson Cook, LLP

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What it is about? Auto-renewal deals are increasingly ubiquitous, from TV channel subscriptions to meal kit delivery plans — and regulators are interested. Late last year, the FTC and California took action on auto-renewing subscriptions. The FTC released a policy statement in October 2021, and the Governor of California signed amendments to the state’s Automatic Renewal Law (ARL) the same month. California’s ARL changes will take effect in July 2022, so now is a good time to consider where things stand and what’s next for companies offering auto-renewing products or services to California consumers.

What are auto-renewing products or services? Sometimes referred to as “negative options”, auto-renewing products and services generally refer to a category of transactions in which sellers or suppliers interpret a consumer’s failure to take positive action to reject or cancel an offer as a consent to be billed for products or services. .

What is required by law now? There are at least two federal laws affected by auto-renewing products and services. The first is the Unordered Merchandise Act (UMA), which provides that “sending unordered merchandise … constitutes a method of unfair competition and an unfair trade practice” contrary to FTC law. Under the UMA, recipients of unordered goods can treat them as an unconditional gift and can use or dispose of them as they see fit. Recipients can also simply refuse delivery. Since the UMA only applies to “goods” sent by post, courts have interpreted its coverage to cover “goods, merchandise” or “any tangible item offered for sale”, but not articles ” intangibles” such as memberships or subscriptions.

The second federal law is the Restore Online Shoppers Confidence Act (ROSCA), which applies to “negative option” transactions, defined as “an offer or agreement to sell or supply goods or services, an arrangement in whereby the silence or failure of the customer to take affirmative action to refuse goods or services or to rescind the agreement shall be construed by the seller as acceptance of the offer.” Under ROSCA, if a business charges or attempts to charge a consumer for goods or services online through a negative option, it must: (1) clearly and prominently disclose the material terms of the transaction before get billing information; (2) obtain the express informed consent of the consumer before charging the consumer; and (3) provide “simple mechanisms” for a consumer to stop recurring charges.

Although different from ROSCA, California’s ARL imposes equally stringent information, notification, and consent requirements on companies that offer automatic renewal or ongoing service offers to California consumers. If a Business uses an automatic renewal or continuous service plan in which the consumer must cancel to stop the automatic charges, the Business must: (1) present the terms of the offer in a “clear and prominent” manner; (2) obtain the consumer’s affirmative consent before charging their credit card; and (3) provide an acknowledgment including the terms of the auto-renewal offer, cancellation policy, and details on how to cancel, including a toll-free phone number, email, or mailing address. , or any other “easy to use” means for undoing . Additionally, the ARL requires that in the event of a material change to the automatic renewal terms, the company must “provide the consumer with clear and prominent notice of the material change and provide information on how to cancel in a manner which can be retained by the consumer.”

Like the Federal UMA, the California ARL provides that if a business sends goods or products to a consumer under an automatic renewal of an ongoing purchase or service contract without obtaining the prior to the consumer’s affirmative consent, the merchandise or products are considered unconditional gifts to the consumer, and the business shall bear the full cost thereof.

What changed? In October 2021, the FTC issued an enforcement policy statement regarding “negative option marketing”, and the Governor of California signed legislative amendments to the state’s ARL.

Although the FTC’s policy statement is not a new rule and does not bind the agency or the companies, it signals the FTC’s intention to use its existing tools, including ROSCA and the option rule negative (16 CFR Part 425), to increase enforcement efforts against the companies. using negative options to mislead consumers. The policy statement provides guidance to businesses? but especially reminders? what is expected, including “clear and visible” disclosure of the terms of the offer; the “express” and “informed” consent of the consumer, which, according to the FTC, is not satisfied with a “pre-ticked box”; and a simple and easy way to undo negative option deals. The policy statement itself does not use the term “dark models” – a buzzword with a somewhat undefined definition, which generally seems to cover user interface designs or software that trick consumers into taking actions they otherwise would not have taken – however, the Director of the FTC’s Consumer Protection Bureau specifically warned companies that “deploy dark schemes and other dirty tricks” to “trap “consumers in subscription services.

Separately, the Governor of California signed into law Assembly Bill 390, which amended the state’s existing ARL. Effective July 1, 2022, when the changes take effect, businesses that enroll California consumers in auto-renewing subscriptions or ongoing services must continue to comply with current ARL requirements, but also begin to provide additional notices and new cancellation options to customers.

Specifically, the ARL Amendments state that when a business enrolls a customer in a subscription with a free trial or gift or an initial discount period of more than 31 days, the business must provide written or electronic notice from three to 21 days before the expiration of the applicable period. For subscriptions with an initial term of one year or longer, companies will be required to provide written or electronic notice to California consumers in a retainable form, 15 to 45 days prior to the renewal date. In either case, the notice must state clearly and prominently: that the term of the subscription will automatically renew unless canceled by the consumer; the duration and any additional terms of the renewal period; one or more methods by which the consumer can cancel before renewal; and company contact details. If a company would otherwise be subject to both notification requirements because it offers a plan with a free trial period of more than 31 days and an initial term of one year or more, it must only comply with the latter requirement. notice – by sending a reminder notice 15 to 45 days before the renewal date.

Additionally, the ARL Amendments provide for “immediate” online cancellation. Under current ARL requirements, if a California consumer accepts an automatic renewal offer online, the company must allow the consumer to cancel the offer exclusively online. The amendments are more prescriptive with respect to automatic online renewals, requiring that the consumer not only be able to terminate the offer “online only”, but that he can do so “at will, and without incurring any other measures that interfere with or delay the consumer’s ability to immediately terminate automatic renewal or continued service.” The amendments further mandate that the method of online termination must be in the form of a “direct link or prominent button” located in a customer account or profile, or in device settings. or user, or an “immediately accessible, formatted, and Company-provided termination email that a Consumer can send to the Company without additional information.”

And now ? Now is probably the time for companies offering auto-renewing services or subscriptions to reassess their associated policies and procedures to ensure they are compliant with ROSCA, California’s new ARL requirements, and other laws. related states. And in light of the ARL’s new requirements, businesses could pay particular attention to any multi-step consumption streams they require of consumers, such as customer satisfaction surveys, review of loyalty offers, or taking any other additional measures, before allowing them to cancel subscriptions. or services. Neither the plaintiffs’ bar nor regulators have shied away from enforcing the current ARL, which has been the source of numerous enforcement actions and multimillion-dollar settlements. No reason to think it will slow down.

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