The “subscription economy” receives a lot of buzz these days, but the truth is that the business model of selling to consumers on a recurring basis — sometimes called “continuity” or “negative
option” marketing — has been around for decades.
The subscription model’s surge in popularity stems from its
convenience and the growth of the internet economy. The
model allows time-strapped consumers to simplify their lives
by receiving uninterrupted delivery of their favorite foods,
beauty products, lifestyle boxes (e.g., razor blades, dog treats,
etc.), magazines and newspapers, as well as uninterrupted
access to the latest streaming shows or online cloud storage to
back up all the family vacation photos.
However, consumers sometimes are not clear on how to
unsubscribe from a service or exactly what price they’ll pay
after a discounted or free trial period. That has made the subscription model a favorite enforcement target of the Federal
Trade Commission (FTC), state attorneys general, and class
action plaintiff attorneys. In response to the surge in popularity of subscription-based offers, many states are enacting
or updating their automatic renewal laws (ARLs) to ensure
California stands out as a leader in enforcement actions
targeting subscription offers. On the heels of increased class
action filings under California’s current ARL, which was
enacted in 2010, the state has passed a new, more strident,
version of the law.
Known as Senate Bill 313, the law has a number of significant changes from the 2010 law, which was already broader
and more specific than the federal Restore Online Shoppers’
Confidence (ROSCA), which is enforced by the FTC.
The 2010 California law requires auto-renewing consumer
contracts to clearly and conspicuously disclose terms, obtain
affirmative consumer consent before imposing a charge, and
provide an acknowledgment that contains
the terms, the cancellation policy, and a simple cancellation method.
The new California law builds on those
requirements by requiring that all automatic
renewal, continuous subscription, or free gift
or trial payment plans must:
; Provide “clear and conspicuous” ex-
planation of any updates to the price
or purchase agreement to be charged after a free gift or
; Secure affirmative consumer consent to non-discount-ed pricing prior to billing.
; Disclose how consumers can cancel automatic renewal
prior to payment for the continuing service after a free
gift or trial.
; Provide an “exclusively online” cancellation mechanism for consumers who originally accepted the service
It Could Have Been Worse
The good news for retailers is that the final law is not as
onerous as some lawmakers originally wanted.
Earlier this year, a version of SB313 passed the California
any automatic re-
newal to be separate
from the consumer
agreement for the
free gift or trial. It
also required man-
datory notice of the
automatic renewal or pricing update a full three days before
the new billing takes place, and required that companies
maintain a cancellation process that “allows the consumer to
cancel the service or offer as easily as the consumer accepted
the service or offer.” These items are not included in the final
version that will become law on July 1, 2018.
The Bottom Line
The effective date allows retailers time to adapt to the
new standards. While change can be intimidating, it also
provides a healthy incentive to innovate. This can lead to an
evolution of marketing tactics, a better differ-
entiated brand identity, and greater consumer
By taking these steps while auditing
compliance with ROSCA, state automatic
renewal laws, and other compliance obligations, a retailer can become well positioned
to achieve a competitive advantage in the
California Tightens Automatic
BY ELLEN BERGE AND DAMON WRIGHT