What You Need To Know
- California has enacted a new law amending its Automatic Renewal Law (ARL), effective July 1, 2025, expanding and clarifying rules for businesses offering automatically renewing subscriptions.
- The amendment clarifies the definition of “automatic renewals,” which includes free trials that automatically convert to paid subscriptions.
- Businesses must obtain “express affirmative consent” (an undefined term) from every customer and maintain records of individual consent for three years or one year after contract termination, whichever is longer.
- The updated law clarifies requirements for cancellation processes, annual renewal reminders, and advance notice of fee changes.
On September 24, 2024, Governor Gavin Newsom signed into law Assembly Bill No. 2863, which will further amend California’s Automatic Renewal Law (ARL).
In recent years, state and federal regulators and lawmakers have targeted businesses offering subscription services by instituting new legal requirements and by stepping up enforcement actions. California has been no exception, establishing some of the most comprehensive legal requirements in the nation for automatically renewing subscriptions. In addition, although the ARL does not create a private right of action, it is increasingly cited in consumer class actions.
This latest amendment to California’s ARL, which follows other amendments made just a few years ago, will go into effect on July 1, 2025. Before then, companies offering automatically renewing contracts to consumers in California should review their disclosures, consent processes, cancellation flows, and record-keeping practices to confirm their compliance with California’s new requirements
Important Updates to the ARL
This most recent amendment expands the ARL’s requirements and clarifies existing requirements.
Expanded Definition of Automatic Renewals and Free-to-Pay Conversions: The amendment expands the scope of “automatic renewals” and explicitly incorporates the concept of “free-to-pay conversion,” or free trials, in which consumers initially receive products or services for free but incur charges if they do not cancel within a specified period.
Enhanced Consent and Records Retention Requirements: The ARL currently requires businesses to obtain consumers’ “affirmative consent” before charging for an automatic renewal. The amended ARL will require business to obtain consumers’ “express affirmative consent”—a term that the statute does not define.
Additionally, the amended ARL prohibits the use of any contractual language that undermines a consumer’s ability to give such consent. Importantly, businesses will be required to maintain verification of a consumer’s affirmative consent for three years or one year after contract termination, whichever is longer.
Prohibition on Misleading Practices: The amended ARL also prohibits the misrepresentation of material facts related to “the transaction,” reinforcing more broad consumer protections against deceptive practices that may not be captured by technical violations related to the autorenewal provision.
Comprehensive Cancellation Mechanisms: Cancellation methods will need to be made available through the same medium used in the original transaction or the consumer’s usual interaction medium. For instance, if the subscription was activated online, consumers must have the ability to cancel online, at will, without unnecessary barriers or delays.
The new amendment confirms that businesses can offer discounts and retention benefits to consumers before they cancel, subject to specific requirements: A “business may display a discounted offer, retention benefit, or information regarding the effects of cancellation, provided that the business simultaneously displays a prominently located and continuously and proximately displayed direct link or button entitled ‘click to cancel,’ or words to that effect, with the presentation of the discounted offer, other consumer benefit, or information.”
Annual Renewal Reminders and Notice of Changes: Businesses will be required to send consumers annual reminders detailing the product or service, the associated charges, and the cancellation procedure. This reminder, too, must be transmitted “in the same medium” that the consumer used to activate the subscription or that the consumer is accustomed to using to interact with the business. Additionally, businesses must notify consumers of any fee changes between seven and 30 days before those changes take effect, providing clear information about how to cancel.
Key Takeaways and Next Steps
The new requirements do not take effect until July 1, 2025, so businesses offering subscription services or autorenewal purchases have time to review their systems and processes for compliance and make changes if necessary.
The new express consent, cancellation, and notice provisions may require significant changes to some businesses’ websites, apps, and customer-service policies and training. Accordingly, businesses serving customers in California should promptly assess whether and how they may need to modify their practices to come into compliance before July 2025.
Next Steps for Businesses
- Review all subscription enrollment flows to ensure adherence to the enhanced disclosure and consent requirements.
- Ensure that cancellation flows facilitate easy cancellations in compliance with the new standards.
- Audit existing customer communications and reminder notices to ensure compliance with renewal and notice standards.
- Confirm that your record-keeping practices comply with the new requirements.
