What to Know About California’s Automatic Renewal Law – Traps for the Unwary

California is usually the trailblazer state for most consumer-facing legislation, and litigation. Enterprising plaintiffs’ attorneys usually look to California first for the venue in which to “vindicate” consumer rights (by finding loopholes and technical requirements of the laws that can easily translate to perceived harm and lengthy litigation in state courts).

Recently, this trend has come back to litigation concerning automatically renewing and continuous service subscriptions, offers and services, largely occurring online and in digital form. Plaintiff’s’ lawsuits—largely filed by the same attorneys—usually arise out of, dare I say, knowing actions on the part of a consumer who enrolls in a free trial and/or low-priced “deal” subscription or membership offer which is set to renew after a specified period of time.

While it would be (and usually is) fair to assume the consumer knew or should have known that the offer was “limited” in time and would automatically renew until cancelled, and for which the consumer would be charged on the credit card that he or she used at the time of enrolling, a business’ failure to meet the technical and sometimes undefined and untested requirements of the false advertising law, and particularly the   California Automatic Renewal Law, can mean costly litigation for an unintended and good faith mistake. [Cal. Bus. & Prof. Code § 17600 et seq.]

Even a single charge can bring the business’ practices within the realm of the Automatic Renewal Law, which, among other things, requires that businesses present certain auto-renewal offer terms in a “clear and conspicuous manner” and in “visual proximity” to the request for consent, which must be affirmative, before the agreement is completed. [Id. § 17601(b)(1)–(5).]

Because California’s Automatic Renewal Law does not afford a private right of action, plaintiffs bootstrap the law to California’s Unfair Competition Law. [Bus. & Prof. Code § 17200, et seq. and the Consumer Legal Remedies Act.]

Despite having actual notice of the automatic renewal terms, or constructive knowledge based on the reasonable consume standard, plaintiffs claim that a technical violation of the provisions of the Automatic Renewal Law relating to disclosures and acknowledgements of automatic renewal terms somehow translates into an economic injury in fact for purposes of the consumer protection laws. To satisfy the injury-in-fact requirement of the Unfair Competition Law, plaintiffs allege that they were deceived and would not have placed the recurring order, and would not have paid any money to the defendant had they known the defendant business was going to enroll them in an automatically renewing subscription.

As stated herein, most such allegations are disingenuous. To be sure, no court has held that violation of the Automatic Renewal Law itself satisfies standing for purposes of the consumer protection statutes in California, and these cases remain ripe not only for adjudication of this defense as it relates to causation and damages, but also a congressionally recognized “good faith” defense under the Automatic Renewal Law itself, which can also be deemed “substantial compliance.”

Thus, some defenses—most of which remain largely untested in California courts—include: (1) good faith or substantial compliance; (2) lack of causation for actual or constructive knowledge of the renewing or recurring charge; (3) lack of restitutionary remedy due to digital nature of product; and (4) defenses against class certification, including the differing versions of the law during the statutory limitations period, and customers’ affirmative acknowledgement of the renewing nature of the product or offer after the initial order or purchase. But these defenses, while relatively convincing and practical in theory, still would not cut it when dealing with the Federal Trade Commission or California agency investigations or enforcement actions.

Indeed, 2017 and 2018 saw a flurry of agency enforcement activity around automatically renewing product and service offers by e-commerce and other online companies such as eHarmony.

And in the summer of 2018, California’s Senate Bill 313 amended section 17602 of the California Business and Professional Code, adding new requirements to the original Automatic Renewal Law meant to increase consumer protections regarding purchase contracts and orders that contain free trial and promotional pricing, and subscription agreements entered into online.

Thus, while businesses may not be intentionally trying to deceive, fool or misdirect their loyal customers, good faith business practices may still hurt at the end. And I should note that California is not the only state that has such comprehensive and nuanced compliance requirements. Most states in the US have laws in one form or another that regulate recurring and continuous subscription offers and services, and on the federal level the Federal Trade Commission and the Restore Online Shoppers’ Confidence Act play their own role in interstate e-commerce.

While many businesses would be willing to litigate these relatively novel issues before the courts, the unfortunate reality is that extended class action litigation can be costly and disruptive to the business, with existing risk with respect to ultimate outcome.