December 10, 2010.

Effective December 1, 2010, California’s new Anti Automatic Renewal Law, Cal. Bus. & Prof. Code § 17600 et seq. imposes important new restrictions on so-called negative option billing programs, in which a consumer continues to be billed at regularly intervals, usually monthly, for repeated services or shipments of products until the consumer cancels or opts out of future charges. The new law requires retailers to, among other things, disclose any automatic renewal terms in a “clear and conspicuous” manner. It defines by statute what “clear and conspicuous” means in terms of font size and type, requires that the disclosures be in visual proximity to request for consent to the offer, and it requires retailers to obtain a consumer’s “affirmative consent” before instituting automatic renewal charges. Id. §§ 17602(a)(1)-(2), 17601(c). The law also requires retailers to provide consumers with a written acknowledgement setting forth the automatic renewal terms. Id. § 17602(a)(3). Where a retailer fails to comply these requirements, § 17603 mandates that any shipments of renewal products are to be treated as an “unconditional gift,” with no obligation on the consumer’s part to pay for the goods or their shipping — meaning unauthorized charges must be restituted. Bus. & Prof. Code § 17600 et seq.’s legislative history report emphasizes the law’s widely accepted importance — the bill received a unanimous vote on the Senate floor, faced no registered opposition, and was described as non-controversial. The law’s intent was clear, and codified by statute:

It is the intent of the Legislature to end the practice of ongoing charging of consumer credit or debit cards or third party payment accounts without the consumers’ explicit consent for ongoing shipments of a product or ongoing deliveries of service.

See § 17600. The legislative history report explains why the bill was necessary:

This non-controversial bill is a response to reported consumer complaints that certain businesses, especially those offering . . . potentially continuous services, lure customers into signing up for “automatic renewals” without the consumer’s full knowledge or consent. This bill seeks to address this problem by requiring clear disclosures and affirmative acts of customer consent…. It has become increasingly common for consumers to complain about unwanted charges on their credit cards for products . . . that the consumer did not explicitly request or know they were agreeing to. Consumers report they believed they were making a one-time purchase of a product, only to receive continued shipments of the product and charges on their credit card. These unforeseen charges are often the result of agreements enumerated in the ‘fine print’ on an order or advertisement that the consumer responded to. The onus falls on the consumer to end these product shipments and stop the unwanted charges.

The legislative history adds that the bill:

[S]eeks to protect consumers from unwittingly consenting to “automatic renewals” . . . [C]onsumers are often charged for renewal purchases without their consent or knowledge. . . . Indeed, this problem led 23 state attorneys general to launch an investigation of Time, Inc., in response to claims that the company used deceptive practices in signing up customers for automatic subscription renewals. As part of a settlement of this dispute, Time agreed to institute new practices so that customers are fully aware of and affirmatively consent to automatic renewals. This bill, following the lead of the Times’ settlement, would require that renewal terms and cancellation policies be clearly and conspicuously presented to the consumer, whether the offer is made on printed material or through a telephone solicitation. In addition, the bill would require that the consumer make some affirmative acknowledgement before an order with an automatic renewal can be completed.

To accomplish these goals, the statutory scheme imposes various restrictions. First, § 17602 provides that:

(a) It shall be unlawful for any business making an automatic renewal or continuous service offer to a consumer in this state to do any of the following: (1) Fail to present the automatic renewal offer terms or continuous service offer terms in a clear and conspicuous manner before the subscription or purchasing agreement is fulfilled and in visual proximity . . . to the request for consent to the offer. (2) Charge the consumer’s credit or debit card or the consumer’s account with a third party for an automatic renewal or continuous service without first obtaining the consumer’s affirmative consent to the agreement containing the automatic renewal offer terms or continuous service offer terms. (3) Fail to provide an acknowledgment that includes the automatic renewal or continuous service offer terms, cancellation policy, and information regarding how to cancel in a manner that is capable of being retained by the consumer.

Id. § 17602(a)(1) (emphasis added). Section 17601(c) defines “clear and conspicuous”:

“Clear and conspicuous” or “clearly and conspicuously” means in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language.

Id. § 17601(c) (emphasis added). The statutory scheme further requires that the retailer provide an easy-to-use cancellation mechanism so consumers can easily cancel future charges and shipments. See id. § 17602(b). Where a retailer violates these requirements, the statute provides that the renewed shipments shall be treated as an unconditional gift, without any obligation on the part of the consumer to pay for the product or its shipping:

In any case in which a business sends any goods . . . or products to a consumer, under a continuous service agreement or automatic renewal of a purchase, without first obtaining the consumer’s affirmative consent . . . the goods . . . or products shall for all purposes be deemed an unconditional gift to the consumer, who may use or dispose of the same in any manner he or she sees fit without any obligation whatsoever on the consumer’s part to the business, including, but not limited to, bearing the cost of, or responsibility for, shipping.

Id. § 17603 (emphasis added). The law also provides for “all available civil remedies that apply to a violation of this article,” although a violation shall “not be a crime.” Id. § 17604. A Plaintiff may therefore seek restitution of the charges and injunctive relief, among other things. Accordingly, any business in the practice of imposing ongoing renewal charges on customers in California should be sure to comply with these restrictions, including by making proper disclosures of the practice and obtaining the consumer’s express, affirmative consent. Mere fine print disclosures may create significant liability exposure. If you are a consumer who has been affected by an unlawful automatic renewal charge, this law provides a remedy, and class action treatment may often be appropriate in such cases. If you notice an unexpected charge on your credit or debit card statement that turns out to be a renewal charge for what you thought was a one-time purchase, consider: Was the renewal charge disclosed at all during the purchasing process? Was it disclosed in a clear and conspicuous manner as defined by statute – in larger or bolder font than the surrounding text? Were the disclosures in visual proximity, i.e., next to, the signature block of the order form or the “submit” button of the website? Did you expressly and affirmative consent to future charges, such as a by affirmatively checking a box next to the disclosures? Is there an easy way to cancel future charges, or does the business’s customer service system give you the runaround? If the answer to any of these questions is no, the charge may be unlawful and legal relief may be available. To find out more on any of these issues, please contact our offices: Wucetich & Korovilas LLP; (310) 335-2001; dimitri@wukolaw.com. This article is for educational use only, should not be considered legal advice, and in no way creates an attorney-client relationship between the firm and the reader.