California Enacts New Law to Apply to Consumer Subscriptions

California has just adopted a new law that will apply to consumer subscriptions, along with memberships and other autorenewing or continuous service arrangements with consumers.

AB 2863 amends California’s existing autorenewal law to add additional protections for consumers with respect to autorenewing or continuous billing charges.

The “click to cancel” law will apply to all software and SaaS companies that sell to consumers, and the law may also impact software and SaaS companies that sell to businesses.

Text of AB 2863

To view the full text of AB 2863, please click here. The law goes into effect on January 1, 2025, applies to all contracts entered into, amended, or extended after that date.

New Requirements for Consumer Subscriptions

Under the new California law, it will now be unlawful for software or SaaS companies who have made an autorenewal or continuous service offer to a consumer in the state to do any of the following:

• Fail to present the terms of the offer in a clear and conspicuous manner in visual proximity to the request for consent of the offer, which includes if there is a free gift or trial, a clear and conspicuous explanation of the price that will be charged when the trial ends;
• Charge the consumer’s credit or debt card or any third party account for the automatic renewal or continuous service without first obtaining affirmative consent from the consumer to the automatic renewal or continuous service agreement;
• Fail to provide an acknowledgement that includes the automatic renewal offer terms or continuous service offer terms, cancellation policy, and information regarding how to cancel in a manner that the consumer can retain, and if the offer contained a free gift or trial, the acknowledgement must include a disclosure of how to cancel and must permit the consumer to cancel before the consumer pays for the goods or services;
• Fail to obtain express affirmative consent from a consumer to the automatic renewal or continuous service offer terms;
• Include terms in a contract that interfere with, detract from, contradict, or otherwise undermine the ability of consumers to provide their affirmative consent to automatic renewal or continuous service terms;
• Fail to maintain verification of consumer’s affirmative consent for at least three years, or one year after the contract is terminated, whichever is longer;
• Misrepresent expressly or by implication a material fact related to the transaction;
• Fail to provide consumer with a notice, before confirming the consumer’s billing information that clearly and conspicuously states:
  • The service will automatically renew unless the consumer cancels;
  • The length and any additional terms of the renewal period;
  • The amount or range of costs consumer will be charged and the frequency of those charges, unless consumer stops the charges;
  • One or more methods which consumer can cancel the autorenewal or service;
  • If sent electronically, the notice must include a link that directs consumer to the cancellation process, or another electronic method that directs the consumer to cancellation; and
  • Contact information for the business.

New Requirements for Gifts and Trials

In addition, software and SaaS companies offering free gifts or trials at promotional or discount prices that last for more than 31 days in conjunction with an automatic renewal or continuous service offer will now be mandated to provide the same kind of clear and conspicuous notice no less than 3 days before and no more than 21 days before the expiration of the gift or trial.  The only exception to this requirement is in cases of contracts that are not electronic, where the business has not collected or maintained the consumer’s valid email address, phone number, or other means of notifying the consumer electronically.  “Free gifts” for the purpose of this law does not apply to a gift that is different than the subscribed product or service.

New Requirements for Contracts or Offers with Initial Term of One Year or Longer

If the contract or service offer was for an initial term of one year or longer, software and SaaS companies will now be required to provide the specified notice at no less than 15 days and no more than 45 days before the offer renews.

Online “Click to Cancel” Requirement

Software or SaaS companies that sign-up or subscribe consumers online will be required to provide one of two methods to allow consumers to cancel at will by either (a) a prominent link or button within the customer account or profile or within device or user settings, or (b) an immediately accessible termination email formatted and provided by the business that a consumer can email to the business without any additional requirement.

Direct Billing Requirement

Software or SaaS companies that direct bill consumers on an automatic renewal or continuous offer basis will be required to provide a toll-free telephone number, email address, and postal address or “another cost-effective, timely, and easy-to-use mechanism for cancellation” that is described in the acknowledgement.  If a telephone number is provided as the mechanism for termination, the software or SaaS company will be required to answer calls promptly during normal business hours without obstructing or delaying the ability to cancel.  If a voice mail is left by the consumer requesting cancellation, the software or SaaS company shall be required to either process the requested cancellation in one business day or call the customer back regarding the request within one business day.

Customer Retention Offer Requirement

Requirement for Material Term Changes

Requirement for Annual Reminder

Implications of Requirements

While these new rules apply only to automatic renewal agreements and continuous service agreements with consumers, they may be applied to small businesses in cases where the businesses are run by sole proprietors.  Also, they may be applied in other contexts to businesses on public policy grounds, where the terms of service or contract terms in effect are not at least as good as what is required now by law in the case of consumers.

What does this mean for Software and SaaS Companies?

Software and SaaS companies need to start reviewing and updating their contracts and terms of service, as well as their practices and procedures, before the January 1, 2025 effective date of this new law.  Most consumer-facing software and SaaS companies will be directly affected, and software and SaaS companies targeting a business customer base will also be impacted to some degree.

If you have questions or concerns about how this new law will impact your software or SaaS company, please schedule a consultation with me today at https://calendly.com/kristieprinz.

Kristie Prinz

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