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How Businesses Were Caught Out By California Auto-Renew Law

It does not pay any business to hide terms and conditions from customers. Ask anyone in business and they will say that transparency is extremely important if you want to attract and retain customers. For this reason, businesses will normally think that they have made their terms and conditions are very clear. This may not be the case when it comes to the law.

Several subscription-based businesses recently found this out to their cost when they encountered the strict requirements of California’s auto renew law (Cal. Bus. & Prof. Code § 17600 et seq.) Apparently they had not met the strict code and are now facing lawsuits as a result. These are not small businesses either, they include large companies such as Hulu, DropBox and Spotify that are well versed in business practices and dealing with customers.

Why did these businesses get caught out?

The problem with the California auto-renew law is that it’s very specific, so while a company may think it’s being transparent it still may not be conforming to the law. The law deals with subscription terms and conditions and how they relate to auto-renewal. The law states that all conditions must be “clearly and conspicuously” stated before any agreement to subscribe or purchase is completed. That sounds straightforward enough but the details are very strict.

  • To meet the “clearly and conspicuously” criterion the terms and conditions must be distinct from the surrounding text by colour, font type, size, or by being distinctly separated from the other text using some sort of distinctive mark.
  • The terms and conditions must be “available visually or temporally in close proximity to the offer’s request for consent.”

This isn’t all. The law states that the terms and conditions must include the following points:

  • Any agreement to subscribe or purchase continues until cancelled by the customer.
  • All details of the cancellation policy.
  • Details of the recurring amounts that will be charged to the customer, whether these can change and by how much.
  • The length of the term unless this has been chosen by the customer.
  • Any minimum purchase obligation that applies.

The customer also has to be provided with an acknowledgement after the order is completed, that they can keep and that contains the following:

  • The terms of the automatic renewal.
  • The complete cancellation policy.
  • An affordable and simple means of cancelling such as a toll-free number or an email address and instructions on action to take.

Lessons to learn

No company that wants to succeed is going to deliberately fail to disclose information to customers. To do so would be detrimental in securing and retaining a good customer base. The companies that are being sued as a result of the California auto renew law have not been deliberating misleading. However, they have not fully observed the law and are facing potential heavy penalties as a result. As a business, you can never assume that you are meeting your obligations with regards to subscription terms and conditions. You need to pay attention to all of the laws you have to comply with.

For more information on the law’s requirements visit Lexology.com

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