Service Agreements with Auto-Renewal: Potential Updates Ahead for Service Providers and Business Entities
The California legislature has enacted two new laws, AB 1221 and AB 390, aimed at safeguarding consumers from unwanted renewals in service contracts. These laws, which go into effect on July 1, 2022, apply to companies offering automatic renewal service contracts.
AB 390 provides two mutually exclusive notice-of-renewal requirements for different scenarios. The amendments to the Automatic Renewal Law (ARL) under AB 390 will streamline the online cancellation process for entities or services that are not exempt, requiring businesses to permit consumers to terminate the automatic renewal or continuous service exclusively online.
AB 1221, on the other hand, applies to service contracts entered into on or after January 1, 2022. This law imposes disclosure, consent, and cancellation requirements on service contracts offered on a recurring and continual basis. Companies offering continuous service contracts under AB 1221 must disclose that the contract will continue until cancelled, provide alternatives, and offer multiple methods of cancellation.
Affirmative consent does not include acceptance of general terms, hovering over content, muting, pausing, or closing a piece of content, or agreement obtained through the use of dark patterns, as specified by Cal. Bus. & Prof. Code § 17602(d)(1) and Cal. Civ. Code § 1794.4(c)(3)(A)(iv). Businesses offering continuously renewing service contracts should review AB 1221, paying particular attention to changes needed in online buy flow, affirmative consent, disclosure, and cancellation requirements.
The new laws also require a clear description and identification of the covered product or class of products in the service contract, as outlined in Cal. Civ. Code § 1794.4(e)(2) and (2)(B). Cal. Civ. Code § 1794.4(e)(2) outlines the notice-of-renewal requirements for businesses.
Private plaintiffs may use an ARL violation as the basis for a claim under California Business & Professions Code section 17200, if they can satisfy Section 17200's standing requirements. The codes relevant to these new requirements include Cal. Bus. & Prof. Code § 17600 et seq. and Cal. Civ. Code § 1790 et seq.
Notable court cases such as Hall v. Time, Inc. and Mayron v. Google, LLC provide further context on these new requirements. Service contracts for consumer products are exempt from California's Automatic Renewal Law (ARL), but these new laws, AB 1221 and AB 390, impose new requirements on these contracts.
AB 390's updated cancellation and notice provisions should be considered by non-exempt businesses offering auto-renewal contracts in California. The laws aim to protect consumers by requiring clear and conspicuous disclosures about the terms of these contracts, obtaining affirmative consent before charging consumers, and allowing easy cancellation procedures.
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