AB 2863: California’s New Automatic Subscription Renewal Law
Introduction
California passed Assembly Bill 2863 (AB 2863), a groundbreaking law aimed at addressing automatic subscription renewals and continuous service offers. Signed into law by Governor Gavin Newsom on September 24, 2024, AB 2863 sets clear guidelines for businesses to obtain consumer consent, simplify cancellation processes, and provide annual reminders about subscription terms, specifically benefiting California consumers.
In this article, we’ll break down the key provisions of AB 2863, explore how it impacts consumers and businesses, and clarify complex terms related to automatic renewal policies.
What is AB 2863?
Assembly Bill 2863 (AB 2863) addresses consumer rights in automatic subscription renewals and continuous services. It ensures that businesses:
- Obtain clear consent before enrolling users in subscriptions.
- Provide a simple cancellation process (“click-to-cancel”).
- Send annual reminders about upcoming renewals.
- Avoid misleading practices to trap consumers in unwanted subscriptions.
- Clearly disclose subscription terms before confirming a consumer’s billing information.
Why Was AB 2863 Introduced?
The subscription economy has grown exponentially, but it’s also become a source of consumer frustration and financial loss due to:
- Hidden terms in fine print agreements.
- Complex or intentionally difficult cancellation processes.
- Lack of clear communication about renewal dates and charges.
AB 2863 addresses the lack of ‘consumer’s affirmative consent’ in many subscription services, which has been a major source of consumer frustration.
Did You Know?A study revealed that over 50% of consumers have struggled to cancel an online subscription, often because companies intentionally create cumbersome cancellation processes.
Key Provisions of AB 2863
1. Express Affirmative Consent
- Businesses must obtain unambiguous consumer’s affirmative consent from consumers before enrolling them in an automatic renewal subscription.
- Consent must not be buried in fine print or hidden under vague terms.
Explanation: Express Affirmative Consent means consumers must actively agree to a subscription by clicking a clearly labeled button or checkbox. Silence, pre-checked boxes, or implied consent do not count.
Example: Before finalizing a subscription, a clear checkbox saying, “I agree to enroll in a recurring monthly subscription for $19.99/month” must be presented.
2. Simplified Cancellation Process (“Click-to-Cancel”)
Businesses must provide a user-friendly cancellation option through the same medium used for subscription sign-up. If you signed up online, you must be able to cancel online—not through phone calls, emails, or other complicated steps. This ensures that California consumers can easily cancel their subscriptions without unnecessary hurdles.
Why This Matters: Previously, some companies forced consumers to call during specific hours or navigate long email chains just to cancel a subscription. AB 2863 eliminates these tactics.
Real Example:A streaming service previously required customers to call support during business hours to cancel. Under AB 2863, they must provide a one-click cancellation option online.
3. Annual Renewal Reminders
- Businesses must send yearly reminders about subscription terms, renewal dates, the length of the renewal period, and cancellation instructions.
- These reminders must be clear, concise, and easy to understand.
Why It’s Important: Consumers often forget about long-term subscriptions, leading to unintended charges year after year.
Did You Know? A survey found that 42% of consumers forgot they had active subscriptions, resulting in unnecessary financial losses.
4. Prohibition of Misleading Practices
- AB 2863 explicitly prohibits misleading or manipulative tactics that make it difficult for consumers to cancel subscriptions.
- This includes hidden fees, unclear language, and intentionally confusing interfaces.
- Businesses must clearly disclose any minimum purchase obligation associated with the subscription.
Example: A subscription service cannot use confusing buttons like “Are you sure you want to leave this great deal?” with no clear cancellation option.
How AB 2863 Benefits Consumers
✅ 1. Clear Communication
Consumers will now receive transparent information about their subscriptions and renewal terms.
✅ 2. Easier Cancellations
No more jumping through hoops to cancel unwanted subscriptions—everything must be straightforward.
✅ 3. Fewer Unwanted Charges
Annual reminders ensure consumers are aware of upcoming renewals and can act accordingly.
✅ 4. Protection from Deceptive Practices
Businesses can no longer use manipulative tactics to prevent cancellations.
Did You Know?
The Federal Trade Commission (FTC) has fined multiple companies millions of dollars for intentionally misleading subscription practices.
How AB 2863 Affects Businesses
1. Compliance Costs
Businesses must invest in updating their subscription platforms, renewal reminders, and cancellation processes to comply with AB 2863.
Businesses must also ensure that any promotional or discounted price terms are clearly disclosed to consumers.
2. Increased Accountability
Failure to comply with AB 2863 can result in legal action, fines, and loss of consumer trust.
Either the business or its affiliates must comply with these regulations to avoid legal action.
3. Better Customer Retention
While compliance might seem challenging, offering transparent subscription practices can actually improve customer loyalty and reduce churn rates.
Example:
A subscription box service streamlined its cancellation process after the early adoption of AB 2863 standards and saw a 10% increase in returning customers who appreciated the transparency.
Complex Terms Explained
Automatic Renewal:
When a subscription service automatically charges a consumer at the end of each billing cycle without requiring manual renewal.
Express Affirmative Consent:
Clear, active agreement from a consumer, also known as a consumer’s affirmative consent, before being enrolled in a subscription or recurring service.
Click-to-Cancel:
A simple, digital method for consumers to cancel subscriptions online without unnecessary hurdles. This ensures that California consumers can easily cancel their subscriptions online without unnecessary hurdles.
Real Case Example: Subscription Transparency Lawsuit
In 2021, a major fitness app was fined $10 million for misleading users with automatic renewals and failing to provide an easy cancellation method. With AB 2863 in effect, such practices are now explicitly illegal.
The California Department of Consumer Affairs plays a crucial role in investigating such cases and protecting consumer rights.
FAQs About AB 2863
1. Who does AB 2863 apply to? All businesses operating in California offer automatic renewal or subscription services.
2. What happens if a business violates AB 2863? Non-compliant businesses can face legal penalties, fines, and damage to their reputation.
3. Are businesses required to notify customers before every renewal? No, only an annual reminder is mandated.
4. Can I cancel a subscription over the phone if I sign up online?No. AB 2863 requires cancellation to be available through the same platform used for sign-up.
5. Are any businesses exempt from AB 2863? Yes, businesses regulated by the California Public Utilities Commission are exempt from certain provisions of AB 2863.
Conclusion
AB 2863 represents a critical advancement in consumer protection laws in California. By demanding clear consent, simplified cancellations, and annual reminders, the law ensures greater transparency and fairness in subscription services.
Both consumers and businesses must understand and adapt to these changes to protect their rights and remain compliant. Businesses regulated by the Federal Energy Regulatory Commission are also exempt from certain provisions of AB 2863.
For more information, visit the California Legislative Information website.
Related Terms: automatically renew, federal communications commission, business pursuant
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