Improving the subscription experience: Californian state law tightens rule on auto-renewals

Improving the subscription experience: Californian state law tightens rule on auto-renewals
The state of California in the US has amended its legislation regarding automatic renewals with the newly enacted Senate Bill 313 which came into effect from 1st July 2018. What does this legislation mean for subscription businesses? Shashank Venkat finds out

Many customers choose to subscribe to their favourite online services – music streaming, cloud storage and video streaming, among others. Some of these subscription-based businesses lure customers at discounted rates, only to revert to their standard rate at the time of renewal. Subscribers who sign up for automatic renewal then often suffer with ‘bill shock’ after their subscriptions are automatically renewed at a higher price than expected with no means for redressal. Frequently, customers aren’t even sure how to unsubscribe from services or cancel their auto-renewals. This, unfortunately, doesn’t fit in with the ethos of the subscription industry which is all about having a customer-first approach. However, an updated Californian law now aims to correct this imbalance that exists between service providers and their subscribers.

California’s updated Automatic Renewal Law (ARL), which came into effect on 1st July 2018, empowers customers by mandating a transparent approach towards online cancellations and pricing. The California Senate Bill 313 (SB-313) amends an already existing law and will provide additional protection to consumers when signing up to auto-renewing subscriptions that include free gifts or trials, or where discounted pricing plans will revert to standard pricing at the time of renewal. The bill also allows consumers to terminate auto-renewals or recurring purchases. The older legislation was enacted in 2010.

The existing law already mandates that the “automatic renewal or continuous service should offer terms in a clear and conspicuous manner.” According to the amended legislation, businesses will have to offer an “explanation of the price that will be charged after the trial ends or the manner in which the subscription or purchasing agreement pricing will change upon conclusion of the trial.” This legal obligation to disclose pricing changes will also apply to promotional or discounted prices and customer consent will be required for charging a customer if the promotional and discounted offers are for a limited time period. The bill also says that the “consumer who accepts an automatic renewal offer or continuous service offer online to be allowed to terminate the automatic renewal or continuous service exclusively, as specified.

The amendment was made last year after a string of class action filings in California, and earlier this year, popular dating website eHarmony was hit with a $2.2 million penalty for denying refunds to auto-renewal customers. Violating the new ARL may result in civil penalties or class action lawsuits, so subscription businesses need to make sure their renewal practices and processes are fully transparent to avoid falling foul of the new regulations.

Here at Cerillion, we welcome any move which will enhance customer trust in subscription businesses. As a business which is accelerating the subscription revolution through our cloud billing platform, we firmly believe that transparency is the best way forward in building long-lasting customer relationships. In fact, this law provides a good template for self-governance and should be the de-facto approach for subscription businesses around the globe. What do you think?

You can read the entire draft of the SB-313 here