On September 24, 2024, California’s Governor, Gavin Newsom, signed into law a bill that expands requirements already in place under the California Automatic Renewal Law, commonly known as CARL. The CARL amendment, which will take effect July 1, 2025, is part of a larger trend that signals interest by legislators and regulators in cracking down on potentially deceptive marketing in connection with subscription and free trial services. CARL, as amended, is mostly consistent with existing federal law that covers subscription and free trial marketing practices, with a few notable exceptions.
Legal and Regulatory Landscape
As online subscription and free trial services have grown in popularity over the past two decades, state and federal law have struggled to keep pace with the multibillion-dollar industry. In connection with proposed amendments to its Negative Option Rule, the U.S. Federal Trade Commission (FTC) recently described the present landscape as a “patchwork of laws and regulations” that “does not provide industry and consumers with a consistent legal framework across media and offers.”
Free trials that automatically convert to paid subscriptions and automatically renewing subscriptions are known as “negative option” contracts, wherein the seller takes the consumer’s failure to cancel as consent to continue to be charged. The federal law that regulates negative option marketing practices is called the Restore Online Shoppers’ Confidence Act (ROSCA), and it requires businesses to (1) clearly and conspicuously disclose material terms of a negative option contract, (2) obtain consumers’ express informed consent to be charged in connection with a negative option contract, and (3) provide simple mechanisms to cancel a negative option contract. But these requirements are not defined by ROSCA, nor have courts or the FTC provided clear guidance on what they mean and how to comply with them.
California is one among just a handful of states with laws that regulate negative option contracts, with other notable examples including Vermont and Colorado. Originally passed in 2010, CARL, like ROSCA, requires clear and conspicuous disclosures, express informed consent, and simple cancel mechanisms. The new amendments build on that framework and are largely aligned with the amendments the FTC has proposed to its Negative Option Rule.
CARL Amendment Highlights
Among the most notable changes that will take effect under the CARL amendment:
- Free Trials. The amendment will expand CARL’s scope to cover free trial offers that convert to paid subscriptions. Previously, the California law covered only automatically renewing subscriptions and continuous service offers.
- Express Affirmative Consent to Autorenewal Feature. As amended, CARL will require businesses to obtain customers’ “express affirmative consent” to the autorenewal or continuous service terms. The amendments do not define or explain how this consent differs, if at all, from the existing requirements to obtain customers’ “affirmative consent to the agreement.”
- Cancellation Medium. The CARL amendment requires businesses to allow customers to cancel their subscriptions “in the same medium” used to enroll or “in the same medium in which the consumer is accustomed to interacting with the business.” This is not a heightened requirement for online cancellations (which are already required under CARL), but if a customer enrolls in a subscription via phone, then the company must offer cancellation via a clearly and conspicuously disclosed phone number. Businesses will also be required to answer telephone calls “promptly” during normal business hours and return voicemails (or process requested cancellations) within one business day.
- Save Offers and “Click to Cancel.” Under the CARL amendment, “providing a discount offer or other consumer benefit” is permitted, provided that businesses display a prominent “click to cancel” button adjacent to any save offer. This button must, when clicked, result in “prompt” cancellation, although the amendment does not define the term “prompt.” The CARL amendment also includes specific requirements for discount offers when a customer requests to cancel via telephone.
- Notices and Annual Reminders. The CARL amendment will also require companies to notify consumers (1) annually, regardless of whether any changes have been made to the contract (and regardless of whether the autorenewal term is one year or longer), and (2) when any price changes are made to an existing automatic renewal or continuous service plan, in addition to material changes as currently required by CARL.
Some aspects of the CARL amendment align with preexisting requirements under federal law — namely, CARL’s expansion to free trials — and so will not require changes for most companies in this respect. But other aspects of the amendment have not yet been implemented as part of any federal law. Specifically, the amendments related to separate consent for the automatic renewal feature, more stringent requirements regarding save offers, and the “click to cancel” requirement are not yet required under existing federal law. The FTC’s proposed amendments to the Negative Option Rule include similar provisions (although the proposed FTC rule would prohibit any save offers), but the time horizon on the implementation of that rule is uncertain, particularly given that the final Negative Option Rule, once issued, may be subject to legal challenges.
Ensuring Compliance With CARL as Amended
To prepare for this round of amendments to CARL, businesses that offer negative option contracts should begin examining their current practices in order to be ready when the amendments become effective in July 2025. Given a recent wave of legislation and litigation over subscription and free trial marketing practices, businesses may avoid considerable legal exposure by taking proactive steps, including by retaining outside counsel to consult on what changes should be made to ensure compliance.
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