BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 340
Senator Yee
As Amended April 2, 2009
Hearing Date: April 14, 2009
Business and Professions Code
ADM:jd
SUBJECT
Advertising: Automatic Renewal Purchases
DESCRIPTION
This bill would require, in any automatic renewal offer, a
business to clearly and conspicuously state the automatic
renewal offer terms and obtain the customer's affirmative
consent to those terms before fulfilling any subscription or
purchasing agreement on an automatic renewal basis. This bill
would also require all marketing materials to clearly and
conspicuously display a toll-free telephone number, if
available, telephone number, postal address, or electronic
mechanism the customer could use for cancellation.
This bill would require the order form to clearly and
conspicuously disclose that the customer is agreeing to an
automatic renewal subscription or purchasing agreement.
This bill would impose similar requirements for any automatic
renewal offer made over the telephone or on an Internet Web
page.
(This analysis reflects author's amendments to be offered in
committee.)
BACKGROUND
Current consumer protection statutes do not address automatic
renewal clauses or provisions in subscriptions or purchasing
agreements. Senate Bill 340 is intended to close this gap in
the law.
(more)
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When some businesses began using automatic renewals for
subscriptions and purchase agreements for products and services,
consumer complaints began to surface regarding those automatic
renewals. Consumers complained that they were unaware of and
had not requested the automatic renewals until they either
received a bill or a charge on their credit card.
An example of this problem is illustrated by the Time, Inc.
(Time) case. After receiving numerous consumer complaints, the
Attorneys General of 23 states, including California, launched
an investigation into Time's automatic renewal subscription
offers. In 2006, the investigation resulted in a settlement
agreement between the Attorneys General and Time that includes a
number of reforms to automatic renewals that Time sends to their
customers. Those reforms include, among others, expanded
disclosure requirements and customers' affirmative consent to
automatic renewals. (See Comment 2 for details.)
CHANGES TO EXISTING LAW
Existing law , the Unfair Competition Law (UCL), provides that
unfair competition means and includes any unlawful, unfair, or
fraudulent business act or practice and unfair, deceptive,
untrue or misleading advertising, and any act prohibited by the
False Advertising Act (FAA). (Bus. & Prof. Code Sec. 17200 et
seq.)
Existing law , the FAA, includes the following:
prohibits any person with the intent, directly or indirectly,
to dispose of real or personal property, to perform services,
or to make or disseminate or cause to be made or disseminated
to the public any statement concerning that real or personal
property that is untrue or misleading and known or should be
known to be untrue or misleading; and
prohibits any person from making or disseminating any untrue
or misleading statement as part of a plan or scheme with the
intent not to sell that personal property or those services at
the stated or advertised price. (Bus. & Prof. Code Sec.
17500.)
Existing law provides that any violation of the FAA is a
misdemeanor punishable by imprisonment in the county jail not
exceeding six months, or by a fine of $2,500, or by both. (Bus.
& Prof. Secs. 17500, 17534.)
Existing law provides that any person who violates any provision
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of the FAA is liable for a civil penalty not to exceed $2,500
for each violation that must be assessed and recovered in a
civil action by the Attorney General or by any district
attorney, county counsel, or city attorney. (Bus. & Prof. Code
Sec. 17536.)
Existing law provides that a person who has suffered injury in
fact and has lost money or property as a result of unfair
competition may bring a civil action for relief. (Bus. & Prof.
Code Sec. 17204.)
Existing law provides for injunctive relief, restitution,
disgorgement, and civil penalties. (Bus. & Prof. Code Secs.
17203, 17206.)
This bill would require all printed marketing materials
containing an offer with an automatic renewal term to comply
with the following: the customer's agreement to the automatic
renewal offer must be obtained in accordance with either (1) or
(2) below so that the customer is given the opportunity to
expressly consent to the offer:
1.All automatic renewal offer terms must appear on the order
form in immediate proximity to the area on the form where the
customer selects the subscription or purchasing agreement
billing terms or where the subscription or purchasing
agreement billing terms are described; the order form must
clearly and conspicuously disclose that the customer is
agreeing to an automatic renewal subscription or purchasing
agreement; and the automatic renewal offer terms must appear
on materials that can be retained by the customer.
2.Both of the following:
a. on the front of the order form, the marketing materials
must (i) refer to the subscription or purchasing agreement
using the term "automatic renewal" or "continuous renewal,"
(ii) clearly and conspicuously state that the customer is
agreeing to the automatic renewal, and (iii) specify where the
full terms of the automatic renewal offer may be found; and
a. the marketing materials must clearly and conspicuously
state the automatic renewal offer terms presented together
preceded by a title identifying them specifically as the
"Automatic Renewal Terms," "Automatic Renewal Conditions,"
"Automatic Renewal Obligations," or "Continuous Renewal
Service Terms," or other similar description.
This bill would require all marketing materials that offer an
automatic renewal, when viewed as a whole, to clearly and
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conspicuously disclose the material terms of the automatic
renewal offer and must not misrepresent the material terms of
the offer.
This bill would require an automatic renewal to clearly and
conspicuously describe the cancellation policy and how to
cancel, including, but not limited to, a toll-free telephone
number, if available, telephone number, postal address, or
electronic mechanism on the Internet Web page or on the
publication page of the printed materials.
This bill would require, in any automatic renewal offer made
over the telephone, a business to clearly and conspicuously
state the automatic renewal terms prior to obtaining a
customer's consent and payment information. The business must
obtain a clear affirmative statement from the customer agreeing
to the automatic renewal offer terms and must send a written
acknowledgement that contains the toll-free number, if
available, telephone number, postal address, or electronic
mechanism for cancellation.
This bill would require, in any automatic renewal offer made on
an Internet Web page, the business to clearly and conspicuously
disclose the automatic renewal offer terms prior to the button
or icon on which the customer must click to submit the order.
In any automatic renewal offer made on an Internet Web page
where the automatic renewal terms do not appear immediately
above the submit button, the customer must be required to
affirmatively consent to the automatic renewal offer terms. The
automatic renewal terms must be preceded by a title identifying
them as the "Automatic Renewal Terms," "Automatic Renewal
Conditions," "Automatic Renewal Obligations,""Continuous Renewal
Service Terms," or other similar description.
This bill would require, in any automatic renewal offer, a
business to clearly and conspicuously state the automatic
renewal offer terms and obtain the customer's affirmative
consent to those terms before fulfilling any subscription or
purchasing agreement on an automatic renewal basis and all
marketing materials that offer an automatic renewal subscription
or purchasing agreement must clearly and conspicuously display
the cancellation policy and how to cancel.
This bill would provide that no business may represent that a
product is "free" if the cost of the product is incorporated in
the price of the accompanying item purchased under automatic
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renewal conditions.
This bill would provide that a violation of the bill's
provisions would not be a crime, but all applicable civil
remedies would be available.
This bill would define key terms, including "automatic renewal"
and "automatic renewal terms." (See Comment 4.)
COMMENT
1.Stated need for the bill
The author writes:
It has become increasingly common for consumers to complain
about unwanted charges on their credit cards for products or
services that the consumer did not explicitly request or know
they were agreeing to. Consumers report they believed they
were making a one-time purchase of a product, only to receive
continued shipments of the product and charges on their credit
card. These unforeseen charges are often the result of
agreements enumerated in the "fine print" on an order or
advertisement that the consumer responded to. The onus falls
on the consumer to end these product shipments and stop the
unwanted charges to their credit card.
A widespread instance of these violations resulted in the 2006
Time, Inc. case, in which Time settled a multi-state
investigation into its automatic renewal offers and
solicitations. The states launched their probe after
receiving complaints from consumers that Time was billing them
or charging their credit cards for unwanted magazine
subscriptions. The states' investigation found that these
mail solicitations misled some consumers into paying for
unwanted or unordered subscriptions.
2.Time's Assurance of Voluntary Compliance or Discontinuance
(Assurance) with Attorneys General; SB 340 modeled after the
Assurance
The Attorneys General of 23 states (States), including
California, investigated Time's automatic renewal subscription
offers. Time publishes over 150 magazines worldwide, including
Time, People, Sports Illustrated, This Old House, Entertainment
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Weekly, Fortune, and Popular Science. Time required customers
to notify it if they did not want a subscription renewal;
otherwise Time charged customers' credit cards or billed
customers. The automatic renewal terms replaced "the industry's
prior practice of offering limited-term subscriptions that were
renewed at the Customer's affirmative election." The States
investigated:
[W]hether the [automatic renewal] terms were clearly and
adequately disclosed; whether the Customer was given an
opportunity to expressly consent to the offer; whether the
Customer was likely to believe the purchase was for a
limited-term subscription, rather than an automatically
renewed subscription; whether Customers were subsequently
informed of the activation of an Automatic Renewal, and, if
so, the manner in which they were so informed; the manner by
which Customers were billed or charged; and how Time sought to
collect payments for charges resulting from an Automatic
Renewal. (Matters Investigated set forth in the Assurance.)
As a result of the investigation, in 2006, the States reached a
settlement agreement - the Assurance - with Time. In the
Assurance, Time agreed to:
provide clear and conspicuous disclosures to consumers
concerning all the material terms for automatic subscription
renewals and, for the next five years, provide consumers the
option to affirmatively choose an automatic renewal option and
Time will send those consumers who have chosen an automatic
subscription renewal written reminders, including information
on the right and procedure to cancel;
honor all requests to cancel subscriptions as soon as
reasonably possible and to provide refunds to consumers
charged for magazines they did not order;
stop mailing solicitations to consumers for subscriptions that
resemble bills, invoices, or statements of amounts due; and
not submit unpaid accounts of automatic renewal customers for
third party collection.
Time also agreed to refund to customers up to $4.3 million,
which included up to $828,463 to 20,238 eligible California
consumers, approximately $41 per consumer. Senate Bill 340 is
modeled in large part after the Assurance.
3. Remedies available under the bill
Senate Bill 340 would provide that a violation of its provisions
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would not be a crime, but all applicable civil remedies would be
available.
Under the FAA, any person who violates any provision of the FAA
is liable for a civil penalty not to exceed $2,500 for each
violation that must be assessed and recovered in a civil action
by the Attorney General or by any district attorney, county
counsel, or city attorney. Under the UCL, a private party may
bring a civil action for injunctive relief and/or for
restitution of profits that the defendant unfairly obtained from
that party. However, the party must have suffered injury in
fact and lost money or property.
4. Key terms defined
This bill would define the following key terms:
a."Automatic renewal" would mean a plan or agreement in which a
subscription or purchasing agreement is automatically renewed
at the end of a definite term for a subsequent term.
b."Automatic renewal offer terms" would mean the following clear
and conspicuous disclosure:
that the subscription or purchasing agreement will
continue unless the customer notifies the business to stop;
that the customer has the right to cancel;
that the customer will be billed, credit card charged,
or other appropriate description of the payment method
depending on the method described to the customer, or
chosen by the customer on the front of the order form, and
that the bill, charge, or other payment method will take
place before the start of each new automatic renewal term;
the length of the automatic renewal term or that the
renewal is continuous, unless the length of the term is
chosen by the customer;
that the price paid by the customer for future automatic
renewal terms may change; and
the minimum purchase obligation, if any.
c. "Clear and conspicuous" or "clearly and conspicuously"
would mean a statement or communication, written or oral,
presented in a font, size color, location, and contrast
against the background in which it appears, compared to the
other matter which is presented, so that it is readily
understandable, noticeable, and readable.
d."Marketing materials" would include any offer, solicitation,
script, product
description, publication, or other promotional materials,
renewal notice, purchase order device, fulfillment material,
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or any agreement for the sale or trial viewing of products
that are delivered by mail, in person, television or radio
broadcast, e-mail, Internet, Internet Web page, or telephone
device, or appearing in any newspaper or magazine or on any
insert thereto, or Internet link or pop-up window.
5. Recording of telephone automatic renewal offers
Assembly Bill 88 (Corbett, Ch. 77, Stats. 2003) incorporated
into state law a rule adopted by the Federal Trade Commission
intended to protect consumers from "abusive" telemarketing
practices. The rule requires, among other things, that
telemarketers make and maintain an audio recording of all
telephone solicitations. (Telemarketing Sales Rule, 16 C.F.R.
Part 310, 310.4(a)(6)(i), and 310.5(a)(5), effective March 31,
2009.)
The author may want to consider requiring that telephone
automatic renewal offers be audio recorded and that the
recording be maintained.
6. Author's amendments
On page 3, line 17, insert:
(c)"Continuous renewal" means a plan or arrangement in which a
subscription or purchasing agreement is continuously renewed
until the customer cancels the renewal.
On page 3, line 19, delete (c) and insert (d).
On page 3, line 34, delete (d) and insert (e).
On page 3, line 36, delete (e) and insert (f).
On page 4, line 4, insert (f).
On page 4, line 5, insert:
(g) All automatic renewal provisions in this article shall apply
to continuous renewals.
Support : California Public Interest Research Group; Consumer
Federation of California; American Federation of State, County
and Municipal Employees; California Alliance for Consumer
Protection
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Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation : None Known
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