BILL ANALYSIS
SB 340
Page 1
Date of Hearing: June 30, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 340 (Yee) - As Amended: June 24, 2009
PROPOSED CONSENT (As Proposed to be Amended)
SENATE VOTE : 37-0
SUBJECT : Automatic renewal and continuous service offers
KEY ISSUE : SHOULD a BUSINESS that markets a product with an
"automatic renewal offer" be required to clearly and
conspicuously disclose renewal terms and cancellation policies,
and to obtain the customer's affirmative consent to an automatic
renewal?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This non-controversial bill, which received a unanimous vote on
the Senate floor, seeks to protect consumers from unwittingly
consenting to "automatic renewals" of subscription orders or
other "continuous service" offers. According to the author and
supporters, consumers are often charged for renewal purchases
without their consent or knowledge. For example, consumers
sometimes find that a magazine subscription renewal appears on a
credit card statement even though they never agreed to a
renewal. Indeed, this problem led 23 state attorneys general to
launch an investigation of Time, Inc., in response to claims
that the company used deceptive practices in signing up
customers for automatic subscription renewals. As part of a
settlement of this dispute, Time agreed to institute new
practices so that customers are fully aware of and affirmatively
consent to automatic renewals. This bill, following the lead of
the Times' settlement, would require that renewal terms and
cancellation policies be clearly and conspicuously presented to
the consumer, whether the offer is made on printed material or
through a telephone solicitation. In addition, the bill would
require that the consumer make some affirmative acknowledgement
before an order with an automatic renewal can be completed.
Finally, the bill specifies that violation of the bill's
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provisions do not constitute a crime. The author has worked
closely with affected business interests and has made several
amendments that appear to address all stakeholders' concerns.
There is no registered opposition to the bill.
SUMMARY : Requires any business making an "automatic renewal" or
"continuous service" offer to clearly and conspicuously, as
defined, disclose terms of the offer and obtain the consumer's
affirmative consent to the offer. Specifically, this bill :
1)Makes it unlawful for any business making an automatic renewal
offer or a continuous service offer to a consumer to do any of
the following:
a) Fail to present the offer terms in a clear and
conspicuous manner, as defined, before the subscription or
purchasing agreement is fulfilled and in visual proximity,
or in the case of an offer conveyed by voice, in temporal
proximity, to the request for consent to the offer.
b) Charge the consumer's credit or debit card or the
consumer's account with a third party for an automatic
renewal or continuous service offer without first obtaining
the consumer's affirmative consent.
c) Fail to provide automatic renewal or continuous service
offer terms, cancellation policy, and information regarding
how to cancel in a manner that is capable of being retained
by the consumer. If the offer includes a free trial, the
business shall disclose how to cancel and allow the
consumer to cancel before the consumer pays for the goods
or services.
2)Requires a business making automatic renewal or continuous
service offers to provide a toll-free telephone number,
electronic mail address, a postal address if the seller
directly bills the customer, or another cost-effective,
timely, and easy-to-use mechanism for cancellation that shall
be described in the written acknowledgment.
3)Specifies that in the case of a material change in the terms
of an automatic renewal or continuous service offer that has
been accepted by the consumer, the business shall provide the
consumer with a clear and conspicuous notice of the material
change and provide information regarding how to cancel in a
manner that is capable of being retained by the consumer.
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4)Specifies that the requirements of this bill shall only apply
to the completion of the initial order for the automatic
renewal or continuous service, except as provided.
5)Provides that in any case in which a business sends any goods,
wares, merchandise, or products to a consumer, under a
continuous service or automatic renewal, without first
obtaining the consumer's affirmative consent, in the manner
required by this bill, then the goods, wares, merchandise, or
products shall be deemed an unconditional gift to the
consumer, and the business shall bear any shipping or other
related costs.
6)Provides that violation of the provisions of this bill shall
not be a crime, but that all civil remedies that apply to a
violation may be employed. Specifies, however, that if a
business complies with the provisions of this bill in good
faith, it shall not be subject to civil remedies.
7)Exempts from the provisions of this bill any service provided
by certain businesses or entities, including those regulated
by the California Public Utilities Commission, the Federal
Communication Commission, or the Federal Energy Regulatory
Commission.
EXISTING LAW :
1)Provides, under the Unfair Competition Law (UCL), that unfair
competition includes any unlawful, unfair, or fraudulent
business act or practice, including any unfair, deceptive, or
untrue advertising, or any act prohibited by the False
Advertising Act (FAA). (Business & Professions Code Section
17200 et seq.)
2)Prohibits any person with the intent, directly or indirectly,
to sell any goods or services by making or disseminating
statements that the person knows, or should know, 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 to sell goods or services at other than the
stated or advertised price. (Business & Professions Code
section 17500.)
3)Provides that any violation of the FAA is a misdemeanor.
(Business & Professions Code sections 17500, 17534.)
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4)Provides that 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. (Business & Professions
Code section 17536.)
5)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. (Business & Professions Code
section 17204.)
6)Provides for injunctive relief, restitution, disgorgement, and
civil penalties for FAA violations. (Business & Professions
Code sections 17203, 17206.)
COMMENTS : This non-controversial bill is a response to reported
consumer complaints that certain businesses, especially those
offering magazine subscriptions or other potentially continuous
services, lure customers into signing up for "automatic
renewals" without the consumer's full knowledge or consent.
This bill seeks to address this problem by requiring clear
disclosures and affirmative acts of customer consent. The
author states:
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.
As noted in the author's background material, this bill was
prompted in part by an investigation brought by the attorneys
general of 23 states, including California, against Time, Inc.
The investigations found that subscribers to several magazines
published by Time, Inc. were discovering that their
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subscriptions were automatically renewed even though the
customers claimed that they had never knowingly consented to the
renewals. In 2006, the investigation resulted in a settlement
agreement between the Attorneys General and Time that requires
Time to more clearly disclose renewal terms and ensure that the
consumer take some affirmative step to acknowledge consent or
rejection of the automatic renewal offer. According to the
author, the specific disclosure and consent requirements in this
measure are modeled after, though not identical to, those set
forth in the Time settlement.
ARGUMENTS IN SUPPORT : According to the California Public
Interest Research Group (CALPIRG), "this bill will help ensure
that consumers only get into an ongoing subscription if they
want to." According to the Consumer Federation of California,
this measure will curb deceptive marketing practices that are
used to sell everything from magazine subscriptions to "free
trial" offers that lock consumers into an ongoing purchase
agreement. Supporters generally contend that this is a
straightforward measure reflecting the basic premise that
consumers deserve to know the terms and conditions to which they
are agreeing.
Author's Technical Amendments : The author wishes to take the
following technical and clarifying amendments:
On page 4 after line 9 insert:
(e) "Consumer" means any individual who seeks or acquires, by
purchase or lease, any goods, services, money, or credit for
personal, family, or household purposes.
On page 4 line 32 and on page line 16 change "customer"
to "consumer"
PRIOR LEGISLATION : AB 88 (Chapter 77, Stats. of 2003) provides
that a contract for a good or service that is made in connection
with a telephone solicitation is unlawful if the telemarketer is
in violation of a recent Federal Trade Commission (FTC) rule
requiring that the seller obtain specified information and
express consent directly from the consumer and, under certain
circumstances, maintain a recording of the call. (This present
bill would similarly require that automatic renewal offers made
over the telephone comply with federal telephonic marketing
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regulations.)
REGISTERED SUPPORT/OPPOSITION :
Support:
California Alliance for Consumer Protection
California Public Interest Research Group (CALPIRG)
Consumer Federation of California
Opposition :
None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334