BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
SB 1428 (Hernandez)
Version: February 19, 2016
Hearing Date: May 3, 2016
Fiscal: No
Urgency: No
NR
SUBJECT
Online contracts
DESCRIPTION
This bill would require a contract that includes a provision for
the automatic renewal of the contract, which is entered into
online, to include a provision that allows a party to terminate
the contract in the same manner as it was entered into.
BACKGROUND
In 2009, the Legislature passed SB 340 (Yee, Ch. 350, Stats.
2009), which requires any business making an automatic renewal
or continuous service offer to clearly and conspicuously
disclose the terms of the offer, obtain the consumer's
affirmative consent, and also requires that the business provide
easy-to-use mechanisms for cancellation. SB 340 was prompted
after subscribers to Time, Inc. magazines were discovering that
their subscriptions were automatically renewed despite their
lack of knowledge of providing any consent to the renewal.
In 2010, Congress passed the Restore Online Shoppers' Confidence
Act (ROSCA) to address consumer complaints regarding the privacy
of consumer information. ROSCA prohibited an online merchant
from sharing billing information with a third party seller,
unless it obtained the consumer's informed and express consent
prior to charging their accounts. It also required sellers to
provide simple mechanisms for a consumer to stop recurring
charges from being placed on his or her account.
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Recently there have been many news stories about the
difficulties consumers face when attempting to cancel certain
memberships or subscriptions including, gym memberships,
cellular phone plans, or cable television plans. In 2014, the
public was outraged after a recording of a customer trying to
repeatedly cancel Comcast service went viral, which prompted a
public apology from the company. Regarding gym memberships, ABC
News recently reported:
At one gym - a Gold's Gym franchise in Oxnard, California -
members found it so hard to cancel that the Ventura County
district attorney's office compared that location to the
popular Eagles song "Hotel California," where, according to
the lyrics, guests can check out anytime but can never leave.
Prosecutors opened an investigation and even sent in an agent
undercover.
In an audio recording, the investigator can be heard saying:
"I'm doing exactly what the contract says and you're not
letting me cancel."
The gym's representative replied: "So would you like to leave
your phone number?"
The case resulted in a $6 million judgment against that
particular gym, which has since gone out of business. (Sarah
Messer, 'GMA' Investigates: Tips to Help You Cancel Your Gym
Membership <
http://abcnews.go.com/Lifestyle/gma-investigates-tips-cancel-gy
m-membership/story?id=29176198> [as of April 28, 2016].)
This bill, seeking to ensure consumers have the ability to
easily cancel contracts, memberships, or subscriptions, would
require that an automatically renewing contract that is entered
into online shall also allow a party to terminate the contract
online.
CHANGES TO EXISTING LAW
Existing law establishes requirements governing automatic
purchase renewals and states the Legislature's intent to end the
practice of ongoing charging of consumer accounts without the
consumer's explicit consent. (Bus. & Prof. Code Sec. 17600 et
seq.)
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Existing law prohibits a business making an automatic renewal or
continuous service offer from doing any of the following:
failing to present the terms in a clear and conspicuous manner
before the subscription or purchasing agreement is fulfilled,
as specified;
charging the consumer's credit or debit card or the consumer's
account with a third party for an automatic renewal or
continuous service without first obtaining the consumer's
affirmative consent; and
failing to provide an acknowledgment that includes the
automatic renewal or continuous service offer terms,
cancellation policy, and information regarding how to cancel,
as specified. (Bus. & Prof. Code Sec. 17602(a).)
Existing law requires a business making an automatic renewal or
continuous service offer to provide a toll-free telephone
number, electronic mail address, or other cost-effective,
timely, and easy-to-use mechanism for cancellation, as
specified. (Bus. & Prof. Code Sec. 17602(a).)
Existing law exempts certain services and businesses from the
above provisions, including:
a business or affiliate that is regulated by the California
Public Utility Commission, the Federal Communications
Commission, or the Federal Energy Regulatory Commission;
an entity regulated by the Department of Insurance;
alarm company operators;
licensed banks and bank holding companies; and
service contract sellers and service contract administrators
regulated by the Bureau of Electronic and Appliance Repair.
Existing law provides, generally, for the modification and
cancellation of contracts. (Civ. Code Sec. 1697 et seq.)
This bill would provide that a contract that is entered into
online that includes a provision for the automatic renewal of
the term of the contract shall also include a provision that
allows a party to terminate the contract in the same manner as
the contract was entered into.
COMMENT
1. Stated need for the bill
According to the author:
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Current law establishes that companies must provide a toll
free number, email, or other "easy method" to cancel
contracts. [?] There have been numerous news stories that
reference customers who must spend hours on the phone with
customer service agents just to simply cancel service. While
these are egregious examples, even spending short amounts of
time having to navigate the system of customer service can be
burdensome to someone who is solely looking to cancel. This
bill seeks to address this problem by providing an online
cancellation method, which will be good for consumers and
potentially allow companies to provide better customer support
by alleviating some call volume.
The bill seeks to allow consumers a means to cancel services
online. Currently, it targets automatic renewal contracts and
states that if allowed to sign up online, then a similar means
of cancellation should be provided to consumers.
2.Consumers should be able to communicate a decision to not
renew subscriptions, contracts, or purchase agreements easily
to a business
This bill would require that specified contracts entered into
online must be able to be terminated online. In support, the
Consumer Federation of California argues that this is necessary
because, "though businesses make it easy for consumers to enter
into contracts and easy to maintain or update their contact or
billing information during the life of the contract, the same
convenience does not exist when it comes to cancellation.
Consumers are frequently required to call and speak with a
representative in order to terminate the contract. These hurdles
result in situations where consumers are aggressively pressured
by representatives to remain in the contract, despite their
desire to simply end the business relationship."
In opposition, a coalition including the California Chamber of
Commerce and the California Cable & Telecommunications
Association (CCTA), argue that there are many benefits to the
consumer which can only be exercised through verbal
communication, and that consumers may actually be harmed if
denied the opportunity to consult with a representative of the
business prior to cancellation. The coalition writes:
SB 1428 discourages consumers from resolving problems in a way
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that is beneficial to them. [?] For a customer who
participates in a bundled offering and wants to cancel one
service but keep the others, canceling that one service may
affect the price of remaining services. This consequence
needs to be explained to the customer to prevent confusion
and, ultimately, unhappiness when the next bill comes.
Some customers may need to cancel after a family tragedy or
natural disaster, and product or service representatives have
discretion to waive certain charges or fees in these
situations. There is no way for an online program to allow
for this that would not be abused.
CCTA further notes that requiring a company to enable a customer
to cancel a service online would "deprive consumers of an
opportunity to benefit from service options, pricing
concessions, or other benefits that may be offered by a company
through a real-time communication."
Staff notes that nothing in this bill would require that
contract termination must be completed online. Companies are
still free to create other avenues for cancellation in addition
to those required under this bill. Furthermore, there is nothing
prohibiting consumers who are looking to enhance their service
from calling the company directly to describe their
dissatisfaction. The company may then offer whatever incentives
it sees fit to ensure customer satisfaction.
3.Protecting consumers against unintended consequences
This bill would allow for the "termination" of a contract that
automatically renews, as specified. Terminating a contract
before the expiration of the term, however, may subject the
consumer to a number of penalties, including early termination
fees. However, "terminating" a contract is distinct from a
decision to "not renew" a contract, which, despite when
communicated, necessarily takes effect at the end of the
contract term.
In addition, this bill does not specify what is required to
"enter into a contract online." Would sending an acceptance by
electronic mail be sufficient? Would setting up an appointment
online to have a technician install a product in the consumer's
home, at which point the consumer signs physical documents, be
considered entering into a contract "online?" The bill also does
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not require any guidance as to how one would "terminate" a
contract online, and does not provide any mechanism whereby a
consumer would be assured that the transaction was received by
the business.
The following amendments would instead require a business that
makes automatic renewal contract offers to provide an electronic
mail address or option on their Internet Web site for the
purpose of allowing a consumer to communicate to the business
his or her decision to not renew the contract.
The amendment would require the business to notify the consumer
of receipt of the electronic message or Internet transaction.
Thus, because this amendment addresses only a desire to not
renew a contract, it would ensure that businesses who wish to
have real-time communication with customers who seek to
terminate a contract prior to the completion of the contract's
term, may discuss with the customer any penalties to which he or
she may be subjected. These amendments would also not foreclose
the right of a business to reach out to a consumer to explain
any remaining fees associated with the account, or any further
action that might be required of the consumer. For example, a
business would be able to communicate to the consumer the need
to return equipment to the company when the contract comes to
term. Staff additionally notes that the amendment would limit
the provisions of this bill to companies that are not regulated
by the Federal Communications Commission, thereby removing the
bill's application to much of the opposition, including
cellular, internet, and cable providers.
Author's amendment:
1) Strike the contents of the bill
2) Section 1702 is added to the Civil Code:
A business making automatic renewal or continuous service
offers, subject to Business & Professions Code Section 17601,
shall provide an electronic mail address or option on their
Internet Web site for the purpose of a consumer to communicate
to the business his or her decision to not renew the
subscription or purchasing agreement. The business shall, within
24 hours, notify the consumer of receipt of the electronic mail
or Internet Web site transaction, and shall honor the consumer's
decision to not renew the contract or service.
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Support : Consumer Federation of California
Opposition : California Chamber of Commerce; California Cable &
Telecommunications Association; California Communications
Association; California Retailers Association; CompTIA; CTIA-The
Wireless Association; Direct Marketing Association; MPA-The
Association of Magazine Media; TechNet
HISTORY
Source : Author
Related Pending Legislation : AB 2867 (Gatto) would require a
cable or Internet service provider, if it enables an individual
to subscribe to its services through an Internet Web site, to
also enable all of its customers to cancel their subscriptions
through the Internet Web site.
Prior Legislation : SB 340 (Yee, Ch. 350, Stats. 2009) requires
any business making an "automatic renewal" or "continuous
service" contract to clearly and conspicuously disclose terms of
the offer and obtain the consumers' affirmative consent to the
offer.
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