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Continuity Plans Receive Renewed State Scrutiny

16 May, 2017 By: Jeffrey D. Knowles, Venable LLP’s Advertising, Ellen T. Berge

Continuity – or “negative option” – marketing is a popular and convenient way for consumers to subscribe to products and/or services, receive new issues, receive product replenishment, or continue a service by making automatic payments at predetermined times. From skincare to dietary supplements, to groceries and periodicals, the popularity of continuity-based marketing with consumers is soaring. However, a proposed amendment to Section 17602 of the California Business and Professions Code that recently passed the California State Senate and is now winding its way through the Assembly could leave marketers who use continuity-based offers feeling like they have recurring nightmares.

Senate Bill 313 (SB313) takes direct aim at continuity marketing that offers a free trial period or incentivizes consumers with free gifts when it results in an automatic enrollment of the consumer into a continuity program.

Under current California law, a business that offers a product or service through a continuity program: must clearly and conspicuously disclose the terms and conditions of the offer; must receive the consumer’s affirmative consent to the agreement; must provide contact information; and must have an easy-to-use cancellation method.

As currently written, SB313 amends section 17602 to require that the moment when a consumer signs up for product or service subscription via a free or reduced price offer, the debit or credit card authorization they provide to the marketer must occur through a separate, standalone form and approval process. In a notable addition, marketers must provide consumers with notice three to seven days before the first automatic renewal occurs. Lastly, SB313 requires that companies maintain a cancellation process that “allows the consumer to cancel the service or offer as easily as the consumer accepted the service or offer.”

SB313 passed the Senate on April 20 in a bipartisan 34-4 vote and is currently awaiting consideration in the Assembly. The bill was supported by a number of California public interest groups, including the California Consumer Federation, which sponsored it.

Critics of SB313 argue that the proposed amendments to California’s already strict laws governing continuity marketing will add additional burdens to consumers who enjoy the convenience that an auto-renewal subscription offers. The critics also argue that the double opt-in requirement will cause confusion and may result in invalid contracts if the consumer does not complete the additional opt-in.

If SB313 passes the Assembly and is signed into law by Gov. Jerry Brown, it would take effect on January 1, 2018. Businesses that market offers that include a free-trial period or gift to consumers in the United States should monitor this bill’s progress because a change in California law may result in a domino effect of the way subscription offers are presented to consumers across the nation.

The domino effect may be underway already, with another bill working its way through the Vermont Senate that would substantially change the disclosure, opt-in, and notification – including pre-renewal notification – requirements for auto-renewing consumer contracts with a term of greater than one year.

Marketers who market their goods and services to consumers on a continuity basis should consult with experienced legal counsel to ensure current marketing practices comply with applicable state laws. Such counsel can also provide context to, and help marketers stay abreast of, changes in state laws governing this and other marketing practices.

Ellen T. Berge and Jeffrey D. Knowles are partners in Venable LLP’s Advertising and Marketing practice group. They may be contacted at (202) 344-4000.

About the Author: Jeffrey D. Knowles

Jeffrey D. Knowles

About the Author: Ellen T. Berge

Jeffrey D. Knowles

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