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Davis, California

Friday, February 23, 2024

Governor signs automatic renewal legislation

The hustle and bustle of daily life often makes it easy to forget to read the fine print these days.

On Oct. 11 Governor Arnold Schwarzenegger signed Senate Bill 340, which requires businesses to clearly and specifically state the terms of automatic renewal offers and to obtain customer consent at the time of purchase.

Authored by Senator Leland Yee (D-San Francisco/San Mateo), the new law demands that businesses provide consumers with a straightforward and cost effective cancellation policy. Companies are also prohibited from advertising products as “free” if the item is only distributed as part of an automatic renewal agreement.

“The onus should not fall on the consumer to stop unfair charges,” Yee said in a press release. “SB 340 provides common sense protections for consumers and will help stop these unscrupulous and predatory practices.”

An increasing number of consumers are struggling with misleading offers known as automatic renewals of merchandise and services. In a typical scenario, shoppers believe they made a one-time purchase or signed up to receive a free product. Consumers then continue to recieve more deliveries of the merchandise, while incurring additional charges to their credit cards. Many consumers fail to notice the agreements – written in the fine print of their order – they unknowingly make while shopping.

The Consumer Federation of California, an organization that works to protect consumers from this type of fraud, supports SB 340. “The law basically curbs a type of deceptive advertising that we’ve encountered,” said the Consumer Federation of California’s Executive Director Richard Holober. “It places limitations on how you get lured into a subscription without really knowing what’s happening.”

Other consumer agencies strongly support the law, like the California Alliance for Consumer Protection and California Public Interest Research Group (CalPIRG).

The new law is a result of a 2006 multi-state lawsuit that was filed against Time magazine. Twenty-three states inspected Time after consumers criticized the corporation for charging their credit cards for unsolicited magazine subscriptions. Initially, Time enforced an automatic renewal program that required subscribers to officially cancel their order if they wanted to discontinue.

After further investigation, the states discovered that Time’s terms forced many consumers to pay for unwanted magazines. Time paid consumers over $4.3 million in refunds, as well as $4.5 million to the 23 states for investigation fees.

Antivirus software companies like Symantec and McAfee have also been accused of charging customers software subscription renewal fees without their knowledge. The businesses paid the New York Attorney General’s office $375,000 in fines to reconcile the charges in June 2009.

With McAfee issuing automatic renewals in 2001 and Symantec in 2005, the companies would have customers pay upfront for a yearlong subscription and then automatically charge them to renew for the next year.

Students are particularly vulnerable to consumer fraud, according to the Consumer Federation of California. Young people often have a problem with automatic renewals for cosmetics advertised on TV and magazine trial offers.

“One of the examples that I use frequently is the acne treatment, Proactive Solutions,” said Senator Yee’s legislative aide, Kirstin Wallerstedt. “If you watch the commercials, it says its only $19.95, but then at the bottom of the screen in small print it says ‘auto delivery included’. What the company means by this is that they will continue to charge you $19.95 a month until you cancel.”

Match.com, a popular online dating service, also has had consumer complaints regarding automatic renewals. The service offers a six month free trial period, but some users complained that once their free service comes to an end, they continue to get charged monthly.

With the new bill requiring businesses to reiterate their terms more clearly , Wallerstedt feels this is an effective solution to fraudulent automatic renewals.

“Just be aware that there is a lot of fine print to everything you purchase,” Wallerstedt said. “Senator Yee would recommend students read the contract terms and find the relevant sections to make sure you are signing up for exactly what you want. In the real world it’s really about trial and error and we are trying to avoid this for the future.”

The law goes into effect Dec. 1, 2010.

SAMANTHA BOSIO can be reached at city@theaggie.org.


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