Service Agreement Alterations for Contract Providers: Updates Coming for Companies That Offer Services and Business Contracts
In California, two new bills, AB 1221 and AB 390, are set to change the landscape for businesses offering service contracts on a recurring basis. These bills, which come into effect on July 1, 2022, impose disclosure, consent, and cancellation requirements on these contracts, building upon the state's Automatic Renewal Law (ARL).
AB 1221, among other things, defines key terms such as "affirmative consent" and "covered product," and applies to service contracts entered into on or after January 1, 2022. The bill requires service contracts to disclose that they will continue until cancelled, provide alternatives to automatically-renewing contracts, and offer a minimum of four cancellation methods.
Businesses offering continuous subscription services or automatically renewing contracts should carefully review their practices in light of the distinct requirements and enforcement regimes of both the ARL and the new statutes AB 1221 and AB 390. Service contract sellers and administrators, even those exempt from the ARL, should pay particular attention to changes needed in their online buy flow to comply with the affirmative consent and disclosure/cancellation requirements of AB 1221.
AB 390 streamlines the online cancellation process under the ARL and provides two mutually exclusive notice-of-renewal requirements. The notice-of-renewal requirements under AB 390 differ based on whether the agreement includes a free gift or trial, or promotional or discounted price, that applies for more than 31 days, or an initial term of one year or longer.
Non-exempt businesses offering auto-renewal contracts in California should familiarize themselves with the updated cancellation and notice provisions set forth in AB 390. Private plaintiffs may use a violation of either the ARL or AB 390 as the basis for a claim under California Business & Professions Code section 17200, if they can satisfy Section 17200's standing requirements.
The statutes Cal. Bus. & Prof. Code § 17600 et seq. and Cal. Civ. Code § 1790 et seq. are relevant to the discussion of auto-renewal contracts in California. Businesses should consult these statutes and any related regulations for a comprehensive understanding of their obligations under the new laws.
It's important to note that service contracts for consumer products are exempt from California's Automatic Renewal Law (ARL), but new laws have been enacted that impose ARL-inspired requirements on these contracts. Service contract providers should review their practices to ensure compliance with the new requirements.
In conclusion, businesses in California offering service contracts on a recurring basis should carefully review their practices in light of the new laws AB 1221 and AB 390. These laws impose disclosure, consent, and cancellation requirements, aiming to protect consumers and ensure fair business practices.
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