Written by TOM WOODS and COREY DAY
RECURRING PAYMENTS REVISITED
Navigating the New FTC Rule on ROSCA and California’s Updated Automatic Renewal Law
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f you go dig out your Winter 2021 issue of Artisan Spirit Magazine, you’ll see my previous article on things to consider if you’re going to have a recurring subscription service for your distillery. This would likely take the form of a recurring monthly, semimonthly, or quarterly shipment to customers that is automatically charged to their credit card. At the time, I warned about the varying laws that you need to comply with to do so — the most broadly applicable being the Restore Online Shoppers’ Confidence Act (“ROSCA”). Well…there have been developments in the intervening four years. In a significant move to protect consumers from “deceptive” subscription practices, the Federal Trade Commission (FTC) has introduced a new rule relating to ROSCA.1 These changes aim to provide clearer guidelines and stronger protections for consumers who engage in “negative option contracts,” which include automatically renewing subscriptions.2 Simultaneously, California has updated its Automatic Renewal Law (CARL) aligning closely with these federal changes, signaling a broader trend toward stricter regulation of subscription services.3 So if you have customers set up on a recurring payment plan, à la a distillery club, it’s time to brush up on the changes and be prepared to implement them. 1 https://www.ftc.gov/news-events/news/press-releases/2024/10/federal-trade-commission-announces-final-click-cancel-rule-making-it-easier-consumers-end-recurring 2 https://www.ftc.gov/system/files/ftc_gov/pdf/p064202_negative_option_rule.pdf 3 https://www.gov.ca.gov/2024/09/24/governor-newsom-signs-consumer-protection-bills-targeting-medical-debt-overdraft-fees-and-unfair-subscription-practices W W W . ARTISANSPIRITMAG . C O M
Understanding the FTC’s New Rule on ROSCA The FTC’s amendments to ROSCA are designed to address the persistent consumer complaints relating to these recurring payment contracts. Customers often complain of unexpected charges due to their not understanding the terms and cancellation processes. The new rule aims to create a more consumer-friendly environment by focusing on three main areas: Clear and Conspicuous Disclosures: Businesses must now provide clear and conspicuous disclosures of all material terms before obtaining a consumer’s billing information. This includes details about the recurring nature of charges, the deadline to cancel to avoid charges, the amount or range of costs, and the cancellation process. Express Informed Consent: The rule requires businesses to obtain consumers’ express informed consent before charging them. This consent must be obtained separately from any other part of the transaction, ensuring that consumers are fully aware of what they are agreeing to. Simple Cancellation Mechanisms: To prevent consumers from having to take multiple steps to terminate subscriptions, the FTC mandates that businesses provide simple and straightforward cancellation mechanisms. This means that if a consumer signed up online, they should be able to cancel online just as easily. These changes are a response to the FTC’s findings that the current landscape of laws and regulations is inconsistent and often fails to protect consumers adequately. By standardizing these requirements, the FTC hopes to reduce consumer harm and increase trust in subscription services.
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