California Cancel My Subscription (Senate Bill 313) Explained for Merchants

If you are a merchant who offers services or products to California residents on a subscription business model, you need to understand a new California recurring billing law that has brought recent changes. The Cancel My Subscription bill (Senate Bill 313) modified what merchants must do in managing auto-renewals and subscription services. In this blog post, we’ll explain critical provisions merchants need to be aware of to comply with the regulation and protect their business.

What Is the Cancel My Subscription Bill? (Senate Bill 313)

The Cancel My Subscription bill is a law passed by the State of California in response to an uptick in complaints of unethical billing practices from California residents. The law amends the state’s Business and Professions Code to provide more stringent rules on how merchants charge recurring bills.

Senate Bill 313 forces businesses to be more transparent in their billing of subscription services or products. Businesses love the subscription model because it guarantees recurring income that keeps coming in monthly or yearly. But, often, customers feel tricked because of how some merchants carry out auto-renewals.

Federal and state laws regarding recurring billing and card networking already include rules that merchants must follow. However, Senate Bill 313 was passed to phase out identified unscrupulous billing practices some merchants still use.

What Do Merchants Need To Do To Stay Compliant?

Before Senate Bill 313, existing recurring billing laws, such as Section 17602 of the California Business and Professions Code, regulated how businesses make automated renewal offers, providing, among other things:

• Businesses must present the automated renewal terms clearly, with no ambiguity.
• Customers must give their consent before businesses can charge for automatic renewal and continuous service.
• Businesses must provide acknowledgment terms that include the cancellation policy, offer terms, and how customers can cancel the subscription in a manner that the consumer can retain.
• Businesses must provide clear notice of any substantial changes to auto-renewal terms.
• Businesses must provide cost-effective methods of cancellation, such as a toll-free telephone number, email address, or postal address.

The new Senate Bill 313 took further steps to provide additional rules recurring billing merchants must comply with to protect consumers. To understand what you need to stay compliant with Senate Bill 313, you’ll need to know these five requirements:

1. Under Senate Bill 313, recurring billing merchants who offer a free gift or trial must clearly state the new price they intend to charge at the end of the trial and how they will deduct the payment. This is an important provision, as it’s common practice for businesses to offer a free trial or a heavy discount without being explicit on the price they’ll charge once the gift or trial ends.
2. Merchants must get explicit consent before charging a customer’s account for an automatic renewal or continuous service.
3. Merchants must inform customers clearly how they can cancel their subscriptions. If they were on a free trial plan, you must allow them to cancel before the end of the trial and provide information on how they can do so.
4. Another obligation under the law is regarding how consumers can cancel their subscriptions. The law incorporates the provisions of the California Business and Professional Code that mandates merchants to provide a toll-free number, email address, postal address, and other cost-effective cancellation methods. It also goes further to provide that a customer who accepts a subscription offer online must be able to cancel the subscription online.
5. Merchants must give their customers notice of any change in the agreement and provide instructions on how they can cancel their subscriptions.

What Are the Repercussions of Not Complying?

Failure to comply with the provisions of Senate Bill 313 can attract penalties to defaulting merchants.

A customer can file a complaint with the state, resulting in heavy fines against erring merchants. Apart from that, there’s the risk of a lawsuit as California customers can file an action, including class-action lawsuits against merchants for any infraction of the rules.

Getting fined or losing a lawsuit can also put a merchant in the bad books of their banks, and they may decide to withdraw their services and terminate their agreement.

As a merchant, look beyond complying with the rules just to evade liabilities. See the bigger picture. The fact is, complying with the law has real-life benefits that could impact your business positively.

Remember, the law was passed in response to customers’ complaints. This means that customers today value transparency and will reward a business that is upfront and communicates clearly how they run their auto-renewal and subscription service. Being transparent will win your customers’ trust and loyalty. Customers are more likely to sign up and stick with you if your renewal terms are clear.

Also, getting bad press for noncompliance with the law may damage your reputation as a merchant and affect your ability to win new business. Nobody wants to sign up with a merchant that has been found liable for using underhand and sneaky practices to charge customers. The fallout can devastate your business, and you may never recover.

Are Merchants Liable for Chargebacks?

A chargeback is a reversal of a credit or debit transaction by a cardholder’s bank when a cardholder successfully disputes the transaction. In chargebacks, the bank returns the funds to the cardholder without the merchant’s approval.

There are limited grounds where banks will allow chargebacks. But, when they determine that a chargeback is proper, the merchant that initiated the transaction fee will be liable. Chargebacks mean loss of revenue of the reversed purchase. Sometimes, the revenue lost in chargebacks could be twice the transaction price when you take the transaction cost, time spent in resolving the dispute, and other factors into consideration.

How Chargebacks Affect Your Business

When a merchant experiences chargebacks frequently, the situation could spiral into payment processors viewing them as a high-risk merchant account. A payment processor tags a merchant account as high-risk when they resolve that the business account is more prone to chargebacks, fraud, or has a high return volume. Other reasons include merchants in high-risk businesses or merchants that process high transaction volume.

If your credit card processing platform labels your business a high-risk merchant, you will be charged a higher payment processing fee. You could also incur higher chargeback fees.

As a merchant, chargebacks have adverse consequences for your business. Customers win by default if you don’t challenge their chargeback filling. So, you should contest chargebacks via the representation process whenever you can.

The effect of failing to contest chargebacks when you can is beyond the immediate monetary loss. Customers who succeed in a chargeback action are likely to file it again. You could also become a soft target for fraudsters once they discover you don’t have any solid chargeback representation process in place.

How To Protect My Business From Legal Action?

Protecting your business from legal action requires you to take proactive steps to mitigate risks. You can follow these steps:

Identify Areas of Liability

Before you can mitigate your business’ risk, you need to identify areas of liability. For instance, if you want to avoid legal action under Senate Bill 313, you’ll need to go through your subscription billing process to uncover areas where your business is non-compliant.

Develop Compliance Processes

After you identify the areas where your business is not complying with existing regulations, the next thing to do is to develop how your business will comply with those rules. Often, you may need to overhaul your business process in the at-risk areas.

Develop Response Plans

Sometimes, despite your concerted effort to plug all liability holes, some things can slip through the cracks. Therefore, you need to develop an action plan for the worst-case scenarios.

Train Employees

Your employees handle the day-to-day running of your business. Train them to adopt best practices and follow standard procedures in performing their tasks. Your employees should also know your risk management procedures so they can take steps to minimize liabilities whenever they occur.

Document

The records you keep will often be your saving grace when there’s a dispute or a lawsuit. In a dispute between your business and a customer, it’s your word against theirs. Most consumer protection rules, such as recurring billing laws, exist to protect consumers. So, usually, the enforcement procedures are pro-consumers. Keep records of vital documents like contracts, communications, invoices, and payment records. Get customers to acknowledge important spoken conversations in writing.

Conclusion

The Cancel My Subscription bill is crucial legislation your subscription-based business needs to comply with. Recurring bill laws provide specific requirements merchants must follow or risk fines or lawsuits.

The experienced lawyers at Global Legal Law Firm are ready to help your business navigate all the complexities of electronic payment processing, including chargebacks, MATCH, commercial collection, credit card brands, and other electronic payment processing litigation. Let us guide you through this complex business environment.