Service Agreement Amendments on the Verge: Imminent Alterations for Vendors Selling Service Contracts and Other Corporate Entities
California's Automatic Renewal Law (ARL) and Assembly Bill 1221 have made significant changes to the way service contracts are handled in the state. These updates, effective from January 1, 2022, aim to provide greater transparency and consumer protection.
Assembly Bill 1221 mandates clear and conspicuous disclosure of service contracts that will continue until cancelled, alternatives to automatically-renewing contracts, and a minimum of cancellation methods. The bill also outlines specific requirements for service contracts, which businesses should review to ensure compliance.
Under AB 1221, affirmative consent does not include acceptance of general terms of use or similar documents containing unrelated information, hovering over, muting, pausing, or closing a given piece of content, or agreement obtained through the use of dark patterns.
California Business and Professions Code Section 17602(d)(1) outlines the requirements for disclosure in service contracts under AB 1221, while California Civil Code Section 1794 compares and contrasts these requirements with those under the California Consumer Legal Remedies Act. Service contract sellers and administrators regulated by California's Bureau of Household Goods and Services are also exempt.
The California Consumer Legal Remedies Act details the cancellation and notice provisions for auto-renewal contracts, while Cal. Civ. Code § 1794.4(c) and (e)(2) provide more specific information on these matters.
Businesses offering continuous subscription services or automatically renewing contracts should review both the ARL and Assembly Bill 1221 to ensure compliance. Exempt businesses from the ARL should pay close attention to any changes required by AB 1221, particularly if they offer automatically renewing service contracts.
Service contracts for consumer products are exempt from California's Automatic Renewal Law, but Assembly Bill 1221 imposes automatic renewal rules on these contracts. The bill specifies that service contracts must contain a clear description and identification of the covered product or class of products.
Assembly Bill 390 streamlines the online cancellation process under the ARL and provides two mutually exclusive notice-of-renewal requirements for different scenarios. These amendments to the ARL will go into effect on July 1, 2022. Non-exempt businesses offering auto-renewal contracts in California should familiarize themselves with the updated cancellation and notice provisions set forth in AB 390.
Despite ambiguities in the ARL, certain classes of businesses and services are exempt from its requirements. These include those regulated by the California Public Utilities Commission, the Federal Communications Commission, the Federal Energy Regulatory Commission, the Department of Insurance, alarm company operators, and banks and other licensed financial institutions.
AB 1221 requires businesses to make changes to their online buy flow to conform to the affirmative consent requirements, as well as the statute's disclosure and cancellation requirements. Businesses should review these changes carefully to ensure they are in compliance with the new laws.
As of January 1, 2022, there are no publicly available details identifying which companies offer service contracts affected by the California Automatic Renewal Law that are not subject to the franchise ownership clause or licensing/authorization by the California Public Utilities Commission. It is recommended that businesses review their contracts and practices to ensure they are in compliance with the new laws.
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