Companies responding to the pandemic are faced with the challenges of not only complying with federal, state, and local emergency orders and guidelines for each location in which they operate, but also ensuring that any measures taken to address the foregoing do not affect compliance with other laws.  In the wake of business closures and event cancellations brought on by the pandemic, plaintiffs’ attorneys have continued to look to California’s various consumer protection statutes as fodder for class litigation, bringing an influx of COVID-19-related lawsuits against companies still dealing with unprecedented restrictions on their businesses.

With in-person purchasing opportunities limited or prohibited during the pandemic, companies have looked to expand their online offerings to consumers, particularly companies providing subscription-based products or services such as entertainment and streaming content providers, data storage and security providers, and recurring “box” and food delivery services.  Companies using such business models to conduct business with consumers in California should ensure that they are in compliance with California’s various consumer protection statutes to avoid costly class actions.

Many of these actions are aimed at membership- and subscription-based businesses, such as gyms and sports clubs, ski resorts, and theme parks.  Consumers have filed actions in California and several other states, seeking injunctive and declaratory relief, restitution, and damages for claims under the California’s Consumer Legal Remedies Act (“CLRA”), Cal. Civ. Code §§ 1750, et seq., Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200, et seq., and False Advertising Law (“FAL”), Cal. Bus. & Prof. Code §§ 17500, et seq.  In the case of one class action complaint brought against a fitness center, the plaintiffs have also asserted claims for breach of warranty, breach of contract, misrepresentation, fraud, conversion, and violation of California’s Health Studio Services Contract Law, Cal. Civ. Code §§ 1812.80, et seq., based on the company’s alleged collection of membership fees after the imposition of stay-at-home and similar orders due to COVID-19.

The reach of these laws is not limited to businesses – a former union member has brought a similar action against his union, alleging violations of the Electronic Funds Transfer Act and various provisions of California’s Business and Professions Code for automatic withdrawals of fees following the termination of the plaintiff’s membership in the union.

Given such an extensive body of consumer protection laws, compliance for companies doing business in California can be fraught with the potential for class action lawsuits.  Membership- and subscription-based businesses must also adhere to specific requirements for accepting and collecting payments on a recurring basis, which may raise issues under the CLRA, UCL, FAL, and common law, in addition to California’s Automatic Renewal Law (“ARL”), Cal. Bus. & Prof. Code §§ 17600, et seq.


The ARL was enacted in 2009 with the express purpose of “end[ing] the practice of ongoing charging of consumer credit or debit cards . . . without the consumers’ explicit consent.”  Cal. Bus. & Prof. Code § 17600.  A popular tool for plaintiffs and regulators alike, the ARL applies to almost any arrangement in which a paid subscription or purchase agreement is automatically renewed unless and until it is canceled by the consumer.  As business models increasingly rely on automatic renewals, perpetual subscriptions, and electronic billing, the ARL can increasingly become a trap that businesses must navigate if they are to construct a California-compliant subscription plan.  Under the ARL, any subject arrangement must conform to the following requirements,* which can be grouped into five (5) main categories:

  1. Clear and conspicuous disclosures. The offer to enroll and key terms of the subscription agreement must be disclosed in a manner that clearly calls attention to the auto-renewal language and must be in visual proximity (or temporal proximity for audio offers) to the request for consent.  The following terms must be disclosed in type or font that is larger than or otherwise in contrast with surrounding text (or, for audio disclosures, in a volume and cadence sufficient to be readily audible and understandable):
    • a. The nature of the subscription or purchasing agreement as one that will continue until the consumer cancels;
    • b. How to cancel the offer;
    • c. The recurring amounts that will be charged to the consumer’s payment account;
    • d. That the amount of the charge may change and the post-change amount, if known;
    • e. The length of the automatic renewal term; and
    • f. Any minimum purchasing obligation(s).
  2. Retainable acknowledgment. The business must provide to the consumer an acknowledgment that provides the terms of the automatic renewal of continuous service, the cancellation policy, and how to cancel.  The acknowledgment must be provided in a manner that is capable of being retained by the consumer (e.g., in writing).
  3. Affirmative consent. The business must obtain affirmative consent from the consumer before charging the consumer’s debit or credit card on a recurring basis.  The consent may be given orally or in writing.
  4. Mechanisms for cancellation. The business must provide a cost-effective, timely, and easy-to-use mechanism for cancellation (e.g., a toll-free number, email address).
  5. Notice of material change(s). The business must provide to the consumer clear and conspicuous notice of any “material” change in the terms of the subscription, as well as written information about how to cancel the offer if already accepted.

*The ARL was amended in 2018 to extend the above requirements to promotional offers, e.g., special pricing that will be followed by automatic charges, and to allow for the termination or cancellation of online services via sufficiently uncomplicated online means.  [See our previous article covering the 2018 amendments here.]

Remedies And Takeaways For Businesses

Any products sold without the above disclosures are considered an unconditional gift under the ARL, meaning consumers will likely be entitled to refunds without returning their purchases. However, the ARL does not limit the remedies available for violations of its provisions, permitting consumers to pursue virtually any civil remedy.  In addition, alleged violations of the ARL can be repackaged into claims under the UCL, CLRA, and FAL, offering the remedies available under those statutes as well (e.g., injunctive relief, restitution, and statutory and punitive damages).

The current trend in COVID-19-related consumer class litigation is a powerful reminder to diligently assess consumer disclosures and business protocols.  Membership- and subscription-based businesses should always be mindful of the ARL’s requirements, but especially of the notices they provide to consumers during this time, and should make sure the notices include all necessary information.  In the action described above, brought against the union, the plaintiff alleges in his complaint that the union “never provided advanced clear and conspicuous notice to plaintiff of this auto-renewal,” and failed to provide any notice or otherwise inform the plaintiff “of its intent to renew the twenty (20) dollar auto withdrawal.”

Businesses should also carefully consider the issues that will likely arise where collections are concerned to avoid claims stemming from unauthorized withdrawal or retention of funds, especially since the ARL and other laws discussed do not state a minimum amount required for injury.  Membership- and subscription-based businesses and organizations in particular should seek the advice of competent counsel in revisiting their compliance measures.