Shopify Ecosystem

What Subscription Merchants Should Know: California’s Automatic Renewal Law

what-subscription-merchants-should-know:-california’s-automatic-renewal-law

Over the past decade, subscriptions have become omnipresent. In the last year alone, Recharge merchants saw an average subscriber growth rate of 31%. With so many consumers buying subscriptions, some states have enacted laws governing auto-renewal offerings to protect consumers. 

Specifically, California recently made some updates to its Automatic Renewal Law (ARL). The law took effect on July 1, 2022 and has implications for companies that offer subscriptions or other services that automatically renew. While the ARL has been in place for many years, this update adds several new requirements.

Key takeaways

  • California has updated its Automatic Renewal Law to protect customers in its state that buy subscriptions.
  • Businesses selling subscriptions to California customers must now provide certain notifications and make it easy for subscribers to cancel online.
  • Beyond the ARL, easy cancellations and clear notifications create positive customer experiences with your business, increasing brand loyalty.
  • Recharge has made a few key platform updates for merchants in response to the ARL changes.

How the ARL update impacts merchants & subscribers 

In summary, the ARL update is designed to protect California consumers that buy subscriptions by requiring businesses to provide certain notifications to their customers and enable easy online subscription cancellation. If your business sells to customers in California, the ARL applies to you.

ARL requirements aside, clear communication and easy cancellation options are powerful strategies for improving the customer experience. Your subscribers don’t want to be locked into recurring orders they can’t cancel—and if they do, they might leave. 

Beyond ARL—why clear communication & subscription flexibility matter

In general, by making your subscriptions more flexible and communicating with your subscribers about their orders, you pave the way for your customers to return to your business because of the positive experience they’ve had with you.

For your business, that can mean:

  • Increased customer lifetime value (LTV)
  • Reduced customer churn
  • Increased brand loyalty
  • Stronger subscriber retention
  • Better customer experiences

Recharge updates in response to ARL

In response to the ARL updates, Recharge has made changes to its default settings and added new notifications features to help merchants with their ARL legal obligations.

Note: This blog post should not be considered legal advice.

Easy cancellation within the customer portal: new default settings

Within the customer portal, customers will no longer be required to provide a cancellation reason. However, they will still be able to provide a reason if they would like to.

Merchants who have required their customers to complete a minimum number of charges prior to being able to cancel, or otherwise restricted customers from canceling in their customer portal, will see an update to their settings. Now, this will default to “no restrictions,” meaning customers can cancel at any time in their customer portal, including after the first charge.

New subscriber notifications

In addition to cancellation flexibility, Recharge has also introduced several new notification templates for merchants:

  • Subscription activation notification: Recharge offers a new notification template that includes updated verbiage that is compliant with ARL.
  • Upcoming charge notification: Recharge offers a new notification template that includes updated verbiage. 
  • Upcoming charge notification | Email timing: Merchants can now customize when their upcoming charge notification is sent out in their merchant portal. Previously, merchants had to contact Recharge if they wanted to customize this setting. It can be set anywhere between 1 and 45 days, with a default of 3 days to align with California ARL requirements. 
  • Upcoming charge notification | Free trials and promotions: Subscriptions containing a free gift, trial, promotional terms, or discounted pricing require a reminder notice between 3 and 21 days before end of the promotion or trial period. Merchants that leverage Recharge workflows and/or API-based updates for gifts, free trials, and termed promotional pricing can now leverage the new upcoming charge notification template. The new template contains information informing customers of the price of their upcoming charge if the price has changed since the initial charge. 
  • 1+ year upcoming charge notification: Subscriptions that renew every 1+ year will now require an upcoming charge notification between 15 and 45 days in advance of the recurring charge. Recharge is providing merchants with the option to enable this additional notification, distinct from upcoming charge notifications for shorter subscription terms. 

Flexibility & communication: The future of subscriptions 

Recharge is excited to share these platform updates driven by California’s ARL. We know merchants take their ARL legal compliance seriously, and by making these updates, we hope to help our merchants in that effort. 

Beyond the ARL updates, we’re thrilled to help our merchants create more flexible and communicative offerings that pave the way for stronger customer loyalty and better subscription experiences.

Special thanks to our friends at ReCharge Payments for their insights on this topic.
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