Making Sure Your Wine, Beer or Spirits Club Complies with State and Federal Law

The California Department of Alcoholic Beverage Control (“ABC”) recently issued a new Industry Advisory regarding subscription services. In the alcohol beverage industry, we often see subscription services in the form of automatic renewal wine clubs, beer-of-the-month clubs, and/or spirits clubs, where customers sign up to receive future shipments of a licensee’s offering of wine, beer, or spirits products, where permitted by applicable laws. Often times, subscription services continue until the customer cancels the agreement.

Licensees wishing to offer automatic renewal “club” plans or subscription services to their customers must comply with federal law and California’s Automatic Renewal Law (ARL).  Since a violation of these laws may subject licensees to monetary penalties, suspension or revocation of a license, and/or injunctive relief, we have summarized below the legal requirements under both federal and California state law for automatic renewal or subscription plans so that licensees can ensure that their subscription plans are compliant.

Federal Requirements

The Federal Trade Commission refers to automatic renewal plans and subscription services as “Continuity Plans,” a form of “negative option marketing” under federal regulations. Section 4 of the federal Restore Online Shoppers’ Confidence Act (“ROSCA”) imposes the following specific requirements on Continuity Plans that are on the internet:

• The licensee must “clearly and conspicuously disclose all material terms” before obtaining customer’s billing information;
• The customer must provide informed consent before the licensee charges the customer; and
• The licensee must provide “simple mechanisms” for cancelling recurring charges.

California Requirements

California also imposes requirements on those licensees offering internet and/or non-internet Continuity Plans, which California’s Automatic Purchase Renewal Law (“ARL”) refers to as Automatic Renewal plans.  In fact, California’s ARL is often viewed as the broadest and strictest in the country.  For example, California’s ARL not only includes subscription agreements that automatically renew, but also includes any “free trial” offer that converts to an automatic payment, unless terminated by the consumer.

While the requirements of California’s ARL are very detailed, below is a brief summary of the five basic requirements for any Automatic Renewal plan under California law:

1. Clear and Conspicuous Automatic Renewal Offer Terms. A licensee must present the following Automatic Renewal Offer Terms to a customer before enrolling the customer in an Automatic Renewal: (i) Subscription will continue until the consumer cancels; (ii) Cancellation policy ; (iii) Reoccurring charges occur, whether a third party will be making the charge, whether the amount of the periodic charge may change, and if the offer also includes a free gift or trial, an explanation of the price that will be charged after the trial ends;  (iv) Length of the automatic renewal term or that the service is continuous; and (v) Any minimum purchase obligations. The Automatic Renewal Offer Terms need to be presented to customers in a clear and conspicuous way that clearly draws attention to the language above.
2. Obtain Affirmative Consent before Charging Customer. A licensee must obtain affirmative consent to the Automatic Renewal Offer Terms from a customer, through for example requiring a box to be checked or a signature, prior to charging the customer.
3. Consumer Acknowledgment.  A licensee must provide an “acknowledgment” to the consumer of the Automatic Renewal Offer Terms, cancellation policy, and information on how to cancel, that can be that can be easily saved by the consumer.
4. Easy-to-Use Cancellation Mechanism. There must be an easy-to-use cancellation mechanism, such as a toll-free number, email address or postal address.
5. Means for Online Cancellation.  Where enrollment was completed online, a licensee must provide a way for consumers to terminate the Automatic Renewal exclusively online. If the means of cancellation is provided by email, it must be a formatted email that can be sent to the licensee without additional information.

ABC’s Advisory on Club Renewals can be found here: https://www.abc.ca.gov/club-renewals/

For more information regarding automatic renewal plans or club structures, please contact Bahaneh Hobel or Patrick Murphy.