California Ruling to Impact Recurring Payment Merchant Account Solutions

California Ruling to Impact Recurring Payment Merchant Account Solutions

We’re not in the business of making predictions, but we wholeheartedly feel that recurring payment merchant account holders are going to have to adjust their models in the very near future.

Since the General Data Protection Regulation (GDPR) was enacted in the European Union, we’ve always had the feeling that a trickle-down effect would spread beyond Europe’s borders, that more countries and regions will (and should) adopt similar legislation leading to enhanced security of consumer data and better business practices in general.

Perhaps the first seeds of the GDPR’s influence have been planted from a recent ruling in California.

A bill that recently passed in the Golden State to curb unethical subscription procedures could affect recurring payment merchant account solutions nationwide. The bill, which went into effect July 1, is merely calling for merchants to be transparent – what should be fundamentally understood – after complaints about unethical subscription billing practices in California doubled in the last year.

Let’s just say now, considering the current climate we’re in, that we can see these policies attracting a much more broad adoption.

What California-based recurring payment and subscription businesses must do

All recurring payment merchants should take heed to the new legislation in California.

  1. Clear terms of service: Recurring billing and subscription merchants need to have a ‘Terms of Service’ page on their website clearly detailing the terms of sale and cancellation guidelines before they can charge a consumer for a product/service.
  2. Must obtain consumer consent: Merchants are prohibited from charging a customer’s credit or debit card with an automatic subscription renewal without the customer’s consent. The consumer must give the merchant permission to continue services.
  3. Provide acknowledgement: Merchants are required to send correspondence (a receipt) each time their credit or debit card is used for a transaction.
  4. Enable easy renewal, cancellation: If a consumer wishes to cancel or renew a service, the merchant must acknowledge the customer did so. The merchant must also provide contact information (telephone number, e-mail and postal addresses) allowing the customer to seamlessly cancel services.
  5. Notice of material/policy changes: Merchants are bound to notify customers of any changes policy or materials and offer them an easy route to opt out of the subscription of services.


Penalties for not complying with the new legislation can result in significant fines incurred by merchants, or worse, loss of recurring payment merchant account services.

The effect: two marketing practices that must go away

Any kind of business practice in which a merchant interprets a customer’s ignorance as license to profit is simply bad business. We know of two practices like this that may become extinct as a result of the recent legislation in California.

  • Negative option marketing: Two years ago, we blogged about an old marketing tactic called ‘negative option marketing,’ when a merchant construes a customer’s no-response or a failure to accept or reject an offer as consent to charge for goods or services. It is an outdated scheme that may have been effective at one time, but has always sent the wrong message from a merchant, hereby assuming consent to charge a consumer’s credit card.
  • Free trials: We also recently wrote about how free trials are also a dying tactic – rightfully – and that banks are progressively shunning merchants that offer such. Too often, a consumer opts for a 30-day free trial for, for example, vitamins, then forgets they signed up. The consumer then checks his/her credit card statement, realizes they’ve been charged for something they didn’t want or forgot about, and files the chargeback.

Both these ‘marketing’ practices are gateways to chargebacks. Lots of them.

Why recurring payment merchant account holders should adjust their models

In reading about the new bill in California, we’re surprised at the tactics some of these merchants used – including both we mentioned above. More so, since consumers have more of a voice than ever, and have the power to air their complaints on reviews sites such as Google, Facebook and many others. Merchant and product transparency should be the order of the day.

Instabill is located in Portsmouth, N.H., USA, and offers many recurring payment merchant account solutions to merchants of all risk levels. Regardless of where a merchant is based, we strongly recommend they maintain or begin to maintain the good practices and procedures that the California bill has mandated.

We fully believe it is a sign of things to come.

Our recurring billing and subscription merchant account experts are on hand to guide merchants through the onboarding process at 1-800-530-2444. Instabill also remains on hand as consultants for the life of the merchant account relationship.

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