What is recurring billing compliance?

Recurring billing compliance refers to the set of legal requirements that subscription and recurring billing businesses must follow to legally charge customers on a recurring basis. The primary compliance framework is the Restore Online Shoppers Confidence Act (ROSCA), which requires merchants to obtain explicit informed consent before charging a customer, provide clear terms and conditions, and offer an easy cancellation mechanism. Non-compliance can result in fines up to $43,280 per violation.

Most subscription businesses are inadvertently violating recurring billing compliance laws. They think that as long as they have a “Terms of Service” page, they are compliant. In reality, compliance is much more specific and detailed.

This guide explains the key compliance requirements and the strategies to ensure your subscription business is fully compliant.

Table of Contents

  1. What is recurring billing compliance?
  2. Understanding ROSCA (Restore Online Shoppers Confidence Act)
  3. State-Level Recurring Billing Laws
  4. Best Practices for Recurring Billing Compliance
  5. Frequently Asked Questions (FAQ)

1. Understanding ROSCA (Restore Online Shoppers Confidence Act)

ROSCA is the primary federal law governing recurring billing in the United States.

ROSCA Requirements

ROSCA requires that before charging a customer for a recurring subscription, you must:

  1. Obtain Explicit Informed Consent: The customer must affirmatively agree to the recurring charges. A pre-checked box does not count. The customer must actively check a box or click a button.
  2. Provide Clear Terms: Before charging, you must clearly disclose:
    • The total cost of the subscription (or the cost per billing cycle if the cost varies).
    • The frequency of charges (e.g., “monthly”).
    • The cancellation terms and process.
    • How to contact you for support.
  3. Obtain Billing Information: The customer must affirmatively provide their billing information. You cannot pre-fill it.
  4. Provide Easy Cancellation: Customers must be able to cancel their subscription using the same method they used to sign up (e.g., if they signed up online, they must be able to cancel online).
  5. Send Confirmation: After charging, you must send a confirmation email that includes:
    • The amount charged.
    • The date of the charge.
    • The next billing date.
    • Cancellation instructions.

ROSCA Penalties

Violations of ROSCA can result in fines up to $43,280 per violation. If you have 100 customers and violate ROSCA for each one, you could face $4.3 million in fines.

2. State-Level Recurring Billing Laws

In addition to ROSCA, many states have their own recurring billing laws that are even stricter.

California’s Law

California requires that before charging a customer, you must:

  • Obtain explicit informed consent.
  • Provide clear terms and conditions.
  • Obtain the customer’s billing information.
  • Provide a simple mechanism for cancellation.

New York’s Law

New York requires that you:

  • Obtain explicit informed consent.
  • Provide clear terms in a conspicuous manner.
  • Provide a simple cancellation mechanism.
  • Send a confirmation email after each charge.

Other States

Many other states (Illinois, Virginia, etc.) have similar requirements. The safest approach is to assume that the strictest state law applies to all your customers.

3. Best Practices for Recurring Billing Compliance

To ensure your subscription business is fully compliant, follow these best practices.

Best Practice 1: Explicit Consent

Do not use pre-checked boxes. Require the customer to actively check a box or click a button that says something like:

“I agree to be charged $9.99 every month.”

Best Practice 2: Clear Disclosure

Display all terms and conditions in a clear, conspicuous manner:

  • Use large, readable fonts.
  • Avoid burying terms in dense legal text.
  • Highlight key terms like price, frequency, and cancellation.

Best Practice 3: Easy Cancellation

Make cancellation trivially easy:

  • Offer one-click cancellation on your website.
  • Do not require customers to call or email to cancel.
  • Process cancellations immediately (do not wait until the next billing cycle).

Best Practice 4: Confirmation Emails

Send confirmation emails after each charge that include:

  • The amount charged.
  • The date of the charge.
  • The next billing date.
  • Clear cancellation instructions.

Best Practice 5: Retention Warnings

Before charging a customer for a trial-to-paid conversion, send a reminder email warning them that they are about to be charged.

4. Frequently Asked Questions (FAQ)

Can I charge a customer without their explicit consent?

No. ROSCA requires explicit informed consent. A pre-checked box does not count.

Can I charge a customer a different amount than what I disclosed?

No. You must charge exactly what you disclosed. If you want to change the amount, you must obtain new explicit consent.

What if a customer claims they never consented to the recurring charge?

If you have documentation of their explicit consent (e.g., a checkbox they clicked), you can defend yourself. If you do not have this documentation, you should issue a refund.