California cracks down on ‘predatory’ early cancellation fees

California has enacted new legislation that aims to limit companies from charging consumers “exorbitant” fees to cancel fixed-term contracts. Assembly Bill 483 was signed into law by California Gov. Gavin Newsom on Friday, placing transparency requirements and fee limits on early terminations for installment contracts — plans that allow consumers to make recurring payments for goods and services over a specified duration.

This includes services that lure consumers into signing annual contracts by allowing them to pay in installments that appear similar to rolling monthly subscriptions, but with hefty cancellation fees for not locking in for the full year. The bill bans companies from hiding early termination fee disclosures within fine print or obscured hyperlinks, and limits the total fee amount to a maximum of 30 percent of the total contract cost. The goal is to make it easier for Californians to take these fees into account when comparing between services, and lessen the financial burden if they need to end their contract early. 

“Too many Californians have been shocked by outrageous early termination fees when they try to end an installment subscription early,” California assembly member, Jacqui Irwin, said in a press release. “With AB 483, Californians will know exactly what type of termination fees they may have to pay – and those fees will never exceed a fair limit. Keeping these agreements transparent and predictable is a win for consumers across the state.”

The announcement also calls out Federal Communications Commission chair Brendan Carr for weakening consumer protections — having recently proposed to bring back hidden ISP fees — and highlights that the US government is suing Adobe for allegedly hiding expensive early cancellation fees and trapping consumers in pricey annual subscriptions. While the lawsuit against Adobe is ongoing, California’s new law could set a national standard that would force the company to overhaul its contract termination practices.