On October 10, California Governor Newsom signed Assembly Bill 483 (AB 483) into law, introducing new regulations on early termination fees in fixed term installment contracts. This legislation applies to contracts entered into or modified on or after August 1, 2026, and prohibits the use of termination fees unless specific conditions are met.

Key Aspects of AB 483

• Definitions:
  • Fixed Term Installment Contract: Any contract for the sale of goods or services by a seller to a consumer for a deferred payment price payable in installments over a fixed period until the price is paid in full.
  • Early Termination Fee: Defined as an additional fee charged to a consumer as a result of their election to apply a term or clause in the contract that allows them to suspend installment payments and end access to the good or service before the contract period ends.
• Enhanced Disclosure Requirements: Businesses must ensure that any fixed term installment contract includes a clear and conspicuous disclosure of early termination fees. This can be either the total cost or the formula used to calculate the fee and the highest possible early termination fee under the contract. The bill prohibits charging a fee unless these disclosures are made at the time of entering the initial contract.
• Cap on Early Termination Fees: The legislation imposes a cap on early termination fees, limiting them to 30% of the total contract value. This cap is designed to prevent excessive fees and ensure fairness in consumer contracts.
• Compliance for Broadband Providers: Certain broadband internet providers are deemed compliant if they adhere to federal broadband consumer requirements, offering a streamlined path for these businesses.
• Exemptions: AB 483 does not apply to contracts regulated by state or federal laws offering greater consumer protections or to home improvement contracts.
• Waivers: Any waiver of the provisions is void and unenforceable.
• Additional Provisions: The legislation clarifies that it does not prohibit a contract from requiring the return of a good if the contract is terminated. It also does not prevent a buyer from paying the full remaining balance of a fixed term installment contract before its maturity.

Our Take

Although this law seems to be aimed primarily at contracts under which consumers sign up for a service that is to be provided over a period of time and that can be cancelled early for a fee (e.g., Internet or subscription services), the exact scope is not entirely clear. We will continue monitoring for regulatory guidance and other developments that may clarify the law.