California Introduced New Regulations on Early Termination Fees in Fixed-term Installment Contracts

The following is a bulletin prepared by Stefan Lawrence, Counsel at Early Warning Services, LLC and Co-Chair of the CFSC.

Summary

California Assembly Bill 483 caps early termination fees on fixed-term installment contacts at 30% of the remaining contract amount. Signed into law by Governor Newsom on October 10, this legislation requires clear disclosure of these fees. It goes into effect for contracts entered into or modified on or after August 1, 2026.

Key Provisions of AB 483

• 30% Fee Cap: The new law prohibits sellers from charging an early termination fee that is greater than thirty percent (30%) of the total sum the consumer is obligated to pay under the contract.
• Clear Fee Disclosure: To charge a termination fee, sellers must provide a clear and conspicuous written disclosure in the initial contract. This disclosure must show either (1) the total cost of the fee, or (2) the formula used to calculate it, including the highest possible fee.
• No Hidden Fees: The law specifically bans hiding cancellation fees in the fine print or behind hyperlinks that require additional user interaction.
• Applicable Contracts: The law covers a broad range of fixed-term installments for goods and services, including digital software.
• Exceptions: AB 483 does not apply to:
  • Home improvement contracts
  • Contracts that are already regulated by state or federal laws offering greater consumer protections
• Void Clauses: Any attempts by businesses to waive the provisions of ABB 483 will be deemed void and unenforceable.
• Effective Date: The protections apply to fixed-term installment contracts entered into or modified on or after August 1, 2026.

Impact on Consumers

AB 483 was created to protect Californians from “outrageous early termination fees,” which can financially trap consumers into long-term contracts for goods and services. The new law offers two key benefits:

• Clarity: When a consumer signs a contact, they will know upfront exactly what the maximum termination fee will be.
• Fair Limits: By capping the fee at 30%, the law prevents businesses from charging penalties disproportionately in excess of the actual financial impact of such early termination.

Credits & Contact

This bulletin was prepared by Stefan Lawrence, Counsel, Early Warning Services, LLC.

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