Fixed term installment contracts: early termination fees.

Assembly Member Irwin advances a framework that directly targets how fixed-term installment contracts price early termination, pairing upfront clarity with a cap on penalty charges. The core change creates a new chapter in California’s Business and Professions Code that applies to contracts entered into or modified on or after August 1, 2026, requiring that the initial contract include a clear written disclosure of either the total cost of any early termination fee or the formula used to calculate that fee and the highest possible amount, with the disclosure visible without auxiliary interactions. The proposal also imposes a 30 percent ceiling on any early termination fee relative to the total sum for which the consumer is obligated under the contract (excluding the termination fee itself) and provides a broadband safe harbor for providers already meeting federal requirements, while preserving exemptions for contracts governed by stronger protections and for home improvement contracts. Waivers of the provisions are proposed to be void.

Definitions in the measure establish its scope: an early termination fee is an additional charge triggered when a consumer elects to suspend installments and end access to the good or service before the contract term ends; a fixed-term installment contract is a deferred-payment arrangement for goods or services over a fixed period until paid in full; and “good” and “service” encompass tangible items as well as digital software. Termination is characterized as the consumer’s affirmative choice to suspend payments and end access, distinct from general nonperformance. The provisions specify that disclosures must be clear and conspicuous at contract inception and viewable without reliance on tooltips or links, and they include a safe harbor for broadband internet service providers deemed compliant with federal broadband consumer requirements.

The bill also sets out ancillary protections and boundaries: a return of the good remains permissible when a fixed-term contract is terminated, and a buyer may prepay the remaining balance at any time. Exemptions preserve applicability only where other laws provide greater protections, or for home improvement contracts, and the provisions forbid waivers of the chapter’s protections. Enforcement is not specified in the text, leaving questions about which agency would oversee compliance or what remedies would apply, while the transition framework anticipates that contracts entered into or modified after the effective date would fall under the new rules. Accordingly, sellers would need to revise contract templates, ensure upfront, plain-language disclosures, and align pricing and termination practices with the 30 percent cap, in addition to updating processes to reflect the stated exceptions and anti-waiver stance.