Amazon pays $2.5 Billion to Settle FTC Claim over Prime Subscriptions
by: Joyce Kim and Ben Stein
Takeaways:
On September 25th, the Federal Trade Commission (“FTC”) obtained a hefty $2.5 billion dollar settlement against Amazon and certain individually named Amazon executives. The FTC originally filed its complaint against Amazon in June 2023, arguing that it violated the Restore Online Shoppers’ Confidence Act (“ROSCA”) and FTC Act by using tactics to manipulate consumers into enrolling in Prime memberships and then knowingly making it difficult for consumers to cancel their subscriptions. The settlement – which comes mid-trial and shortly after Amazon lost at summary judgment on a handful of key issues – includes a $1 billion civil penalty and $1.5 billion in restitution for harmed consumers.
At a high level, the FTC’s Complaint named several troubling practices:
Amazon would deceptively enroll a consumer in a Prime free trial – for example, when the button for “Get FREE two-day Delivery with Prime” was selected, but prior to actual completion of a transaction.
Amazon did not adequately disclose the price of its Prime membership or the auto-renewal feature of the membership at various junctures throughout a user’s interaction with the Amazon site.
Amazon’s enrollment process did not clearly distinguish between signing up for Prime and Prime Video, which tricked consumers into signing up for Prime – the higher cost option.
Amazon implemented an “online labyrinthine cancellation flow” to make it difficult for consumers to cancel their Prime subscriptions. Cancellations involved contacting customer service or navigating a four-page, six-click, fifteen-option process, whereas enrolling only occurred with one or two clicks.
Takeaways:
These fines should grab the attention of any business that facilitates a paid membership and/or subscription program. Beyond the monetary penalties and as stated above, the FTC’s lawsuit named individual Amazon executives, indicating the potential for personal liability. Specifically, businesses should provide clear and conspicuous disclosures on the material terms of their membership or subscription programs, including the cost, frequency of charges, term, and cancellation procedures. Given the FTC’s focus on whether cancellation procedures were symmetrical to enrollment procedures, businesses should also evaluate whether their cancellation process is as difficult or easy as it is to initially enroll. Finally, businesses should heed the FTC’s warning on implementing deceptive tactics to trick consumers into enrollments. In light of the regulatory scrutiny reflected here, proactive compliance with these principles can serve as a legal safeguard and essential component to maintaining consumer trust.
Originally published by InfoLawGroup LLP. If you would like to receive regular emails from us, in which we share updates and our take on current legal news, please subscribe to InfoLawGroup’s Insights HERE.