Subscription Lessons from US FTCs Latest Dark Patterns Settlement
The upshot, for busy people:
- On November 3, 2022, the Federal Trade Commission (FTC) announced a settlement with Voice over Internet Protocol (VoIP) provider Vonage where the company agreed to pay $100 million in connection with allegations that the provider made it too difficult for individual and business customers to cancel their subscriptions. The FTC’s press release characterizes the case as one of its “dark patterns” enforcement actions.
- The case highlights the FTC’s increased focus on subscription plans. The complaint and consent order also provide a roadmap of the FTC’s version of dos and don’ts with respect to how to obtain consumer consent and how to provide easy methods of cancellation. Companies that offer subscription plans should consider reviewing their own subscription products to see if they trip any of these wires.
Subscriptions and Dark Patterns
The FTC recently has had subscription plans on its to-do list.
Since the Supreme Court held that the agency could not obtain monetary penalties for first-time violations of Section 5 of the FTC Act—which the FTC had successfully done for the prior four decades—the FTC has scrambled to find other ways to force companies to pay money in its enforcement actions. One of the agency’s tools is the Restore Online Shoppers’ Confidence Act (ROSCA), which imposes specific obligations on plans that automatically renew unless consumers affirmatively cancel (referred to as negative option plans) and which allows the FTC to require money penalties for first-time violations. (State attorneys general also can enforce ROSCA, subject to FTC intervention.)
ROSCA is not by its terms limited to individual victims (and thus could apply to business-to-business (B2B) products, as I’ve discussed elsewhere) and prohibits any person for charging consumers in connection with a negative option unless that person:
(1) Clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information,
(2) Obtains express informed consent before charging the consumer, and
(3) Provides a simple mechanism for a consumer to stop recurring charges.
Although the agency has dealt with negative options elsewhere, including other rules that cover negative option plans (such as the Telemarketing Sales Rule and the Rule on the Use of Prenotification Negative Option Plans), the FTC leaned into enforcing ROSCA in October 2021, when the agency announced the issuance of an enforcement policy, creatively titled “Enforcement Policy Statement Regarding Negative Option Marketing.” The policy statement fleshes out, albeit in general terms, the three ROSCA requirements.
More recently, the FTC has incorporated these subscription rules into its new focus on “dark patterns,” a fuzzy term that the agency has defined at times as “practices that trick or manipulate users into making choices they would not otherwise have made and that may cause harm.” The agency’s September 2022 Staff Report, “Bringing Dark Patterns to Light,” explains its view that making cancellation difficult is a dark pattern.
Takeaways from This Case
Fast forward to this case. Vonage provides VoIP services to customers and small businesses via subscription plans, costing individuals from $5 to $50 per month and businesses in the thousands of dollars per month. These plans all relied on a negative option, and Vonage would continue to charge customers until they cancelled. According to the FTC’s complaint, it is very easy to sign up for a plan, either online or via telephone, but cancellation was not so easy, requiring lengthy telephone calls and early termination fees, and Vonage continued to collect fees even after consumers had cancelled. According to the FTC’s complaint, this conduct violated both Section 5 of the FTC Act and all three prongs of ROSCA.
The ROSCA-related allegations reveal important specific practices that the FTC thinks violate ROSCA. On the disclosure piece, the FTC alleged that the company had failed to disclose before consumers enter billing information, the method of cancellation and that cancelling a contract will require early termination fees. The complaint acknowledged that Vonage had disclosed those terms but that they were “buried in Vonage’s lengthy terms of service.”
The agency had a much longer list of issues with respect to cancellation. The complaint faulted a number of practices:
- Online registration is allowed, but online cancellation is not.
- Customers are required to call a specific telephone number for cancellation, but that number is buried on the website.
- Cancellation line calls often involve “circuitous transfers and dropped calls.”
- For small business customers whose plans limited them only to contacting Vonage via a chat system, waits have been compounded because they have to access the unreliable chat system first and then wait for a chat to then connect to the phone agent to cancel.
- Wait times have been excessive.
- The “call back” option to avoid wait times often has not led to customers who choose it being contacted.
- Agents have made aggressive sales pitches during telephone cancellation calls and are compensated based on the “save rate.”
- For business customers who cancel their subscriptions but wish to keep their telephone number, those customers would need to contact the company a second time to cancel.
- Early termination fees are high and not disclosed clearly and conspicuously when signing up. Notably, the fees are disclosed but require a customer to click on “view offer terms” and then see the smaller font at the bottom of the offer terms. For telephone offers, these fees have been disclosed only if a customer asked about cancellation.
- Businesses, who pay for annual service, are required to cancel 60 days before renewal or otherwise be liable for a whole year.
To settle the case, Vonage agreed to pay $100 million and comply with very specific disclosure and cancellation rules. Among other things, the order requires:
- Obtaining customer consent to the negative option feature using a consent mechanism (e.g., checkbox or signature) solely regarding the negative option, and immediately adjacent to the check box, and clearly and conspicuously disclosing the method of cancellation, deadlines for cancellation, and consequences of not cancelling.
- Cancellation mechanisms that are easy to find, easy to use to stop a charge, and not requiring the customer to take an action that is “objectively unnecessary” to cancel service.
- Cancellation mechanisms that use the same method that the customer relied on to sign up for the service.
Notably, many of these requirements would not apply to business customers who negotiated significant terms of the negative option feature.
What Does This Mean for My Business?
Any company that makes money through a subscription business should consider whether to review their subscription practices. With the importation of “dark patterns” concepts into the disclosure and cancellation requirements, the FTC may have come to the view that common industry practices—such as requiring consumers to cancel via telephone—are problematic. But in any event, companies should make sure that consumers would not be surprised by material aspects of a subscription product, including that it auto-renews, when it auto-renews, for how much, and how to cancel.