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Businesses love subscription services for the recurring revenue they generate, but federal regulators are keeping a close eye on how they enroll consumers and keep them as subscribers.
The US Federal Trade Commission’s recent complaint against Amazon is one of several actions the agency has taken against what it alleges to be deceptive subscription service practices.
The FTC accuses Amazon of tricking users into signing up for its Prime program and making it hard to cancel their membership. The FTC Amazon Prime complaint, announced June 21, follows numerous FTC actions alleging illegal subscription practices.
In March, the agency stepped up its efforts to protect consumers by proposing new rules to make it easier for consumer to cancel subscriptions.
FTC says Amazon duped consumers into signing up for Prime
According to the FTC lawsuit, Amazon used “dark patterns” — deceptive wording and designs in user interfaces — to trick millions of consumers over several years into enrolling in its Prime program.
The e-commerce giant also made it hard for Prime subscribers to cancel their membership with a process designed to stop them from doing so, the FTC said, citing an Insider report about Amazon referring to the process internally as “Iliad” for the ancient Greek epic poem.
Amazon Prime subscription fees account for $25 billion of the company’s annual revenue, according to the complaint. The program had an estimated 167 million subscribers in the US last year.
“Amazon tricked and trapped people into recurring subscriptions without their consent, not only frustrating users but also costing them significant money,” FTC Chair Lina M. Khan said in a statement.
“These manipulative tactics harm consumers and law-abiding businesses alike. The FTC will continue to vigorously protect Americans from ‘dark patterns’ and other unfair or deceptive practices in digital markets,” she added.
The FTC’s action against Amazon is a reportedly a precursor to a much larger antitrust suit that it’s preparing. According to Bloomberg, the agency plans to file a suit focused on the e-commerce giant’s marketplace practices later this summer.
Amazon refutes FTC Prime allegations
In an emailed statement, an Amazon spokesperson rejected the FTC’s claims, calling them “false on the facts and the law.”
“The truth is that customers love Prime, and by design we make it clear and simple for customers to both sign up for or cancel their Prime membership,” the spokesperson said.
Amazon said it continually listens to customer feedback across and works to improve customer experience across its portfolio of products and services. The spokesperson said the company looks forward to the facts becoming clear.
“We also find it concerning that the FTC announced this lawsuit without notice to us, in the midst of our discussions with FTC staff members to ensure they understand the facts, context, and legal issues, and before we were able to have a dialog with the Commissioners themselves before they filed a lawsuit.”
Buyer beware: FTC cracks down on hard-to-cancel services
The action against Amazon is just the latest effort by the FTC to protect consumers of subscription services.
It has sued numerous companies over what it alleges are illegal subscription practices, including hiding payment information or making consumers wait on hold before they could cancel.
- Last October, the agency issued a policy statement designed to put companies on notice that their subscription sign-up process must be clear and make it easy for consumers to cancel.
- The FTC announced a settlement with Vonage last November over charges that the internet phone service provider imposed excessive fees and used dark patterns to make it hard for customers to cancel. The settlement requires Vonage to simplify its cancellation process and pay $100 million in refunds to customers.
- In 2020, the agency reached a settlement with ABCmouse over claims that the online learning app forced consumers through a confusing cancellation process that ultimately steered them away from cancelling. The app also failed to tell customers their subscription would automatically renew, the FTC said.
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Proposed subscription service requirements
The agency’s “click-to-cancel” rule provision aims to protect consumers by requiring companies to make it as easy to cancel a membership as it is to enroll.
The provision is part of the FTC’s efforts to update its 50-year-old Negative Option Rule, which is used in cases of unfair or deceptive subscription and recurring payment programs. The agency says the rule needs to be updated for the digital age, and that it gets thousands of complaints from consumers about companies making it hard to cancel services.
As proposed, businesses offering subscription services would be required to:
- Provide customers with a simple process to cancel their subscription or membership.
- Before offering consumers who want to cancel their subscription additional perks or benefits, ask them if they want to hear about new offers. A seller must take “no” for an answer and immediately start the cancellation process, the FTC said.
- Provide an annual renewal reminder to customers enrolled in negative option programs for non-physical items.
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Do right by your customers
Subscription commerce continues to grow as more and more businesses adopt the model, offering everything from beauty supplies and clothing to meals and more. The market was estimated to reach $904 billion in 2026, up from $120 billion last year.
But a subscription business can’t succeed without good customer experience. Customers have shown that they like the ease and convenience of a service. However, if they can’t easily see service terms, alter their subscription or cancel it if they no longer need or want it, brands run the risk of losing consumer trust and damaging their reputation.
And most businesses can’t afford to run afoul of regulators.
