The Federal Trade Commission protects e-commerce consumers from “dark pattern” tactics which prevent consumers from cancelling their services. Vonage agreed to pay $100 million – a record-breaking settlement amount – to the FTC to settle charges that it created a series of obstacles for its customers – both residential and business consumers – to cancel their service which included hidden termination fees.
In its Complaint filed in the United States District Court for the District of New Jersey on November 3, 2022, the FTC alleged that Vonage made it very easy to sign up but much harder to cancel a subscription contract, including by:
- Eliminating cancellation options: Since 2017, Vonage allegedly made the decision to force customers to speak with a live “retention agent” in order to cancel service. In contrast, customers could sign up for services online, over the phone, and through other venues.
- Making cancellation process difficult: The company allegedly: (1) made it difficult to find the phone number for the “retention agent” on the website, (2) failed to consistently transfer consumers to that number from the normal customer service number, (3) offered reduced hours the line was available, and (4) failed to provide promised callbacks.
- Surprising customers with expensive fees when attempting to cancel: Vonage allegedly charged early termination fees (“ETFs”) that were not clearly disclosed when the customer initially signed up for service. At times, these ETFs were hundreds of dollars.
- Charging customers who already cancelled service: Vonage allegedly continued charging customers and then only provided partial refunds when customers complained.
In its Complaint, the FTC alleged that these actions violated Sections 13(b) and 19 of the Federal Trade Commission Act, 15 §U.S.C. 53(b), 57(b), and Section 5 of the Restore Online Shoppers’ Confidence Act (“ROSCA”), 15 U.S.C. § 8404.
ROSCA was passed and effective in 2010 in order to help promote consumer confidence for online commerce and thus requires the Internet to provide accurate information and give sellers an opportunity to fairly compete with one another for consumers’ business. Section 2 of ROSCA, 15 U.S.C. § 8401.
Section 4 of ROSCA, 15 U.S.C. § 8403, generally prohibits charging consumers for goods and services sold in transactions effected on the Internet through a negative option feature, as that term is defined in the Commission’s Telemarketing Sales Rule (“TSR”), 16 C.F.R. § 310.2(w), unless the seller, among other things, (1) provides text that clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information, (2) obtains the consumer’s express informed consent for the charges, and (3) provides simple mechanisms for a consumer to stop recurring charges. The TSR defines a negative option feature as a provision in an offer or agreement to sell or provide any goods or services “under which the consumer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.” 16 C.F.R. § 310.2(u).
In the Complaint, the FTC alleged that Vonage violated ROSCA by failing to:
- provide required disclosures, including disclosing all material transaction terms such as the methods of cancelling services,
- obtain express informed consent before charging the consumer’s credit card, debit card, bank account, or other financial account for products, and
- provide a simple mechanism for stopping recurring charges.
Federal Trade Commission v. Vonage Holdings Corp., et al., No. 3:22-cv-06435 (D.N.J. Nov. 3, 2022). The FTC will use the $100 million settlement to provide refunds to Vonage consumers.
ABCmouse – disclosure membership terms: Similarly, in an earlier case, the FTC filed a Complaint against Age of Learning, Inc., which operates the children online learning program ABCmouse. Federal Trade Commission v. Age of Learning, Inc., a corporation also d/b/a ABCmouse and ABCmouse.com, No. 2:20-cv-7996 (C.D. Cal. Sept. 1, 2020). In that case, the FTC asserted that Defendant failed to disclose membership terms which led to consumers being charged without their consent, and the FTC settled with Defendant for $10 million.
Swifties and concertgoers – petition against Ticketmaster: As recently as last week, Taylor Swift fans (a/k/a Swifties) and concertgoers petitioned for an investigation regarding fees charged and processes of the website operated by Ticketmaster. Stay tuned!
In sum, companies should evaluate their e-commerce disclosures, fee structures, and process for providing/ending service.