In his impassioned separate statement accompanying the FTC Stipulated Order in a recent case, Commissioner Chopra decried the use of “dark patterns” by bad actors, that is, “design features used to deceive, steer, or manipulate users into behavior that is profitable for an online service, but often harmful to users or contrary to their intent.” Designing a site that tricks consumers into signing up for a product they don’t want, and making it almost impossible for them to stop paying, is such a dark pattern. Easy to get in, but almost impossible to escape: in Commissioner Chopra's words, a "roach motel."
According to Commissioner Chopra, the membership-based online learning tool for young kids, ABCMouse, operated by online children’s education company, Age of Learning, Inc, was such a roach motel. And as a result, per a settlement with the FTC, the company will pay $10 million and will be required to significantly change its negative option marketing and billing practices.
According to the FTC’s complaint charging the company with violation of ROSCA and the FTC Act, the company failed to adequately disclose key terms of its membership programs, including that the subscriptions automatically renew, that the company would charge members each year unless they cancel, and how to cancel. And, although the site prominently promised “Easy Cancellation,” the company made actual cancellation exceedingly difficult for consumers: “Many consumers tried without success to cancel by calling, emailing, or contacting Defendant through a customer support form. Rather than accepting these cancellation methods, Defendant instead required consumers to find and navigate a lengthy and confusing cancellation path that repeatedly discouraged consumers from canceling and, in many instances, resulted in consumers being billed again without their consent.”
Notably, according to the complaint, the company used pre-checked enrollment boxes for its membership programs and buried the auto-renew disclosures in hyperlinked terms and conditions. Thousands of consumers complained that they did not know that ABCmouse memberships would automatically renew. Further, even though the company knew that there was significant consumer confusion regarding its membership terms and cancellation mechanism, the company enforced a no-refund policy, compounding the consumer injury.
The Proposed Order imposes a $10 million judgment as equitable monetary relief and has detailed requirements and prohibitions for the company’s subscription program which, though targeted at ABCMouse, are instructive for other marketers of subscription and auto-renew programs. Specifically, the Order requires the company to, of course, obtain express informed consent for the negative option feature. What that means here is that the company must obtain the consumer’s consent through a check box, signature, or other substantially similar method, which the consumer must affirmatively select or sign to accept the negative option feature, and no other portion of the offer. Plus, the checkbox (or other method) must be accompanied with specific disclosures: (1) The extent to which the consumer must take any affirmative action to avoid any charges: a) for the offered good or service, b) of an increased amount after the trial or promotional period ends, and c) on a recurring basis; (2) The total cost (or range of costs) the consumer will be charged and, if applicable, the frequency of such charges unless the consumer timely takes steps to prevent or stop such charges; and (3) The deadline(s) (by date or frequency) by which the consumer must affirmatively act in order to stop all recurring charges.
Further, the company must make these same disclosures immediately adjacent to any marketing copy that touts a good or service provided on a “free,” “trial,” “sample,” “bonus,” “gift,” “no obligation,” “discounted,” “upgraded” basis (or similar words), when such good or service is provided on a negative option basis. In addition, the company must make all these disclosures, plus the following additional ones, immediately adjacent to where billing information is collected: the name of seller; a description of the goods or services; and the cancellation mechanism plus any costs the consumer will be responsible for when cancelling. And all of this information must also be provided to the consumer in a confirmation notice after the purchase. And, finally, the cancellation mechanism itself must “not be difficult, costly, confusing, or time consuming, and must be at least as simple as the mechanism the consumer used to initiate the Charge(s).”
Negative option programs provide a steady source of revenue for marketers and can be very convenient for consumers. But, as the many recent enforcement actions demonstrate, they must be executed in a consumer-friendly manner, with clear and fulsome disclosures, well-documented consent, and easy cancellation methods.
(Description of image for visually-impaired readers: screen shot of ABCMouse marketing offer on its website.