What the FTC’s decision to crack down on deceitful subscription services means

The US Federal Trade Commission has announced that it will take new measures of enforcement against service models that trick consumers into subscriptions and make it difficult for them to cancel. Here’s what you need to know.

The FTC is cracking down on illegal dark patterns and shady subscription service models

What happened

• The FTC published a new enforcement policy statement explaining that it will be cracking down on illegal ‘dark patterns’ – manipulative user interfaces that con users into sharing their data or trap them in difficult-to-get-out-of subscriptions. Common illegal practices include deceptive sign-up tactics, impossible-to-cancel billing models, shady automatic renewal plans and unauthorized credit card charges.

• The agency said it is cracking down in response to an influx of complaints about ‘click to subscribe, call to cancel’-type schemes that often gouge consumers financially.

• Samuel Levine, director of the agency’s Bureau of Consumer Protection, said in the statement: “Today’s enforcement policy statement makes clear that tricking consumers into signing up for subscription programs or trapping them when they try to cancel is against the law. Firms that deploy dark patterns and other dirty tricks should take notice.”

• Under the new enforcement policy, businesses are required to adhere to a handful of key requirements or they be penalized. These include:

1. Clearly and conspicuously disclosing all applicable terms of the service or product, including cost, frequency of charges, how to cancel, deadlines for cancelation and general information about the product or service itself that ensure consumers are not being tricked into purchase.

2. Getting consumers’ ‘express informed consent’ before charging them. Under this requirement, businesses must ensure consumers accept the ‘negative option feature.’ These are the terms that outline certain instances in which a consumer’s failure to take action equates to consent to be charged – separately from other parts of the deal. The negative option feature can’t be written or presented in a way that hampers consumers’ ability to understand and provide their informed consent.

3. Offer straightforward, easy ways to cancel. Under this requirement, businesses need to ensure that canceling a subscription is done through a means that is similar or just as easy as signing up.

• The vote to issue the enforcement policy statement was passed in a three-to-one vote. Commissioner Christine S Wilson, a Trump-appointed member and one of just two Republicans currently serving on the FTC, voted against the policy and issued a dissenting statement.

• The FTC’s newly-appointed chair Lina Khan has been an outspoken advocate of consumer privacy and led the charge on the new policy statement. Khan, who prior to her appointment at the FTC worked as an attorney in competition and antitrust cases, tweeted: “Given complaints about unauthorized charges and impossible-to-cancel billing, FTC has issued a policy statement making clear that firms that trick customers into signing up for subscriptions or trap them when they try to cancel are breaking the law.”

• “This is eerily similar to what consumers faced in the ‘ringtone days,’ where it was extremely easy to sign up, but nearly impossible to cancel,” says Paul Roberts, founder and chief executive at adtech company Kubient. “With this change, the FTC will no longer tolerate what they perceive as companies victimizing consumers and this is just a new spin on an old scheme but reimagined for the new age.”

Why it matters

• The new policy expands upon the agency’s ongoing efforts to combat dark patterns and methods of consumer deceit.

• This is likely an indicator of more regulation to come. “The FTC has been very focused on dark patterns this year. It held a workshop on dark patterns earlier this year – which is typically an indicator of its enforcement focus,” says Jessica B Lee, partner and co-chair of privacy, security and data innovations at Loeb & Loeb, a New York-based law firm. “I expect that the recent enforcement policy statement is the first of many potential actions the FTC may take to police the use of dark patterns in a variety of contexts. The FTC has previously brought cases involving deceptive subscription practices ... The recent enforcement policy statement is setting the stage to allow it to bring civil penalties against companies that continue to engage in these practices. I would not be surprised to see the FTC police dark patterns in other areas – including privacy – in the near future.”

• Indeed, the FTC has in the past levied lawsuits against a range of misleading and duplicitous subscription practices. Last year, it scored a $10m settlement from ABCmouse, a children’s education company, which the FTC accused of unfairly billing customers and making it intentionally challenging to cancel subscriptions. As part of the settlement, some 200,000 consumers received refunds. Other cases have proved less effective, including a 2015 lawsuit against DirecTV in which a federal judge dismissed most of the FTC’s allegations that the broadcast satellite provider was conning customers into automatic charges.

• A variety of players in the news and media space have lobbied against stringent rules against such practices. Some of these organizations appear to be employing such nebulous practices themselves, per research from the American Press Institute. Earlier this year, it found that just 41% of US news publishers ‘make it easy’ to cancel subscriptions. It also says that six in 10 news outlets surveyed indicate that their customer service professionals are trained to dissuade customers from canceling their subscriptions when they reach out.

• Many privacy advocates have expressed optimism about the FTC’s ability to advance consumer data privacy protections in lieu of comprehensive federal legislation. Although a number of state-level bills are picking up steam – the most successful case of late has been the Colorado Privacy Act, which was signed into law earlier this year – experts are not bullish on the prospect of a GDPR-style federal law passing any time soon.

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