In one of the first settlements since the new administration took office, the Federal Trade Commission (FTC) announced a $17 million monetary judgment with Cleo AI to resolve allegations that Cleo violated Section 5 of the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA). Cleo operated a personal finance mobile app that purportedly allowed consumers to take out “instant” or same-day cash advances. The vote to authorize the settlement was 2-0.

According to the complaint, Cleo advertised that consumers could access same-day or instant cash advances in the hundreds of dollars. The FTC alleged that when consumers attempted to use Cleo’s services, they were required to enroll in an automatically renewing subscription service where they were charged a subscription cost of $5.99 or $14.99 monthly. Only after the consumers entered in their payment information and enrolled in the subscription service did Cleo disclose to consumers the cash advance they were eligible for.

According to the FTC’s complaint, almost no consumers received the advertised cash amounts and it sometimes took days for consumers to actually receive the cash. While Cleo advertised up to $250 to $500 in cash advances, users were routinely offered amounts under $100. The FTC alleged that many users complained that the offered cash advance was negligible. Furthermore, users were charged additional fees if they wanted to receive the cash the same day, but the agency claimed that such fees were not clearly disclosed.

Prior Republican FTC commissioners had criticized the FTC’s use of ROSCA to challenge alleged misrepresentations that did not go to the continuity aspects of the transaction. Consistent with its defense of the Click to Cancel Rule, it appears the current FTC is willing to use ROSCA broadly to attack all aspects of a transaction that has a negative option component.

When consumers attempted to cancel their subscription, Cleo allegedly made it difficult to cancel until the cash advance was fully repaid. During that time, the company continued to charge customers for subscription plans. Cleo told users that its systems would “not allow” them to cancel or that they were “unable” to cancel because the user had an outstanding loan with the company.

The settlement prohibits Cleo from making any misrepresentations regarding the cash advances, any fees, and the automatically renewing subscription services. As with prior ROSCA settlements, Cleo must now obtain consumers’ unambiguously affirmative consent to the subscriptions through a check box, signature, or other substantially similar method.

Want to learn more about automatic renewals, continuous service, and negative option offers? Reach out to one of the authors or to Venable’s Autorenewal Solutions Team (VAST), which guides clients through all phases of automatic renewal programs.

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