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In a development that underscores the Federal Trade Commission’s (FTC) growing scrutiny of the “merchant of record” model, the commission announced a $5 million settlement with UK-based Paddle.com Market Limited (Paddle), which processed payments for multiple businesses that allegedly sold deceptive tech support software subscriptions to U.S. consumers. The Paddle settlement, which follows a series of earlier actions involving merchants of record, suggests that the FTC has expanded its focus from the traditional payments industry to more novel models that support merchant aggregation and related services. The settlement also presents another novel use of the FTC’s authority under the Restore Online Shoppers’ Confidence Act (ROSCA), which has become a favored tool of the FTC in policing sales and recurring billing practices that the commission deems unfair or deceptive.

FTC Allegations and Merchant of Record Concerns

Over the past decade, global e-commerce has grown dramatically, with merchants selling goods and services to consumers around the world. Given the complexity of cross-border sales, many e-commerce merchants have partnered with payments companies that process sales for the merchant as the “merchant of record,” and which may provide other ecommerce services, such as sales fulfillment and tax remittance. Although the merchant of record model has grown in popularity, the concept is not expressly recognized by the card network rules, which generally require merchant aggregators to register as payment facilitators.Continue Reading FTC Targets “Merchant of Record” for Unlawful Payment Processing, TSR, and ROSCA Violations

This week, the Federal Trade Commission (FTC) filed a lawsuit in federal court against rideshare and delivery company Uber for allegedly deceptive subscription practices, including making it unreasonably difficult to cancel.

In the accompanying press release, FTC Chair Andrew Ferguson made clear that regulatory scrutiny of negative option and continuity programs will remain a priority: “Americans are tired of getting signed up for unwanted subscriptions that seem impossible to cancel. The Trump-Vance FTC is fighting back on behalf of the American people.” The agency voted 2-0-1 to file the complaint, with Commissioner Mark R. Meador recused.Continue Reading FTC Makes Clear It Will Continue Regulating Subscription Services and Signals Enforcement Priority for Negative Option Rule in Lawsuit Against Uber

This week, the Federal Trade Commission (FTC) and the Illinois attorney general announced a settlement with Grubhub Inc. to resolve allegations that the company engaged in an array of unfair and deceptive practices that violated Section 5 of the FTC Act, the Restore Online Shoppers’ Confidence Act (ROSCA), the FTC’s new Impersonation Rule, and Illinois state consumer protection laws. The FTC announced the case as Chair Lina Khan’s tenure at the helm of the FTC comes to an end, and the case highlights many of the approaches Khan has pushed for during her reign.

The complaint alleged that Grubhub, an online food ordering and delivery platform, engaged in practices that harmed diners, delivery workers, and restaurant owners. Grubhub reportedly deceived diners by advertising low or no delivery fees but then added hefty charges at checkout. Even members of the company’s subscription program, Grubhub+, who paid $9.99 per month for “unlimited free delivery,” were charged these additional fees without proper disclosure.Continue Reading FTC and Illinois Attorney General Settle with Grubhub for Deceptive Practices

Companies that care about avoiding Federal Trade Commission (FTC) action should take heed. Last month, the FTC announced an $8.5 million settlement with Care.com, resolving claims challenging its advertising claims and automatic renewal program.

The challenge demonstrates the FTC’s willingness to use the Restore Online Shoppers’ Confidence Act (ROSCA) to target advertising claims.

Care.com offers a platform connecting job posters and job seekers. Users sign up as basic members or premium members. According to the FTC’s complaint, basic members could create job postings, but only premium members could hire. The FTC alleged that Care.com’s advertising inflated the number of jobs available on its site by including jobs “for which there is little to no chance a job seeker could be hired.”Continue Reading Handle Autorenewal Programs with Care: Federal Trade Commission Targets Care.com for Alleged Dark Patterns and Earnings Claims

Last week, the Federal Trade Commission (FTC) issued a press release, announcing a $100 million settlement with Vonage, an internet-based telephone service company, for alleged violations of the Restore Online Shoppers’ Confidence Act (ROSCA). The action underscores the FTC’s continued focus on “dark patterns” and illustrates the agency’s efforts to require companies to go beyond the plain requirements of ROSCA in enforcement settlements.  

The FTC’s complaint alleged that Vonage offered free trials to business and residential customers for telephone plans. Unless the customer took affirmative action to opt out before the trial ended, Vonage would enroll the customer in an autorenewing monthly phone plan.Continue Reading Vonage, Autorenewals, and the FTC’s Ever-Expanding Interpretation of ROSCA

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Although the concept is not new, challenges to “dark patterns” are rising all over the country.  The Federal Trade Commission, Consumer Financial Protection Bureau, state attorneys general, and class action plaintiffs increasingly cite this phrase in such complaints as deceptively enrolling consumers…

With several new state laws effective in 2022, it is becoming increasingly difficult for businesses to develop baseline compliance protocols across federal and state automatic renewal laws.

Against this backdrop, federal and state regulators continue to examine the sales practices of companies that sell products and services on an automatically renewing basis; states continue to pass new laws—and strengthen existing laws—that further embolden private plaintiffs and class action lawsuits; and the card brands have imposed increasingly strict requirements on companies offering products and services on a negative option basis.

Here we break down the compliance challenges posed by varying state laws addressing automatic renewal programs (also known as continuous service, continuity, subscription, or negative option programs), how newer card brand rules further stir the pot, and the low-hanging fruit that law enforcement agencies and private plaintiffs are going after for monetary redress and injunctive relief.Continue Reading State Automatic Renewal Laws Are Starting to Look Like a Patchwork Quilt as the FTC Expands Enforcement of ROSCA

With Halloween just days away, it is perhaps fitting that the FTC has issued a new enforcement policy statement warning companies not to employ dark patterns to trick customers into a subscription plan. As we covered previously, the FTC has identified dark patterns—or website design features used to deceive consumers—as a priority for both rulemaking and enforcement actions. The timing of the announcement is a bit curious as the FTC is in the middle of a rule making on negative option marketing. More below from Commissioner Wilson on that.

The enforcement policy statement in many ways reflects the requirements of the Restore Online Shoppers Confidence Act (ROSCA) and established FTC precedent regarding negative option marketing. The FTC has been active against companies who hide their subscription programs behind links, have made customers undergo several attempts to cancel their subscription, or companies who failed to disclose that the benefits of their subscription did not exist anymore.Continue Reading FTC Issues Dark Forecast for Dark Patterns in Subscription Auto-Renewal

This week, the Federal Trade Commission (FTC) announced a proposed settlement with MoviePass to resolve allegations that the company offered an automatically renewing movie subscription program but blocked paid subscribers from using the advertised services, and failed to adequately secure subscribers’ personal data.

The FTC brought the case against MoviePass under the Restore Online Shoppers Confidence Act (ROSCA), the federal statute governing online negative option programs. The statute requires sellers to clearly and conspicuously disclose all “material terms of the transaction” and obtain consumers’ express informed consent before charging them for online negative option features.

However, the FTC’s complaint did not take issue with the company’s billing disclosures or consent mechanism. Instead, it asserted that the company’s failure to disclose its deceptive tactics that prevented subscribers from accessing all of the advertised benefits violated ROSCA. In the complaint the FTC alleged that MoviePass, Inc deceptively marketed a MoviePass subscription service that allowed customers to view movies at local theaters for a monthly fee. However, once customers purchased a subscription, MoviePass allegedly used various methods to prevent subscribers from accessing the advertised service. For example, to limit the movies that customers could view, MoviePass allegedly blocked account access by invalidating subscriber passwords under the guise of “suspicious activity or potential fraud.” The FTC asserted that resetting a password was cumbersome and often failed, precluding subscribers from regaining access. Next, the FTC alleged that MoviePass’s operators implemented a ticket verification program that required users to submit pictures of their physical movie ticket stubs for approval through the app within a certain time frame after purchase. Users who failed to submit their ticket stubs would be blocked from viewing future movies and could risk subscription termination. Third, MoviePass allegedly used “trip wires” to block certain groups of subscribers—heavy users who viewed more than three movies per month—from using the service to purchase more tickets. These allegations seem to echo statements from the FTC’s Dark Patterns workshop (we blogged about the workshop here), which discussed ways the FTC should address websites and apps that impair consumers’ autonomy, decision making, and choice.Continue Reading Lights, Camera, Action! FTC Settlement Signals Novel Use of ROSCA

The laws and regulations surrounding subscription-based offers continue to change on a regular basis. Federal and state regulators and private plaintiffs continue to lodge challenges against companies selling products and services on a recurring basis. Moreover, new cases and law enforcement activity offer evolving interpretations on how to comply. Given the substantial developments, companies offering products or services on an automatically renewing basis should take heed.

The primary federal regulator of autorenewal programs, the Federal Trade Commission (FTC), remains as active as ever in enforcing the Restore Online Shoppers’ Confidence Act (ROSCA), the federal statute governing online negative option programs. The FTC has filed multiple new lawsuits against companies selling products and services on a negative option basis and continues to litigate cases that it has filed.

The district attorneys in the California Automatic Renewal Task Force have also continued to bring actions at a furious pace, demonstrating their clear intention to pick up where the FTC has left off. In fact, the task force recently filed a lawsuit in California state court against Match.com, even though the FTC had already filed a lawsuit against the company. The California district attorneys also announced settlements with Classmates.com, Home Chef, CheckPeople.com, and Care.com, among other companies, and the consent decrees have imposed increasingly stringent requirements on the settling businesses.Continue Reading Automatic Renewal Programs: Latest Updates