$10M FTC Settlement Highlights Importance of Auto-renewal Transparency
The Federal Trade Commission (“FTC”) settled charges with Age of Learning—the operator of ABCmouse, a digital learning program for children—that the company: (1) failed to disclose material auto-renewal terms, (2) did not obtain consumers’ express consent to recurring subscription charges, and (3) misrepresented its cancellation policies and procedures in failing to provide a simple cancellation mechanism. The FTC alleged these practices were not only unfair and misleading, but that they also violated the Restore Online Shoppers Confidence Act (“ROSCA”). As a result of the settlement, Age of Learning will pay $10 million and revise its marketing, disclosure, and billing practices.
In its complaint, the FTC alleged that Age of Learning unfairly billed ABCmouse users without proper authorization and failed to disclose to consumers that they would be charged on a recurring basis until they cancelled. Prior to 2018, ABCmouse relied exclusively on information in its Terms & Conditions describing the recurring charges. After receiving a Civil Investigative Demand from the FTC, ABCmouse added information to the membership purchase page, but the FTC alleged that even that disclosure was buried in dense text, in small font and was unlikely to be seen by consumers. ROSCA (like many state auto-renewal statutes) requires businesses to provide clear and conspicuous notice of relevant auto-renewal terms (also known as negative option features), and obtain the consumer’s affirmative consent before charging them. As the FTC has regularly asserted before in similar enforcements, disclosing auto-renewal terms in a separate set of terms and conditions or inconspicuously on the membership purchase page was not sufficient.
According to the FTC, ABCmouse’s failure to adequately disclose the auto-renewal terms was exacerbated by its cancellation process and policies. ABCmouse’s registration page announced that it offered “Easy Cancellation – If your family does not love ABCmouse, you can cancel at any time!” However, in reality, a consumer could only terminate a subscription by navigating to a difficult to locate “Cancellation Policy” link and then clicking through a series of web pages, which were cluttered with advertisements and promotions aimed at convincing the consumer not to cancel. If a consumer clicked on any of the promotional links, the cancellation process would stop and the consumer would have to start over. In some cases, even if consumers cancelled their primary subscription, ABCmouse continued to charge subscription fees for various add-on features and content. The FTC alleged that these cancellation practices and obstacles violated ROSCA—which requires businesses selling auto-renewing services to provide a simple means of stopping the recurring charges—and constituted unfair and deceptive practices.
Under the settlement, in addition to paying a $10 million fine, ABCmouse must (1) clearly notify consumers of the terms of the available subscription plans, (2) obtain consumers’ informed consent before enrolling them in any auto-renewal programs, (3) provide simple and effective cancellation mechanisms, and (4) fulfill compliance reporting obligations for 20 years. The hefty fines and injunctive relief serve as a reminder that building out transparent auto-renewal practices is not just good customer service, but also legally required.