On November 3, the FTC announced that it entered into a significant $100 million settlement with Vonage to resolve allegations relating to the internet phone service provider’s sales and autorenewal practices. The FTC alleged that Vonage violated both the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA) by failing to provide a simple cancellation mechanism, failing to disclose material transaction terms prior to obtaining consumers’ billing information, and charging consumers without consent.
Based on the available materials, it appears that Vonage’s process for subscription cancellation was at the heart of the FTC’s concerns, as the complaint presents a sharp contrast between the sign up processes available to consumers (website and telephone) and those for cancellation (telephone only). The complaint alleges that consumers who sought to cancel their service by telephone – often after attempting to cancel through email or web chat – encountered a series of obstacles, including “obscured” contact information, long wait times, dropped or unanswered calls, lengthy sales pitches, and “unexpected” early termination fees.
The FTC has begun to refer to these types of obstacles as “Dark Patterns,” a vague term the agency uses to suggest consumer “manipulation.” The agency’s recent staff report on Dark Patterns discussed subscription cancellation issues nearly identical to those in the Vonage complaint. In this regard, it is notable that the consent order resolving the Vonage matter will forbid the company from using, in connection with subscription cancellation, “a user interface that has the effect of impeding consumers' expression of preference, manipulating consumers into taking certain action or otherwise subverting consumers' choice.”
The consent order also reflects the FTC’s interpretation of ROSCA’s “simple” subscription cancellation requirement to require an online cancellation process for subscriptions offered online. No such requirement appears in the statute, but the FTC’s non-binding enforcement policy statement advises merchants to offer cancellation methods “at least as easy” as sign ups, and by the same medium.
The FTC’s complaint also takes aim at Vonage’s early termination fees, describing them as inadequately disclosed and used to deter cancellation. In October, the FTC announced a rulemaking to crack down on “junk fees” that inflate consumer costs without adding value. While the FTC’s advance notice of proposed rulemaking made only passing reference to cancellation fees, the FTC’s use of the term “junk fees” in its Vonage press release is more pronounced.
If you have any questions concerning the material discussed in this client alert, please contact the members of our Advertising and Consumer Protection practice.
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