Online subscription services can be a convenience for consumers and a boon for businesses — especially now that so many people are shopping from home. But by law, companies are obliged to explain deal details upfront, clearly disclose any automatic renewal terms, obtain explicit consent from consumers before billing, and provide easy ways to cancel. The FTC just announced a $10 million settlement with online learning company ABCmouse, accusing it of violating established consumer protection principles. This case provides a lesson for subscription businesses about the dangers of letting customers fall into the trap of negative options.
The Restoring Online Shopper Confidence Act (ROSCA) makes it illegal to charge consumers for products sold through negative online options unless the seller:
- Clearly and conspicuously disclose important terms of the transaction before obtaining the consumer’s billing information;
- Obtain explicit informed consent from consumers before charging; and
- Provide a simple mechanism to stop recurring charges.
In addition, deceptive or unfair conduct related to negative options and failure to disclose material information may also violate the FTC Act.
California-based Age of Learning, Inc. operates ABCmouse, a membership learning site that allows parents to provide children ages 2 to 8 with access to educational content. In addition to its $9.95 monthly membership, ABCmouse also advertises a “special offer” – a 12-month membership is $59.95. But from 2015 through at least 2018, the company failed to clearly disclose that memberships would automatically renew, charging consumers’ credit cards without their explicit authorization, making it difficult for consumers to stop these recurring charges, according to the FTC.
ABCmouse also offers consumers who sign up for a 30-day “free trial” membership the ability to extend their trial for $39.95 (12 months) or $29.95 (6 months). But ABCmouse again failed to clearly disclose that consumers would be automatically and repeatedly charged after the initial period, according to the FTC. The complaint alleges that ABCmouse only disclosed key terms of the offer on a separately linked “Terms and Conditions” page. Even if consumers know to look there (which is a big assumption), the FTC says the details are buried in dense text, small fonts and single-spaced fonts.
Additionally, for potential customers who may be on the fence, the company promotes a so-called simple cancellation process as part of its sales pitch: “Cancel easily. If your family doesn’t like ABCmouse that much, you can cancel anytime!” But when consumers want to When it came time to cancel their memberships and stop recurring charges, the FTC said ABCmouse left them navigating a confusing hide-and-seek maze — anything but a “simple mechanism” under ROSCA.
For example, the company only allows order cancellations through an online link, which the FTC says is difficult for people to find and difficult to complete. More than 100,000 angry consumers tried to cancel their orders through the “Contact Us” link on ABCmouse’s customer support page. But instead of meeting those demands, the company responded, “A member’s account can only be canceled by that member on the website, not by email or any other means.” ABCmouse offers a novel justification for its policy : Purportedly concerned that accounts could be canceled “accidentally or maliciously.”
In addition to the $10 million verdict, the proposed order also establishes provisions to protect future consumers. Among other things, the order prohibits misrepresentations of negative options, including deceptive representations related to “free,” “trial,” “sample” or “no obligation” offers. ABCmouse must also disclose the terms of negative options “clearly, conspicuously, and immediately adjacent” to claims about “free, trial, no-obligation, reduced, upgraded or discounted” offers, meaning no more hard-to-find and hard-to-read fine print. In addition, companies must follow up on customer orders with written confirmation.
Other companies selling online subscriptions can take some cues from the FTC’s action against ABCmouse.
Listen to your customers. Want to know what consumers think of your marketing methods? The answer is probably as close as your Inbox. ABCmouse has received tens of thousands of complaints about its auto-renewal and cancellation policies. In January 2015, the company conducted an internal review and found recurring customer support issues, such as “the subscription page was misleading” and “customers were confused about the billing plan when signing up, and customers didn’t like their service.” . [are] No automatic renewal notification was received. But the company’s policy remains unchanged, according to the FTC. More than a year later, an ABCmouse employee described consumers’ concerns as “the standard ‘I only subscribed for 1 year and now I’m being billed again'” ‘complaint. ” Here’s a tip: If one of your own employees calls it a “standard” complaint, it’s worth considering carefully.
The cancellation method must be free of red tape and hassle. According to ROSCA, it is illegal to offer online negative options unless you provide “a simple mechanism for consumers to stop recurring charges to their credit cards, debit cards, bank accounts or other financial accounts.” Hard-to-find links, mazes of cancellation paths, and consumer-unfriendly policies won’t solve the problem. Not only is this the law, it’s also good business. Relationships that end on friendly terms are more likely to be rekindled in the future. Showing customers how easy it is to cancel a reservation may make them more willing to return in the future.
A key component of consumer confidence is transparency. Of course, the conduct challenged in ABCmouse’s complaint occurred before the pandemic. Still, now is a critical point for companies that sell through subscription models. Consumers appreciate the convenience of delivery, but how will they react when the high street reopens? Companies that clearly explain the nature of the transaction up front, obtain explicit consent from consumers before being billed, and make it easy for them to cancel (in other words, companies that are ROSCA compliant) are more likely to build a satisfied customer base.
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