Subscription Service Agrees to Pay $10 Million for Automatic Renewal Law Violations

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Earlier this month, the Federal Trade Commission (FTC) announced a $10 million settlement with the online learning company ABCmouse for allegedly violating the FTC Act as well as the Restore Online Shoppers’ Confidence Act (ROSCA). The FTC Act prohibits unfair or deceptive acts or practices in or affective commerce. ROSCA makes it illegal to automatically charge consumer for products sold online unless the seller clearly discloses the material terms of the transaction before obtaining the consumer’s billing information; obtains the consumer’s express informed consent before making the charge; and provides simple mechanisms to stop recurring charges.

ABCmouse is an online learning tool that offers memberships to access content. The FTC alleged that ABCmouse violated ROSCA by offering memberships to their services, but did not disclose that the memberships would automatically renew indefinitely. Similarly the FTC claimed that ABCmouse offered a free trial with the option to extend membership beyond the trial period, but did not disclose that at the end of the free trial the membership would automatically renew indefinitely.

The FTC also claimed ABCmouse did not offer consumers a simple way to stop the automatic renewal, despite offering “easy cancellation” when the user enrolled in their membership. The FTC alleged that more than 100,000 users attempted to cancel their services with ABCmouse. Those users who tried to cancel were required to participate in a lengthy process to stop the automatic renewals and some users found that even after they had tried to cancel their membership, the charges did not stop. Additionally, ABCmouse did not make the required disclosures to their users about the automatic renewals, the ability to cancel the automatic renewals, or the deadline by which they would need to cancel their membership in order to avoid unwanted charges.

ABCmouse has agreed to the FTC’s settlement which requires ABCmouse to:

  • Not misrepresent any automatic renewals;
  • Make required disclosures about the automatic renewals and a user’s ability to cancel;
  • Obtain express informed consent for automatic renewals; and
  • Provide a simple mechanism to opt out of the automatic renewals.

The FTC warned in its blog post about the ABCmouse settlement that because of COVID-19, it is more important now than ever that companies that rely on automatic renewals do so legally. More people are signing up for subscriptions services that they may no longer wish to have once things return to normal. It is important for companies that use automatic renewals follow the requirements of ROSCA as well as any state laws surrounding automatically renewals so that consumers may stop the automatic renewals at any time. For more information about automatic renewals, see our previous blog post which details both the federal and state requirements for automatic renewals.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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