Last week, the FTC filed a civil case against Amazon alleging that the company used “dark patterns” to enroll people in its Prime program. The case continues a pattern initiated by FTC Chair Lina Khan of challenging web-based marketing tactics of consumer-facing businesses as deceptive and anticompetitive on the grounds that they impede consumer choice and can be used by dominant firms as a tactic to exclude competitors.
For more about the Amazon case, see our legal alert. On August 8, 2023, from 12:00 p.m. to 1:00 p.m. ET, Ballard Spahr will hold a webinar, “Shining a Bright Light on Digital Dark Patterns.”
Two “footnotes” regarding the FTC’s action are worth adding. First, the FTC, in the summary of the case set forth in the complaint, alleges that “Amazon used manipulative, coercive, or deceptive user-interface designs known as ‘dark patterns’ to trick consumers into enrolling in automatically-renewing Prime subscriptions.” However, the FTC’s primary legal theory, as set forth in Count I of the complaint, appears not to rely on deception but rather on unfairness. Specifically, in Count I of the complaint, the FTC alleges that, by enrolling customer’s without their express informed consent, Amazon engaged in unfair acts or practices in violation of Section 5 of the FTC Act.
While the complaint does allege “unfair or deceptive acts or practices” by Amazon, it only does so in connection with Amazon’s alleged violations of the Restore Online Shoppers’ Confidence Act (ROSCA). The FTC alleges Amazon violated ROSCA by failing to clearly and conspicuously disclose all material terms of the transaction before obtaining consumers’ billing information, by failing to get consumers’ express informed consent before charging them, and by failing to provide a simple cancellation mechanism. In Counts II through IV of the complaint, the FTC alleges that because Amazon’s ROSCA violations are violations of a rule promulgated under Section 18 of the FTC Act, they constitute an unfair or deceptive act or practice in violation of Section 5 of the FTC Act.
In March 2023, the FTC issued a Notice of Proposed Rulemaking seeking comment on proposed amendments to the FTC’s Negative Option Rule. The proposed amendments, which would expand the scope of the rule’s coverage to all forms of negative option marketing and consolidate various requirements dispersed across various statutes and regulations such as ROSCA, include a “click to cancel” provision which would require a simple cancellation mechanism for consumers to easily cancel subscriptions by using the same method they used to initially enroll.
Second, it is also worth noting that the CFPB has indicated that the use of “dark patterns” and other marketing practices can constitute an abusive act or practice under the Consumer Financial Protection Act (CFPA). In April 2023, the CFPB issued a new policy statement regarding what constitutes abusive conduct. The CFPA defines “abusive” acts or practices as conduct that: “(1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (2) takes unreasonable advantage of (A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
The CFPB indicated there are two categories of conduct it finds generally abusive: (1) actions that obscure important features of a product or service, and (2) actions taking unreasonable advantage of consumers in certain circumstances. It described the first category of conduct it finds abusive as arising in situations where an entity “materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service.” The CFPB indicated that the forms that interference can take include “buried disclosures, physical or digital interference, or overshadowing.” As examples of buried disclosures, the CFPB listed “fine print, complex language or jargon, or providing disclosures after the consumer has made a decision.” With respect to physical and digital interference, the CFPB listed “the use of pop-up or drop-down boxes, multiple click-throughs, or other actions or ‘dark patterns’ that have the effect of making the terms and conditions materially less accessible or salient.”
In January 2023, the CFPB issued a circular addressing the circumstances in which negative option marketing can be unfair, deceptive, or abusive acts or practices under the CFPA. In the circular, the CFPB stated that “[d]ark patterns can be particularly harmful when paired with negative option programs, causing consumers to be misled into purchasing subscriptions and other services with recurring charges and making it difficult for consumers to cancel and avoid such charges.”
We recently discussed dark patterns, including what regulators consider to be dark patterns and why they are a focus of regulatory concern, in an episode of our Consumer Finance Monitor podcast for which our special guest was Andrew Nigrinis, PhD, the Managing Principal of Edgeworth Economics and a former CFPB enforcement economist. Dark patterns were also discussed in an episode of our Consumer Finance Monitor podcast for which our special guest was Malini Mithal, Associate Director, FTC Division Of Financial Practices.
