On November 3, 2022, the Federal Trade Commission (“FTC”) announced that it has entered into a consent order with internet phone service provider Vonage to settle allegations that it imposed “junk fees” on consumers and used “dark patterns” that prevented them from cancelling their service. Under the terms of the settlement, Vonage has agreed to pay $100 million in customer refunds, simplify its cancellation process, and enhance its disclosures.
The FTC alleges that Vonage failed to provide a simple method for customers to cancel their telephone services. While customers could easily enroll for services at any time online through Vonage’s website, Vonage did not allow online cancellation. In order to cancel their service, Vonage required customers to speak to a “retention” agent over the phone at a special telephone number that was not easy to access and operated during hours that were more limited than the main customer service telephone number. According to the complaint, Vonage did not inform customers during enrollment of this restriction on cancellation, and it was “buried in Vonage’s lengthy terms of service.” The FTC further alleges that contact information to cancel was obscured, wait times were long, calls were often transferred, dropped or unanswered, and customers wishing to cancel had to endure lengthy and repeated sales pitches and unexpected early termination fees. Vonage provided monetary incentive to its retention agents if they persuaded cancelling customers to change their minds. In some instances, customers who were able to cancel their service continued to be charged without their consent.
The FTC alleges that these acts constitute unfair acts or practices in violation of Section 5 of the FTC Act. Further, they allege that the failure to provide (i) required disclosures regarding the method of cancellation and an early termination fee, and (ii) simple mechanisms for stopping recurring charges, constitute violations of Section 4 of the Restore Online Shoppers’ Confidence Act (“ROSCA”), which restricts charging consumers for goods and services sold in internet transactions through a “negative option” feature without clear and conspicuous disclosure and informed consent. A “negative option” is defined in the FTC’s Telemarketing Sales Rule as a provision “under which the customer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.” 16 C.F.R. § 310.2(u).
The action against Vonage, filed in the U.S. District Court for the District of New Jersey, was approved by a 4-0 vote of the FTC’s commissioners.
In a blog post accompanying the settlement, the FTC analogized Vonage’s cancellation process to the Eagles’ Hotel California: “You can check out any time you like. But you can never leave.” Continuing that theme “[w]ith apologies to the Eagles,” the FTC highlighted the following takeaways for businesses:
“Relax, said the night man. We are programmed to receive.” Compare the resources you devote to signing up new customers with your efforts to make the cancellation process simple and seamless. If your company is “programmed to receive” while making cancellation a nightmare, you could find yourself in legal hot water. Make sure your “retention” efforts aren’t heavy on the “tension.”
“Last thing I remember, I was running for the door. I had to find the passage back to the place I was before.” Is there a better description of the frustration consumers experience when companies subject them to unfair or deceptive dark patterns? The FTC’s Bringing Dark Patterns to Light report describes many of the tactics that raise law enforcement concerns and emphasizes the FTC’s long-standing and ongoing commitment to combating illegal practices.
“What a nice surprise. Bring your alibis.” Unexpected fees are never a “nice surprise” and there are no “alibis” for a company’s failure to clearly explain fees and costs up front and to get consumers’ express consent before billing them.
The characterization of the early termination fee as a “junk fee” is another example of regulators’ recent focus on fees, especially where they may be insufficiently disclosed. The Vonage action comes just two weeks after the FTC announced the issuance of an Advance Notice of Proposed Rulemaking seeking public comment on “the harms stemming from junk fees and associated junk fee practices and on whether a new rule would better protect consumers,” including the use of “digital dark patterns or other deception to collect on them.” The FTC’s proposed Motor Vehicle Dealers Trade Regulation Rule also seeks to address unnecessary add-on fees, among other things, in the car buying process. The CFPB is also seeking to address fees it believes are unfair and deceptive, and it recently issued guidance on overdraft and certain depositor fees.
The FTC has also called attention to “dark patterns” in a recent blog post calling attention to Buy-Now-Pay-Later compliance issues. “Dark patterns” have also received scrutiny by the FTC and CFPB in recent enforcement actions against ACTIVE Network and Credit Karma.
The focus on fees has even reached the Oval Office. The day the FTC announced the Vonage settlement, President Biden tweeted that he’s called on his Administration to crack down on these fees to help consumers.
We expect to see additional actions by the FTC and CFPB pursuant to existing authority under the FTC Act and Consumer Financial Protection Act prior to the issuance of more specific “junk fee” rules.
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