FTC Case Against Amazon Over Prime Subscription Practices

SEATTLE, Washington – The U.S. Federal Trade Commission (FTC) is set to argue in a trial beginning Tuesday that Amazon has misled millions of Prime customers by signing them up without their consent and complicating the cancellation process.

This civil lawsuit targets the online retail giant and three executives, signaling a significant test of the FTC’s rigorous stance on technology companies. The case could require Amazon to pay substantial damages and incur fines that might reach $53,000 for each violation. It also poses a risk to Amazon’s reputation, a company that markets itself as dedicated to simplifying customers’ lives.

Amazon has firmly denied any wrongdoing, asserting that the terms of Prime are transparently communicated and that customers have multiple avenues for cancellation.

The lawsuit is part of a broader bipartisan initiative by the FTC aimed at addressing alleged deceptive cancellation practices.

The investigation into Amazon’s subscription practices began during Donald Trump’s presidency, but the case was officially filed under Joe Biden’s administration.

In recent months, the FTC has taken similar actions against Uber for allegedly misleading marketing of its Uber One subscription and the operators of LA Fitness for difficult membership cancellation processes.

With Prime memberships priced at $14.99, subscribers benefit from features like free expedited shipping and access to streaming services. The FTC claims that Amazon’s promotional efforts, which often emphasize free trials, lack clear communication that selecting certain options automatically enrolls users in Prime, leading to unexpected charges.

The agency indicated that Amazon tested clearer disclosures between 2017 and 2022 but ultimately rejected such changes to avoid a decline in sign-ups. It wasn’t until 2022, while under investigation, that the company adopted these changes.

According to the FTC, Amazon’s failure to adequately disclose Prime’s conditions, combined with a convoluted cancellation process, breaches the Restore Online Shoppers’ Confidence Act (ROSCA).

An expert witness for the FTC estimates that about 40 million shoppers joined Prime without their knowledge. Additionally, the FTC has noted that millions of users have dropped out of the cancellation process partway through.

In its defense, Amazon has accused the FTC of overreaching and has challenged the interpretation of its customer experience improvement efforts. They also argue that ROSCA doesn’t necessarily mandate a highly visible or user-friendly cancellation method.

The trial is expected to last around a month, involving testimonies from customers and current as well as former Amazon employees. A jury of nine will determine whether Amazon has violated the law, while a judge will decide on penalties and potential damages if the company is found liable.

The FTC has an advantage going into the trial, having already won a ruling that stated Amazon violated ROSCA by collecting customer billing information before adequately disclosing Prime’s terms. The judge also found that the three executives are accountable for any violations deemed by the jury.